Seven West Media has abandoned its dividend for the time being as it struggles to survive the crunching in legacy media. The company, 41% controlled by Kerry Stokes through his Seven Group Holdings, said in today’s December half-financial report that the dividend (two cents interim and final in 2016-17) had been “temporarily suspended”. The board obviously rejected other approaches such as a rights issue to help recapitalise the company (the share price is too low), allied with an asset impairment to reduce the ridiculously high balance sheet value of intangibles from just over $1 billion to something more believable.
Seven depended on heavy cost cuts to offset a nasty double-digit slide in group revenues in the half year. Revenue for the group fell 10.4% to $811 million, thanks to a 9.6% slide in TV revenues at Seven to $587 million for the half. TV earnings before interest and tax (EBIT) rose 3.1% to $147.4 million. The West (West Australian Newspapers) saw revenue slide 7.9% and EBIT fall 28% to $10.7 million. Pacific Magazines saw revenue slide 29%, to $6.2 million from $1.3 million because of a 27% slash in costs (or $24 million). Group profit before interest and tax and significant items edged up to $159 million, up 7.2%. Without the cost cuts, earnings would have been minuscule. An extra $20 million is planned for this year and next, making a total of $125 million. More pain, as journalists on the West Australian were warned last month.
The company said it cut net debt to just on $711 million, a fall of just $14 million in the half year and still too close for comfort to the market value of the shares of around $739 million. That still-high level of debt stopped directors from following 2016-17’s move and writing down the value of the TV licences and other intangibles. Last year, it was a cut of $988 million. This year, the intangibles’ value should have been cut to bring them closer to the level of debt to be realistic about their long-term value, but there was not enough headroom between the market value of the company and the value of the intangibles. The shares are down more than 17% in 2018.
The company follows the likes of Qantas, Metcash (the independent retailer) and the Ten Network, which all dropped their distributions to shareholders while restructuring and trying to survive tough times.
Seven West will save $60 million a year at 4 cents a share — Kerry Stokes and Seven Group forgot just over $24 million. But media is now just a small part of the Seven Group portfolio where the concentration has been going deeper into plant and equipment hire through the clean-up of Coates Hire and then taking a stake in Beach Energy.
Media is almost an afterthought for Stokes, although he must sit some days and wonder what went wrong. Seven West Media had a value of $4.1 billion when formed in 2011 from the merger of the two arms of the Stokes media empire: Seven Network and West Australian Newspapers. The $3.4 billion destruction of value is a heroic effort, helped by the rise of Netflix and Facebook, Apple and Google of course. But there was too much debt in the deal to start with and there remains too much debt in Seven West Media. The dropping of the dividend will allow the company to apply the savings to debt reduction, which will make it easier to sell to a new owner.