Regal Owner Cineworld Posts $3 Billion Loss, Raises Cash, But Warns "Material Uncertainty" Remains

Cineworld Closes All UK And US Cinemas
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The cinema giant, led by CEO Moshe Greidinger, eyes a reopening of its U.K. sites from May, but reiterates continued uncertainty "around its ability to continue as a going concern."

Exhibition giant and Regal owner Cineworld Group on Thursday reported lower 2020 financials, including its first-ever full-year loss, due to the coronavirus pandemic, which left cinemas in many parts of the world closed for large parts of the year.

The U.K.-based company also said it has secured binding commitments for $213 million in additional cash via a bond to boost its financial flexibility "in the event of continued disruption as a result of COVID-19." The funding and an expected $200 million U.S. CARES Act tax refund "will provide the group with a liquidity runway to year-end in the event that cinemas remain closed," it said, but it also warned of continued challenges and questions marks caused by the pandemic.

A year ago, Cineworld, the second-largest cinema chain in the world behind AMC Theatres, drew up possible downside scenarios for the coronavirus, including on that included "a risk of breaching the group's financial covenants, unless a waiver agreement is reached with the required majority of 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.

It then received a waiver from its lenders on a debt covenant and raised additional liquidity. In November, the Financial Times reported that Cineworld was, among other options, considering a so-called Company Voluntary Arrangement to restructure and renegotiate a growing debt pile, which has been exacerbated by the COVID-19 crisis and lockdown restrictions.

As of the end of 2020, the firm said, its net debt stood at $4.55 billion, with a debt covenant waiver in place until June 2022. The company said though it is subject to minimum liquidity and cash disbursement covenants. Management put the monthly cash burn rate at $60 million while cinemas remain closed and said it expects "material savings" after the pandemic due to streamlined operations and continued cost controls.

"Although the group is now looking to re-opening and recovery from the impact of the pandemic, material uncertainty around its ability to continue as a going concern remains," Cineworld said on Thursday. "There can be no certainty as to the future impact of COVID-19 on the group. Governments strengthening of restrictions on social gathering may lead to closure of cinemas or studios delaying movie releases. This would have a negative impact on the group’s financial performance and likely require the need to raise additional liquidity."

The cinema group reported on Thursday that it swung to a 2020 pre-tax loss of $3 billion from a $212 million profit in 2019. Its full-year operating loss amounted to $2.26 billion, including $1.34 billion in asset impairments. Revenue for the year fell 80 percent to $852.3 million from $4.37 billion in 2019.

Earlier this week, Cineworld said that it would reopen its U.S. sites in a phased approach starting in early April and that Regal had also reached a deal with Warner Bros. over 45-day theatrical window exclusivity for the studio's films from 2022. Following a second closure of cinemas in October, the firm's 767 cinemas have been closed. "We continue to work to mitigate the effect of closures and minimise cash burn during this period, including continued furloughing of the majority of our employees, suspension of all new [capital expenditure] programs, continuing discussions with landlords and the establishment of new payment plans with suppliers," it said on Thursday.

Cineworld also mentioned that Britain and other parts of the globe could follow the U.S. opening, mentioning the "anticipated cinema re-opening from April 2 in the U.S., May 17 in the U.K. and May 2021 in rest of the world supported by a strong pipeline of movies and current indication that government restrictions will be lifted."

Cineworld Moshe "Mooky" Greidinger addressed the state of the world and company on Thursday. "For all of us across the world, this has been an incredibly challenging year. COVID-19 has created a huge amount of stress and uncertainty, both in business and in our personal lives," he said. "At Cineworld, I never imagined a time that we would see the closure of our entire cinema estate, nor that varying restrictions would remain in place for so long as we continue to navigate our way through this crisis."

He added: "We have worked hard to strengthen the long-term prospects of the business and, looking forward, Cineworld enters 2021 confident about the next chapter in our development."

The company also addressed such industry changes as the rise of streaming services and new theatrical windows. "Our industry has proved its resilience time and time again over many years, from the introduction of the first television to more recent innovations such as VHS, DVD, and now video on demand," it said. "These streaming services are going through a period of growth, highlighted by new entrants such as Netflix, Disney+, Apple TV+, HBO Max and more. However, we remain convinced that the cinema provides a clearly differentiated proposition to these at-home activities. Seeing a blockbuster movie on the big screen compared to watching it at home on a TV or a mobile device is similar to how dining out at a restaurant and ordering a takeaway are very different consumer experiences."

Cineworld concluded that "we offer excellent value in terms of an out-of-home experience," adding: "People do not naturally want to stay at home seven days a week, and cinema-going is a very affordable and attractive alternative."

On an earnings conference call, Greidinger predicted the whole circuit would be open by the end of May and argued that, thanks to "the big success" of COVID-19 vaccination, the company would return to "relatively good business" and be "operating on a high level" in the third quarter "and going into a very successful 2022." He forecast that 2022 business would be "back close to the levels of 2019, maybe a little less, maybe a little more."

Addressing the currently expected U.K. re-opening of cinemas in mid-May, he said the company will "of course, be ready." He even said that "we still hope that in view of the success of the vaccination [program] in the U.K. we might even get the permission to open two weeks earlier." However, the roadmap for the lifting of lockdown restrictions, recently presented by the government of Prime Minister Boris Johnson, emphasized each opening step would be followed by five weeks of no changes to analyze the impact on coronavirus infections, deaths and hospitalizations.

He also lauded the box-office bounceback in China and Japan following the lifting of pandemic restrictions, saying it was a sign that "people miss the cinemas." And Greidinger said the U.S. release schedule has continued to see changes, but argued the "lineup [is] starting to stabilize now."

The Cineworld CEO on Thursday's call also addressed the Warner windowing deal, calling it "a very important step forward" and saying his team was "actively negotiating terms and structures of evolving theatrical windows" with studio partners. Asked if Cineworld was nearing a deal with Universal, which has struck arrangement for 17- and 31-day windows with AMC Theatres and Cinemark, respectively, Greidinger said "we don’t have a deal yet, but that doesn’t mean we are not showing their movies."

He also lauded landlords for having been "very cooperative" and allowing the company to defer rent payments, with management mentioning around $350 million in rent liability deferred over three years on average.