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.
Frequently Asked Questions about this Article…
Why did Seven West Media shares jump after the recent shareholder meeting?
Shares rose after management announced cost-cutting and capital expenditure reductions aimed at improving cash flow and protecting profits. The stock hit a high of $1.41 and closed 11% higher at $1.29 after the company said the measures should help at least maintain last year’s $226.9 million net profit despite weaker first-half earnings.
What specific cost-cutting measures did Seven West Media announce?
CEO Don Voelte outlined cost reductions and cuts to capital expenditure that are expected to deliver about $75 million of improved cash flow this year versus previous expectations. He also announced a 'phase 2' program expected to deliver a further $50 million of savings in the 2014 financial year.
Will the cost cuts stop a fall in Seven West Media’s earnings for the half-year?
No. Management expects earnings before interest and tax (EBIT) of about $250 million for the half-year to December 31, down from $309.7 million in the prior first half. The company also expects to incur several million dollars of one-off restructuring costs.
What profit targets is Seven West Media aiming for after the cost program?
The company’s stated goal is to dramatically limit advertising-market pressure on last year’s $473.4 million EBIT and to maintain — and hopefully increase — net profit after tax compared with last year’s $226.9 million.
What happened at the shareholder meeting over the remuneration report vote?
Investors rejected the remuneration report recommended by proxy advisers and the Australian Shareholders' Association with 23.96% of votes against it. That fell short of the 25% threshold; a vote of 25% or more against the remuneration report two years in a row would trigger a spill of the board.
How do analysts’ earnings estimates compare with Seven West Media’s guidance?
Bloomberg’s market estimate, based on eight analysts’ forecasts, put Seven West Media’s earnings at $203.8 million for the year, which is below management’s recent commentary and the company’s targets for stabilising profit after the cost program.
What did management say about the advertising market and its impact on the business?
Don Voelte said the advertising market is showing downward trajectories in a very thin market but appears to be stabilising at lower levels of decline. Controlling shareholder Kerry Stokes added the share price largely reflects turbulence in advertising, weak demand and market concern about changing technologies.
How has Seven West Media performed since the merger, according to its owner Kerry Stokes?
Kerry Stokes said the company has performed poorly since he merged the Seven Network and magazines division with West Australian Newspapers. He noted the share price was higher shortly after the merger (above $4) and attributed the current lower price to advertising turbulence, short demand and technological change, while saying management should focus on revenue, costs, performance and profits.
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