Shares in global cinema chain Cineworld (CINE) slumped 17% to 40.25p on Thursday after it said further government restrictions would require the company to raise more funds, while reporting a 65% drop in admissions for the half-year to 30 June.

SCENARIO TESTING

Under its base case scenario, the firm believes it has 'headroom against available cash and debt facilities to December 2021, including in early 2021 when the current extension to the revolving credit facility ends.'

While its existing banking covenants would be breached at 30 December 2020, June 30 2021 and 31 December 2021, management believe waivers will be obtained for these testing dates.

Under the company’s ‘severe but plausible downside scenario’, where it assumes a second Covid-19 wave consistent with the 2020 shutdown but with a less severe impact given the regional approach to shutdown rather than full national lockdowns, the group would require additional facilities to continue operating.

Consequently the board is assessing several financing options including an extension of the revolving credit facility maturing 31 December 2020, an additional Term Loan and a potential equity or semi-equity raise.

At the end of June the company had net debts of $8.2 billion, an increase of $512.4 million over the six months. Because rent costs represent a high proportion of the firm’s fixed outgoings, Cineworld is in ongoing discussions with landlords and expects ‘significant further modification’ to leases by the end of the year.

Management reported that current trading had been ‘encouraging considering the circumstances’ and reinforced its belief that the high quality screens and sounds at a cinema will remain a superior proposition to watching movies at home.

PULLING POWER

Despite Cineworld trying hard to get customers back through the doors, including offering promotions and discounted membership, the roster of films set to open in cinemas just isn't that appealing for now, as AJ Bell's investment director Russ Mould points out.

'Disney’s Mulan has gone straight to streaming and another potential family favourite, Wonder Woman 1984, has been delayed until Christmas', says Mould.

In the hours since Cineworld signed off its trading update, two more big name films, West Side Story and Black Widow, have been pushed back to 2021.

'Ultimately there isn’t anything out now or coming very soon that will really make people want to take the risk of sitting in a room with a load of strangers for two hours', he concludes.

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Issue Date: 24 Sep 2020