Seven West Media drops guidance as AFL, Olympics evaporate

Seven is understood to have met with its bankers before abandoning its annual earnings guidance, but the financial institutions showed no interest in taking control.

Kurt Burnette, Seven's chief revenue officer and director of Olympics. Picture: Britta Campion

Seven West Media is understood to have met with its bankers before the debt-laden free-to-air television and publishing group abandoned its annual earnings guidance on Tuesday, but the financial institutions showed no interest in taking control.

The Kerry Stokes-controlled company is understood to have held talks with its lenders after its interim results last month, with talks continuing. Its $541m debt pile equates to 2.4 times its underlying earnings, compared to a market capitalisation of $103m.

Seven has joined a growing list of Australian media companies to withdraw its earnings guidance, as the coronavirus wipes out its advertising revenue and marquee events, including the Australian Football League and the Tokyo Olympic Games.

The company, which was struggling before the coronavirus pandemic, has warned that its visibility of future ad bookings was “now insufficient to provide meaningful earnings guidance for the remainder” of the 2020 financial year.

Prior to the rising uncertainty relating to COVID-19, Seven was betting that the AFL and the Tokyo Olympic Games would deliver big TV and streaming audiences, and in turn boost its depressed ad revenue.

Seven West Media ended steady at 6.7c

But that’s now under a cloud with the AFL season suspended until the end of May, and the Tokyo Olympic Games widely expected to be postponed until next year.

“Such postponements are likely to result in rights payments by SWM being pushed back to reflect the revised scheduling; any adjustments remain subject to negotiation. However, postponements may also incur cancellation costs from underlying suppliers,” Seven cautioned.

It is understood that the postponement of the Tokyo Olympics, which was scheduled to start at the end of July, would save Seven about $70m. It isn’t clear what the financial impact will be from the AFL’s decision to go on hiatus for the next few months.

Its shares rebounded slightly on Tuesday, closing 1.5 per cent higher at 6.7c on investor hopes of some savings from the Olympics being postponed.

Seven last month cut its annual underlying earnings guidance to between $165m to $175m, subject to market conditions and improved ratings. Previously, it had flagged annual underlying earnings would be at the lower end of $190m to $200m.

Prior to the health and economic crisis, Seven boss James Warburton was looking to sell and buy assets as part of his plan to overhaul the company.

Seven said local productions, including its rebooted reality show Big Brother, were also “facing challenges with travel restrictions and COVID-19 issues”, with its teams “working tirelessly to deliver on commitments”.

Big Brother resumed filming on Tuesday after it was halted on Sunday over fears a crew member may have coronavirus. The test result came back negative on Monday.

Over the past two weeks, Seven said it has implemented its “business continuity plans”, establishing remote working for the majority of staff to ensure their safety and wellbeing and minimal disruption to operations.

“Despite these challenging conditions, the company remains focused on executing its key strategic priorities outlined at its interim financial results including transforming the business and working down debt ahead of scheduled maturities in November 2021 and 2022,” Seven said.

Ad spending, which was already under pressure before the coronavirus outbreak, is widely expected to drop further as companies pullback spending during the health and economic crisis.

Embattled ad group WPP AUNZ on Tuesday cancelled dividend payments totalling 4.4c, citing “the unprecedented uncertainty as to the impact and duration of the COVID-19 pandemic”.

Outdoor advertising group oOh!media was the first company within the Australia media industry to dump its guidance on March 16. Four days later, the group sought a trading halt on the Australian Securities Exchange to explore a capital raising, which on Tuesday led to a request for a voluntary suspension for the same reason.

Seven’s staunch rival Nine Entertainment abandoned its annual earnings guidance last Thursday, citing poor future ad visibility in the wake of COVID-19. The warning from a major media player led to a sharp sell-off, with the stock dropping to a record low of 85c on the ASX before finishing down 15 per cent at 87c.

Online real estate group REA Group and regional broadcaster Prime Media have also dumped their annual earnings guidance, with Southern Cross Media on Monday requesting a 48-hour trading halt to assess the fallout from COVID-19.