Member Info for HNS_77

Thanks KIckTP - Like to share some objective data on the current situation amidst the doom and gloom

Just to add some non mathematical speculation on to this- let’s assume a good proportion of the older audience never return so we cannot get to 100% of previous attendance levels - well thats when successful businesses do what they have done for years - they innovate - how about boosting the experience so each ticket sold generates more profit (tick) or improving margins on things like food and beverage (tick) and what about consolidating old clapped out sites and investing in new ones where the footfall is (again tick)

I am sure they have whole host of other ideas - but that said on the numbers feels like recovery in attendance is going well also

To counterbalance some of the downside analysis- Some more simple maths - I’m sure critics will say it’s over simplified and that’s perfectly fine with me

Total gross 2021 ($4.4bn)
Jan 2021 $65m vs $389m 2022
Feb 2021 - $57m vs $100m (to Feb 11 2022)

So 2022 is currently tracking about 4 times 2021 at this point in time (on a less then half Feb so not really like for like )

Let’s be coy and say we could double rather then quadruple 2021 on those figure - well guess we’re we end up near enough $9bn which is 80% of our golden year of 2019

Of course I think we can do better then that as life returns to normal but if someone told me 80% by end of the year was as good as it gets I wouldn’t be crying and certainly wouldn’t be selling

@Ohhah that was my thought too about the friendly neighbourhood cinema vs faceless miserly corporate insurer refusing to pay up is a narrative that could play well against a jury

There have been enough news articles about how beaten up cinemas have been during the pandemic let’s hope that works in our favour for once

Thanks OhAhhh

Cine have demanded a Jury trial for this one - given past experiences with Cineplex can anyone blame them! ?

You’re welcome Srini

Link to court papers below If anyone fancies some bedtime reading

https://www.crowell.com/files/Crown-Intermediate-Complaint.pdf

A 449 page statement Of case against insurers that refused to pay out against business interruption insurance Is available on the LA county court website - based on what I have read they are asking for insurers to pay out upwards of $556 million

The initial court meeting is scheduled 26/4/22 so might be some unexpected good news this year if this one goes Cine’s way - there is no counter claim this time so only upside on this one - we are due a win!

For anyone wanting to understand the recovery case for Cine and what would make Mooky so confident here are a few simple numbers to consider

US box office:

2019 - $11.3Bn off 935 films $12m average take
2021 - $4.5bn off 435 films $10m average take

What this shows is if film releases in 2022 got to 2019 levels off 2021 performance total box office would stand at around $9.5bn - 85% of 2019

Now throw in to the mix 2021 performance had to contend with

-Delta and Omicron while cinemas were open
- Moving from a standing start - attendance had to build momentum from cinemas being completely shut
- impact of simultaneous release on streaming which hampered bo for some big titles

Without these constraints it’s perfectly reasonable for 2022 to end close or above the figures mentioned despite the slow start in Jan given the number of potential $1bn+ Releases this year

Take all that into account and you can appreciate why Mooky is still smiling!

@mountainous no apologies required! I only realised we were using hybrid in different ways after I posted - just enforcing the point that streaming as replacement for cinema is a busted flush for streaming platforms

@Mountainous - the only silver lining from the pandemic as far as Cinema is concerned is that the prediction of an existential threat for cinema due to streaming platforms has proven to be a completely wrong and you would be hard-pressed to find any analysts or industry experts making that claim now.

We know studio's experimented with simultaneous releases and has been a flop for all the reasons discussed - primarily loss of revenue to piracy. For studios to MAXIMISE profits the hybrid model needs to remain giving exclusivity to cinema and then mop up the stragglers who prefer to see the film at home (or watch it again) via streaming platforms just as was done when DVD/VHS was all the rage

This is a win-win scenario for both, Hollywood can focus on cranking out box office blockbusters and Cine can focus on exhibiting them in the best way possible

Seems like a few people on here have been hiding in their nuclear bunkers for too long to notice how life has changed dramatically since last two years

I was in central London today ( was nice to see the freshly renovated face of Big Ben without all the scaffold) and people are out in numbers - tourists and native enjoying the delights our capital city has to offer and living life as normal ( like going to the cinema) just as it is across the country .

