Seven West Media cuts earnings forecasts amid more ad pain

Seven West Media shares sank after it slashed guidance and lowered first half-profit amid more falls in TV advertising.

Seven West chairman Kerry Stokes and CEO Tim Worner. Pic: Hollie Adams

Shares in Seven West Media sank more than 10 per cent after the media company slashed its annual earnings guidance following a drop in first-half profit, amid headwinds across the television advertising market.

The free-to-air television broadcaster and publisher, controlled by billionaire Kerry Stokes, has forecast annual underlying earnings before interest and tax growth of flat to five per cent, compared to its guidance of five to 10 per cent growth in August.

First-half underlying EBIT fell 4 per cent to $146.8 million, hurt by a 1.5 per cent fall in revenue to $797.4 million.

Seven has flagged a “low single digit” fall in the metropolitan television advertising market for the current financial year after a “softer” ad market in the three months to December.

Despite the testing TV ad market, chief executive Tim Worner is confident its free-to-air TV network Seven will continue to dominate in both ratings and revenue, citing its new cricket broadcast rights as a big driver in attracting advertisers.

The company swapped its tennis coverage for cricket with rival Nine Entertainment.

“Our acquisition of the cricket rights, at a lower cost per hour than the tennis, has paid off with ratings exceeding our projections,” he said.

Mr Worner was bullish about Seven’s production and distribution business, Seven Studios, which is set to deliver a seventh consecutive year of EBIT growth in August. Its first-half revenue rose 20 per cent to $45.7 million.

The group’s WAN business is under pressure, with interim EBIT down 16.6 per cent to $9 million, hurt by a 9.8 per cent drop in revenue. Print and digital advertising revenue fell 11.6 per cent, while print and digital circulation revenue slipped 5.6 per cent.

Seven has increased its annual cost savings target for a second time in four months to $30-40 million, which will come “right across the company,” Mr Worner said in an earnings call with analysts and investors.

Seven revised its annual cost savings target guidance to $20-30 million in November from its initial target of $10-$20 million.

Seven today reported a near 14 per cent drop in first-half net profit to $86.2 million, hurt by lower advertising revenue and significant items totalling $8.6 million related to refinancing costs.

The group’s operating expenses, including its cricket costs, were broadly flat at $652.1 million in the first-half to December 29 .

Seven didn’t declare an interim dividend after temporarily suspending it a year ago to focus on “prudent capital management and balance sheet flexibility post relation in media ownership legislation”.

Seven shares were down 10.6 per cent to 50 cents in a slightly higher Australian share market.

As well as owning TV network Seven, the group publishes The West Australian newspaper and a dozen magazines, including Marie Claire, New Idea and Men’s Health under its Pacific Magazines division.