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@giantsquid
Do you truly believe that none of us recognize the risks of the leverage and court case with cineplex?
Firstly, on the debt. Over the recent months you have been spamming this board around the leverage. Firstly, you incorrectly referred often to $10bn debt, that’s mistake one. It is wrong to incorporate the leases liabilities, certainly because banking covenants are excluding ifrs16. In addition, you should know that the cinema operator industry is known for its higher leverage ratio’s than others. Why? It normally has high, and stable cash flow generation. As such, if you want to grow more rapidly than the market, whether via M&A or organic growth, you fund this growth via debt, because the cost of interest expenses is easily offset by the realized synergies and you pay back debt & interest via the operational cash flow. That’s how it works, that’s finance, certainly in a historically low interest rate environment. There is nothing to blame management, actually they were doing the right thing, even if you correctly conclude that their expansion strategy was more aggressive than others. Cineworld still targets 3x net debt/ebitda. Yes, this implies it continues to have a lot of loans on its balance sheet, and that’s fine. And yes, if the operational financials soar, they don’t have to pay down a significant amount of it if the EBITDA goes up sufficiently. Than it’s simply more interesting to refinance the more expensive loans at more attractive terms.
On the cineplex ruling. Yes, there is a clear overhang of this, and it will take until the outcome to see a really re-rating. But there is one important element that you fully neglect. Firstly, as the underlying business is clearly improving and strengthening, the financial situation of cineworld is going to be better, day by day, month by month. Secondly, do we all believe that cineworld will win the appeal? It’s to be seen, but one common thinking is that we are convinced that there can be a better outcome; whether it is winning the appeal or seeing the damage fee being lowered, let’s leave that in the middle.
It is also incorrect to expect share dilution, certainly at these levels. It is simple, they didn’t do it over the last 24 months, so they won’t do it going forward. Until they win the appeal and you see a re-rating, only than you will see a capital increase to leverage the momentum and restructure the capital structure.
Yes, institutionals are staying out of this, they can not bet on these ‘binary’ events. But look, even on the short side most are staying out of it. More than 50% of the ‘reported’ short positions are linked to the convertible bond. These bond holders have a conversion price that’s extremely attractive, and they benefit the most if the shares of cineworld soar.
Again, this has been a hard bleeder for me, most of us anticipated a reopening of cinema strengthened by exceptionally movie slate. But I continue to believe we will get out of this, you wi
How many times I have to remind you the following.
‘Shorts increasing’ —> whitebox advisors is known for distressed debt funding, like Cineworld’s convertible bond. They have exposure to the bond, but to hedge their downside (for example in a default of cineworld), the short the equity. The fact that they very little increased their short position is the result of increasing their position in the convertible bond!
Please stop saying that cineworld is highly shorted. Also last weekend a dumbass published a large press article on it, I have sent him an email to explain him something around finance.
Over the course of 2021, Cineworld issued a convertible bond, of which the conversion rate is within the range of 40-50p. Companies such as, whitebox advisors, highbridge capital are specialised distressed debt investors. They have exposure via the convertible bond, but to hedge their downside risk (in a worse case scenario of cineworld going default) they short the shares. These are the short positions you see.
If you don’t believe me, please check when they reported for the first time their short positions and when cineworld issued their convertible bond…
You will see that they will stick to their position in the convertible until the court appeal has been solved and cleared out. Unless the shares already rally largely above the conversion price.
Cineworld has on paper a high proportion of its shares being shorted, but in reality most of these shorters actually benefit the most when the shares go through the roof, as they will quickly close their short and convert their debt exposure to equity!
To the derampers, good luck! The good news flow will further push up the shares, bring the good movie slate under attention of everyone, increase pressure for Netflix mgmt to sign a deal with large movie operators and we will see further positive communication on Regal shareholders delayed payments and a solution for the RCF.
Giantsquid, you will burn your fingers this time. Good luck
Last three months (march-april) is close to the result of q4 2021; also april-may combined are equal to q3 2021. Following the reasoning of all kap, we indeed need roughly $800m in June to equal q4 last year which is doable.
Why cineworld looks at the results on a monthly basis? It is simple, if they discuss with lenders, they are much stronger positioned to state that they have recurring months that generates cash and they are much more selfsufficient, instead of claiming that a quarter was cash flow positive because one single strong month has saved their ass and uplift the overall average box office monthly.
