Seven records profit, slashes debt pile, and sets sights on continued cost cuts

Seven West Media has reported a net profit of $116.4 million for the half year ending 26 December, and revealed it has slashed its significant debt pile by 42% to $329 million, landing in a “significantly improved financial position”. The group’s revenue was down 9.9% to $644.2 million for the six month period, driven by a lower TV revenue share and the ongoing effects of the COVID-19 pandemic.

Chief executive James Warburton also confirmed the media company’s $170 million cost savings program is on track, with a further $30 million in cuts identified, including “onerous sports contracts”.

At the end of last year, Seven escalated its dispute with Cricket Australia by lodging Federal Court proceedings, putting a question mark over the $450 million broadcasting deal Seven wants to pay less for. Mid last year, the TV network also struck a new deal with the AFL, resulting in $87 million of ‘net benefits’.

“FY21 will see an incremental $30 million cash saving, further lowering our cash expenses and increasing leverage to the market recovery. We will continue to maintain a sharp focus on operating costs, including onerous sports contracts,” Warburton said.

“We have addressed our content strategy and cost base to provide a path to debt reduction. While this continues, we believe that media consolidation and a focus on building a bigger and better business is still our major priority.

“We are positioning Seven West Media to win. This will ensure that we have the ability to lead market consolidation.”

Source: SWM. Click to enlarge

Underlying group earnings before interest and taxes (EBIT) sat at $151.7 million, a climb of 29% year-on-year, while underlying net profit before tax (excluding significant items) was $86.6 million (up 26.5%) and underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) was $165.7 million (up 24.4%). It paid out $4.8 million in redundancies and employee entitlements for the half, and reported payments of $33.4 million from the federal government’s Jobkeeper program.

Source: SWM. Click to enlarge

Cost discipline remains critical as part of the company’s ongoing “radical transformation of the cost base” according to Warburton and chief financial officer Jeff Howard. It expects $110 million of savings implemented last year will be realised this year, offset by 1-2% inflation.

“Improving Seven West Media’s balance sheet has been one of our company’s key objectives over the past 12 months,” Warburton continued.

“We have made significant progress in addressing this, with a 42% reduction in net debt year-on-year – ahead of our plan at the beginning of the financial year. We have also retired $150 million of debt since the end of the half year.

“This significantly improved financial position has provided us greater optionality in our asset sale processes to ensure we maximise value for our shareholders.”

Source: SWM. Click to enlarge

By paying down the debt, the business will be in a position to “pursue M&A opportunities”, it said, and will consider renegotiating its facilities this year given its “improved financial position”.

The CEO also pointed to offers for production unit Seven Studios, and said the business is considering its options for TX Australia, the tower business it co-owns with Nine and referred to as a non-core asset.

Warburton promised to continue to “re-position the business”, and pointed to Seven’s content strategy as the path to growth. Big Brother, Farmer Wants a Wife, SAS: Who Dares Wins, and the AFL had an “immediate” impact on audience share, he said, and Seven has an “unrivalled schedule” in 2021.

“Our new tent poles are delivering on average 75% more audience than the old content strategy,” he declared. “This will translate to higher revenue share in the coming 12 months.

“Our digital transformation can be seen in the success of 7plus, which has had a phenomenal year. Its revenue was up 79% in the period versus market growth of 44%.”

If the Olympics, set down for July, is postponed for the second year running, Seven is set to be refunded $50 million.

It has received a one off saving of $18 million on Tokyo 2021 due to the delay, and said the expenses associated with the Summer and Winter Games (which it also has the rights for) will be “offset by associated revenue”.

Source: SWM. Click to enlarge

Source: SWM. Click to enlarge

The business has expressed confidence the international sporting event will run, and lead to enormous audiences an a 7Plus experience that “far exceed[s] anything Australians have seen before”.

The network is also investing in data, claiming it expects the volume of first party data within 7REDiQ to double this year, fuelled by the Olympics. According to Warburton, Seven is “winning business on the back of the data product alone”.

With regards to the ad spend outlook, Warburton added that “the market is showing positive signs of recovery with strong growth in the second quarter and forward bookings are looking positive for the third quarter”. Those early bookings indicate that third quarter revenue could climb by 7-10% year on year.

But the fourth quarter is “too early to call”, Seven said, despite being pitted against a soft quarter last year that was significantly impacted by the pandemic.

Warburton delivering the results to investors this morning

West Australian Newspapers continues to battle a tough advertising market. Circulation revenue was up 1.7% and digital circulation revenue up 92%. It achieved $10 million in cost cuts, including temporary savings.

“At WAN, the team has undertaken a significant transformation, accelerating digital growth, cutting operating costs and executing a strategy to stabilise earnings and generate cash,” Warburton said.

Overall, though, Seven boss was optimistic about the ad market’s trajectory. The market was up 2% in December (and TV up 11%) after jumping 8.3% in November to halt a 26-month run of decline.

“Seven is set up to benefit from the recovery underway in the advertising market,” Warburton concluded.

“Our new content line-up is drawing larger audiences and, importantly, improving our demographic mix in prime time. We are determined to monetise those results in 2021 and are targeting a material increase in revenue share.”

While Warburton and Howard fronted investors, Seven also released another announcement to the ASX, confirming it has struck a deal with Google to be included in its News Showcase program.


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