Regal Owner Cineworld Swings to First-Half Loss, Says "No Certainty" on Future Impact of COVID-19

Cineworld
Courtesy of Cineworld

Cineworld in London's Leicester Square

CEO Mooky Greidinger also reemphasizes the firm will only show films that respect the theatrical window and says "negotiations with the banks remain ongoing in order to obtain covenant waivers in respect of December 2020 and June 2021."

Exhibition giant and Regal owner Cineworld Group on Thursday swung to a loss for the first half of 2020 as revenue fell sharply amid the novel coronavirus pandemic, which led to cinema closures worldwide.

"The impact of COVID-19 on our business and the wider leisure industry has been substantial, with the closures of all of our cinemas worldwide for an extended period," said Cineworld CEO Moshe "Mooky" Greidinger.

The firm also warned that there was "no certainty" about what impact the pandemic could have in the future. Cineworld's stock was down nearly 15 percent as of 9:55 a.m. London time.

Revenue for the six-months period fell to $712.4 million, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) dropped to $53.0 million, and the group swung to an after-tax loss of $1.58 billion, or $436 million on an adjusted basis.

Revenue in the comparable period of 2019 had come in at $2.15 billion, with after-tax profit of $200.8 million, and adjusted EBITDA of $758.6 million. Admissions fell by 65.1 percent to 47.5 million from 136.0 million in the previous-year period.

The firm said that "561 out of 778 sites are re-opened as at the date of this report, with 200 theatres in the U.S. (mostly in California and New York), six in the U.K. and 11 in Israel still closed."

On an earnings conference call, Greidinger said that 60 percent of the firm’s California cinemas will be open next week, but it is still waiting for a green light for New York from governor Andrew Cuomo, which the CEO said he expects "within a week or two." Greidinger said his team was in nearly daily contact with Hollywood studios, and New York "is the key now” and will help with the flow of studio films.

He also noted that China was "getting close to normal" in terms of the theatrical business, making it the first market to reach a full box office recovery.

He said reopenings show that "people are missing the cinema," with Cineworld's top 10 U.S. venues last week including seven California locations that had reopened. Greidinger also said that moviegoers seem surprised by how well the sanitation and social distancing measures work in cinemas, adding he was confident a COVID-19 vaccine was "not too far" from being ready.

The firm noted "steady performance of re-opened sites in Rest of the World territories and initial admission build-up in the U.K. and U.S. driven by the release of Tenet and local movies." But it added: "There can be no certainty as to the future impact of COVID-19 on the group. If governments were to strengthen restrictions on social gathering, which may therefore oblige us to close our estate again or further push back movie releases, it would have a negative impact on our financial performance and likely require the need to raise additional liquidity."

Cineworld also said that "negotiations with the banks remain ongoing in order to obtain covenant waivers in respect of December 2020 and June 2021."

Earlier this year, Cineworld, the second-largest cinema chain in the world behind AMC Theatres, had warned that if it 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. But in May, it received a waiver from its lenders on a debt covenant and raised additional liquidity, saying that would allow it to make it through the end of the year. And in June, the firm agreed with a group of private institutional investors on a $250 million secured debt facility that matures in 2023, further boosting its liquidity.

On Thursday, the company said: "The expectation of the directors is that waivers will be obtained based on the current status of the negotiations with the group's lenders and therefore the interim financial statements have been prepared on a going concern basis."

Cinema operators started operating again this summer, but many tentpoles, such as Warner's Tenet, which has lagged in the U.S. amid a rise in virus infections but crossed the $250 million box-office mark globally, have been delayed.

U.K.-based Cineworld previously criticized Comcast-owned NBCUniversal's Universal Pictures for pushing ahead with a premium VOD rollout of Trolls World Tour amid the pandemic. Universal and AMC Theatres this summer unveiled a premium VOD deal that will allow the studio's movies to be made available on premium video-on-demand after just 17 days of play in cinemas, including three weekends. The deal initially covers AMC's U.S. locations, with a possible international rollout later, and shatters the traditional theatrical window of nearly three months before studios can make movies available in the home.

Greidinger emphasized on Thursday: "Current trading has been encouraging considering the circumstances, further underpinning our belief that there remains a significant difference between watching a movie in a cinema - with high-quality screens and best-in-class sounds - to watching it at home. As part of this, our policy regarding the theatrical window remains unchanged as an important part of our business model, and we will continue to only show movies that respect it."

On the earnings call, the Cineworld CEO added: "It’s very early to judge the Universal-AMC deal," but he said it looks to be "not sustainable" with an "unrealistic," short window. "None of the other studios are excited about the deal or trying to move" towards a similar one, he argued. And most exhibitors are also "really reluctant." Greidinger concluded that premium VOD "is not a big business" and that Cineworld won't show the Universal films it takes there, but expects PVOD to have "any major impact."

The next big Universal release is in March or April, he concluded, adding that "a lot of things will change" by then. "There will be talks and negotiations in the industry" as neither side wants to risk the big box office business.

On the earnings call, Greidinger said that while some movies went to streaming platforms – saying Cineworld was "not happy" with Disney's decision to not roll out Mulan in cinemas worldwide, instead putting it on Disney+ where available – amid the pandemic, "a lot of them, or most of them, were postponed, either to later this year or to 2021." While expressing disappointment in the delay of Black Widow, he said Warner's Tenet was a "huge" movie for the industry, even though he acknowledged it would have likely made more outside a pandemic, and showed viewers' appetite for big-screen entertainment given it was "one of the main attractions" for attendees in reopened theaters.

Cineworld expects the next big release to be the new James Bond film No Time to Die in mid-November, he said. Thereafter, "we see relatively good, slow product to the end of 2020, and 2021 looks to be relatively loaded with movies, a lot of them postponed from 2020," he said.

He concluded: "Our mitigating actions included reducing and deferring costs where possible; making use of government support schemes for our employees; partially delaying capital investments; and suspending our dividend. We have also raised an additional $360.8 million of liquidity to support our business."

Cineworld in June called off its planned $2.1 billion takeover of Canadian exhibitor Cineplex, which would have created one of the world's largest cinema companies with more than 11,200 screens globally. "Cineworld has become aware of certain breaches by Cineplex Inc. of the arrangement agreement relating to the acquisition," it said at the time, setting up a legal showdown.

Coronavirus: Cineworld Says “Unlikely” Extended Closure of Cinemas Could Lead to Debt Breach