Now it comes up to demonstrate that this momentum continues, like June. It will help cineworld to better negotiate what to do with the rcf. Paying back 65% to avoid covenant testing looks bit out of reach, but we lack sufficient information how strongly the cash generatuon can be, what headroom they have in temporarily postponing payments to suppliers, or CAPEX, simply to save liquidity for one month, to have the cash to pay back rcf on June 30, to withdraw it back one day later.
Otherwise, they can negotiate a waiver or a refinancing.
Beside, focus remains to bring down leverage of course, but in current markets it isn’t that simple to refinance cineworld’s other expensive debt items. So I believe if they have some spare cash, they will save it and as soon as there is a bunch big enough to fully repay one debt item at once, that will get the priority.
On the re-rating aspect; current good news flow will help the shares to go higher, but still limited. I believe an update on the RCF will help more substantially. The remainder we will have to wait for until the court appeal.
but in the long term, this will get solved. It is the most important that the underlying business continues to show a gradual recovery and improvement! The latter will result further in upgrades of US box office expectations for 2022, which happened last week. Box office mojo increased its number for the first time again after having it lowered plural times YTD.
@hexam
I got confirmed by the investor relations that cineworld was cash flow positive in October and December, but not in November (based upon US box office). As such, the latter provides you a range to determine which months in 2022 cineworld is making cash or not (and that’s without taking into consideration, on the positive side; higher other revenues than box office, cost savings, performance in UK or RoW and on the negative side; higher costs, higher interest rates).
By the way, looking at the average isn’t the right way to check whether they make cash or not. Also cineworld monitors the cash on a monthly basis (even they guide on admission levels average 2022).
I hope this helps.
@hexam; you state march and april were loss making, I am sorry, but I need to correct you. They were break even or at best slightly positive cash flow generation. October 2021 & December were positive, whilst november was negative. The latter gives you a level of what monthly box office in the US Cineworld roughly needs to generate posirive cash, which corresponds to March & April 2022
@hexam
The way you should be looking at it is on a monthly base. October was cash flow positive; november was not, while december was cash flow positive again.
Q1 2022 was close to Q3 2021 (in terms of US box office) . Difference is howevern, in Q1 2022 we have higher spending per person on F&B, higher advertising revenues, structural cost savings, and a better performance at UK\IR & RoW.
So far we have for Q2, being at 53% of q4 2021 result, but we still have 1 week to go in May and a strong expected month for June. —> q2 will easily outperform q4 2021, so we will make more cash, and don’t forget the elements i posted for q1 also account for q2!!
Plenty of large, international law firms (e.g. dla piper) have published statements/independent opinions on what they believe of the outcome in the cineworld/cineplex dispute. Many do believe that the court ruling can be considered as something unprecedented, and excessive.
In addition, the audit firms, all financial lenders (specialized banks, hedge funds, distressed debt funds,..) of cineworld have ordered opinions and legal advice on the court ruling. IF the advice would have been that the court ruling is absolutely correct and the damage fee is fair and likely to remain, do you really believe the audit firm would have signed off the 2021 financials without cineworld having booked a huge provision for the payable amount?
I am more than happy to believe you are an experienced lawyer, but tha you haven’t done your proper homework on this case..
It is pretty simple, you will only see a re-rating as soon as the cineplex case is cleared out. Court hearing 12/13 oct, court resolution in 1q23.
For the RCF, end of june, let’s hope for a waiver or refinancing. Paying back will be a tough one, but we won’t certainly see a breach. They are doing everything they can to solve this.
Monthly results only started to improve as of March. March was positive cash flow, april slightly positive, and may/june/july will do much better.
At interim results we will see an adjustment to the base case scenario, they will lower the assumptions. So far, everything is under control. It is not opportune to refinance existing debt.
In case of shortage in liquidity, cine still has some options to monetize. In the end, they target a reversal od the court hearing, a significant re-rating of the shares followed by an equity raise to lower leverage.
Be aware majority of the shorts are institutionals that hold the convertible bond and have hedged their exposure by shorting the shares..
@blackbridge
People won’t be able to afford food or going to the cinema?! Please do yourself a favor and look around the city centres. Terraces, restaurants are FULL. Cpi is under pressure, but unemployment rate is still extremely low. Consumer spending is stilk very high despite all inflationary effects. If you don’t understand anything from macro, please simply shut up.
Box office in US needs to generate another 600m this month, IF that works out, box office for the last three months equals (march-may) q4 2021, and we should be able to generate positive fcf. I still question, the $50-75m net annual cost savings they stated at fy21, anyone an idea when they should be visible already in the numbers, is that as of this year? IF so cash generation should be higher than q4 2021 as we have the cost savings, better performance at UK/IR & RoW plus a contuining strong trend in concession per visitor.
