Seven West Media full-year profit slips 0.9pc

Shares in Seven West Media dived 15pc after underlying profit slipped and it flagged a big hit to earnings.

Seven West Media’s Tim Worner. Pic: John Feder

Seven West Media shares have nosedived 15 per cent after the group’s underlying profit slipped 0.9 per cent to $207.3 million in the 2016 fiscal year due to a persistently lacklustre advertising market.

The media giant (SWM) also warned of a listless year ahead, tipping pre-tax earnings to slide up to 20 per cent.

The reaction from traders was swift, with Seven West’s valuation slashed by $235m as its shares plummeted 15 per cent to 88c at 1pm (AEST).

The red numbers spilled across the media sector in afternoon trade, with Seven rival Nine Entertainment copping the greatest backwash.

At 1pm (AEST), Nine’s shares wilted 15.2 per cent to 92c, while smaller rival Ten Network was off 4.3 per cent at $1.083.

Seven West media boss Tim Worner warned weak conditions for television networks would linger through the next year, but tipped a recovery from FY2018.

“The television market has been going through a rebasing of its share of total advertising spend. This is in line with international trends, which the Australian market typically lags,” he said on a conference call.

“However, just as we have seen overseas, we expect this trend to slow in the coming 12 months and believe we will see this stabilise and return to growth.”

For the year to June 25, Seven West reported a net profit of $184.3m, a reversal from last year’s $1.89 billion loss, which was severely impacted by impairments of its TV, newspaper and magazine assets.

Today’s number missed market estimates of a swing to a net profit of $205.7m, with the final number coming in below the lowest prediction of six analysts thanks to restructuring costs of $32.9m.

The group’s revenue eased 3.4 per cent to $1.71bn, a further signal of muted interest from advertisers, while pre-tax earnings slumped 10.1 per cent to $318.1m.

The revenue figure came broadly in line with forecasts, but the group fell $8m short of pre-tax earnings expectations.

Revenue at the group’s flagship Seven Network dipped 5.8 per cent to $1.05bn despite retaining its leading position in ratings share, sales at newspaper business The West Australian slid 12.4 per cent to $228.5m, while Yahoo7 and Pacific Magazines saw revenue declines of around 8 per cent.

The exception to the falling numbers was its “other businesses” segment, which reported an 84.4 per cent jump in sales, albeit off a low base.

Seven West Media said the higher costs of content for the upcoming financial year — which includes its extensive Olympic and AFL coverage — coupled with the depressed outlook for the advertising market, would slash pre-tax earnings a further 15 to 20 per cent in fiscal 2017.

Analysts had been tipping a FY2017 earnings fall of 11 per cent ahead of the update, Bloomberg data showed.

“The advertising market remains short, particularly given the impact of the Olympic Games,” Mr Worner said.

“At this stage, Seven West Media believes the overall outlook for the advertising market over the coming 12 months will see the television advertising market to be flat to down in the low single digits, while the advertising trends experienced by the publishing assets will continue in the coming year.”

The television networks had not done enough to market themselves to advertisers in a more competitive advertising market, Mr Worner admitted, saying this would be rectified shortly.

“We are now seeing the advertising industry conceding that they have overdone the swing away from traditional media, especially television,” he said.

“As an industry we’ve failed to promote ourselves effectively, focusing instead on competing intensely amongst ourselves. We recognise this and we recognise the need to do something about it.”

Mr Worner added the group was hopeful its focus on diversifying its content delivery sources would partially offset the weak market conditions.

“We are transforming our businesses while continuing to deliver market-leading performances,” he said.

“Our strong balance sheet, our focus on efficiently managing our businesses and driving new opportunities for growth, in particular in the creation of content, provides a solid framework for Seven West Media over the coming 12 months.”

Seven will pay a final dividend of 4c per share, in line with both its interim dividend and final dividend from the year prior.