No doubt I could see a similar scene if I was in NY, LA or any number of places Cine has a footprint in

Cineworld biggest threat at the moment is not having enough films to exhibit or films that bomb at the box office as that’s what brings the money in -

Moonfall looks like it will turn out to be an expensive flop which is a shame so that’s one less to rely on for February box office hopefully Uncharted and other titles can pick up the slack

This seems to happen in quite a few shares - ghost of the past rattling chains like Jacob Marley with cautionary tales laced with bitter torment. Of course if that's how people choose to spend their precious time that is their business however all they seem to end up doing is rattle out their version of reality - usually very one sided and not backed up with any hard facts just the usual negative sentiment to offset which I admit is often baseless positive sentiment.

I recently sold out of another share with a modest loss and I didn't feel the need to haunt the board like a ghoul in some misguided attempt to warn people off - because not only does it come off bitter and pathetic but it isn't particularly helpful either

This is not a personal attack on anyone but a general observation from a few boards I tend to read/use on a regular basis.

Wishing all who stay aboard or jump ship the very best in their investments - whether I succeed here or not it is 100% on me and not some random stranger throwing sentiment (positive or negative) my way

@77blackbridge all those wider macro conditions you mention will have (to a greater or lesser extent) weigh down on all equities so could argue that Cine is no different in that respect. We can't argue the share price isn't in the toilet at the moment that would be delusional.

In response to the others here are the reasons I wouldn't sell right now

Streaming has been tested and now proven to damage overall revenue for studios with simultaneous releases - so the only way for them to maximise profits is to rely on exhibitors like Cine to deliver their products to customers

Squeeze on household incomes - If you look at yearly box office through site like Box Office mojo it is encouraging to see that regardless of economic and downturn Cinema revenues have been stable - look at 2008 and 2001 (recession years) for example Box office continued to increase showing that even when consumers are squeezed they make space for the little luxuries like cinema

The court judgement - either the pain will be reduced, delayed or never materialise - plenty of speculation from credible sources emerging that these are realistic outcomes

The company is showing a recovery - perhaps not at the pace we would like primarily as has been discussed due to the lack of content or certain films not performing at the box office as they would have hoped which compounds the lack of film supply - if you have 10 films and one bombs at the box office you can rely on the other 9 compared to if you only have 1 - but again that is an improving situation with the box office line up this year and beyond

Omicron losing its grip and the mantra of moving to living with the virus - part of living including going back to the cinema amongst other things

Finally I have only invested a sum I can afford to forget about- constantly worrying based on day to day price action indicates perhaps have invested too much expecting a recovery too quickly - that is for individuals to decide what that comfort level is.

My thoughts

Excellent time to buy in or top up if you believe in the recovery
Bad time to sell if you are holding with a loss

For everyone else better off tuning out and waiting for brighter skies ahead

So far there has been an analyst rating the chances of recovery by CP at 25% and another article stating it isn’t likely at all - adding in the legal critique of the damages calculation I certainly don’t expect CW will be in a hurry to write a big cheque until after some time after normal business has resumed so yes the main focus is on the box office and getting those revenues up

Reading the FT article alongside the details of appeal suggests to me that CP and possibly CW are both using the appeal process to leverage a better settlement position

I say this because the demands from CP in the cross appeal either increase the reward or marginally reduce it which if the analysis from the FT article is correct does nothing to take away the scenario where CP ends up at the back of the queue if Cine goes bust as a result

Similarly CW have gone for the dismiss and pay nothing strategy which raises the prospect that CP stand to walk away with nothing if their judgment is overturned on either of the 3 aspects of the appeal

There is no middle ground in either approach - perhaps there was never scope for that. Either way taking that article on face value would suggest to me both CP and CW have used it to ratchet up pressure so either party can get the best settlement negotiated - I’ve always thrown out a random number of somewhere between $200m - $300m (in whatever form that takes and over whatever period) as something Cine could probably “live with” and a big enough number for those at CP to help them along their way and avoid a sheet storm from their shareholders

