Seven West Media shares a new all time low of 61.5 cents in trading yesterday after the company slipped out what amounts to a small downgrade to an already weak guidance for the 2017-18 financial year.
Not even a lift in the size of the company’s cost cutting this year to $55 million could arrest the slide in the share price which at one stage topped the 6% mark in late trading. The shares ended down 5.3%.
Seven West shares ended at 62 cents in a difficult market after the brief flirtation with the record low and investors ignored the company’s promise to lop more than $100 million in operating costs over the next two years, including an extra $25 million this year.
The company’s CEO, Tim Worner told the annual meeting that first quarter operating conditions had “been soft given the ad market and ratings performance (Seven’s) in the period.”
"To counter the impact of softer market conditions, we continue to focus on driving greater efficiencies out of our assets. In the 2017 financial year, excluding the Olympics, group operating costs declined $20 million.
In the 2018 financial year, we guided to at least $30 million of further cost savings to offset the step up in AFL rights costs. We will now deliver a further $25 million of annualized recurring cost savings from headcount reductions, which will commence in the 2018 financial year.
"In addition, there will be a further $50 million of cost savings in 2019 from the roll off of the major sports rights. So, to be clear that is $105 million of cost savings over the next two years, partially offset by the $30 million AFL step up in FY18.
"In terms of our financial outlook, we expect 2018 underlying EBIT to be in the range of $220m to $240m, which is in line with consensus. Looking beyond the 2018 financial year, we expect strong revenue growth from our 100% owned digital platforms,” Mr Worner said That compares to the guidance given in August in the 2016-17 results announcement:
"Management earnings guidance for FY18 is for underlying EBIT to be 5 per cent lower than FY17. Advertising conditions have been challenging, however the company expects the broadcast metro market to outperform FY17 and are targeting increased share.
"Seven Studios is forecast to exceed this year’s performance and revenue from our 100 per cent owned digital products is projected to double again. The company is targeting cost savings in the financial year to more than offset the AFL uplift in FY18 with a further incremental cost savings to be delivered in FY19 on FY18.”
Seeing Seven reported an EBIT of $261 million in 2016-17, a 5% fall would have put that around $$248 million. Now there’s a range of between $220 million to $248 million – so a further cut of up 16% at the lower end of the range.
Mr Worner said that Seven’s production business earnings will also continue to grow (it generated more than $90 million in revenue in 2016-17 alone, “There is also scope for materially higher revenues from the renegotiation of our affiliate agreement at the end of FY19,” he added, referring to the deal Seven has with Prime Media Group which tried to get a reverse takeover idea up a couple of months ago with no success. Seven late yesterday named two new directors to the board.
