True recovery will come with the highly anticipated return of Hollywood blockbusters in 2025, Ang said, lacing his message with buzzwords like “underdog”, “grit” and “unwavering” to portray a company about to claw its way back from the brink.
A year later, recovery remains elusive. Worse, the cash-strapped company is facing a litany of legal demands for the immediate payment of outstanding loans and rentals for its cinema business, which has been bleeding it dry over the years.
The letters of demand started landing in February. Since then, Cathay Cineplexes, mm2’s cinema chain, has closed down its outlets at West Mall and JEM. Its remaining cinemas are in Causeway Point, Century Square, Clementi 321 and Downtown East.
Shareholders and investors are none the wiser about mm2’s fate, beyond knowing it’s in dire financial straits because of Cathay Cineplexes, which it acquired in late 2017 for $230 million. It funded the deal using debt, including convertible bonds, and its own cash.
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Details on mm2’s latest financial status aren’t available just yet. The company has sought an additional 90 days from the Singapore Exchange Regulation to prepare its results and annual report for the financial year ended March 31, 2025. It has until Aug 28 to release these results. Its annual report has to be out by Oct 14, while its AGM must be held by Oct 29.
While unfortunate, mm2’s predicament is not entirely unexpected. To be sure, the reason it bought Cathay Cineplexes was to develop recurring income through film distribution, which it wanted as its next engine of growth after content production. Just months before it announced the acquisition of Cathay Cineplexes, mm2 tried but failed to buy the Golden Village cinema chain in Singapore.
For a while, mm2’s gamble on the big screen paid off. Its revenue for the year ended March 31, 2019, surged 39% y-o-y to an all-time high of $266 million. The cinema business, which made its first full year of contributions, was the main growth driver, accounting for $100 million or 38% of the entire top line.
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Too good to last
That shot in the arm, however, turned out to be a blip. By the time mm2 completed the acquisition of Cathay Cineplexes in November 2017, Netflix and Amazon Prime had made major inroads into households worldwide following their global launch in 2016. Cinema operators started feeling the heat as consumers were getting used to watching their favourite shows anytime, anywhere through these streaming platforms.
Disney+ and Apple TV+ joined the fray in late 2019, around the time the world first got acquainted with Covid, which emptied cinemas for months on end over the next two years while turbocharging the streaming trade. mm2 booked a whopping $118 million impairment loss on its cinema business in the financial year ended March 31, 2023, its lowest point as far as write-downs are concerned.
Even after the sweeping asset reset and Covid’s retreat, mm2’s cinema business has yet to show any sign of a turnaround. For the six months ended Sept 30 last year, its cinema losses swelled to $7.7 million from $4.6 million for the same period a year earlier, while revenue tumbled 42% to $13.8 million. This time, something else was to blame for the weak showing: a lack of major Hollywood releases.
Multiple film titles and projects were suspended or delayed after Hollywood writers and actors went on strike in 2023 to demand fairer pay and streaming royalties, better working conditions, and protection against artificial intelligence replacing their work. The walkouts lasted more than 100 days and ended in November that year.
With the strikes over, writers and actors got back to work, clearing the path for the global release of several high-profile Hollywood flicks this year. While mm2 is banking on them to turn the tide for its movie-theatre business, it’s doing all it can in the meantime to try to stay afloat in the face of growing legal demands to settle its outstanding cinema loans and rentals.
Turbulence in other businesses
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With the exception of its content production business, which makes films and TV shows, mm2’s other businesses haven’t been doing great either.
UnUsUaL, the concert producer that mm2 spun off in 2017, reported its biggest loss ever — $22.5 million — in its last financial year. Revenue tumbled as fewer projects were completed, while costs escalated and hefty impairments were made as certain assets were no longer expected to deliver the returns the company had hoped for.
The result was a stark contrast to UnUsUaL's performance in the previous year, when it turned in a $7.7 million net profit. Keen competition from the rest of Asia as well as rising costs are key risks in the foreseeable future, according to UnUsUaL, which accounted for 37% of mm2's latest available audited annual revenue. mm2 owns nearly 77% of UnUsUaL.
Meanwhile, Vividthree Holdings, the 3D animation and visual-effects specialist that mm2 spun off in 2018, has been feeling some heat from changing industry dynamics. Across the industry, generative AI has streamlined creative tasks that once required large teams, long hours and high budgets. This has pushed Vividthree to cut back on labour-intensive production and focus on creating its own intellectual property that can enhance its offerings and help it move up the creative value chain.
Similar to UnUsUaL, Vividthree also took a big hit to its revenue and booked steep impairment losses in its last financial year. Its net loss ballooned to $10.7 million from $1.8 million a year earlier. Vividthree also has more short-term liabilities than current assets. Its independent auditors have even issued a disclaimer of opinion, warning there are serious doubts about its ability to continue as a going concern.
In seeking to spread its risks, Vividthree said in June it would invest $1 million for a 30% stake in a Chinese-language tuition chain in Singapore. This is the first foray into the education business by the company, which is nearly 30%-owned by mm2.
Limited funding options
From the way things are unfolding, the going may well get tougher before it gets any better for mm2. Finding fresh funds is clearly its top priority. But traditional funding options are limited, given its strained balance sheet and the urgency of the repayment demands from creditors and cinema landlords.
Still, that hasn’t stopped mm2 from trying. In a sign of desperation, it has proposed selling most of its shares in Vividthree to Hildrics Capital, a Singapore-based private equity firm, for about $1.7 million. The move, which requires the approval of mm2’s shareholders, will bring its stake in Vividthree down to 8.9% from 29.9%. mm2 is expecting a $2.8 million loss on disposal.
mm2 is also looking to raise as much as $14 million in net proceeds by placing out nearly 1.9 billion shares, representing 28.7% of its existing share base. The placement price will be no less than 0.8 cent a share. However, getting the funds will be challenging for reasons besides mm2’s current financial predicament.
One, the minimum placement price of 0.8 cents is above what the stock is currently trading at, making the exercise a hard sell. Two, the placement shares will not be offered to any director or substantial shareholder of mm2. This rules out corporate bigwigs Oei Hong Leong, Sam Goi and Ron Sim, all of whom answered one or more of mm2’s cash calls in recent years.
Its most recent equity raise before the current proposed placement was in August last year, when it secured $40 million by placing out new shares. No less than $15 million of the proceeds came from Sim and his company V3 Group. The Osim founder is now mm2’s largest shareholder.
Without the backing of these bigwigs, mm2 will need new funders for the proposed placement. Given the company’s current state of affairs, anyone contemplating coming in will need a high tolerance for risk.
Meanwhile, time is running out for mm2. It has only between July and early August to pay its claimants. An EGM for shareholders to vote on the placement or even the Vividthree stake sale looks highly unlikely given these time constraints.
With all this going on, mm2’s options for its cinema business are severely limited. In a regulatory filing on July 17, it said Cathay Cineplexes may either have to wind up or restructure through a scheme of arrangement.
To borrow a medical analogy, if cutting out the cancer is the only way to save the patient, a scheme of arrangement or even shutting down the cinema business entirely may well be mm2’s best shot at survival.
For all the hopeful messaging and talk of resilience, mm2 is now a company on the ropes — squeezed by claimants and left scrambling for fresh funds in a market that’s fast losing patience. Its diversification bets have mostly backfired, as the very asset it once pinned its recurring-income hopes on has become a financial black hole.
With time running out and options fast dwindling, mm2 is staring down a stark reality: survival may depend not on grit or underdog spirit, but on radical surgery. The reckoning, it appears, can no longer be delayed and redemption, if it comes, won’t be pretty.
