Member Info for HNS_77

If anything wants to see a masterclass in ramping/de ramping google an article on cinema about Cineworld or Vue and compare the coverage by FT/Sky/The times

You will notice in Vue it talks glowingly about the return of Cinema and not a word about streaming, Netflix etc -funnily enough it is all change in articles about Cine

Got to love impartial journalism!

CW : hi lenders, erm funny story, you know how we have been relying on every single big film release to hit its expect box office due to lack of supply …

Lenders: Yes…..

CW : Well , erm, unfortunately we have had quite a few stinkers this year like Morbius, Light Year, Fantastic Beast which really bombed should have done at least 800m between them but done more like 250m

Lenders: Sooooo…?

CW: Well it means we are coming up short and with no releases for the next few months we kind of need…..

Lenders: What? Cut the foreplay and spit it out

CW: Any chance of some additional cash to keep us going before Avatar and Black Panther?

Lenders: Are you f@@king kidding me? You want more Cash even though you are about to enter a blo0dy legal battle again with Ellis No-nuts!?

CW: Yes.

Lenders: You go and get a deal off those sons of b*tch3s , call off this stupid court case and then we will talk about additional lending!

CW How? They are an unreasonable bunch of holes

Lenders: I don’t know, issue an rns suggesting you might be going bankrupt - that should scare them into agreeing a deal- anyway you might really have to because unless you gets a deal agreed we aren’t lending any bridge - so sod off and come back when it’s sorted OK?

CW : Alright will get on to it asap . Scott , vague Press Release needed asap……

https://www.ft.com/content/6ccd539f-ff48-46ac-8060-74bd11f07241

Thanks Fig/Wellington

Hoping some sense prevails on both sides - a significantly smaller deferred settlement paid in tranches would go far to allow both parties walk away with something.

I have been reflecting on this sorry state of affairs and have come to the conclusion ( not that it is of any use) that this misery is clearly and squarely the fault of Cineplex and their greed to try and squeeze Cine until the pips squeak.

They got their pathetic corrupt result and in doing so the legal action created a massive stink around Cine - depressing it’s share price and reducing the ability raise funds on decent terms or deleverage at a decent share price due to the court case both pre and post judgement

This has backfired on Ellis and co and a total miscalculation as had they negotiated before running to Goodmans and starting legal challenges or asking for a much less ridiculous sum they might have stood a chance of getting something out of this but as it stands they are staring down a $0 award in the face - slow clap to them and their legal advisors

This is NOT ever likely to happen but the only sensible thing I think could occur now is a joint statement from Cineworld and Plex saying they will put this judgement aside and in the interest of saving cinema and the related industries they are going to defer negotiating an arrangement for Cine to potentially purchase CP in say 5 years time as a period long enough to assume both businesses are thriving again - the effect of this would be win win I imagine - confidence regained in Cine as the legal problem removed that could boost the share price and do a decent raise and a short enough timeline for plex investors to think they might see a potential share pay out again - both would surge on the news and a collective sigh of relief as it is kicked into the long grass

But of course as we see time and time again logic hasn’t figured in this so will wait to see what rabbit if any will be pulled out of the hat

I'm afraid this latest RNS has been a reality check for me - Jhango starting to offload their position combined with Polaris earlier this week

While I am still struggling to see how the position has destabilised so quickly and is in stark contrast with the picture that they painted previously. In their March results they reported significant box office recovery, showing data with numerous months where admissions were in excess of 80% and even 90% in 2021 vs 2019 combined with the almost 30% increase in spend per customer all painted a very rosy picture of a business that was making headway towards full recovery.

They made much of their relationships with landlords and the permanent cost reductions they had been making to conserve cash and all this seemed to suggest a business that was on the up and that "withstanding any covid surprises" as Mooky said at the AGM and in the call that the business could continue its recovery.

Well it turned out that fortunately we haven't had any covid surprises over the 5 months since they made those statements yet we find ourselves in this horrific position and now with Jhango heading for the door I am prepared to admit I have called this one wrong.

Having said all of that with the level of losses currently the risk reward of offloading in this range vs some hope that they will announce something that can materially change the position means I have decided to continue holding.

