Cost-cutting fires Seven shares

THERE was no escaping the recent media industry turmoil even for the owner of Australia's top-rating television network - the Kerry Stokes-controlled Seven West Media.

THERE was no escaping the recent media industry turmoil even for the owner of Australia's top-rating television network - the Kerry Stokes-controlled Seven West Media.

The media group's board narrowly avoided a black eye at Tuesday's shareholder meeting after investors almost succeeded in lodging a "first strike" against its remuneration report.

Seven West reported that 23.96 per cent of voting shareholders rejected the remuneration report as recommended by the Australian Shareholders' Association and proxy adviser ISS. A vote of 25 per cent or more two years in a row would trigger a spill of the board.

There was some good news.

Seven West Media shares rocketed after it told investors it was cutting costs with the goal of at least maintaining last year's $226.9 million net profit despite a drop in earnings for the first half.

The stock jumped to a high of $1.41 before closing 11 per cent higher at $1.29, but the company's controlling shareholder, Mr Stokes, was still lamenting its poor performance since he merged his Seven Network and magazines division with West Australian Newspapers last year.

"It seems the share price largely reflects the turbulence in advertising, shortness of demand and the markets' concern for changing technologies," Mr Stokes said in a speech lodged with the ASX.

"We are concentrating on revenue, on costs, on performance and on profits. And we need to keep applying ourselves to these objectives and the market should respond," he said.

The shares were worth more than $4 not long after the merger.

The chief executive, Don Voelte, unveiled cost-cutting initiatives and capital expenditure reductions that would deliver $75 million improved cash flow this year compared with expectations from a few months ago.

A "phase 2" program will deliver further savings starting with an expected $50 million for the 2014 financial year.

It will not prevent a fall in earnings for the half year to December 31 with the company expecting earnings before interest and tax (EBIT) of $250 million - less several million dollars in one-off restructuring costs - compared to $309.7 million for the prior first half.

Mr Voelte said the market was "too short" to provide guidance for the full year but added that Seven West's "goal" was to "dramatically limit the advertising market pressure on its $473.4 million EBIT last year and "to maintain, and hopefully increase, our net profit after tax as compared to last year's $226.9 million".

Bloomberg provided a market estimate on Seven West earnings this year of $203.8 million based on eight analysts' forecasts.

Mr Voelte said all the company's businesses continued to deliver earnings in the same proportion to total EBIT as they did last year.

Commenting on the advertising market Mr Voelte said: "We are still seeing downward trajectories in a very thin market, but it does appear to be stabilising at these lower levels of decline."

Very little is sacred in the terms of costs or the way we do business, Mr Voelte said. "Despite the success of our businesses, there is no emotional attachment to any aspect of our processes and assets.

"Nor are we naively assuming that the old way is the right way," he said.

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