01 Apr 2021 12:46 PM

Cinema is familiar to dark spaces; from the moment the lights go out in a theatre, to the dark recesses of the mind that inhabit the likes of Scottie Ferguson in Hitchcock’s Vertigo and Frank Booth in David Lynch’s Blue Velvet.  Two truly great movies that take us into the inner turmoil and psyche of the human mind.

Alas, it is a dark place that Mooky Greidinger, Chief Executive of Cineworld finds himself at present.  Cineworld, the world’s second largest cinema chain operates with 9300 screens at 767 theatres in ten countries. Its largest market is the United States which accounts for some 75% of its sales – UK and Ireland account for 15% of its revenue.

Cineworld reported a pre-tax loss of $3 billion last year compared to a pre-tax profit of $212 million in 2019, with revenue down from $4.4bn to $852m. Cinema admissions have crashed from 275 million to 54 million.

As if the above numbers were not enough to pick up the phone to Spiderman for help, the group is weighed down with debts of $4.5bn and is burning through cash at the rate of $60m per month.  This debt pre-dates Covid in the main and was taken on to finance an aggressive acquisition spree.  In buoyant growing markets it is always tempting to accelerate organic growth by acquiring one’s competitors which will be invariably paid for by finance from debt providers at an attractive cost of capital – well certainly at the time of acquisition.  As long as revenues continue to grow and debt costs remain stable, initiatives such as corporate strategy can produce fabulous results.  But, if the doors are shut to the public and the revenue stream is cut off, the debt burden becomes an ogre.

To quote Warren Buffett: ‘when the tide goes out you can see who has been swimming without shorts.’

In order to survive, Cineworld is banking on cinemas opening worldwide in May at 60% of 2019 capacity rising to 90% by the end of the year.  However, Covid restrictions remain uncertain going forward with further possible restrictions.

Alas, the outlook for Cineworld remains dark but for the future of cinema we must hope the lights are switched back on as soon as possible.