On what were very conservative numbers I pegged Cine at a net loss YTD of about $160m - clearly not ideal but not a complete disaster either - as others have pointed out on here D4E is not a desirable option for any of the parties involved particularly at current prices. Cine has very little by way of assets so liquidation is also a poor outcomes for all.

If the landlords and lenders are pragmatic they should see that supporting Cine for a bit longer i.e. 6month rent payment holiday or reduce rent or freezing loan repayments is the sensible thing to do at this stage. This would give some confidence in the market and if the CP judgement also settled a higher sp means less dilution if D4E becomes an option

Vastly improved box office trading has already taken place from the horrific lows of 2020 and I would encourage anyone to look at IMDB or Box office Mojo to see the huge number of releases coming in 2023 - not just the $300m+ tent pole films but all the smaller $30m-$50m grossers that add up - I had a scan of these and it is very easy to see $10bn to $11bn domestic being generated from these which will be near enough 2019 levels - I am sure this will be weighing on minds as these decisions are taken.

Is it possible this is being overcomplicated somewhat?

2020 Cine took 17.5% vs 2019 revenues of 4.37bn
2021 They did 38% of 2019
2022 were forcast to do 78% but I have them at 63% (both the forecast and my calcs have them at a small operating loss)
2023 forecast to achieve 85% of 2019

Clearly a massive recovery effort but yes they are falling short of their target (primarily due to supply rather then audiences not wanting to return) but do these numbers suggest things are so bad for Cine to the extent being discussed on here?

I am sure some will say I am deluded/over optimistic but if the actual gap they need to find seems to be greatly exaggerated on here. That said they have to consider all ways of closing that gap - if they cannot negotiate an agreement as they have done previously with creditors which I believe is what they are in the process of doing then filing a chapter 11 will be the formal mechanism to do this.

If someone else is able to run the numbers and show me where I am wrong I am more then happy to be correct - it just seems that the actual material gap seems relatively small - obviously that changes if the judgement in CP goes against them so perhaps that is why the pressure is being ramped up

Pretty much confirms what I already knew which is that media outlets will jump on any hint of bad news like a piranhas , salivating at the prospect of doom and disaster regardless of any actual evidence of truth, with our giving a toss how doing this might actually hurt the business by confusing customers or further adding to the mental stress of its employees - even the bbc were complicit in the feeding frenzy

They should report a retraction immediately but of course wont hold my breath

@Blue Buxton, was defiantly tough to read as it was coming out hope you still enjoyed the film! the deadline article seems to inject some more rationale discussion into things and for Cine to reiterate the same line as the RNS was encouraging even though I would have preferred a flat out denial

I don’t know enough about the Chapter 11 process - from what I have read so far it isn’t the same as what we associate with bankruptcy here with companies going into administration it seems like Cine would retain control of the business and give them breathing space to figure out how to managing things going forward- what that means for us lowly shareholders I am not sure so we just have to wait and see I guess

@strike when that debt was agreed Cine +regal was a pure cash machine - the risk of a default was considered to be very low hence the issue of them not having much by way of assets was a consideration and a concern to lenders but was ultimately not considered a material risk as they didn’t envisage a 300 year in the making black swan event like covid taking place

I say that because someone close to me was working with them on a past transaction and the risk appetite was high because lenders never saw an event of the magnitude of covid emerging during the period they would be paying back their debt and interest

Blue Buxton how are you keeping up today? Any thoughts on what’s going on here? I don’t know about that although my wife would certainly give him a run for his money - I always run my figures by her before posting them on here!

