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Cineworld H1 earnings preview: can the cinema chain recover?

Cineworld will release its H1 results on Thursday 24 September. These results will cover the first six months of 2020. Cineworld’s H1 results will be the first chance for investors to find out how theatres have performed since being reopened and how eager audiences have been to return to the big screen.

  • FTSE 250-listed Cineworld is expected to report a steep fall in revenue and be pushed to a loss in the first half (H1) of 2020 as theatres remained closed for most of the period.
  • Focus will be on how it has performed since reopening sites considering it has had to operate at reduced capacity and with a weakened film slate.
  • Cineworld chief executive officer (CEO) has said he was ‘very pleasantly surprised’ by the numbers of customers that had returned since reopening.
  • But cinemas could be forced to close again if further lockdowns are introduced and film studios continue to delay or pull new blockbuster titles, both of which pose a threat to Cineworld’s ability to recover in H2.

When are Cineworld’s H1 results to be released?

Cineworld will release its H1 results on Thursday 24 September. These results will cover the first six months of 2020.

Cineworld H1 preview: what to expect

Cineworld’s H1 results will be the first chance for investors to find out how theatres have performed since being reopened and how eager audiences have been to return to the big screen.

The company has 787 cinemas spread over 10 countries and it began to welcome back customers in its smallest markets, such as in Poland the Czech Republic, in the middle of June, but it only began to reopen sites in the UK and Ireland at the end of July.

Still, the main focus is on the US, which accounts for over 75% of its earnings following its acquisition of Regal Entertainment in late 2017. It began to reopen US theatres where it could in the first half of August but, as lockdown measures are being managed on a state-by-state basis, many still remain closed – including in major states like New York and California.

We have not had much of an update from Cineworld since it reopened sites, but chief executive Mooky Greidinger told CNBC late last month that many showings had sold out and that customers had returned and felt safe thanks to its measures it had taken to protect against the spread of coronavirus.

This does, however, mean screenings are being run at reduced capacity – possibly at just 60% of pre-pandemic levels – which means sold out showings do provide some confidence that demand is there but are not as impressive as they first seem.

The fact the film slate continues to take a battering will not have helped Cineworld and other theatres in recent weeks. Christopher Nolan’s film ‘Tenet’ has been the only blockbuster release since theatres reopened and the performance has been fair but far from inspiring.

The film, which cost $200 million to make, is thought to have grossed just over $250 million worldwide so far. But many other major titles have been delayed or pulled from the schedule entirely – with Disney deciding to exclusively offer its latest hit Mulan to subscribers of its streaming service Disney+ and cut out the big screen altogether.

The problem is that cinemas need audiences to return to give film studios the confidence to release their big titles, but they need the blockbusters to encourage people to return. This catch-22 could continue to harm Cineworld and the rest of the industry this year and there are fears that the rest of 2020’s big hitters – like Wonder Woman 1984 and the latest Marvel film Black Widow – could be delayed.

One reason a strong recovery is particularly important for Cineworld is its heavy debt load. It ended 2019 with $3.5 billion in net debt and that figure stood at over $7.6 billion when lease liabilities were included, which meant leverage was considerably higher than its 3x adjusted earnings target.

Still, after securing extra liquidity in May, Cineworld said this would ‘provide it with sufficient headroom to support the group even in the unlikely event cinemas remain closed until the end of the year’.

The threat of closure has not gone away. Cineworld’s CEO has already conceded that it has missed out in those US states that remain closed, and the threat of a second lockdown is growing for some countries that are seeing coronavirus cases rise again. This could be catastrophic for the industry, not only because of the lost business. It could further dent confidence among film studios and encourage them to find alternative routes to market, with streaming sites going from strength to strength during the pandemic. Current estimates suggest Cineworld’s H2 will not be much better than H1 in terms of revenue and earnings.

Investors should also look for any news on the legal battles Cineworld is facing during this difficult time. The main one to be concerned about is with Cineplex, which is suing Cineworld after it backed out of buying the Canadian chain when the coronavirus crisis unravelled. In a separate matter, CityAM reported in August that one of Cineworld’s landlords, AEW, was taking the company to court over rent for its UK sites that has been withheld during the pandemic.

Cineworld H1 results: what does the City expect?

Virtually all of Cineworld’s theatres were shut for more than half of the interim period and only started to reopen after H1 came to a close at the end of June, which means the H1 results will not be pretty. A Reuters-compiled consensus shows analysts are expecting revenue to fall by over 54% year-on-year and push the stock to a loss.

Cineworld H1 earnings consensus

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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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