Network Ten, Australia’s third commercial TV network, is broke and on the verge of collapse. It can’t meet its existing debts without a massive $250 million of new loans, is cutting costs, talking to would-be rescuers and foundering with no idea if it will have the finances to keep trading for much longer.
Media reports this morning say this uncertain situation will be settled a week from today when three big shareholders — James Packer, Lachlan Murdoch and Bruce Gordon (who have lost hundreds of millions of dollars in their share investments in Ten) — decide whether to guarantee the larger loan for the network despite being owed $29 million in guarantor fees, which Ten cannot pay on their support of the $200 million revolving credit from the Commonwealth Bank.
The news and the doubts about the company’s viability led Ten shares to collapse in a new spiral on the ASX this morning, plunging more than 15% to 37.5 cents just after 10.30am, after touching an all-time low in early trading of 35 cents (3.5 cents before last year’s one-for-10 share consolidation). That was a loss of 21%. The market obviously doubts the network will get any new loans and is pricing it as being on the verge of collapse.
Ten detailed its woes in a lengthy statement to the ASX this morning. In it, Ten revealed there was considerable doubt about its future — confirming Crikey’s story late last week that the network was in considerable trouble with doubt growing about its future. That was a situation briefly mentioned by management in this morning’s teleconference amid a lot of talk about how well Ten was doing so far as ad market share, ratings and advertising technology is concerned. All that will be irrelevant if Ten can’t get a new loan.
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Ten said that despite a 21% rise in revenue, it lost $2.4 million on an earnings before interest, tax, depreciation and amortisation basis (the standard TV profit measure) in the six months to February 28. Ten told the ASX that it had written down the value of its TV assets by a further $214 million in the six months to February 28, reducing those to just $132 million and total assets to $172 million. The collapse in the Ten share price and its market value was also ignored in management commentary in the teleconference, as was the impairment of the TV licences.
Ten management warned in the ASX statement that without any relief on TV licence fees in the budget (worth around $23 million for Ten), the network will incur “an underlying EBITDA loss for the full 2017 financial year of between $25 million and $30 million”.
For all the talk about the higher ratings and ad revenues in the six months to the end of February, management was silent on the slump since then, as The Biggest Loser failed and had to be yanked from prime time, while ratings in the past month especially included some nights where Ten’s metro main channel has been near all-time lows at under 10% (such as last night, when it was just 8.8%)
The real meat in the announcement was contained in a separate filing, including the directors’ report and interim accounts. Under the heading “Going Concern”, directors explained that the company was talking to possible new lenders, to the three shareholders (Messrs James Packer, Lachlan Murdoch and Bruce Gordon) who had guaranteed the existing $200 million revolving credit from the Commonwealth Bank and who are owed $29 million (which can’t be repaid), cost-cutting and staff cuts are planned and the network is hoping the federal government either cuts or eliminates TV licence fees in the May 9 budget for the 2o17-18 financial year. The company wants a new loan or loans totaling $250 million, a big ask.
But directors warned:
“As a result of the matters disclosed, there is a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.”
Directors, however, reckon there is a chance they will get a refinancing of the existing debt and other offers to help it survive, so they have prepared the accounts as if the company will continue in business, and not at written-down values assuming a collapse.
“The Directors consider that it is reasonable to expect that the Group will be successful in the matters as detailed, and accordingly, have prepared the financial report on a going concern basis such that no asset is likely to be realised for an amount less than the amount at which it is recorded in the interim financial report at 28 February 2017. As a result, no adjustments have been made to the financial report relating to the recoverability and classification of the assets’ carrying amounts or the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.”
That is a big ask, and should lenders balk at refinancing existing debts and adding to the loan facility already in place, Ten will collapse. It not only needs the new loans to keep its head above water and will have to have the extra funds to bid for the new TV contract for the Big Bash cricket in summer, and pay for 2018 programming.
Directors said Ten had just on $74 million of debt at February 28, down from $90 million at August 30. The $73.8 million is made up of $40 million drawn from the CBA revolving credit, capitalised interest of $5.5 million and the $29 million in shareholder guarantee fees. This debt is now current and the revolving credit is due on December 23.
“Net debt relating to the Company’s Revolving Cash Advance Facility at 28 February 2017 was $30.2m (Aug 2016: $53.5m), incorporating bank loan of $40m, capitalised interest and commitment fees of $5.5m less cash of $15.3m,” directors said in their report.
With this sort of financial mess, it’s no wonder Lachlan Murdoch’s representative on the Ten board, Siobhan McKenna, resigned on March 15 — a month after the company issued a shock profit warning and downgrade. She wasn’t replaced by Lachlan Murdoch, a sign that Ten’s troubles were worse than expected and that the network’s future was under increasing doubt with tens of millions of dollars in debts now due and unable to be repaid.
Lachlan Murdoch’s decision not to reappoint a replacement for McKenna should be seen as abandoning the network to uncertain fortunes at a time when, as a leading shareholder and former executive chair, he should have been showing some sort of leadership. He and his family should not be allowed to gain control of Ten via Foxtel or News Corp Australia.
Gina Rinehart, the wealthiest person in the country, has had her 10% shrink in value to where it is worth a fraction of the $208 million she invested back in 2010 — when James Packer bought an 18% stake and sold half of it to Lachlan Murdoch. Packer’s involvement must be in doubt as he tried to sell his Ten shares in March without any success. And at this morning’s price of 37 cents, Ten was worth just $134 million — less than what Rinehart invested nearly seven years ago!