11 August 2022
It’s that time of year when public companies throughout the world announce their second quarter earnings. If you’re a giant media company with a streaming service that means you’ll be trying to appease Wall Street big wigs with your latest subscriber figures, price increases or plans to decrease costs by raising prices while growing your subscriber base. If you’re a movie theatre operator, your fiscal revelations for the latest quarter will be seen as a predictor on whether an entire industry will live or die. So, no pressure.
Of course, last year at this time exhibitors were dreading having to report Q2 earnings, or more specifically the lack thereof. Movie theatres around the world had been closed for upwards of a year in many regions. Those that were open were done so at reduced capacity and were busy complying with an increasing number of restrictive health regulations that was the direct inverse to the paltry number of new movies hitting theatres. Indeed, cinema operators could probably have made more money during that time period selling red ink to other public companies and accounting firms than they did selling movie tickets and popcorn to patrons.
However, what a difference a year makes. Or more precisely, what a difference a year makes when COVID vaccines are readily available and the highest grossing Tom Cruise movie of all time hits theatres after 24-months of daily press reports about whether said movie will head straight to streaming. Yes, I’m referring to “Top Gun: Maverick,” but I also could have cited the latest Doctor Strange entry from Marvel or those dinosaurs from “Jurassic Park Dominion,” all of which helped exhibitors dramatically improve their bottom lines during Q2 of 2022.
To be sure, most cinema operators are still filling their pens with red ink, though they need far less of it than last year and could even use some black ink to complete a few of their financial reports. Revenue, attendance and sales per patron appear to be up across the board. And this was before those little Minions showed up in July and proved that family audiences can both stream movies at home and watch them in theatres (go figure).
AMC, the world’s largest movie theatre chain, is so bullish on their future they announced a special dividend for share holders. Dubbed the AMC Preferred Equity Unit (or APE, in honor of all the retail investors that bought into the company during its meme stock heyday), the new shares will be traded on the New York Stock Exchange under the APE symbol. By issuing the stock on a one-to-one basis to anyone holding a Class A common stock share on 15 August, retail investors have had over a week to drive up the price trying to get in on the offer. Since AMC’s earnings call on 4 August the stock has gone up over 30%.
In short, exhibitors saw financial and attendance trend lines head in the right direction during the second quarter of this year as they get one stop closer to getting the pandemic monkey off their backs once and for all. (See what I did there?)
Thanks to at run of successful titles like “Top Gun: Maverick,” “Doctor Strange in the Multiverse of Madness ” and “Jurassic World Dominion,” cinema operators in North America were able to significantly improve their bottom lines during the second quarter of 2022, from the same period a year earlier. That shouldn’t come as a surprise given that many movie theatres were still closed due to COVID during Q2 of 2021 and new movie releases were nonexistent.
AMC, the regions largest exhibitor, decreased its loss to USD $121.6 million from USD $344 million in losses during the same quarter in 2021. Revenue also improved by over 100% from USD $444.7 million last year to USD $1.16 billion in 2022. That allowed adjusted EBITDA to leap from a loss of USD $150.8 million for the second quarter of 2021 to a positive USD $257.5 million this year.
All of this news was overshadowed by the announcement the company would offer current shareholders a special dividend dubbed AMC Preferred Equity Units (or APE, in honor of the company’s retail investors). AMC’s stock price has been on a tear ever since the earnings announcement on August 4th, up 36% to USD $25.46.
Meanwhile, Cinemark posted a second quarter loss of USD $73.4 million, which sounds bad, until you realize the theatre chain lost USD $142.4 million during the second quarter in 2021. The company’s revenue climbed 152.6% to USD $744.1 million causing EBITDA to reach USD $138.3 million compared to last year’s loss of USD $11.8 million. A promising leading indicator was Cinemark’s attendance during Q2 which jumped to 52 million patrons.
Up north, Cineplex, the largest movie theatre chain in Canada, made a profit for the first time since the pandemic began. The exhibitor saw net income squeak in at CAD $1.3 million. While that might seem low, keep in mind that during the second quarter of 2021 the company lost CAD $103.7 million. Also on the upswing was revenue which leapt to CAD $349.9 million from last year’s CAD $64.9 million for the same period. Attendance was also up from 1.1 million to 11.1 million, year-over-year.
