Seven West Media’s year of agony has continued with the company blaming the collapse in its share price over the past month to falling revenues, entrenched costs, a huge debt burden and more write downs in the value of the company’s assets, especially its TV licences.
Investors gave the Seven result a big thumbs down on Tuesday morning: shares slumped to a new all time low of 22 cents and were trading at 22.7 cents (the old low) at 11am, a fall of more than 12%. The end is nigh.
The write downs of $165 million before tax added to a slide in earnings from the core TV business in the six months to December. (Pacific Magazines has been excluded even though the sale to Bauer remains up in the air with the ACCC not due to rule on it until April.)
Those write downs saw the company report a statutory loss after income tax of $67 million on a 3.2% fall in total revenue to $773.3 million. Underlying net profit (excluding the write downs) after tax was $69.3 million, down 22.5% on the previous year.
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA, the most accepted measure of profitability in the media) fell 20.1% to $136.6 million and Earnings Before Interest and Tax (a measure favoured by Seven) fell 20.8% to $119.7 million from the December 2018 half.
Seven boasted that it had the highest share of the free-to-air commercial TV ad market. But it has lost its ratings to Nine in the second half of 2019 and remains behind its arch rival, which reports next week.
That means 2020 is going to be even tougher for the company than 2019. This year’s Olympics, while it will produce a boost to revenue and earnings, also comes with heavy costs.
Commentary from the company suggests that Seven West is not only still looking at ways (unsuccessfully) to raise more money to cut the debt burden, but is touting itself for a deal (by way of takeover) from some suitor.
Seven failed to cut debt significantly (as it promised at its August earnings release) in the December half.
The company has a market value of $400 million and net equity of just $20.8 million (to support $1.4 billion in liabilities), down from $75 million at the end of June last year and $688 million at the end of December 2018.
In other words, the company doesn’t have enough assets to cover its debt. Even though the banks are held at bay till next year under a finance agreement reached in 2019, the lack of any asset cover will be concerning.
The company did not pay a divided. In its release to the ASX, it said: “The dividend remains temporarily suspended with a focus on prudent capital management and balance sheet flexibility post relaxation in media ownership legislation.”
CEO James Warburton said in comments in the same release that “we will continue to be creative and apply entrepreneurial thinking”.
My mandate is to dramatically change the business which means transformative M&A opportunities are very much on the agenda. I believe we have the team, the platform and the strategy to transform and grow this business to increase shareholder value.
Under Warburton (and chair and major shareholder Kerry Stokes) Seven has sold off its WA radio stations and tried to sell Pacific Magazines to Bauer.
Seven’s attempt to take over NSW regional affiliate Prime Media was stymied last year by regional TV owner Bruce Gordon (who is also the biggest shareholder in Nine Entertainment) and Antony Catalano and his investor mate Alex Waislitz.
Seven was forced to buy a 14.9% stake in Prime after the bid failed to try and offset the influence of Gordon and Catalano.
Just what Seven means by the phrase “post relaxation in media ownership legislation” is uncertain, but certainly sounds like it is touting itself for someone big to take over or merge with News Corp — or a foreign company.
But with its debt burden, falling revenue and profits, and a weak ratings year ahead of it, it is hard to see Seven West Media increasing shareholder value.
A takeover or recapitalisation at a ridiculously low price (or at worst collapse) is the fate waiting for the company.
It’s clear Kerry Stokes and Seven Group Holdings — his master company — don’t want to put up more money and bail out Seven West Media.
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