No victory lap for Warburton as Seven delivers its worst first half ever; Unmade Index takes a hit

Welcome to a midweek update from Unmade: Today: Seven West Media’s share price is decimated thanks to historically bad half year results

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After the worst first half in Seven West Media’s history, is there even a route to a turnaround?

The scary thing about Seven West Media’s awful financial results yesterday is that they were delivered by a competent team performing to the best of their abilities.

Within its television battleground, Seven has been holding its own, winning the demographic of overall audience, growing revenue share at the expense of Ten and keeping debt (up slightly to $257m) under control. Imagine how much more trouble the company would be in if its management had gone off the rails.

Yesterday’s result was predictable. Standard Media Index’s monthly advertising revenue numbers have telegraphed a bad situation getting worse for the TV industry for many months. Covid postponed the TV industry’s crash by three years, but then structural decline and cyclical downturn both arrived together.

And yet when the numbers were released yesterday, Seven’s share price still lost more than 10%. With the exception of the early crisis months of Covid, the company’s market capitalisation has never been lower. Who’d have thought Australia’s top rating TV network would be worth less than $400m?

Perhaps one thing that alarmed the market is that although SWM’s revenue for the half was down a relatively minor $40m to $775m, profits fell by $80m, to $125m.

As the red profit line in the graph above demonstrates, that’s the worst first half result since proprietor Kerry Stokes masterminded the merger of his TV and magazine operations with The West Australian back in 2011. Back then, profit for the first half was about three times as big.

Yesterday’s update didn’t offer much hope for a better second half, setting up the likelihood of a historically bad full year result too. Based on the FY23 second half, my back-of-an-envelope guess is an FY24 profit of below $225m.

What may also have spooked the market is that much of SWM’s strategy is to hope that things improve: the investor presentation included a slide from KPMG showing how the TV market bounced back after the dotcom crash, the GFC and Covid.

As CEO James Warburton put it: “We’re always the first to go and the first to come back”. That, of course, relies on the downturn being cyclical. Investors must wonder how many of those dollars have already found new homes elsewhere, either with the digital platforms or (if they remain in video) the ad-supported tiers of Amazon Prime, Netflix et al.

It’s not the sort of handover, Warburton would have wanted to give to his successor Jeff Howard. By the time the full year results come through, Warburton will have left the building.

A major problem for SWM is that its biggest fixed costs are rising, leaving it cutting more ever more deeply elsewhere. Just a couple of days before the results announcement, one media agency CEO speculated to me about whether SWM would be able to afford its expensive AFL and cricket rights now the new deals are kicking in.

The network may have audience certainty through to the end of the decade thanks to retaining the rights, but that also means limited options in cutting costs. On their own, those commitments may amount to $1bn a year. That’s a big chunk for a company bringing in less than$1.5bn a year in revenue.

Yesterday, beyond hoping for a market turnaround, cost cutting felt like the only short term plan. In the investor briefing, Warburton emphasised a couple of times that if TV’s downturn continues, there will be further cuts.

“One of our strategy pillars is optimising the core and you’ll see us continue to do that, squeeze as hard as we possibly can, that’s probably the major focus.”

“Squeeze” is never the word you’d want to hear as an employee.

In the longer term, the ultimate strategic question is whether SWM can evolve beyond broadcast TV as the central part of its business – probably through mergers and acquisitions. November’s 20% stake in ARN Media was a hint at that.

Yet Warburton couldn’t find the right deal over the last four years. Yet, a deal will have to be made. From here on, it’s only going to get harder.

How we covered Seven’s FY23 full year results six months ago:

Nightmare on the Unmade Index

The Unmade Index had a rough day on Tuesday, as Seven West Media’s bad result weighed down market sentiment across the rest of the TV sector. The index fell 1.62% to 618.5 points.

SWM led the index down, losing 10.9%, which saw the company’s market capitalisation dragged well below $400m.

The two other stocks most exposed to the free to air market also went backwards, with Nine losing 1.55% and Southern Cross Austereo losing 2.44%.

Ooh Media bucked the trend, gaining another 1.78% to land at $1.72 per share, matching the peak it last hit in April 2023.

Time to leave you to your Wednesday.

I’m headed into Sydney to play a modest on stage role at Commercial Radio Australia’s Heard conference tomorrow. In words that I didn’t expect to be saying at my age, hopefully I’ll see you at The Ivy.

Have a great day.

Toodlepip…

Tim Burrowes

Publisher – Unmade

tim@unmade.media