Regal Entertainment owner Cineworld Group reported solid preliminary results for the full year ended December 31, 2019 this morning in London. But focus was primarily on the potential impact from the coronavirus on the world’s second largest exhibitor. So far it has been “minimal,” but the “uncertainty of the future” has seen an “unlikely” downside scenario that assumes cinema closures for two to three months across the entire circuit. In such an extreme, Cineworld could risk “breaching financial covenants, unless a waiver agreement is reached with the required majority of lenders within the going concern period.”

Cineworld shares dropped nearly 49% in morning London trading, but the company said only the specific downside scenario would “indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern.”

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Cineworld boss Mooky Greidinger, started an earnings call by saying, “As you know, auditors are very conservative and are taking a very strong assumption. I’m not arguing with them, but if we look on the realistic side, to say we feel today that we are not standing on safe ground would be wrong.” However, he added that cinemas might indeed close. “It can happen, we see it coming, we see the changes every hour.”

He said that the company would not continue to pay full rent of around $50M a month should cinemas shutter. “We know the contracts and the laws and our partnerships with our landlords who have been with us for decades, so taking that assumption is very, very conservative.” He later added that in Poland, for example, Cineworld will not pay rent “at all” while cinemas are dark.

Sounding a positive note towards the future, Greidinger said that if theaters shut for two months there will be “great” movies that are pushed to later in the year. “There is a good chance if the company will need to go through two, maybe three, months that we are closed, the second half of the year maybe will be the six months that will be the biggest ever in the industry because so many big movies will be there.”

Overall, he continued, “We are not here to say we like the coronavirus, of course we would be better without it,” but, “the company stands on solid ground… We are taking the consideration that the company is prepared for the worst and is strong enough. We are sure that we are going to pass this period and come out even better and stronger than we are today.”

In the earnings note, Greidinger wrote, “Our strong cash generation also allows us to focus on deleveraging whilst delivering returns to shareholders… Should conditions relating to COVID-19 continue or worsen, we have measures at our disposal to reduce the impact on our business including, but not limited to, capex postponement, cost reduction, in order to maintain cash liquidity, however we have highlighted the potential impact this could have on the Group within our going concern statement. Nevertheless, we are excited by upcoming films for 2020 which includes Black Widow, Wonder Woman 1984, Top Gun Maverick, Minions: The Rise Of Gru, Tenet, Venom 2, the latest James Bond No Time To Die, Godzilla Vs. Kong, Dune, West Side Story and many more.”

This year so far, the company has seen solid box office performance, it said, and reiterated statements made on Friday, that it has thus far “not observed any material impact on our movie theatre admissions due to COVID-19. Following an increase in admissions in the first two months of the year against the same period in the previous year, we continue to see good levels of admissions in all our territories, despite the reported spread of COVID-19.”

Key highlights of the financial report include a 9% increase in total admissions from 2018 to 275M, on a statutory basis. Total revenue for the year was $4.37B, up 6.1% on a statutory basis (versus a 6.2% decrease on a pro-forma basis which reflects the Group and U.S. performance had Regal been consolidated for the entirety of the comparative period in 2018). Synergies with Regal, originally estimated at $100M grew to $190M.

Group profit was $1.09B, up from $993.7M. Adjusted EBITDA was $1.03B, versus $925.4M in 2018 on a statutory basis. Breaking it down, U.S. revenue was down 9% to $3.21B; the UK and Ireland also dipped 2.7% to $648M after a record 2018 for local box office; and the rest of the world was up 10% to $512M.

Operational highlights include the launch of Regal Unlimited in the U.S. which now has over 300K members and has generated “positive impact on cash flow, market share and box office performance.” Regal’s refurbishment and integration program is “progressing well” with two sites completed in 2019. A further 20 sites are to be completed in the next 12 months. Sixteen sites in the period were also closed which had an effect on results against the comparative period in 2018.

In December, Cineworld moved to acquire Canada’s Cineplex. The $2.3B deal is expected to complete in the first half of this year and will see Regal become North America’s largest exhibition circuit.