@cruis - it’s pretty straightforward to extrapolate from historic breakdowns and a few assumptions

2022 FYE 2022 FYE 2022 YTD 2021 2020 2019
Revenue $3,081 $3,081 $1,955 $1,805 $852 $4,370
Cost of sales -$2,154 -$2,154 -$1,366 -$1,262 -$888 -$2,736
Gross profit / (loss) $1,140 $1,140 $589 $543 -$36 $1,634
GP% 37% 37% 37% 30% -4% 37%
G&A 88 88 55 ($88m) ($103m) ($103m)
Cash generated from JV - $23m $50m
Adjusted EBITDA $1,052 $1,052 $534 $455m ($115m) $1,580m
D&A1 511 511 319 ($511m) ($618m) ($702m)
Adj. Operating (Loss) / Profit $541 $541 $214 ($56m) ($733m) $878m
Rent -468.7 -455 -349
Debt -325.0 766.0 478.8 -311 -245 ($523m)
Adj. (Loss) / Profit before tax -$253 -$225 -$265 ($823m) ($1,327m) $355m
Tax charge 167 167 104.375 $167m $414m ($62m)
Adj. (Loss) /Profit after tax -$86 -$58 -$160 ($656m) ($913m) $293m

2019 Cine % of total revenue
Box Office US 1859.6 42.56%
Box office UK 405.7 9.28%
Box office ROW 270.8 6.20%
Retail US 953.9 21.83%
Retail UK 156.7 3.59%
Retail ROW 129.7 2.97%
Other US 396 9.06%
Other UK 86 1.97%
Other ROW 111.2 2.54%

Good evening fellow shareholders hope all are keeping well. I appreciate the level headed posts that have been shared from the usual suspects Bonkers, Mountainous, Wellington , Crumpets , TS , Hex etc to name a few

Clearly not a good day for Cine and a collectively painful one for us shareholders. Experience is hard earned and sometimes you pay for it directly from your wallet

Ironically just as this story broke I had completed some calculations that showed at mid August estimated revenues of 1.9bn that Cine would have an adjusted loss (after all expenses including financing costs) of $160m and a Year end position of -$58m . This compares to the $658m loss of 2021 - a vastly improved position

I am very confident these figures are accurate as I extrapolated these off the 2019, 2020 and 2021 annual report figures and cross checked these with my partner who is a banker and qualified accountant so knows her stuff.

The point of sharing this is that despite these being below the 85% base case it shows a massive improvement in position so to pull the plug in a dramatic way just doesn’t seem plausible.

If the reports are true about the Chapter 11 then there could be a multitude of factors driving this decision and doesn’t necessarily mean it’s a binary wipe out for shareholders.

Let’s wait to see what next week brings, I’m sticking around to find out.

Good to hear from you Blue Buxton - I had mixed feelings about it - The RNS painted a down beat picture but was pretty vague on the whole and in some respects similar statements can be found in the April Annual Report but more pronounced in a short press release

On the numbers I shared undoubtedly they have fallen short of the target they set but if I am anywhere near on these they will still have done over $1.1bn more in revenue compared to 2021 FY. it doesn’t signal the dooms day scenarios being discussed on here

Depending on the level of dilution of existing shareholders suffer in the short term but the business ploughs on an recovers to deliver revenues close to 2019 (with a decent volume of film releases I can’t see why not)

How do we define significant dilution? It’s a very subjective statement so I prefer to wait and see what they report in September but I am staying put to see how things pan out. Perhaps I will be wrong on this occasion and if so I will have learned a very expensive lesson!

Fun - that was always a risk here, one could argue even more so when the business was completely shuttered in 2020 and a good part of 2021 - why would this current turn of events change things particularly when the business environment is rapidly improving

quite right sammy and thanks for reminding me of the IMAX deal - with comparisons constantly being made to McColls & Thomas Cook - I don't recall them cutting ribbons on new shops or unveiling brand new planes in the end of days of either of those- I know every situation is different but generally when your business is going under the last thing you tend to do is splash the cash on new kit and premises

Thanks Stanley, I thought I would stand back while all the bile spitting "I told you so" crowd washed through

As it happens I topped up yesterday a few times as the RNS was very vague so nothing is as nailed on as other seem to be so sure about the level of dilution they think will likely take place. Certainly isn't reflected in the downgrade analysts have given which I believe is still sitting at 43p average.

Using 2019 figures as a proxy I calculated they have generated about 1.95bn revenue vs 2,73bn in 2019 around mid August so have done roughly 70% of 2019 levels year to date.

