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Cineworld cautiously optimistic ahead of key festive period, US refit

By Oliver Haill

Date: Thursday 15 Nov 2018

Cineworld cautiously optimistic ahead of key festive period, US refit

(Sharecast News) -
Cineworld reported an 11.6% increase in sales after three quarters of the year, as cinema admissions improved to 5.9% over the 4.9% in the first half.

Expecting a good finish to the year thanks to film releases including 'Mary Poppins Returns', 'Fantastic Beasts: The Crimes of Grindelwald' and 'Aquaman' in December, the FTSE 250 group said it was on track to deliver full year expectations.

The third quarter ending 11 November, UK film fans flocked to see 'Mamma Mia! Here We Go Again', 'Incredibles 2' and 'Bohemian Rhapsody' and across the Atlantic moviegoers queued up for 'Mission: Impossible Fallout', 'Ant-Man and the Wasp' and 'Venom'.

On a constant currency basis, pro-forma group revenues rose 10.2% in the first nine months of the year. Results are produced on a pro-forma basis as if Cineworld had acquired US-based Regal Entertainment in January, while the deal was actually completed at the end of February.

US revenues swelled 13.2%, UK and Ireland up 2.1% and the rest of the world up 2.2%.

UK box office revenues were up 1.4% after admissions had decreased 2.7% during the first half.

During the second half of the year, the group said had added four new sites divided equally between the UK and US, with a total of 31 screens, on top of the six sites opened in the first half. The total number of sites in the Group at 11 November 2018 is 789 with 9,526 screens.

Five further new sites are expected to open before the year-end.

"The expected plans for Regal are progressing well," Cinewold said, with management continuing to "review further opportunities for integration benefits", having recently begun to rebrand Regal as part of a wider strategy to commit significant investment to the wider estate and operations in the US. Management plan to spend $400m on 50 sites over the next three years, with $20m per site on ten sites and $5m per site on another 40 sites. The first of the big projects is scheduled to open in the second quarter of 2019.

Shares in Cineworld fell 4.5% to 284p by late morning on Thursday.

Management's guidance to a FY outcome may be in line with current expectations but this, said broker Numis, "remains relatively conservative given it would imply mid-single digit decline in revenues for the rest of the year.

However, given the importance of December's Harry Potter and Mary Poppins spin-offs compared to Star Wars spin-offs in the prior year, "management does not want to risk upgrades". Numis noted that each percentage point increase in box office should add circa 0.5% to group EBITDA.

Broker Canaccord said the growth in the US was "eye-catching", picking up hints at further synergy benefits, while the UK improved amid refurbishments and the ongoing roll-out of premium offerings.

On the "important" US refurbishment plan that is now underway, the analysts said: "These are big multiplexes in major locations and they should account for as much as 30% of Regal's EBITDA. Assuming a 20% EBITDA return, these projects should generate another $80m of EBITDA. The newly refurbished cinemas should take market share and support higher admission prices, helped in part by the additional viewing formats.

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