28-4-2020 10:13:2128-4-2020 10:08:4728-4-2020 10:03:37Cineworld’s share price has sold off aggressively this morning on the back of the company’s full-year results.
On a pro-forma basis, admissions dropped by 10.8% to 275m, while revenue fell by 6.2% to $4.36bn. Adjusted earnings slipped from $1.07bn to $1.03bn. On a statutory basis, admissions ticked up by 0.88%
Coronavirus outbreak impacts admissions
The group cautioned about the impact of the coronavirus crisis, and that played a starring role in the sharp fall in the Cineworld share price. The group has large exposure to Europe, as well as the US, and the situation in both regions seems to be getting worse by the day. Public health warnings are on the rise, and more people are staying away from city centres, and other areas which are densely populated. Sporting and music events are being postponed or cancelled, so cinemas are in the firing line as traders feel they could see a large decline in footfall in the months ahead. Cineworld wasn’t doing so well in terms of admissions before the health crisis, so how will they cope if lockdowns become common place?
Regal Entertainment deal causes issues
The firm’s takeover of Regal Entertainment in 2018 raised a few eyebrows, as the London-listed group had to finance the $3.6bn acquisition through a rights issue, as well as taking on more debt. The transaction made Cineworld the second-largest cinema group in the world. But since the deal was completed, it has sold off theatres and carried out sale and leaseback schemes on some sites in a bid to free up cash. The mild restructuring plan is going well as net debt excluding leases is now $3.5bn, which is a 5.4% fall on the year. Keep in mind the position stood at $4bn in the wake of the Regal deal. The integration of Regal is exceeding expectations, as the group now expects run-rate synergies to be $190m, which would be a considerable improvement on the $100m cited initially.
UK Budget fails to aid Cineworld share price
Yesterday, Rishi Sunak, the UK chancellor of the exchequer, revealed some measures to assist the services industry, but the news failed to stem the bearish move in Cineworld's share price. Firms with a rateable value of less than £51,000 will be exempt from business rates this year, so the company might be able to take advantage of the scheme. The Budget also made provisions for workers who are impacted by the coronavirus, so consumer sentiment might not take that much of a hit.
Will the silver screen continue to shine?
The group can’t control the coronavirus situation, which has caused a delay in the release of the next James Bond movie, 'No Time to Die', and 'Peter Rabbit 2: The Runaway', but it can focus on enhancing the customer experience at its theatres – some of which are undergoing renovations. According to Variety, total cinema admissions in the UK in 2019 were 176m, and that was down slightly from the 177m registered in 2018, which was the highest level in 50 years. It is clear that cinemas are still popular despite the rise of Netflix, and that is why Cineworld are reinvesting in their theatres, to ensure the experience is sufficiently different from staying in and watching a streaming service.
The Cineworld share price is likely to remain under pressure while the health emergency persists. Further declines from here could see it target 50p.