Please raise the questions:
- cine is currently simultaneous working on whether to refinance, get a waiver or pay back the RCF. BUT… in 2020 the company raised different debt items to whether the storm. At that time, outlook for cineworld was very unclear, given nobody knew for how long cinemas would remained closed, with the result their negotiating position was extremely weak. The $250m private placement loan (interest rate of 11%!!) and the b1/b2 term loan (830m together priced at interest rate of 7% to even 15%!!) are a HUGE drag on the cash flow because of the high interest rate expense. The company targets 3x nd/ebitda, so they shouldn’t fully delevrage, but is the company considering to refinance these debt items (private placement loan & b1/b2 term loan) by cheaper alternatives, which should allow the company to better generate cash and subsequently use to further deleverage. Are they in a better negotiating position today to seek such a result? If they can prove that may and june are realizing the result we want to see, base case scenario (or better) results.
Cruis
Where do you see it beinf upped to 195?
@fun
That’s my whole point. Despite strong film slate of good blockbusters, the average box office in between is below par. Out of court settlement is not the way to go. Ytd, we were not generating cash, and the cash impact of the high leverage is too high… they need to undertake something urgently to get things sorted. The base case needs to be adjusted based upon what they know today. Is lower admission levels fine if it gets compensated by strong concession revenues and other potential revenue streams? Do they need to look for other cost cutting opportunities? And finally, what options do they have if it comes to restructuring the debt in order to lighten the burden of interest expenses without equity dilution..
For those going to attend the AGM (i can’t make it unfortunately), can you please raise the following questions;
- liquidity; $60m is remaining to regal shareholders. Deferred payment is proposed in order to maximize liquidity into end of 1H22. Cineworld is clearly simultaneously working on a solution for the RCF, whether it is to refinance, get a waiver or pay back. Key to understand is what is the status quo YTD, did we generate positive cash flow? What is the solution? Highest priority is deleveraging, but how? At current levels, it doesn’t make ANY sense to raise equity.. huge dilution while you are only able to raise little money, no single fool wanna put huge equity into this as long the overhang exists of cineplex,.. WHAT’s the Facking plan?
- cineplex; court ruling likely only to be taking place next year first quarter in 2023. Why the hell aren’t you pursuing an out of court settlement? Previous court ruling is excessive, a never seen outcome, bug mgmt made a huge mistake by pulling back out of the acquisition.. they need to be considered as accountable and come with a solution.
- trading: admission levels in the US are clearly lagging the base case scenario, i know it’s an average across the full year, and may kicked off strongly, but to what extent is there headroom following higher than expected concession revenues and stronger performance from UK/IR & RoW? Aren’t there any further cost cutting measures they could take (eg. Reduce FTE base) or sell strategic assets to get some money in… if these options are existent they should be ranked above an equity dilutive alternative!
- how much support do they get from lenders? Isn’t it an option to refinance some of the current HUGELY expensive debt items by cheaper alternatives or senior debt loans? All this to reduce the drag of finance expenses from interest payments…
- tell the board and exco they need to communicate more with shareholder base… if dead silence remains they are further kitchen sinking this company and will be considered as accountable by many staekholders, being the equity and debt holders.
Because this is all pre-committed capex. Please do your homework… they do not initiate any new capex plans, but all newly opened cinemas are from pre covid or pre-ruling of cineplex
Can someone summarize please once again how it works overall? Because i thought we should expect an update anytime soon
If estimates of box office mojo tend to be accurate (which often is), we should see May exceeding the 85% of 2019. I know that cineworld is guiding on admission levels, but at least I would suggest that >850m box office revenue in May is feasible for the US.
Also secretly hoping that Dr. Strange will outperform expectations just like Spiderman did and batman as well. should boost confidence a bit after a bad q1 and april.
If you do the math for q4 2021, wherein cineworld was cash flow positive, q1 likely fell short (unless concession revenues and advertising earnings did compensate for this; here specifically I am talking about the US because for UK/Ireland this is different, i believe q1 was particularly better) but we need little improvement for May and June, so should be easy to generate cash. It is still pending how much cash they need, but on the positive side, if earnings improve, there is always a positive working capital evolution which is supportive for the cashflow and hopefully cineworld can generate sufficient cash to repay 65% of the RCF.
I know US is lagging behind and it is also a big concern in my view. Anyway, the only thing we can do is inform ourselves to the maximum. This morning Kinepolis reported Q1 update
Therein, it states that:
- admissions in april reached 76% of pre corona
- revenue per visitor (ticket + concession) continues to go up and was higher than 4q21