Seven West Slips On Writedowns, Weak Result

Seven West Media (SWM) shares slid sharply yesterday after revealing a cut in dividend and a 91% plunge in net after tax profit for the December half. More importantly the ratings for its powerhouse program, My Kitchen Rules (MKR) have fallen in a hole, and that slump became few apparent as the half year results were being released.

The shares ended at 74 cents, down 5.7%.

In fact it wasn’t the most auspicious day for Seven West Media to release its interim profit and brief the market.

The weak profit saw dividend was halved to just 2 cents a share (which will keep major shareholder, Kerry Stokes happy with his 41% stake in the company which is held by Seven Group Holdings), which didn’t impress too many people.

Seven is under pressure over a now ended affair between CEO Tim Worner and former executive assistant, Amber Harrison, (which is now deep in legal action territory and back in court next week), while another weak performance for the network’s most important program My Kitchen Rules has placed further pressure on the company’s management to halt the slide.

This came after the weak result – forecast at last year’s AGM – for the six months to the end of December.

The Tuesday night ratings revealed that My Kitchen Rules had been beaten in the key metro markets (the five major capital cities) for the first time since April 2014.

The victor (by a mere 1,000 viewers, which is well within the survey’s margin of error) was Nine’s Married At First Sight which has grabbed momentum among the key viewers in the 16 to 49 demos and added hundreds of thousands of viewers across the country in the past three weeks.

If the ratings slump for MKR continues, Worner and Seven will be under pressure to act to halt the slide, at a time when you have to wonder if the focus of him, his management team, and the board is fully on the task in hand and not being diverted by the ongoing brawl with Ms Harrison.

Mr Worner assured listeners on yesterday’s conference call to discuss the results that the focus was firmly on the business in the past two months (since the Harrison allegations first broke) with Seven having its best summer (for revenue) in five years.

After its best week this season last week, MKR has gone backwards, shedding hundreds of thousands of viewers from last week as Married At First Sight rushed up the ratings lists.

On Tuesday night it topped the metros, and while MKR ended tops nationally because of more viewers in regional markets, it’s losing ground there to Married. And this is having an impact on the overall ratings.

The weakness in MKR’s figures so far in 2017 has seen Nine close the gap in Seven and in metro markets last night, Nine pipped Seven in the key main channels by the tiniest of margins, 22.3% to 22.2%. Now that’s not important in the greater scheme of things, but in the current situation at Seven, it was a telling blow.

If this weakness in MKR’s ratings persists it will potentially hurt Seven’s ratings for the full year, its revenue and earnings.

And as the weak figures released yesterday show, the network doesn’t have a lot of fat (financially speaking). Debt remains high (but down $35 million in the half) and costs are still being cut, but revenue is weak and ad gains few and far between. And revenue for the industry hasn’t moved in the past six years.

But CEO Worner did reveal that while the metro ad market will be down “mid single digits” in the year to June, the company saw the first growth in ad spending in February and March, and spending was starting to ‘go long or into more distant months.

Despite the upbeat nature of the briefing, the actual results were weak. Seven West said profit after income tax, excluding significant items net of tax fell to $95.7 million (down from $135.2 million) on total revenues of $905.1 million (up 1.4%).

Earnings before interest, tax, depreciation and amortisation were $170.8 million, down 25% from $229.3 million in the prior corresponding period with earnings before interest and tax off 25% as well at $148.5 million from $205.4 million in the prior corresponding period. After significant items, the company reports a statutory net profit of $12.4 million, down more than 91% on a year earlier.

“This is in line with guidance outlined at our annual general meeting for Group EBIT decline to be greater in the first half than our full year EBIT guidance.” Seven said it cut costs by 3.8% in the half and will be aiming to repeat that this half.

Directors said they expect a slightly stronger performance in the June half after the 25% slide in underlying earnings.

“Seven West Media maintains full year guidance for underlying EBIT based on current visibility….As outlined at the company’s annual general meeting, Seven West Media expects underlying EBIT to be down approximately 20 per cent,” Seven repeated yesterday.

Worner told the briefing that while the overnight ratings were important, Seven now used the total audience measures from Oztam (which includes delayed viewing and digital devices). But the overnight ratings are still the most visible of these measures, and the largest.

Advertisers depend on them and ad spending is based on them. But TV ads brought in 77% of the company’s $905 million in revenue in the December half year, and most of that was based on TV performance, and the ratings.

The company’s other businesses – newspapers in Perth (and WA), Yahoo Seven, Pacific Magazines, and production of programs for other networks all reported good and bad elements, with lower revenues for print, higher sales for productions, restructuring of costs and operations in some businesses (especially the West Australian after the Sunday Times purchase, and in Pacific) producing encouragement for the current half and into 2017-18.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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