The annual results of Cineworld PLC were announced to the markets and shareholders this morning which had a negative effect on the previous improving share price.
The world’s second-largest cinema chain which had enjoyed some positive news earlier this week with its announcements around a new reopening date, had the opposite effect today.
Whilst the company states it has a strong cash flow to see out the year and beyond, it has now taken a further convertible bond to safeguard its future of $213m (£156m).
Their last funding round to raise cash was expected to aid the company until reopening, but now it seems further capital is required to ensure survival or at least further consequences.
The news is a mixed bag for investors and employees within the company.
Cineworld PLC Remains Confident Of Survival
On the face of it the company remain confident of survival, and that there will be a huge demand this summer when they reopen.
Whilst that seems highly likely with the scheduled slate for the next 12-24 months, with Europe potentially facing further lockdowns outside of the UK that’s a negative blow.
Opening sites in the US is a huge step, and in England on May 17th, but there’ll still be capacity regulations throughout at least summer until the vaccine rollouts are completed.
Today shows that even more debt has been taken on by the company, and a lot of signs point to it being unsustainable in the long run.
Revenues down 80% matching the drop in audience levels of 80%
Posting revenues for the past year of $852m, which against the year before of $4 billion, is at first glance catastrophic.
However, it was expected by almost everybody.
They aren’t the only cinema operator in the same boat, and lenders are evidently (as we’ve seen with AMC) confident enough to continue to lend credit with the expectation of repayments.
The company made use of the furlough scheme in the UK, streamlined cost-cutting measures, the US Cares Act, took business rates relief, cut all non-essential spending and received rent relief or deferrals for most sites.
Cineworld also expect a £200m tax refund this April to further reduce deficit in 2021.
They note their biggest markets, UK/US will be fully open by May, and recently opening just California and NY opens up 30% of their income from Regal in just those areas.
Elsewhere the company has multiple site developments in the UK alone still be completed during lockdown, so it’s not a huge negative outlook.
The Share Price Will Bounce Back
However, the share price is only going to go back up as we increasingly head closer to blockbusters returning and countries reopening.
The expectation is the company will perform and generate huge billion-dollar revenues again.
But as Susannah Streeter from Hargreaves Landsdown (courtesy of Sky News) reports:
They will require almost superhero levels of effort and the company has warned that material uncertainty around its ability to continue as a growing concern remains.
It appears there is a quiet confidence that the company will see itself through this dark patch and return to profitability.
The key actions revolve around reducing those deficits.
The company seems confident it will win its case over its cancelled Cineplex purchase (which if it didn’t, would absolutely murky the waters further), which also would be a relief.
If subsidiaries were being sold off, or other sites sold to competitors, there would be a cause for immediate concern but we’ve not seen anything bar 20 sites closed in the US last year that weren’t performing.
However, the results posted today, still undermine the controversial decision to greenlight a long term incentive plan, for its major shareholders of the Greidinger family, close to $60m each.
And there is always, the potential takeover, by the Jhango Group…
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