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Photon: $100m plus write-off; Owes banks $271m; Chairman Tim Hughes quits; Earn-outs to total $176m; Up to 50 jobs cut

Photon Group, once Australia’s biggest media and marketing group, this afternoon came clean to the ASX about the disastrous state of its finances.

It admitted that the awful performance of its Internet & E-Commerce division will see it write off “$90 million in non-cash intangible impairment charges”.

And on top of that, it said that it is also expecting to write off “approximately $28 million – $31 million in one-off costs relating to losses on discontinued or divested businesses, provisioning for restructuring, impairment of working capital and other items”.

Executive chairman Tim Hughes has stepped down from his role although he will remain as a director. The company is starting the search for a new chairman. Brian Bickmore will be the interim chairman.

Photon’s agencies includes BMF, BWM, Naked, C4, CPR, Be Interactive and Frank PR.

The EBITDA (earnings before interest, tax, depreciation and amortisation) will be dramatically less than the company had previously indicated.

The company said that “the decline” in the Internet & E-Commerce division would lead to the EBITDA being $16m less for 2010 than anticipated. Much of the blame for this has been laid at the door of its failed get-rich-quick Internet school Geekversity. The update is the second time in four months that Photon has cited the failure of Geekversity as a major reason for its woes.

And foreign exchange rates failing to go the way the company had hoped will account for another $5m.

Photon also came clean for the first time on the bill it faces for earn outs from those who have sold agencies and companies to the group.

It said: “The Company estimates total future deferred consideration payments to be approximately $176 million”. Most of that is due over the next 15 months.

Photon revealed that agency founders still in their earnout period are under pressure to renegotiate terms including accepting shares instead of cash. It said:

“Photon has commenced discussions, which are confidential and incomplete, with vendors of some operating entities with a view of restructuring the deferred consideration arrangements. The restructure of these deferred consideration arrangements is designed to cap the potential liability and convert some portion of the deferred consideration payments into Photon shares for those arrangements that are restructured.

And it revealed that the group expects that as of the end of this month its bank debt will be $271m. When trading in Photon shares on the ASX was suspended three weeks ago, its market capitalisation was $181m.

Photon has also ripped up its old operating structure, effectively shutting its Internet & E-Commerce division with the loss of up to 50 jobs. It will now have three divisions:

  • Australian Agencies
  • Australian Field Marketing
  • International

Photon_structure_Mumbrella

There has been no announcement yet on who will head each division, although that is expected within the week.

The companys aid that one option it is pursuing is a capital raising. Market speculation is that this might price Photon Group shares at about 25c, compared to the $1.02 they were before it went into the trading halt. The company said it woudl remain in a voluntary suspension from the ASX until the review is completed.

The company also signalled – if it wasn’t already obvious – that its days of acquiring companies are behind it. It said: “Growth via acquisition will not be the focus of the Company.”

The company said that agencies BWM and BMF had performed well: “Robust growth across existing and new client wins” but Naked had has a “softer” second half.

The downbeat announcement comes just weeks after Jeremy Philips took over as CEO.

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