Of all the sectors laid waste to by the pandemic, theatres and cinemas have been on the front line, given the enclosed nature of the business model.

Even now that cinemas have reopened albeit on a socially distanced basis, trying to convince punters through the doors is a big ask, under current circumstances, even without the problems of localised lockdowns which could keep the premises closed.

Having to wear face masks as well as following a set of guidelines while necessary somewhat detracts from an experience which in general allows the customer to immerse themselves into a story. It’s rather more challenging to be able to do that with a cloth or covering across your face.

Cineworld share price already in decline

Even before the February, March sell-off Cineworld’s share price had been in a steady decline weighed down by declining footfall and high levels of debt after the acquisition of the US Regal chain a few years before, and a modernisation programme that was proving to be more expensive than originally anticipated.

Today’s first half year numbers serve to highlight the scale of the mountain that needs to be scaled by the sector as a whole, and certainly back up the decision to pull out of the highly questionable $2.1bn deal to buy Cineplex, which now looks set to go through the courts.

While the company has taken steps to shore up its balance sheet it still remains highly questionable as to when the business will be able to generate enough revenues to make its theatres profitable under current social distancing guidelines.

Huge loss after dramatic year

Revenue for H1 came in at $712.4m, down from $2.15bn the year before, as the company posted a $1.6bn loss for the period.

On a pre-tax basis that translates into a loss of $567.7m, with the company saying that without more waivers the company could breach its banking covenants in December. Management will be hoping that the banks are prepared to give the business more leeway at a time when footfall is unlikely to return to any semblance of normal for months to come.

Of all the company’s screens 567 out of 778 sites have reopened albeit with diminished capacity due to social distancing guidelines. Overall admissions were down 65.1% to 47.5m. 200 screens still remain closed in the US, six in the UK and 11 in Israel.

With UK cinemas only now starting to reopen, and a lot of the major studios delaying the release of their summer blockbusters Cineworld appears to be in a fight for survival as they struggle to get people through the door even without the rules that require that customers wear a mask.

Disney pushed Mulan online and then delayed the release of its latest Star Wars and Avatar films, while the latest James Bond film isn’t due to be released until November.

The US market in particular has struggled with the on-off nature of local lockdowns. If there is another lockdown or people are further put off heading out for an evening of big screen entertainment, then Cineworld’s days could well be numbered.

Could a takeover boost Cineworld's share price?

Their only hope now is the prospect of a takeover bid from a big Hollywood studio, or a significant restructuring of the business in the event that footfall doesn’t pick up significantly between now and the end of the year. On the prospect of a takeover, the Cineworld share price did pick up on the back of a story in August that a ruling by a US judge that overturned the rules that dictated how films are released in the US. This prompted speculation that a big film studio could look at acquiring a chain of theatres in order to gain more control over the distribution of its output.

With the Cineworld share pirce now sliding sharply again this morning, it will take more than media speculation of a white knight riding to the rescue of business that overextended its balance sheet at a time when the warnings signs of a slowdown were starting to flash and which management chose to ignore

With footfall at record low levels, and likely to remain subdued, there are significant obstacles to a potential takeover, not least how to accurately predict future cash flow in a post Covid world. What will this mean for Cineworld's share price?


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