Global cinema operator Cineworld (CINE) was again impacted by covid restrictions in 2021 but saw strong trading in the final quarter supported by pent-up demand and a better slate of film releases.
Omicron and a lack of major movie releases slowed progress in the first two months of the 2022, but the company said it anticipated ‘strong trading’ from March supported by a strong slate.
New releases include Avatar, Top Gun, Jurassic World, Minions, Thor, Black Panther, Bullet Train, Fantastic Beast and Elvis.
The shares initially opened 2% higher buoyed by the positive outlook and better than expected recovery, but by mid-morning traded 1% lower to 37.6p.
DEBT WORRIES
While there is clearly a lot of recovery potential in the business, the biggest near-term worry for shareholders is the Cineplex legal case.
Canada’s largest cinema group Cineplex sued the company for pulling out of an agreed takeover and the Ontario Superior Court awarded Cineplex C$1.23 billion in damages.
Cineworld is appealing the decision and said it does not expect damages to be payable whilst the appeal is ongoing.
Worryingly, the company ended 2021 with net debt up 11% to $4.83 billion which is 10.6 times adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), an uncomfortably high leverage ratio.
STRONG RECOVERY
Despite cinemas being closed until April/May in 2021, revenues doubled to $1.8 billion driven by a 75% jump in admissions to 95.3 million.
Adjusted EBITDA surged to $454.9 million compared with a loss of $115.1 million in 2020. Investment bank Jefferies reckons this was around 5% better than the market expected.
The company reported an operating profit of $15.8 million compared with a loss of $2.25 billion in 2020.
However, after net financial costs of $690.8 million and $33.3 million of joint venture losses, pre-tax losses for 2021 were $565.8 million, an improvement on the $2.65 billion loss in the previous year.
Cineworld directors have assumed the industry will return to pre-pandemic levels of trading by the end of 2023.
