It’s not the weak 2018-19 performance and second big asset write down in three years that should concern shareholders in Seven West Media (including 41% holder, Kerry Stokes), it’s the weak outlook for the coming year with forecast guidance on the table for yet another profit drop.
It will make for a big task for the company, Chairman Stokes and new CEO James Warburton. On present indications, they face the same sort of pressures that the company faced for six years under Tim Worner, who left the company last Friday with no relief in sight – perhaps only someone game enough to bid for the company, but only with Kerry Stokes’ approval.
Seven West Media’s 2018-19 underlying earnings (before interest, tax, depreciation, and amortisation) fell 10.1% to $243.6 million over the year, with underlying net profit after tax falling 7.9% to $129.3 million.
The company took total write-downs and impairments of $611 million, pushing it to a loss of $444 million. Included in the write-down was $415 million again the value of its TV licenses and $37 million against the value of newspaper mastheads (at WA Newspapers).
A further, $159 million or so was related to write-downs on investments and onerous contracts. It followed write-downs and impairments totaling $998 million in 2016-17.
There’s no final or full-year dividend and judging by the weak outlook, shareholders will be lucky to see any payout this financial year.
With the economy expected to slow, no real wage growth, the impact of weak demand hitting advertisers and the growth of streaming services (Disney + joins Netflix and Stan and Foxtel Now from November in the streaming space), the media markets are not going to get any easier for Mr Warburton in his new CEO role.
Seven is forecasting yet another fall of 5% to 10% drop in earnings before interest and tax (EBIT) to a range of “$190 to $200 million”.
That compared to the 2018-19 EBIT of $212 million and $235.6 million in 2017-18 when the last huge impairment was revealed. Seven’s share price was around 75 cents when that was announced was made, so it has halved in that time.
A year ago Seven and Tim Worner were forecasting a 5 to 10% rise in EBIT. in February of this year that became no real change and in a June update, it became a fall of 5% to 10%, which is what happened.
Mr. Warburton said in yesterday’s that 2018-19 was a “tough year in the economy and advertising markets” that affected performance.
Seven’s metropolitan television revenue share was up 0.7% to 38.8% over the year amid a soft advertising market for all broadcasters. (Metro ad revenues fell 2.7% in 2018-19).
That is not going to improve this year.
“But we have incredibly strong assets, and our focus moving forward is to speed up the rate of transformation while exploring opportunities for growth in our core and adjacent markets,” Mr. Warburton said yesterday.
“We will revitalise our entertainment programming, creating momentum to engage heartland Australia and enrich the demographic mix, ensuring we are the most relevant and exciting offer to advertisers,” he said in the statement.
He said the business would focus on making savings “which do not impact on ratings”. Tim Worner said that repeatedly as he and his managers took the best part of $100 million out of the cost base in four years.
“We will be a hunter and explore merger and acquisition opportunities in both traditional media and nontraditional adjacencies that are positive for our shareholders,” Mr. Warburton said – a comment that raised eyebrows seeing Seven still has more debt than the company is valued at.
The latest write-down cut the value of Seven West’s net equity to just $103 million from $533 million the previous year and pushed the total accumulated deficits to a massive $3.3 billion.
Seven West cut its gross debt from $769 million at June 30, 2018, to $653.8 million at June 30 this year but that still exceeds the company’s market value of around $603 million. The shares closed unchanged yesterday at 38.5 cents.
Seven says its “Debt is still within covenants’’ set by its banks and the debt has been refinanced out to 2020-21, but the pressure remains on Seven and Stokes to strengthen the company’s capital base.
The only way to do that is via a capital raising to shareholders which would be next to impossible given the collapse in the price in the past year and the fact that at 38 cents the price is around all-time lows. The shares closed steady yesterday at 38.5 cents – that brief spurt to 40 cents in the wake of Mr. Warburton’s now history.
Some sort of new capital has to be found because if advertisers start losing confidence in Seven and its future (as they did with Ten before its collapse in late 2017) then Seven will be under even greater pressure.