The gloss has gone off the performance of the Seven Network and its core business. TV.
The key measure of performance in its key business TV of earnings before interest, tax, depreciation and amortisation (EBITDA) only rose by around $9 million in the latest half year, from $197 million in the first half of 2007 to $206 million in the December half.
That’s a rise of just 4.5%, compared to the 29% rise in the December 2006 half over the depressed December 2005 half.
The market didn’t like the result, especially in TV and the shares dropped 60c by the close to $12.10, after falling to a day’s low of $11.97.
It does show that the company’s rapid rise to ratings and revenue supremacy in free to air TV in the past 18 months has probably peaked and the next burst of news we could be hearing about the network is cost cuts in the 50% owned Seven media Group as the bean counters from the other 50% owner, KKR, start chopping.
The small rise in broadcast EBITDA in the latest half surprised analysts who are now redoing their numbers.
Seven said that the 50% owned associate, Seven Media Group "delivered a strong performance across the six months to December, with earnings before interest, taxation, depreciation and amortisation (EBITDA) of $239 million – up 10 per cent on the prior period’s $218 million."
"Seven’s broadcast television business delivered an EBITDA of $206 million and an operating margin of 33 per cent – reflecting Seven’s leadership in breakfast television, news and public affairs and primetime across the 2007 calendar year"
"Costs were in line with previously disclosed forecasts with this year’s half yearly results including a first time appearance for Seven’s coverage of the Australian Football League and V8 Supercars. Full year costs are expected to meet previously disclosed guidance of around 10 per cent for the full financial year."
Seven said "Television advertising revenue was up 11 per cent in the half – outpacing the overall market growth of 9 per cent.
"Seven’s magazine publishing business, Pacific Magazines, delivered an EBITDA of $33 million and an operating margin of 19 per cent – with Pacific Magazines acquisition of key titles from Time Inc, including Who Weekly, and the launch of Women’s Health complementing and strengthening the business’s portfolio of market-leading titles."
A year ago Pacific reported EBITDA of $21 million, but there have been some acquisitions since then, specifically magazines from Time Inc, so most of the rise in EBITDA in Seven Media Group has come from the higher contribution from Pacific Magazines.
Disclosure was minimal compared to what was released a year ago when the TV and magazines businesses were 100% owned by Seven Network. Now they are 50% owned by Seven and the US private equity group, KKR. But there was more than at Consolidated Media, the rump of PBL.
Seven briefed the media and analysts and spoke frankly about the current state of the business, again unlike Cons Media where all that was said was a press release and no briefing for analysts.
CMH said little in the way about the performance of the 25% owned PBL Media (which holds Nine and ACP Magazines).
This is what CMH said about the performance of PBL Media : "
"PBL Media’s revenue for the half was $1,073 million. Earnings before interest and tax (‘EBIT’) (including the contribution from associates and less minorities) were $266 million."
That includes revenue and earnings from Ticketek and ACER Arena in Sydney. ACP Magazines is a vastly bigger business than Pacific Magazines, so on a comparative basis, Seven Media did OK: it’s just the sparkle has gone out of the performance.
But because the information was released by Seven Network, and not Seven Media, with proper comparative figures, it’s hard to make an accurate assessment, a point acknowledged by Seven yesterday.
"Corresponding half comparisons on earnings are difficult due to changes in the company’s structure following the formation of the Seven Media Group joint venture with Kohlberg Kravis Roberts & Co."
Seven Network said it earned a profit before significant items and taxation of $122.2 million for the first half of the current financial year.
"The company achieved a net profit after taxation of $126.3 million. The result was delivered on total revenues of $154.9 million – encompassing dividend and interest income and share of associates’ profits.
"Directors have declared an interim dividend of 17 cents per share – up from 12 cents per share in the corresponding half last year.
"The company’s consolidated net assets at December 2007 now stand at $2.4 billion – up from $846 million at December 2006." That’s thanks to the KKR deal. Seven has around $715 million invested in the market in companies paying hi yielding full franked dividends.
The 19.4% of West Australian Newspapers is not performing, hence the move on the company’s board.
Analysts remain to be convinced by the company’s move into the market, its investments in Engin (which is not doing well at all) and in Unwired (no one knows what to do with the spectrum Unwired owns).
