A subdued set of first-half numbers this morning caused the Cineworld share price to slip, and it appears the costly decision to acquire Regal is still hanging over the group.
On a pro-forma annual basis, admissions and revenue declined by 14.4% and 11.1% respectively. The group cited the poor timing of films for the figures, but that is the nature of the beast. Consumer spending in the UK has been fragile, and there is a perception the US economy will cool down, which doesn’t bode well for the Cineworld share price, as both regions are the firm’s biggest money spinners.
It’s concerning that admissions dropped in the wake of a very costly takeover of Regal. The group paid down debt of $570 million, and it said that debt reduction is ahead of schedule, and that should keep traders at bay as eyebrows were raised in relation to the $3.6 billion takeover. Synergies of $150 million have been achieved so far, and more opportunities will be identified. The refurbishment of cinemas, and the integration of Regal into the wider organisation is going well, and will run into 2020. While the cinema experience remains sufficiently different from watching a movie on a streaming service, then the company should stay relevant and the Cineworld share price should stay afloat.
The Regal acquisition
The group had a strong year last year thanks to the acquisition of Regal in the US. Cineworld confirmed that the integration of the business is going well and the benefits of the acquisition have exceeded expectations. When you include the Regal numbers, full-year pre-tax profit increased by 125% and revenue surged by 259%.
Total admissions ticked up by 2.6%, and the US outperformed as US admissions increased by 4.9%, while admissions in the UK and Ireland slipped by 2.6%. The group blamed the warm weather and the football World Cup for the underperformance, but that doesn’t tally up with the fact that cinemas in the UK as a whole had their best year in terms of admissions since 1970. Films like Incredibles 2, Avengers: Infinity War, and Mamma Mia! Here We Go Again proved popular with customers, but the broadly positive numbers from last year weren’t evident in the Cineworld share price this morning. It was a little concerning that the group underperformed in terms of admissions in the UK, but box office receipts for the UK and Ireland division edged up by 2%, so it would seem that prices have risen, and that is possibly why admissions dipped.
Cineworld share price: special dividend
In June, the group revealed plans to do a sale and lease back scheme for 18 cinemas in the US, and the motivation behind the move was to free up cash in order to reduce its overall leverage. In the same update, Cineworld also revealed a special dividend of 20.27 cents (USD) and that acted as a sweetener to shareholders, but the pay-out seems odd in light of the debt position.