Ad squeeze hammers Seven as profit tumbles
Shares in media group Seven tumble after COVID advertising slump slashes its profit in half.
Kerry Stokes-controlled Seven West Media is looking to slash more costs across its free-to-air television network and newspapers and offload more assets, in a bid to pay down its $480m debt pile as the advertising market remains volatile during the coronavirus crisis.
Chief executive James Warburton says the focus remained on transforming its media operations after its full-year earnings almost halved as companies significantly pulled-back ad spending over the last few months.
Seven has earmarked $170m in cost cuts over the 2020 and 2021 financial years — including the renegotiation of a lower-priced AFL agreement for an extended term — with reductions worth $30-50m still to go in the current year. The company has also benefited from an incremental $51m in temporary savings during the coronavirus crisis.
Mr Warburton, who unveiled Seven’s transformation plan a year ago and flagged acquisitions were on his radar, is hoping to sell another three assets by December, after raising $150m from the sale of its radio and magazine business, plus two properties in the 2020 financial year.
He said paying down Seven’s debt will improve the capital structure and balance sheet, “which in itself then leads to us being much more attractive from an M&A point of view, and having the ability to participate in market consolidation”.
“Success is not just getting ratings and revenue, and getting the business going. It is to build a bigger, better media business in the market so we still very much have those ambitions, but obviously COVID-19 has had a huge impact,” Mr Warburton told The Australian.
He said asset sale talks were “all at various stages”, adding that there are “lots of different options” when it comes to the future of its TV production company Seven Studios.
In February, Seven put up for sale Seven Studios, plus TXA, a joint venture with Nine Entertainment that owns broadcast towers and its Ventures portfolio that includes investments in lender SocietyOne, GP booking platform Health Engine and online job marketplace Airtasker.
Mr Warburton’s comments came as Seven warned that advertising market conditions remain “volatile and unpredictable” in the first three months of the 2021 financial year, which has hammered the broader media sector this year.
However, the rate of decline in advertising had moderated since the fiscal fourth-quarter to the end of June.
The free-to-air television market dropped 15.8 per cent in July from a year earlier, with Seven recording revenue share at 39 per cent.
Executives are working on a five-year plan for Seven’s 30-plus newspapers in Western Australia to “turbo charge digital growth” following the conclusion of former Fairfax Media boss Greg Hywood’s review, Mr Warburton said.
Seven on Tuesday reported a near 49 per cent drop in annual underlying earnings to $129.6m, hurt by a 14 per cent fall in revenue to $1.23bn.
It booked a full-year net loss of $162.1m, including significant items before tax totalling $352m, relating to impairments and onerous contracts with Cricket Australia and the International Olympic Committee. That halved from its net loss of $324.3m a year earlier, which included $609.2m in significant items.
Seven’s net debt fell to $398m at the end of June from more than $540m following the sale of its radio and magazine operations, plus two properties. However, it has subsequently risen to $481m at the end of July, due to working capital costs. The group last month renegotiated the terms of its $750m debt facilities with its bankers, easing liquidity pressure.
Separately, Seven’s annual report disclosed it paid Mr Worner more than $3m in the 2020 financial year. He received a $2.57m termination payment following his surprise departure last August after six years as CEO, plus fixed and other remuneration totalling $448,453.
Mr Worner’s employment formally ended in mid-December after four months of so-called gardening leave, according to Seven’s 2020 annual report.
Seven’s shares closed 16 per cent lower at 13c, after rallying ahead of its results over the past week.
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