Cineworld’s market value more than halved after the world’s second-largest cinema chain said it was in talks with stakeholders about a financial rescue package, blaming a lack of blockbuster films for lower-than-expected admissions.
The London-listed company, which has run up debt of more than $4.8bn after losses soared during the pandemic, said despite the success of hits such as Top Gun: Maverick, starring Tom Cruise, not enough films were hitting cinemas.
In a stock exchange statement, Cineworld said it was in “active discussions with various stakeholders” and evaluating strategic options to obtain additional liquidity and potentially restructure its balance sheet to reduce debt. “Any deleveraging transaction will likely result in very significant dilution of existing equity interests in Cineworld,” the chain warned.
Cineworld’s market value plunged to just over £100m on Wednesday, having been valued at as much as £4.4bn before the pandemic all but destroyed the live cinema industry, as investors reacted to the precarious financial position the company continues to operate in.
A debt-for-equity swap deal is likely to see the stake held by investors, including the chief executive, Mooky Greidinger, and his family, who control 20% of the business, substantially wiped out.
The Griedinger family, including Mooky’s brother and deputy chief executive, Israel, have struggled to maintain control of the ailing business but have been forced to reduce their stake from 28% in recent years. Cineworld’s top five investors include the Chinese Jangho Group at 13.8%, Polaris Capital Management (7.82%), Aberdeen Standard Investments (4.98%) and Aviva Investors (4.88%).
In July, lenders took control of Vue International, the UK’s third-largest cinema chain, as part of a £1bn debt restructuring deal that saw its owners’ stake wiped out.
The parlous state of Cineworld’s finances means that an incentive scheme for senior managers worth a potential £208m that was brought in last year to capitalise on a bounceback in the cinema industry is unlikely to be realised.
The scheme is designed to award the company’s senior executives if Cineworld’s share price bounces back to £1.90p by 2024, with the Greidinger brothers receiving £33m each. If the shares hit £3.80, total payouts would reach £208m, with the brothers receiving £65m each. However, after investors took fright at Wednesday’s surprise announcement, the company was trading at just over 8p – its pre-pandemic level was £1.97p.
Cineworld operates 751 sites with 9,000 screens in 10 countries, including the Cineworld and Picturehouse screens in the UK and Ireland, Yes Planet in Israel, and Regal Cinemas in the US.
“Despite a gradual recovery of demand since reopening in April 2021, recent admission levels have been below expectations,” Cineworld said. “These lower levels are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the group’s liquidity position in the near term.”
While cinemas are expected to benefit from films such as James Cameron’s Avatar sequel later this year and Marvel releases including Thor: Love and Thunder, Hollywood has released fewer films than in a typical summer.
This is because of the knock-on effect of filming disruptions through the pandemic, and also films in some mid-budget genres, such as romantic comedies, often being released directly on streaming services.
The company admitted about 95 million moviegoers in 2021, up 75% on the 54 million in 2020 but well below the 275 million who attended before the Covid crisis.
“The group has been taking proactive steps to ensure it has the balance sheet strength and flexibility to adapt to market conditions,” the company said. “The group’s business operations are expected to remain unaffected by these efforts and Cineworld expects to continue to meet its ongoing business counterparty obligations.”
Cineworld, which is facing an almost $1bn payout for pulling out of a deal to buy its Canadian rival Cineplex, reported a $493m year-on-year increase in net debt to $4.8bn at the end of 2021.
The group made a $708m loss last year. However, revenues more than doubled from $852m to $1.8bn, thanks to the latest James Bond and Spider-Man films. In 2020, the company reported a record $3bn loss.
The warning from Cineworld stands in stark contrast to the performance of AMC Entertainment, the world’s largest cinema group and owner of the Odeon chain in the UK, which said the new Top Gun and Dr Strange films had fuelled a doubling of ticket sales in the US.
The company, which has a $12.8bn market value, said July had the highest monthly attendance in US cinemas since before the pandemic.
“This raises the rather awkward question as to what AMC are doing well that Cineworld clearly aren’t, as both can’t be right,” said Michael Hewson, chief analyst at CMC Markets. “Either those two films were very popular, or they weren’t. And if AMC saw record July admissions, Cineworld probably needs to ask why it didn’t. That’s the question shareholders need to pose to management.”
