Seven West Media returns to profit despite revenue falls with more cuts to come

Seven West Media CEO Tim Worner’s cost cutting has proved effective with the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) and net profit increasing despite falling revenues, the company announced this morning.

In its annual results presentation this morning, Seven West also warned it will increase the group’s FY19 cost reduction target to $125m, up from the previously announced $105m.

Seven West CEO Tim Worner says the company has returned to profit

Earnings before interest, tax, depreciation and amortisation (EBITDA) were up by 3.5% from the first half of 2017, from $170.8m to $176.8m.

Net profit after tax was $100.7m, up from $12.4m the year prior. The return to profit comes after a loss of $745m in FY17.

Despite this, Seven West Media reported revenue of $809.418m, down more than 10% from the year prior’s $903.323m. Non current borrowings – primarily bank loans – increased to $850m while overall, the group’s net debt fell to $710 million.

To further reduce debt, the company announced it would suspended its half yearly shareholder dividend, a move which didn’t affect Seven West’s share price which had gained 2c to 56c by midday.

Seven West Media’s HFY18 results

Operating costs for Seven fell by more than $50m for HFY18, from $555.9m to $477.4m. So far, $16.4m worth of redundancies have taken place. The payroll reduction follows Worner’s announcement in November last year that the company would undergo $22m in headcount reductions to save $105m over the next two years.

Additional savings will come from the consolidation of Seven West Media Sydney offices to Eveleigh, which will save the company between $3m and $5m. One time sports rights will save $50m, while West Australian Newspapers and Pacific Magazines’ operating efficiencies are expected to save $10m and $25m respectively.

Of total revenue, Seven contributed $624.8m, down 10.6% from the year prior. Operating costs for Seven fell by 14% to $477.4m.

Yahoo7 – which has seen a major reduction in staff over the last few weeks – contributed just $1.3m to net profit after tax, a 61.8% drop from last year’s $3.4m.

It comes after Seven West Media announced it would launch its own long-form catch-up video service under a new agreement with Verizon last year. Several weeks ago, a number of stuff were made redundant as part of a cost cutting exercise at Yahoo7.

Elsewhere, The West Australian Newspaper reported revenue at $105.9m, 13% of the group’s total. That was slightly down on last year’s $108.5m contribution, but according to Seven the result was strong, with the West’s costs – excluding the Sunday Times – down 5.4% year on year. In December 2017, The West had a unique audience of 1.3m. The West Australian has just undergone another redundancy round.

Print and digital advertising revenue fell by 7.9% in the first half of the year, from $65.7m in the year prior to $60.5m. However, print and digital circulation revenue increased by more than 11% to $30.4m.

Pacific Magazines contributed 9% to Seven West Media’s total revenue, at $72.7m. The result was a sizeable drop from last year’s $91.9m at the half year mark. EBITDA for the magazine publishers grew by 390%. Seven West Media attributed this to Pacific2020, an ongoing transformation plan which sees the removal of significant costs. In the first half of the year, Pacific reduced its cost base by 26.6%.

In addition to today’s results, Seven West Media has revealed an extension of its South Cross Austereo contract for Tasmania, Darwin, Spencer Gulf, Broken Hill, Central and Eastern Australia and Mt Isa markets. The agreement extends the contract for an additional three years from July 1.

SCA will pay Seven an affiliation fee of 50% of its television revenue.

Worner said it was a great outcome for the two stations: “We are confident that, together, we will continue our very successful and long standing relationship and offer a premium viewing experience for audiences and a unique platform for advertisers.

Grant Blackley, CEO of SCA, added: “I’m excited SCA is continuing its long term agreement with Seven. Our partnership enables us to deliver a strong line up of programming, particularly in Tasmania where we enjoy  almost 60% of audience share”.

Looking forward, the company has said it will focus on delivering ‘stronger ratings’, and transforming the business model.

Worner said of today’s results: “The return to growth in the FTA advertising market has been encouraging. With this momentum continuing in the second half, we now expect the TV market to grow in the 2018 financial year.

“We are confident in our new 2018 schedule, which has already delivered a strong start to the ratings season. 2018 will see us capitalise on our proven ability to grow and deliver strong FTA and online audiences, featuring the 2018 Winter Olympics, the Commonwealth Games in April and AFL.

“In FY18, we will deliver $40m of cost savings, offsetting the AFL uplift and the spectrum charge, which will result in an overall small reduction in group operating costs. In FY19, we are targeting an incremental $70m in net reductions to group operating expenses.”

According to the Australian Financial Review’s Rear Window, Seven boss Worner’s contract expires on June 30 this year.

Seven West Media opened on the Australian Securities Exchange this morning with a market capitalisation of $809.81m. Guidance for FY18 was EBITD between $220m and $240m.


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