Seven West Media prepares for post-reform M&As

Seven West Media chief Tim Worner is stepping up a cost-savings program to prepare the ground for potential deals.

Seven West Media chief executive Tim Worner. Picture: Kym Smith

Seven West Media chief Tim Worner is stepping up a cost-savings program to prepare the ground for potential deals in a post-reform landscape as shares in the media company surged 18.6 per cent on the back of better-than-expected results.

In an interview with The Australian, Mr Worner said “we’re ­positioning ourselves for any opportunities that may come along” in the strongest sign yet that Kerry Stokes’s top-rated commercial network could pursue mergers and acquisitions as well as offload assets this year.

His comments echo those of other prominent industry leaders such as News Corp Australia executive chairman Michael Miller, who this month predicted a ­period of industry consolidation to drive growth after the Turnbull government passed the most sweeping shake-up of ownership controls in decades.

“I think there’s high chance of M&A activity in the next 12 months,” Mr Worner said.

“The moves that we have ­undertaken today are all about ­allowing us to be an active participant so that when an opportunity comes along it will work for us and our shareholders.”

Shares in the broadcaster, digital media, magazine and The West Australian publisher surged 18.6 per cent to finish the session at 60c, giving the company a market value of $912 million after Mr Worner said he would accelerate cost-cutting efforts by a further $20m-$125m across 2017-18 and 2018-19.

On a call with analysts and media, Mr Worner rejected suggestions he could leave Seven in the near future when asked about his existing one-year rolling contract expiring at the end of June.

60.5¢, Seven West Media closed up 9.5¢

Seven will cut costs by $40m this financial year, which Mr Worner said would help offset higher AFL rights payments as part of a plan to cut debt to $650m by the end of June, down from $710.8m at December 31.

The program was already under way with Seven having lowered costs by 13.8 per cent to $652m in the six months to December 31 compared with the previous corresponding period.

Staff based in harbourside offices in the Sydney suburb of Pyrmont will be relocated to nearby Media City in Eveleigh, a move that will deliver $10m in savings. The biggest saving will be delivered by $25m worth of job cuts in Seven’s television business.

First-half profit jumped to $100.7m from just $12.4m at the same time last year, although much of the profit increase was due to significant items booked in the prior corresponding period.

Revenue declined 10.4 per cent to $809.4m and earnings before interest, tax, depreciation and amortisation rose 3.5 per cent to $176.8m. Investors responded positively to news that Seven had reaffirmed its earnings guidance of between $220m and $240m.

Seven did not declare an interim dividend, saying it was temporarily suspending distributions to “focus on prudent capital management and balance sheet flexibility”.

Mr Worner said trends in the TV ad market continued to improve, adding to signs that the industry’s recovery was proving more robust than forecast, and networks were winning back ad dollars siphoned off by digital alternatives.

A shift back to TV was partly driven by ongoing problems in digital advertising, Mr Worner said, noting the prevalence of online ad fraud, issues with the viewability of digital ads, and a series of scandals involving extremist content on Facebook and Google’s YouTube.

“There is a swing back to the safety of traditional media and television. The big mass marketers like banks and telcos are definitely back. We’re also seeing stronger demand from tech companies,” he said.

“When the market sees a tech giant like Amazon advertising heavily in television they think, ‘if they’re using TV, it must work’. I think industry group ThinkTV is getting some traction in terms of putting a spotlight on brand safety and online ad measurement while underscoring the return on investment television advertising delivers.”

Seven also announced it had renewed a regional TV affiliation agreement with Southern Cross Austereo, which was set to expire on July 1.

A three-year extension will see Seven continue to supply local and international broadcast content to Southern Cross Austereo in Tasmania, Darwin, Spencer Gulf, Broken Hill, remote eastern and central Australia and Mount Isa.