The six months to December 2019 were another half year to forget for Seven West Media and the market reckons there’s worse to come over the remainder of 2020.
So weak was the half year’s performance that the company’s share price fell to a series of record lows in January and February, with the shares slumping 21.5% to 20.5 cents after touching a low of 20 cents.
The slide in revenue and earnings meant significant items of $165.5 million before tax relating to the impairment of the television license, onerous provisions, and impairment of assets against content and other items.
Those write-downs saw Seven West report a statutory loss after income tax of $67.0 million on a 3.2% fall in total revenue to $773.3 million. Underlying net profit (excluding the write-downs) after tax was $69.3 million, down 22.5% on the previous year.
Earnings Before Interest, Tax, Depreciation, and Amortisation (The accepted measure of profitability in the media) fell 20.1% to $136.6 million and Earnings Before Interest and Tax fell 20.8% to $119.7 million from the December 2018 half.
And even though Seven boasted it had the highest share of the free to air commercial TV ad market, that lead has been lost to Nine so far in 2020. Its ratings lead vanished in the second half of 2019 calendar year and the network remains well behind Nine (which reports next week).
That means 2020 is going to be even tougher for the company than was 2019 when at least in the first six months it had something to celebrate.
This year’s Olympics, while it will produce a boost to revenue and earnings, also comes with heavy costs (but the broadcast is in a favourable timezone for live viewing which is worth more to advertisers).
Seven failed to cut debt significantly (as it promised at its August earnings release) in the December half.
That remains at $569 million on a net basis, down from $588 million at December 2018. But worryingly the gross debt only fell $5 million to a still huge $683 million at December 2019.
The company now only has a market value of $400 million and net equity of just $20.8 million (to support $1.4 billion in liabilities), down from $75 million at the end of June last year and $688 million at the end of December 2018. That is unsustainable.
Again there’s no dividend and directors had this explanation in the Tuesday ASX release: “The dividend remains temporarily suspended with a focus on prudent capital management and balance sheet flexibility post relaxation in media ownership legislation.”
And CEO James Warburton said in comments in the same release that “We will continue to be creative and apply entrepreneurial thinking. My mandate is to dramatically change the business which means transformative M&A opportunities are very much on the agenda. I believe we have the team, the platform and the strategy to transform and grow this business to increase shareholder value.”
Seven has sold off its WA radio stations in the half and tried to sell Pacific magazines to Bauer (but that ACCC inquiry has blocked that for the next couple of months).
Seven’s attempt to takeover NSW regional affiliate Prime Media was stymied last year by regional TV owner, Bruce Gordon (who is also the biggest shareholder in Nine Entertainment) and Anthony Catalano and his Melbourne investor mate, Alex Waislitz.
The company faces a weak ratings year ahead of it as Nine seems to have better programming at the moment, at least.
Industry revenue is weak and we have yet to see any impact on media sales from the bushfires and the COVID-10 virus, but it will come.