Cineworld Stock Jumps as Regal Deal, 'Avengers' Boost 2018 Earnings

Courtesy of Cineworld
Cineworld

The second-largest cinema operator in the world also reported higher admissions and concession revenue as its U.S. business benefited from the success of 'Black Panther' and 'Avengers.'

British exhibition giant Cineworld Group said Wednesday that its $3.6 billion acquisition of Regal Entertainment Group last year drove higher earnings for 2018, led by the U.S. box-office success of Black PantherAvengers: Infinity War and Incredibles 2 and higher concession revenue.

The Avengers movie was a key driver for the the company worldwide, being among the top three releases in all three of its regions, namely the U.S., U.K./Ireland and the rest of the world.

Management also said that cost savings from the Regal mega-deal are running ahead of original plans, boosting Cineworld's stock by 6.5 percent in London as of 10:45 a.m. local time.

The company said it now expects cost savings from the Regal takeover to reach $150 million in 2019, up from an earlier estimate of $100 million. For 2018, the savings came in at $70 million instead of the targeted $45 million, management said on an earnings conference call. "Synergies are greater than originally expected," said CEO Moshe "Mooky" Greidinger on the call. And CFO Nisan Cohen highlighted that the Regal acquisition was "an accretive deal for us from day one."

Greidinger also told analysts on Thursday that "the Hollywood studios are 100 percent behind the theatrical business," touting the success of Captain Marvel and various upcoming films.

He also said that the company, the largest cinema operator in the U.K. and second largest in the world, is exploring subscription offers in the U.S., calling its Cineworld Unlimited subscription plan in the U.K., which gives consumers access to all 2D films they can watch for a monthly fee, the best subscription offer in the world. While he signaled that an American offer must be tailored to the U.S. market, he said it would be similar to Unlimited.

Greidinger said the company's two big U.S. competitors have "different schemes" available already, namely AMC Theaters' Stubs A-List and Cinemark's Movie Club, but that is "not dramatically impacting the business." But given "a need, or a wish, from customers" for a subscription offer, he said the company will launch "the right solution at the right time." He added that Regal is "talking to our partners, the studios" as "we have to have the studios on board."

Cineworld said its annual adjusted pre-tax profit rose 150 percent to $417.0 million, with adjusted profit after tax up 148 percent to $345.3 million driven by the acquisition. The figures include the 2018 contributions of Regal for the 10 months during which Cineworld owned the U.S. company. But the firm didn't provide pro-forma profit figures for how it would have done if it had owned Regal in both 2018 and 2017.

Cineworld's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), another profitability metric, for the year rose 259 percent to $925.4 million on the same basis. Here the company also gave insight into how it performed when assuming the Regal acquisition had been in place for both years, saying pro-forma adjusted EBITDA was up 9.4 percent.

Full-year revenue rose 7.2 percent on a pro-forma basis, or 259 percent, to $4.1 billion, led by a strong U.S. performance. Worldwide admissions were up 2.6 percent on a pro-forma basis to 272.6 million. 

U.S. revenue jumped 8.6 percent in 2018, while the U.K. and Ireland were up 3.3 percent, or down 0.4 percent assuming constant currencies, and the rest of the world was up 3.6 percent, or up 0.5 percent assuming constant currencies.

Cineworld's box office revenue climbed 5.1 percent last year on a constant-currency basis, with the U.S. rising 7.2 percent pro-forma for the Regal acquisition. Concession revenue, which Cineworld calls "retail revenue," rose 6.3 percent on that basis in 2018.

"2018 was a transformative year," said Anthony Bloom, chairman of Cineworld. "The acquisition of Regal on February 28 made us into a global operator and the second-largest cinema chain in the world. By the end of 2018, the group was operating 9,518 screens in 790 sites across 10 countries. This significant achievement would have been difficult to imagine when we began operations in 1996."

"We are well on our way to achieving the successful business integration following a strong performance and record box office results in the U.S.," added Greidinger. "The combination with Regal has exceeded our expectations — we have incorporated the best of both companies by bringing together world-class talent, integrating best practice from both sides of the Atlantic and deepened our understanding of the U.S. market."

He added: "We look forward to the strong film slate for the remainder of the year. Upcoming movies include ... Dumbo, Shazam!, Avengers: Endgame, Aladdin, Godzilla: King of the Monsters, Toy Story 4, Spider-Man: Far from Home, The Lion King, Fast & Furious Presents: Hobbs & Shaw, It: Chapter 2, Frozen 2, Jumanji 2 and Star Wars: Episode IX and many more. Trading for the current full year remains in line with our expectations."

The British Academy of Film and Television Arts (BAFTA) in late February revealed that Cineworld, which is the largest exhibitor in the U.K., has withdrawn its support, citing concerns over the success of Alfonso Cuaron's Netflix title Roma at this year’s BAFTA film awards. In a letter to members, BAFTA film committee chair Marc Samuelson said that members would no longer be able to use their membership cards to watch films at Cineworld venues. Management on Thursday's call weren't asked about that development.

European exhibition executives have raised concerns that Netflix is damaging the theatrical industry by not fully adhering to theatrical windows for titles that appear on its streaming service. During this year's Berlin International Film Festival, the international confederation of art cinemas (CICAE), which represents art house cinemas across Europe, criticized the fest for including a Netflix film, Isabel Coixet's Elisa & Marcela, in its competition lineup. Similar complaints were aired during last year's Venice Film Festival, where Italian distributors were particularly enraged that Roma won the festival's Golden Lion for best film.