Why James Warburton is Unmade’s CEO of the year. And announcing The Unmade Index
Welcome to Unmade for the final time in 2021, written at a cosy country hotel, while you were sleeping on Thursday morning.
Happy Baking Soda Day.
Greetings from Tewkesbury in the UK, where the traditional “Shall we just throw the rest of the turkey in the bin before it gives someone food poisoning?” evolved into the “shall we take a quick minibreak?” discussion.
It’s been a terrific few days. I can still see a muddy tramp in the fields in the near future.
But before that, a break from the festivities to look back on the year just gone for Australia’s listed media and marketing companies: Seven West Media, Nine, Southern Cross Austereo, Ooh Media, HT&E, Prime Media, Pureprofile and Enero.
Since launching Unmade back in August, one of our areas of focus has been the performance of these ASX-listed companies. There aren’t many of them, but the transparency requirements that come with the privilege of being listed provide observers with a lot of interesting data, if you know how to interpret it.
In 2022, we’ll be diving even more deeply. We’ve been developing The Unmade Index, which will track the fluctuations of Australia’s media and marketing sector as a whole. The Unmade Index will debut next week.
So it seems fitting that for this final edition of the year, I attempt to make some comparisons of how these listed media and marketing companies have fared in 2021 – including which CEOs gave their shareholders the best return on their sizeable pay packets (and those who did not).
Before I come to that, I should mention that this is also Unmade’s final paid post of the year. The paywall will kick in a little further down.
Full of post-Christmas cheer, I’ve created one final subscription offer for 2021, valid just for the next three days. For the last time, I’m offering more than half off the price of an annual subscription, via the button below. That means that a full year 2022 subscription will be $318.50 instead of $650.
Although I’ve selected a CEO of the year, that choice is not as arbitrary as it would be from an awards jury; it’s based on the data. However, I should acknowledge there is a subjective element to how to prioritise that data.
With two ASX trading days of the year left to go, I’m slightly hostage to fortune, but unless something truly wild happens before 2pm on Friday there will be no major changes to the situation.
There are currently 11 media and marketing companies listed on the ASX. For the purposes of the comparisons I’m about to make, I’ve excluded News Corp, because it’s dual-listed in NY, and a lot of its value is derived from outside Australia. I’ve also omitted real estate platform Domain because it’s majority owned by Nine, so its performance is captured in that listing. And I’ve left out the News Corp-aligned REA Group because much of its value comes from overseas too.
There are a number of ways to rank the best performing company, and indeed best performing CEO.
One way would be to look at which company has grown its market capitalisation in percentage terms. There’s a lot to be said for that. From a shareholder’s perspective, they don’t care about a company’s market capitalisation as much as they do about how the value of their own holding has changed in any given year.
But of course, that doesn’t capture scale, and arguably the challenges of creating significant change for a big company are harder than doing the same for a small one. So the actual dollar change in market capitalisation is an indication of overall impact.
Meanwhile, another way of examining performance of CEOs is to look at the value they have created for shareholders, as a ratio of their remuneration. Few sophisticated investors begrudge a payout to a CEO who has delivered them a decent reward. For CEOs whose strategic skills make a difference, their reward deserves to go beyond a payment for their time.
From each of the three yardsticks above, a different organisation ranks on top. Which is where I have to make some choices. The data doesn’t lie, but how you choose to interpret it provides different outcomes.
I’ve collated my data in this table:
2021 ASX performance
Let’s look at those companies…
Seven West Media
Based on the numbers, James Warburton is the obvious choice as Unmade’s ASX media company CEO of 2021.
As I write this, Seven West Media’s market capitalisation sits at $1.02bn. If you’d asked me two years ago, I would not have believed it would make it above $1bn again.
Indeed, it’s almost exactly two years since I wrote a piece for Mumbrella suggesting that Seven was in almost as much trouble as Ten has been in when it called in the administrators back in 2017.
