Seven West Media has been force to drop its dividend for the time being as it struggles to survive a high level of debt, falling sales and weak growth prospects.
That and a commitment to deeper cost cuts in the next year and a bit saw the company’s shares shake off their price slide to record lows and post an 18% jump to a closing price of 60.5 cents.
The company, 41% controlled by Kerry Stokes through Seven Group Holdings, said in yesterday’s December half financial report that the dividend (two cents interim and final in 2016-17) had been “temporarily suspended”. No hint of when it might be resumed was given.
The company follows the likes of Ten Network (it didn’t work there), Qantas, Vocus and Metcash (the independent retailer) which survived suspending their distributions to shareholders while restructuring and trying to survive tough times.
Seven West will save $60 million a year at 4 cents a share – Kerry Stokes and Seven Group forgot just over $24 million – and the extra cash should allow the company to make a decent dent in the huge net debt burden of $711 million, down from $725 million at the JUne 30 balance date.
Debt will be cut further to around $650 million by the end of June and more than $70 million in cost cuts have been promised for 2018-19 on top of more than $40 million already done and a further $10 to $20 million over the rest of this financial year.
The board obviously rejected other approaches such as a rights issue to help recapitalise the company (the share price is too low), allied with an asset impairment to reduce the ridiculously high balance sheet value of intangibles from just over $1 billion to something more believable.
Seven’s results reveal that it was solely driven by heavy cost cutting at its TV and print media businesses. That enabled the group to offset a nasty double digit slide in group revenues in the half year. Revenue for the group fell 10.4% to $811 million, thanks to a 9.6% slide in TV revenues at Seven to $587 million for the half. TV Earnings Before Interest and Tax, or EBIT rose 3.1% to $147.4 million. The West (West Australian Newspapers) saw revenue slide 7.9% and EBIT fall 28% to $10.7 million. Pacific Magazines saw revenue slide 29%, to $6.2 million from $1.3 million because of a 27% slash in costs (or $24 million).
Group profit before interest and tax and significant items edged up to $159 million, up 7.2%. Without the cost cuts, earnings would much lower.
An extra $20 million is planned for this year and next, making a total of $125 million. That means more pain for staff, as journalists on the West Australian were warned last month.
At a later analyst briefing, CEO Tim Worner reaffirmed Seven’s full-year underlying earnings guidance of between $220 million and $240 million. That’s the lowest in more than seven years, if it is achieved anywhere in that range.
