Kerry Stokes no doubt thought he was being clever when he told the Seven annual general meeting on Wednesday that the proposed Nine-Fairfax takeover was like a reality TV show.
“Nine have this wonderful program which is called Married at First Sight. And maybe that’s not necessarily a good responsibility for a corporate citizen, to get married at first sight,” the media reported Stokes as saying.
In that case, maybe Seven is a little more like the 2017 cinema flop Unwanted (don’t both Googling it).
This is not being unfair to Seven. After all, not paying a dividend should tell any prospective buyer that there are problems at Kerry Stokes’ key media company. A quick glance at the balance sheet would see more than $600 million in a debt, weak profit margins and not much growth anywhere. Continuing cost cuts would be another giveaway as Seven tries to boost cashflows and underlying earnings in a sort of Home Improvement scenario.
Going to yesterday’s annual meeting with the knowledge that dividends are not being paid would have left any prospective buyer with the feeling that Seven is the now worst house on a very poor street — especially since Ten has collapsed and been bought by CBS. Seven has run out of external options, unless News Corp, though struggling it its own problems in costs and subscription problems at Foxtel, can swoop in with a fix. That will have little chance of getting up, despite Stokes undoubted clout and the fear of competition among the Murdochs.
The prepared speeches from chair Stokes and CEO Tim Worner didn’t mention when dividends would be resumed, although Stokes admitted that dividends had been suspended to allow the company to pay down its debt (which is a hangover from the $4.1 billion marriage of Seven and West Australian newspapers in 2011, which suited Stokes and not anyone else).
Stokes and Worner did have a message: how well Seven was doing, and how wonderful the coming summer cricket contract would be. They stated the ratings performance in the year to date had improved to everyone’s satisfaction and that the outlook for the year was still on track. Although, there was the matter of a weaker TV ad market forecast.
Worner told the meeting that the company was still expecting a 5-10% rise in underling earnings before interest and tax, which would see an underlying rise from $236 million for 2017-18 to a range of $248-260 million. To maintain that forecast, the company has boosted its cost-cutting target from $10-20 million to $20-30 million, meaning more pain for those employees who have already survived the bloodletting of the past two or so years.
Shareholders — including Stokes and his 41% — have felt the pain of Seven’s swoon, but the attitude towards Worner post-Amber Harrison affair is very different. The company rushed to load Worner up with 1,214,953 performance rights, with 98% of shareholders voting to award Worner with the rights under the Seven West Media Equity Incentive Plan.
All those rights come on top of a lot of loot for Worner in 2017-18 — his total pay package was $2.7 million, a little less than the $2.74 million the year before. That’s $5.4 million in two years.
But he will have to work for those rights. In other words, while Worner will not be short of a bob, what about the dividend-less shareholders? Will he give them have an incentive to hang on?