The 64c share price is nearly twice the 34c it was stuck on a year ago. Even more impressive is the jump on the 6c price the SWM price briefly sank to in the early stages of the Covid emergency in April 2020.
Prior to Covid, that call to the administrators looked more likely than not. The debt Warburton inherited from his predecessor Tim Worner had blown out beyond $600m, more than the company’s market capitalisation at the time.
It began to look even worse when Warburton’s first attempt to take control of Seven’s regional affiliate Prime Media in 2019 was scuppered by shareholders Bruce Gordon and Antony Catalano.
Arguably, the most important trait in a CEO is to be lucky. Warburton made the most of the once-in-a-generation emergency to come out with a stronger balance sheet.
An early test in 2020 was a legal skirmish forcing Bauer Media to complete its $40m purchase of the, by then, almost valueless Pacific Magazines.
The company was able to claim $47m in JobKeeper payments from the government. And on top of that, it was also able to get its hands on a slice of the $50m public interest news gathering fund, and was also able to get discounts on its broadcasting licence costs too.
Meanwhile, the postponement of the Olympics gave Seven a crucial extra year before it had to pay for those rights, and it was also able to negotiate discounts on its AFL ($87m) and cricket rights. Further savings were made from staff pay.
And another major part of the turnaround this year was the News Media Bargaining Code which delivered to SWM, like most of the big media players, a windfall in the tens of millions of dollars.
Thanks to a generous revision of Warburton’s incentive plan in November 2020, he also became the best remunerated media CEO. SWM’s 2021 annual report revealed that his total remuneration was worth $7.6m for the financial year.
Still, for a $477m growth in Seven West Media’s market capitalisation, that amounts to a 62X return for shareholders.
The company is not yet out of the woods. Unlike its rivals at Nine and News Corp, SWM lacks a subscription streaming strategy.
And when Seven next updates the market, the impact of the loss-making summer Olympics will finally show up. In its last annual report, the company’s debt pile was down to $493m. That likely getting larger again may spook the horses, particularly with most of it coming due in just seven months from now.
However, Warburton has won Seven enough breathing space that it remains a player in the current round of media consolidation. There’s now a narrow window for him to make the most of that.
Enero Group
Speaking of return on CEO pay, Enero Group’s Brent Scrimshaw looks rather good in that department too.
The communications holding company – owner of the likes of BMF, Hotwire and Orchard – grew its market cap by 84% or some $157m. Based on the relatively modest CEO remuneration of $1.64m, that amounts to a 95X return.
A caveat on CEO remuneration, at this point, by the way.
While the market cap growth I talk about covers January to December 2021, remuneration figures for CEOs are slightly older – in most cases covering the 2021 financial (not calendar) year which ran from July 1 last year to June 30 this year. These were for the most part disclosed over the last couple of months or so, as FY21 annual reports were published.
And the other caveat I should offer is that sometimes CEOs deserve enormous credit (or blame) for their share price, and at other times they do not. In the case of Enero, although Scrimshaw has clearly steered the company well since taking over last year, it would be unfair not to also credit his predecessor Matthew Melhuish for passing on a company that already had momentum after its near death of a decade ago when it was known as Photon Group.
Prime Media
On paper, Prime’s CEO Ian Audsley also looked very good, with the company growing its market capitalisation by a massive 128%, or $93m. That suggests 95X on his $1.1m remuneration.
However, all of the growth came when SWM did a deal with Prime’s shareholders Catalano and Gordon at the end of October to take control of the company at the second time of asking.
The shareholder vote flew through last week, so Prime is now in its final days trading on the ASX.
Pureprofile
A mention too for Pureprofile, the smallest of the media and marketing businesses on the ASX, with a market cap just above $70m.
Like Enero, Pureprofile seems to have now survived its near death experience when its debts threatened to overwhelm it. Under new CEO Martin Filz, a veteran of the research industry, the company has got back to its knitting and now seems to have a more harmonious board.