If this dips until November as they stated in the RNS due to lack of films then this will track even lower my guess is 2.18bn YTD vs 3.63bn (2019) i.e. drop to 60% .

They were forecast to achieve 3.68bn revenue over 12 months (85%) which would require them to achieve 750m revenue per month approx $318m of that from the US Box office which would require November and December total domestic to post $4bn domestic revenue combined which of course is impossible a more realistic end point is most likely half that (assume $1bn per month which is fair with Avatar and the rest coming along) so in total I see Cine ending up at about 2.9bn or 68% of 2019.

On that basis my guess is they will be $800m short of their target - I haven't bothered to get into all the details of how this chunks up with debt payments etc but that headline figure doesn't strike me as a reason to be raising $2bn people seem to be speculating on the most extreme figures to suit their narrative

This is quite a conservative as I didn't take account the higher spend per head that they reported and I am also assuming we dont see much more then $1bn domestic when perhaps it will be higher if the Avatar and Black Panther catch some good hype.

These are all my own calculations and could be off by some margins either way but certainly on face value I don't feel too troubled by it particularly as it is abundantly clear that big screen releases are going to pick up and are now favoured over streaming

Also minor point but if they are on the verge of closing down as the hordes would have you believe how are they still investing in new cinemas particularly those in insignificant territories like the UK - surely that pipeline would have been suspended as a first cost cutting measure rather then adding new liabilities to the balance sheet - I understand some of these were planned a while ago but seems unlikely there wasn't a way to get out of these given other cinemas were bidding for these locations and would have been happy to take them off Cine's hands for a deal

Cineplex just hit a 52 week low at $10.24 per share so maybe Mooky's tactic is working!

@Fun

The only data points we have at the moment for Q2 is $2.3bn domestic revenue (box office mojo) and the $507m domestic revenue reported by AMC

So there is a balance of $1.8bn that needs to be accounted for

The only way to attempt an answer is to look at the performance of others – I am agnostic about Cine doing better or worse I was just looking to back solve (admittedly poorly last night) to an approximate figure

So I had another go at it:

Our starting number for Q2 is $1.8bn

Removing Canada from this. If we look at Q1 2022 as a reference Cineplex generated $80m of revenue off a $1.3bn domestic figure. Cineplex has 75% market share in Canada so we can assume that total Canadian revenue was $106m or 8% of domestic total – I bumped this to 10% to have a margin of safety error.

That leaves us with 1.62bn to be shared among remaining domestic providers

The biggest behind Regal is Cinemark

Cinemark reported earnings in Q1 were $191m US revenues which is 16% share of the total Q1 US domestic figure. If this % share is replicated they would expect a Q2 revenue of about $259m – this is consistent with the 2019 where they reported $500m revenues off 3.2bn (15% share)

Now down to $1.36bn to be shared by the remaining providers - Regal plus a handful of privately run companies

According to the Statista link you shared Marcus Theatres is a private provider with 1064 screens and 5 smaller providers who occupy a total of 2058 screens – so 3,122 screens in total. We don’t have access to their financials so have to take a guess on that.

My assumption is we could use Cinemarks or AMC earnings per screen

Cinemark – $183m or AMC -$266m

Taking the higher figure and rounding it up to $300m this leaves us with $1bn revenue remaining

NOT categorically saying that Regal have generated a $1bn of revenue for Q2 as there are many adjustments that could be made to the calculations above but even with a significant margin of error this still suggests Regal have performed as well if not better then AMC this quarter. You have no evidence to suggest otherwise it is all guesswork on your side as you have quoted the delay in paying the Regal shareholder payment etc doesn't prove how much they made or did not make neither does your guess that they did not meet the covenant test

The alternative is using your guess that Regal has done worse than AMC (i.e. lower than $500m) this would assume that these smaller providers have somehow managed to who likely have worse locations and have overall less screens collectively made something in the region of $900m of a mere 3000 screens!

One would assume these small operators are in less attractive locations and do not benefit from some of the distribution that market leaders will have. You and Hussart seem to make a huge assumption these small cinemas will as a default performed better than AMC

I stand to be corrected as always!