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Cineworld warns on profits after box office flops, but Regal savings improve

The cinema chain had pinned its hopes on blockbusters such as The Lion King and Frozen 2 but had slower sales compared to 2018

Cineworld Group plc - Cineworld issues profit warning as box office does not deliver
Frozen really let it go

Cineworld Group plc (LON:CINE) warned full-year trading will be below expectations after a disappointing box office performance from the likes of ‘The Lion King’ and ‘Frozen 2’, though it is extracting improved savings from its big US acquisition.

The cinema chain had pinned its hopes on the Disney blockbusters and others like 'Avatar 2', but the phasing of major releases and pushing back of some highly anticipated movies to 2020 meant lower cinema sales compared to last year.

READ: Cineworld Group pins its hopes on Frozen and Lion King sequels after 'soft' first half

‘Jumanji: The Next Level’ and ‘Star Wars: The Rise of Skywalker’ will be out this month, but their success is unlikely to offset the weak performance so far, the FTSE 250 group said in a trading update.

In the 11 months to 1 December box office revenue dropped 12.8%, retail lost 7.4% and “other income” from advertisements and ticket booking fees inched up 2.2%.

The integration of US cinema chain Regal, acquired last year for £2.7bn, was said to have progressed well and management now expects synergies to reach US$190mln from the previously estimated US$150mln thanks to improvements in contractual terms and cost-cutting.

Further savings resulting from “revenue initiatives” will be seen next year, the FTSE 250-listed company added.

“Despite the challenging backdrop, Cineworld has continued to execute well and our strategy of focusing on optimising customer experience remains unchanged,” said chief executive Mooky Greidinger.

Greidinger is, so City chatter suggests, mulling a plot to take the company private if the share price continues to wallow around recent five-year lows.

Cineword's shares, which also the most shorted in the City as roughly 18% of the stock is out on loan to hedge funds betting on a further plunge, rose 3% to 211.8p on Tuesday morning.

It was a "mild" profit warning, said Russ Mould at AJ Bell, with expectations already quite low for earnings and bets on the share price falling partially because of concerns around the company’s very large debt and with 2019 not a vintage period for the silver screen.

“The cinema industry has historically been very resilient through good and bad economic times, and has shrugged off competitive threats from Betamax, VHS, DVD and now streaming. But ultimately its fortunes are still dependent on the popularity of films released at the box office.

“All cinema operators can do is make sure their sites look smart, ticket prices offer good value for money, customers buy food and drink, and everyone comes away feeling as if they’ve had a good time.

“A rise in Cineworld’s share price on today’s news is probably down to short sellers closing out their positions now we’ve had confirmation of weaker trading.”

Quick facts: Cineworld Group PLC

Price: 51.94 GBX

Market: AIM
Market Cap: £713.03 m

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