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 automatically trigger a spill of the board.
There was some good news. Seven West 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, billionaire Kerry 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.
Seven West chief executive Don Voelte unveiled cost-cutting initiatives and capex reductions that will deliver $75 million in improved cash flow this year compared with expectations a few months ago. A "phase 2" program will bring more savings starting with an expected $50 million in the 2014 financial year.
It will not prevent a fall in earnings for the half year ending 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 with $309.7 million for the previous first half.
Mr Voelte said the market was "too short" to provide guidance for the full year but said Seven West's "goal" is 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 based its market estimate of Seven West earnings this year of $203.8 million on eight analysts' forecasts.
Mr Voelte said all the company's businesses continued to deliver earnings in the same proportion to total EBIT as last year.
Of the advertising market he 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. Despite the success of our businesses, there is no emotional attachment to any aspect of our processes and assets."
Frequently Asked Questions about this Article…
What happened at Seven West Media's shareholder meeting over the remuneration report?
At the meeting investors nearly delivered a "first strike" against Seven West Media's remuneration report: 23.96% of voting shareholders voted to reject the report. The result fell just short of the 25% threshold that, if reached two years in a row, would trigger further action against the board.
What does a "first strike" on a remuneration report mean for shareholders and the board?
A "first strike" means a significant minority of shareholders have rejected the company's remuneration report. In Australia, a vote of 25% or more against the report is considered a strike; if a company records a strike in two consecutive years it automatically triggers a spill of the board, potentially forcing board members to recontest their positions.
How did the market react to Seven West Media's cost-cutting announcement?
Shares jumped sharply after the company announced cost-cutting and capex reductions. The stock hit a high of $1.41 during the session and closed 11% higher at $1.29 following the news.
What cost-cutting and cash-flow improvements did Seven West Media announce?
CEO Don Voelte unveiled measures including capex reductions and restructuring that the company says will deliver $75 million in improved cash flow this year compared with previous expectations. A "phase 2" program is expected to deliver a further $50 million in savings in the 2014 financial year.
What earnings did Seven West Media expect for the half year and how did that compare with the prior first half?
Seven West expected earnings before interest and tax (EBIT) of $250 million for the half year ending December 31 (excluding several million dollars in one‑off restructuring costs). That compares with $309.7 million in EBIT for the previous first half.
What are Seven West Media's profit targets and how do analysts view this year's earnings?
Management's stated goal is to maintain, and hopefully increase, net profit after tax compared with last year's $226.9 million. By contrast, Bloomberg's market estimate based on eight analysts forecast Seven West's earnings this year at $203.8 million.
What did Kerry Stokes and management say about advertising market pressure and technology risks?
Kerry Stokes said the share price largely reflected turbulence in advertising, weak demand and market concern about changing technologies. CEO Don Voelte said the advertising market is experiencing downward trajectories but appears to be stabilising at lower levels of decline, and the company is prepared to change costs and processes to respond.
As an everyday investor, what should I watch next with Seven West Media?
Watch execution of the cost‑cutting and capex reductions (including the promised $75 million cash‑flow improvement and the phase 2 $50 million savings), upcoming EBIT and net profit updates versus prior periods, trends in advertising revenue, and any further shareholder votes or commentary about remuneration. These factors were highlighted in the company's recent announcements and drove the share‑price reaction.
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