Exhibition giant and Regal owner Cineworld Group on Thursday reported higher 2019 earnings and revenue and provided an update on the coronavirus, saying its business impact has so far been “minimal.” But it also said it has drawn up potential downside scenarios in case the spread of the virus does lead to cinema closures, with a particularly dire one posing a risk that it could breach its debt covenants.
If it then doesn’t manage to negotiate new terms with lenders, this could “cast significant doubt about the group’s ability to continue as a going concern,” a phrase meaning it could go out of business.
The stock was down more than 34 percent as of 9:45 a.m. London time.
The U.K.-based cinema group said revenue for 2019 hit $4.37 billion, up 6 percent compared with $4.10 billion in 2018 when the company owned Regal for only 10 months, or down 6 percent from $4.66 billion when using comparable figures, saying that was “softer as expected compared to 2018, predominantly due to the strong comparative film slate.” Admissions of 275.0 million fell from 308.4 million on a comparable basis assuming Cineworld had owned Regal for all of 2018. Adjusted earnings before interest, taxes, depreciation and amortization came in at $1.03 billion, down nearly 4 percent on a comparable basis.
Said CEO Mooky Greidinger: “Cineworld has delivered a solid set of full year 2019 results despite 2018 being a very strong comparative period. In particular, I am proud of our integration with Regal which continues to progress well. The refurbishment plan is on track, our ‘Unlimited’ subscription plan was successfully launched in July 2019.”
He added: “It is thus ironic that these achievements should be overshadowed by the negative impact of the global COVID-19 crisis, even though that at the time of writing the group’s operations have not been affected to a material degree. I am of course conscious of the possibility that events could develop adversely very quickly and change this position in the short term, but I remain confident that the crisis will ultimately pass and that the cinema exhibition industry will continue to play a major role in providing fun, laughter, happiness and joy to millions of dedicated movie fans, just as it has for over a century.”
On Friday, Cineworld had said that it has not seen “any material impact” on cinema admissions due to the coronavirus so far. The news came a day after its stock plunged as analysts and investors reacted to the announced delay of the release of the new James Bond movie No Time to Die to November. “Thus far, we have not observed any material impact on our movie theater admissions due to COVID-19. Following an increase in admissions in the first two months of the year against the same period in the previous year, we continue to see good levels of admissions in all our territories, despite the reported spread of COVID-19,” it said.
On Thursday, Greidinger said: “We are closely monitoring the evolution of COVID-19 and so far, we have seen minimal impact on our business. However, there can be no certainty on its future impact on our activities, hence we are taking measures to ensure that we are prepared for all possible eventualities. Should conditions relating to COVID-19 continue or worsen, we have measures at our disposal to reduce the impact on our business, including, but not limited to, capex postponement, cost reduction, in order to maintain cash liquidity … Nevertheless, we are excited by upcoming films for 2020, which includes Black Widow; Wonder Woman 1984; Top Gun Maverick; Minions: The Rise Of Gru; Tenet; Venom 2; the latest James Bond No Time to Die; Godzilla vs. Kong; Dune; West Side Story and many more.”
Cineworld on Thursday said it has also drawn up possible downside scenarios for the coronavirus, with one negative scenario, “currently considered unlikely,” assuming the firm could lose between two and three months’ worth of total revenue across its entire business. Under that scenario, Cineworld said “there is a risk of breaching the group’s financial covenants, unless a waiver agreement is reached with the required majority of lenders.” Key assumptions underlying this dire scenario also include that the firm can not reduce any fixed costs from closed sites and that no canceled movies will hit theaters later in 2020.
On an earnings conference call, Greidinger predicted that this “very, very conservative assumption” is “not going to happen.” Highlighting that any delayed movies are ready to be screened after coronavirus fears subside, he said that the six months after the pandemic could be the biggest in industry history. “The company stands on solid ground,” the exec concluded.
Asked about its insurance setup, management said its insurance doesn’t cover cinema closures for natural disasters. The Cineworld CEO also mentioned that U.S. President Donald Trump has banned travel from Europe except the U.K., joking that this was likely “because he still wants me to come there.”
Cineworld in December unveiled an agreement to acquire Cineplex for $1.65 billion in cash, plus debt, making for a $2.1 billion overall price tag. Cineplex operates 165 cinemas with 1,695 screens and dominates the Canadian theatrical market. The deal would create one of the world’s largest cinema companies with more than 11,200 screens globally.
In February, the mega-deal received approval from both companies’ shareholders, but some investors have more recently wondered if the pact could fall apart or be reduced in price because of the coronavirus outbreak, which has seen both stocks decline. Cineworld said Thursday that the deal is expected to close “in the first half of 2020,” but mentioned the price tag at $2.3 billion.
Management also provided an updated on its Unlimited program, which has operated in the U.K. and Poland for several years and was launched in the U.S. in July. “The program has been extremely well received and is well on track to reach membership levels above initial management expectations by year end,” Cineworld had said in December.
On Thursday, it said the U.S. program was “generating positive impact on cash flow, market share and box office performance.”