And finally....The Cross Appeal by Cineplex

They go straight into the damages award

As reported in the media they start by stating if the court judgement overturns the damages of 1.23bn then

a) they should be awarded 1.3bn which is the amount that would have been paid to shareholders less the value of securities retained or
b) $800m that was the dimished value of the business CP were left with after the termination or
c) $714m in respect of CP bank debt and carrying costs that would have been discharged by CW
d) that CW experienced a benefit of $1.1bn by not completing the deal so that this should be given to CP

They then go into the CINE counterclaim

They go on to argue that IF they do not believe CP are entitled to damages that CW should still pay a fine of $1.1bn dollars for cost avoided of buying CP but they don't clarify who that should be paid to

That if they are found to be in breach of the arrangement agreement that this should be cancelled out by Cine's own breach of good faith

That if Cine damages are payable this is restricted to £267k

And that's all folks!

@SoMany - your welcome - agree it isn't anything we hadn't heard in the court case and it is a 7 page document - from my perspective they have cut through the bs and focused on how the legal document should be interpreted and why it was a error to apply of synergies as a damages calculation -

So far legal opinion on this case that I have been able to find doesn't have any glowing comments towards the synergies and has consistently been described as "novel" and "not traditional" by commentators so we can make of that what we will. In the coming months I expect more legal opinion will discuss the appeal and cross appeal so we can better gauge what experts feel is the likely outcome around damages

On to the next challenge - Errors of fact & Damages

the appeal continues by stating that Trial Judge made a palpable and overriding error of fact in concluding that Cineplex did not breach the Ordinary Course Covenant."

They do not ask for new evidence to be considered but rather reiterate that the actions Cineplex took were not consistent with past practice and that took place before any lockdowns or measures that would suggest long term closures to take such drastic measures

They go on to highlight that the material leases were in default and that there were threats of termination which suggested this was a serious matter. They close this by restating that no consent was sought for any of these actions and that again deprived the section of any commercial purpose if it was ok for them to ignore the need for consent of the purchaser

The final aspect of the appeal goes to criticise her legal interpretation to inform of the award of damages

Again they reiterate the point that synergies belong to the purchaser
No term of the agreement entitled Cineplex to synergies or created an expectation of synergies
Arrangement agreement provided no promise or expectation of post closing benefits
Cineworld would become the sole owner and could achieve or not achieve synergies as it saw fit

Judge made an error in stating that lost synergies would not have been offset by the additional purchase price debt that CP would have had imposed after closing. They disagree that this was uncertain and speculative as the trial judge held. To that end they state that this judgement is leaving Cineplex in a far better position then it would have been had the contract been performed

They argue that the premium price paid by CW was only justified because it was CW and its stakeholders that sought to benefit and that it was an error in principal to say that these synergies were stranded in a subsidiary company i.e. CP and could not be enjoyed by CW

That concludes the appeal - I will get to the cross later

My summary - of course there is nothing new but they assert the arguments they feel are key and the one they ignore is the issue of motive which featured strongly in her judgement and have gone straight for exactly how the arrangement agreement is set out and how it should be interpreted from a legal and factual standpoint.

The only way to tell if this is a strong argument if we had a room full of 100 judges or lawyers and how many would tend to go with their legal interpretation of the document as opposed to Judge Conway. Personally I always thought we had the more logical common sense argument but I am not a legal expert so it is really about what the majority of legal experts would consider to be the most appropriate interpretation as to whether this is going to win

So here is my summary of this appeal- they have broken it down into 3 compartments - errors of law, errors of fact and errors in damages calculations

Cineworld are arguing both against the synergies calculation and how she has interpreted the facts of the case on the evidence

So the legal errors being cited are:

The trial judge made an extricable error of law in finding that the “MAE clause”, s. 6.2(4) of the Arrangement Agreement, addressed the risk of a pandemic and allocated that systemic risk to the purchaser, Cineworld.

They site that as incorrect and that the correct reading of these sections is to allocate pandemic risk during the Interim Period to the seller and effectively (as they argued in court) that the MAE carve out relates to Cineworld not being able to back out or refuse to close and buy the business just because they are taking on a business when or during a period that an MAE had/has occurred

They argue her interpretation of Ordinary Course covenant i.e. to break ordinary course with past practice renders the clause commercially meaningless

I will continue the rest in another post