Cineworld’s shareholders had been given plenty of warning their investment in the business could be wiped out by a debt restructuring and this looks like it will soon happen. The company’s lenders are going to gain control through a debt for equity swap and a rights issue, giving Cineworld yet another throw of the dice to try and sort out its finances.
AJ Bell’s Russ Mould said: “Keeping the US and UK operations and only potentially selling its Eastern European and Israeli sites will streamline the group and put it in a better position to ride the recovery in the cinema industry – if it comes.
“That’s a big ‘if’ as competition from streaming platforms has become intense and film-lovers are increasingly happy to watch new releases at home. It helps that gigantic flatscreen TVs are much more affordable these days, as are speakers, so it is easy to create a good cinema experience in the home.
“Assuming the financial restructuring goes through, expect a change in the top management to bring a fresh perspective to the business. Lenders will want to see the value of the equity increase over time and the existing management team has already had its chance to repair things, and that hasn’t gone to plan. Therefore, it’s time for someone else to have a go.
“Cinemas have typically relied on the film slate to drive their business, meaning that as long as the foyer and auditoriums were tidy, customers would walk through its doors. Now the industry is going to have to offer something extra to persuade people to go the flicks, which means there will have to be some hard decisions made to make cinemas more appealing such as ticket pricing (make it cheaper?) and comfort (make every seat a recliner?).
“But that might be the second phase of Cineworld’s recovery. First would be to slim down the size of the estate to focus on the best performing sites and only then think about what to do next.”