Wanda AMC lost more than 1 billion in the second quarter. CEO says it will stop buying new projects.
AMC posted a quarterly loss of $176.5 million (1.188 billion yuan), and even Adam Aaron, chairman and CEO of AMC, said he was "extremely disappointed" with the results.
AMC, the world's largest cinema chain controlled by Wanda Holdings, is slamming on the brakes on the M & A strategy that has been actively implemented over the past two years.
on August 4, 2017, AMC, the world's largest cinema operator, reported ahead of schedule its second-quarter earnings, which increased to US $1.2 billion, up from US $764 million in the same period last year, but the revenue figure was smaller than the market forecast because the growth mainly depended on mergers and acquisitions. AMC reported that overall box office receipts in North America, including Canada, fell 3.3 per cent in the second quarter, while North American box office receipts in the US fell 4.4 per cent.
AMC posted a quarterly loss of $176.5 million (1.188 billion yuan), and even Adam Aaron, chairman and CEO of AMC, said he was "extremely disappointed" with the results.
at the temporary early earnings meeting, Adam Aaron once again separated himself from the financial link with the major shareholder Wanda while explaining that the profit was lower than expected, and made it clear for the first time that if new mergers and acquisitions are stopped, "mergers and acquisitions will be suspended." The new acquisition will burden us with additional debt, which will run counter to our core needs and demands for deleveraging. And according to the current valuation of AMC's share price, we will not carry out mergers and acquisitions through share swaps. So, for those who are curious, M & An activity absolutely stops at the moment. "
in the past year and a half, AMC has successively acquired Carmike, the fourth largest cinema line in the United States, for US $1.2 billion, and Odeon&UCI and Nordic Cinema Group for US $1.2 billion and US $930 million respectively.
strong > make it clear that overseas M & A funds have nothing to do with Wanda / strong >
at the earnings report, Adam Aaron once again distanced himself from the financial relationship with the major shareholder Wanda. He stressed that AMC operates independently and has its own balance sheet and management team. "We spent more than $1 billion on theater renovations and acquisitions, but never sought capital help from Wanda. In recent weeks, there have been a lot of false positives and speculation. "
in mid-July this year, AMC was affected by the news that Wanda's overseas projects might be suspended. Within one day, the share price plummeted 10%, and the market capitalization lost $2 billion on that day. Subsequently, AMC said that Wanda was not involved in the day-to-day operations of AMC and that AMC's overseas mergers and acquisitions were financed by US bank loans and its own cash reserves, not Wanda.
after a short-term stop, AMC ushered in a new round of slump as a warning of worse-than-expected earnings. Shares tumbled 27% on august 2nd, falling below the IPO offering price.
"plummeting, maybe overreacting." One US stock trader said on Aug. 2, "but the market does not have time to demonstrate whether AMC's ongoing theater renovation plan can continue to strengthen the theater's long-term revenue." All the market knows is that AMC is facing an audience battle with online platforms such as Netflix, where big acquisitions have drained cash reserves and the parent company's risks are still unknown. Multiple bearish, prompting investors to press the 'sell button' first. "
strong > CEO announces that it will increase its holdings of AMC shares out of its own pocket / strong >
Adam Aaron blamed the second-quarter loss on the overall decline in the US box office market and the pre-tax impairment caused by the previous acquisition of Carmike, the fourth largest cinema in the United States. As a condition of regulatory approval for AMC's acquisition of Carmike, AMC needs to sell 15 cinemas and relinquish control of cinema marketing company National Cine Media. But after the deal was approved, the market value of the latter fell by nearly 1/3, causing AMC to write down its impairment in advance.
in the face of declining performance, AMC announced a "food and clothing reduction" plan, that is, starting from July this year, it will reduce costs by reducing operating hours and laying off employees, with an estimated cost savings of US $30 million this year.
to reassure the market, AMC's board of directors also announced a new share buyback plan to buy back $100m worth of shares over the next 24 months. Adam Aaron explained that the buyback would not increase the company's debt leverage and that the buyback funds would be financed through the sale of some non-strategic assets, which is expected to raise $200m.
in order to show management's confidence in the company's future performance, Adam Allen also said that he will continue to increase his holdings of AMC shares in the open market out of his own pocket. Currently, Adam Aaron's personal investment in AMC stock costs about $1.8 million, taking into account both equity awards and open market purchases. He plans to spend another $500000 on AMC shares over the next 60 days.
strong > growth plans after stopping new acquisitions / strong >
since going public in 2013, AMC has been trying to grow its business through aggressive overseas mergers and acquisitions.
the explanation of the management is that by "seizing the city and seizing land" in the European and American film markets, we can reduce operating costs and increase the bargaining power with content producers through synergy. Through three major acquisitions, AMC has become the world's largest cinema operator.
but investors no longer believe in the growth strategy of "acquisition for performance". More worrying is the "sword of Damocles", the high-end pay-on-demand (PVOD) plan put forward by Hollywood studios, which hangs on the line of AMC and other cinemas.
traditionally, the time window for the release of blockbusters in cinemas and before the release of DVD and other channels is 6 months, which is also the "golden period" of cinema profits. However, in the past three years, the window period has been gradually shortened to 3-4 months, weakening the overall bargaining power of US cinemas. The high-end pay-on-demand currently under negotiation will further shorten the window before the release of cinema lines and other channels, which means that big studios can bypass cinema lines and put their main profits online and other channels of distribution.
at the earnings meeting, Adam Aaron said that AMC is actively participating in the negotiation of the PVOD agreement in order to strive for the interests of the cinema line. He revealed that he had had one-on-one talks with the management of the five major Hollywood filmmakers in the past eight weeks. But he expects it will be difficult for all parties to reach a consensus by the end of the year. Analysts estimate that once the PVOD agreement is launched, cinema will lose nearly $380 million in profits a year.
Edit: xiongwei