While the company is still a long way off its peak share price of 43c five years ago, the 6c it closed the year at is triple the 2c price it entered 2021 with.
On the measurement of percentage growth, that makes Pureprofile the best performer of the companies, delivering a massive 215 per cent improvement in share price over the year. If you’d bought shares at the start of the year, you’d now be very happy.
HT&E
Here There & Everywhere’s Ciaran Davis is another CEO who gave shareholders a good year.
Deriving most of its profits from the volatile radio sector, the company’s Australian Radio Network finished the year strongly, with its stations performing well in the major metro markets.
The company now also has the building blocks for full national reach, with its agreement to buy Grant Broadcasters, which wraps up over the next few days.
It was also a year where Davis sold the opportunistic stake the company had taken in Ooh Media for a profit, and put the company’s long running fight with the Australian Taxation office behind it, leaving it with a nearly clean slate to do the Grant deal.
The company’s 25% stake holding in mobile messaging firm Soprano – worth something like $139m – now looks like the main loose end as it focuses on its audio future in both radio and the growth area of streaming.
Nine
It was a year where Nine stood still.
Just by coincidence Nine’s current share price of $2.84 is almost exactly the same as the $2.81 it was on the day that new CEO Mike Sneesby took charge on April 1.
Nine’s biggest achievement this year was perhaps one of message management. The cyber hack it suffered at the end of March was internally disruptive, and likely far worse than the company let on at the time.
But while similar attacks crushed share prices (Isentia for instance), Nine was able to convince shareholders that it was (just about) business as usual, and got away with it.
Sneesby had a slightly unsteady start with the share market in selling his case for continuing to invest in streaming service Stan, and saw the company’s price dip as a result. But as his first months ticked on, he finally began to spell out his wider strategy. It’s not rocket science: the evolution to digital is by no means complete, and there’s opportunity (and challenge) for all parts of the company – in TV, radio and news – as a result. But making that the strategic priority could well be the right thing to do.
Ooh Media
Meanwhile, Cathy O’Connor took charge at outdoor firm Ooh Media at the start of the year. Like Sneesby, she has put forward a simple strategy – focus on out of home, and squeeze more profit from existing assets.
That saw the company discard its youth arm Junkee Media five years after buying it, and at a sizeable discount.
Given that lockdown left out-of-home advertising in the doldrums, it would be reasonable to expect Ooh’s share price to start recovering in 2022.
Southern Cross Austereo
Which leaves SCA, the only listed media company to see its share price go backwards during 2021.
Some of the headwinds the company faced were not necessarily of the company’s making.
For one thing, Covid lockdowns hit the radio industry particularly hard.
But the company’s radio operations also went backwards in comparison to rivals, with both its Hit and Triple M networks fading to what is close to an all time low. There are major management shakeups afoot.
If you missed it, I did some more detailed analysis on this a few days ago.
The company finished the year with bottom station in all five metro FM markets.
Things were tough for SCA’s TV arm too. Ratings have faded since Nine re-aligned with WIN as its main affiliate, leaving SCA stuck with the lower rating Ten in most of its markets.
The company’s regional TV operation is clearly an unloved asset. It’s an open secret that SCA is a seller, if it can only find a buyer.
Competitive tension has dried up since Seven decided on Prime rather than SCA as its target.
The only obvious buyer now is ViacomCBS – owner of Ten. But there’s no incentive to pay a high price.
The only part of SCA to be excited about at the moment is the fast growing Listnr podcast platform, which celebrates its first birthday in a few weeks time.
I realise I am tempting fate slightly in sending this analysis today, when the ASX will be open until lunchtime tomorrow. So be it. I have cheese and gin to attend to.
Thanks for supporting Unmade in 2021. Have a wonderful new year celebration, and I’ll be back with more in 2022.
Toodlepip…
Tim Burrowes
Proprietor – Unmade
