Seven West Media's shares got hammered today as investors took fright at the latest interim result that showed a credible effort from the Seven TV network business. Investors didn't like a slashing in the dividend from 19c a share to just 6c in the latest half year. The $255 million of goodwill, intangible writedowns, impairment of magazine assets and the value of the Yahoo7 joint venture also came as a surprise.
By just after 11am this morning, Seven West Media shares had fallen 21c to $2.31, after rising on Tuesday by 12c to $2.52. There would be some aggrieved buyers in that lot.
Seven West (which owns the Seven Network, WA Newspapers, Pacific Magazines and half the Yahoo7 joint venture) reported a loss of $109 million after taking into account the more than $260 million of asset impairments, the writedowns of its magazines ($195 million) and the value of its Yahoo7 joint venture ($60 million). There were no writedowns in the value of the group's newspapers or in the value of the Seven Network which lifted revenue 1.6% to $666.6 million in the half year, a very credible performance given the 3.8% slide in overall TV revenues in the six months to December.
Seven's newspaper group (based in Perth) saw a near 15% fall in revenues, while magazines suffered a 10.9% drop. Before the writedowns, Seven West said earnings before tax, interest costs and significant items fell to $259 million from $309 million a year earlier. That just beat the promise from the company at the AGM late last year to produce earnings of $250 million before any writedowns.
TV earnings before interest and tax (EBIT) dropped by nearly 10% to $186.4 million in the latest half year from $205.7 million, as the company gave up profit margin to maintain its share of more than 40% of the metro ad market for a second six month period. Despite the slide, the TV network said it still had solid profit margins of 28% for the EBIT and 30% at the EBITDA line (that's earnings before interest, tax, depreciation and amortisation, which are the main measures for the media of operational performance).
The company's newspapers (based on WA Newspapers in Perth), saw a sharp fall in revenues in the six months of to $157.9 million from more than $185 million for the previous corresponding half year. Earnings fell to $59 million on an EBITDA basis, from more than $66 million. That still gave the business a very fat profit margin of 37%. Given that the West Australian's various editions have contained their circulation losses (in fact the Saturday edition saw a rise in its sales in the December quarter, according to the latest audit figures out late last week), it's no wonder the group's papers are doing much better than Fairfax, News and APN. Fairfax is due to release its half year figures in Sydney on Thursday and APN -- which lost its chairman, CEO and independent directors in a boardroom coup on Monday -- is due to release a big loss for the 2012 year tomorrow as well.
Pacific Magazines, where most of the writedown and impairments were felt, saw its EBIT drop to $16.6 million (for a margin of a slimmer, but still solid) 12.4% from just over $22 million in the December half of 2011. That was on a slide in revenues to $133 million from $150 million in the previous corresponding half year.
The only other TV result we have so far is for Southern Cross Austero's Ten regional affiliate, which came out on Tuesday. TV ad revenues dropped $23 million in the half year as big advertisers abandoned the network (the absence of the AFL from Ten last year played a major part). Earnings before interest and tax fell to $113 million from $135 million, a fall of 16.5%. That's telling us Ten will report a very weak result (it balances at the end of this month) for its first half in April. Nine's results won't be pretty either.
The cut in the dividend was partly made necessary by the expansion of the group's capital base by a cash issue in the half year which raised $440 million. Analysts say they were surprised by the writedowns in magazines.