The latest figures from Korea’s largest cinema operators highlights an uneven recovery across Asia but a slow return to profitability in their home market. While CJ CGV saw a year-on-year decrease for the second quarter of 2022, Lotte’s cinema operation returned to profit for the first time since the start of the Covid-19 pandemic. Korean cinemas stayed open for long, but were since then one of the last to have all restrictions lifted. They have now had to put up ticket prices, while facing staff shortages, as a result of the pandemic.
Korea’s largest cinema operator CJ CGV had an operating loss of KRW 16.2 billion (USD $12 million) on a consolidated basis in Q2, marking a significant year-on-year compared to Q2 2021, when its profit was KRW 57.3 billion (USD $44 million). The company’s financials were hamstrung by operations in international markets such as China and Turkey.
Rival Lotte Culturework, the cinema operation of the Korea retail giant Lotte, also returned to profit for the first time since Q1 2020. Cinema sales were KRW 121.4 billion (USD $93 million) with an operating profit of KRW 10.5 billion (USD $8 million) in Q2 of 2022.
Kinepolis has concluded a lease agreement with real estate company General de Galerías Comerciales to take over the operation of two Spanish cinemas: one in Mataró (Barcelona) and the other in Marbella, in the successful La Cañada shopping mall. Both cinemas operate in markets with high purchasing power and demand for premium products.
After the take-over, Kinepolis is planning to introduce its premium concepts, such as laser projection, premium seating and the megacandy concept, in both cinemas.
This take-over will bring the number of Kinepolis cinemas in Spain up to 10, including the two largest in the country (Kinepolis Ciudad de la Imagen in Madrid and Full Barcelona). The 10 Spanish cinemas have a total of 157 screens and nearly 38,000 seats.
Following the recent debt-for-equity restructuring by European exhibition major Vue International, both its former majority owner pension fund and deal partner Event Hospitality look set to walk away with nothing. The news comes as Vue announces that its value has been slashed by half to GBP £650 million (USD $786 million), whereas the cinema chain was looking to either sell or do a stock market floatation valuing it at up to GBP £2 billion (USD $2,418 million) in 2019 after a record year. Like so much else, these plans and Vue’s valuation fell victim to the COVID pandemic.
In fact, Vue has indicated that it needs to pay GBP £32.2 million (USD $38.94 million) of pandemic deferred landlord payments before the end of 2022. At the same time, the company is prevented from repatriating earnings from its German subsidiary CinemaxX, because of a potential EUR €129.5 million legal claim from Event Hospitality and Entertainment, the parent company of CineStar. Vue agreed to buy and merge CineStar with CinemaxX in 2018, but had to sell off six sites for the merger to be approved. Event launched a legal claim against Vue, but Event will now be classed as an “unsecured creditor” and the claim will be wiped out.
All of this has caused some harsh words after Alberta Investment Management Corporation (AIMCo) exited as owner of Vue International, alongside Ontario Municipal Employees Retirement System (OMERS):
AIMCo has demonstrated clear problems with its risk management approach. It also does not publicly disclose its investments, unlike similar provincial investment funds such [as the British Columbia Investment Management Corporation]. This episode proves yet again how dangerous the [United Conservative Party’s] scheme to move Albertans’ CPP contribution into AIMCo management really is. The UCP must abandon this reckless gamble with Albertans’ pensions.NDP finance critic Shannon Phillips
Overall losses for AIMCo are said to amount to CAD $1 billion (USD $778 million), on top of the pension manager’s 2020 confirmation that a bet on market volatility had led to a loss of CAD $2.1 billion (USD $1.633 billion). “I would [like] to thank our shareholders, OMERS and AIMCo for their support through this process,” said Tim Richards, CEO of Vue International, in a statement. Event Hospitality and Entertainment has not yet commented on the outcome of the Vue restructuring.
The Sunday Times
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