Seven West Media Limited (WANHY) Earnings Call Transcript & Summary

Seven West Media acknowledges the Gadigal people of the Eora Nation as the traditional custodians of the country we are meeting on today. We pay our respects to elders past and present and extend that respect to all First Nations people present today.

Good morning. I'm Kerry Stokes, Chairman of Seven West Media. Welcome to this Annual General Meeting of the company. Due to the impact of COVID-19, and the interests of health and safety of shareholders, staff, and other stakeholders, the Board has decided to hold 2021 AGM online rather than in a physical location. There is a quorum present, and I'm pleased to declare this meeting open and I'll introduce the members of the board to you now. I'm joined in the room by Colette Garnsey, Ryan Stokes, John Alexander, and James Warburton, the Managing Director and Chief Executive Officer of Seven West Media. Attending this meeting remotely are Teresa Dyson, David Evans, Michael Malone and Michael Ziegelaar. Also joining us is Jeff Howard, our Chief Financial Officer; and Warren Coatsworth, our Company Secretary. Representatives of our auditors, KPMG, are also present at today's meeting. If, as a holder of ordinary shares or a proxy or authorized representative, you would like to ask any questions, I will take questions during the course of the meeting, which relate to the resolutions being put. Questions relating to general business will be taken at the end of the meeting. Shareholders and proxy holders are able to participate in this year's AGM using the Lumi AGM platform by referring to the information we have sent in notice of the meeting. The company has received a number of questions in advance of the meeting, which we'll address in relation to the relevant item. Please note, only shareholders and proxy holders may ask questions online during the meeting through the Lumi platform by clicking the question icon, composing your question and then clicking the send icon. If you're asking your question about one of the 7 items of business at today's meeting, please include the item number at the start of your question. There is also a link on the Lumi portal for shareholders and proxy holders to ask questions orally. Clicking this link will allow shareholders and proxy holders to enter a separate window where a moderator will invite them to ask their questions at the appropriate time during the meeting. While you can submit questions at the start of the meeting, I will not address them until a relevant time in the meeting. Some questions may be amalgamated if we receive multiple questions on the same topic or resolution. Our meeting comes at the end of a year which will be remembered as a COVID-19 pandemic, resulting in dramatic changes to our work, viewing and leisure activities. While there were challenging conditions, Seven regained our dominance in the free-to-air market, reached 10 million viewers of our streamed content on 7plus, and lifted readership numbers in our newspapers. Seven Network achieved this extraordinary success on the back of marquee sports events, including Tokyo Olympics and the AFL, particularly its final season, and the summer of cricket. The combination of our premium sports program with continuing dominance of news and current affairs as well as a refreshed programming schedule were the keys to our success. We will continue our renewed dominance of the market in the coming year, led by the 2022 Commonwealth Games, the Winter Olympics as well as an exciting slate of prime-time programs. Our dedicated management team and staff have worked over the last year in very difficult circumstances, often remotely, but they displayed their mettle in producing brilliant content across our platforms. In particular, there was a very high degree of difficulty in broadcasting the Tokyo Olympics. But despite the obstacles, our teamwork has been widely recognized as the best Olympic coverage of all time. Indeed, the President of the International Olympic Committee has written to Seven congratulating us on the quality of our broadcast and the innovations we created. We expect more innovations to be created in next year's games. Your directors thank each and every one of our staff for not only the Olympics, but all of our other content produced over the last year, making Seven Australia's leading integrated media company. While we've been focused on navigating our way through the pandemic, we've also been executing our long-term strategy to focus on producing first-class content across all of our digital assets. We have divested noncore assets to have a much sharper focus on our cost structure and capital management. This process continues with stringent controls placed on our spending and constant reviews of our organizational structure and operational efficiencies. Our annual results reflect this work with net profit after tax of $318 million, and revenue reached $1.27 billion. Over the last week, Seven has entered into a conditional share sale agreement to acquire Prime Media Group as well as a new 3-year finance facility underwritten by the ANZ and Westpac Banking groups. James will provide you with more information about both of these in his address. We will continue to balance our costs with investments like Prime acquisition to stay ahead of the game, and this delicate equation is at the top of your directors' priorities. We are very proud that our news programs and newspapers have not only attracted record audiences and readers during the year, they have provided vital information channels for Australians of all ages during the pandemic. This increased engagement with the public through our many platforms has seen advertising expenditure on Seven grow, and we expect to accelerate this lift as the Australian economy emerges quickly and robustly from the pandemic during 2022. The last year has been marked by the fact that the federal government finally acted, partly to arrest the damage caused by foreign multinationals in the Australian media sector. Key legislative changes have allowed local companies like Seven to generate substantial income from our content and build relationships with the digital platforms so that they pay fairly for our content, which generates value for them. More needs to be done to ensure the ongoing universal free access to Australian news, sport and entertainment. We call on the government to commit the regulation of the prominence of free-to-air services on all type of televisions and the extension of the anti-siphoning lists to include online streaming services. On the back of our long-term strategy, our revitalized programming schedule and our first-class team, the recovery in the economy, and we're expecting a very bright 2022. On behalf of the Board, I thank you, our shareholders, and our staff for your ongoing support of Seven as we continue to sharpen our performance and produce strong returns. I'd like to welcome now James Warburton to speak to you. James?

Thank you, Chairman. Good morning, everyone, and thank you for joining us. Our company has seen many changes since I first addressed you as Managing Director and CEO in November 2019, and the results have been very encouraging. Put simply, Seven is back to its winning ways. Any way you cut it, calendar year or survey year, with or without the Tokyo Olympics, we're back at #1 in television. We have an unbeatable lead in total people across both calendar and survey year. We're #1 in key demographics for the calendar year. We're the only network with substantial share growth in every demographic. We're the only network that has increased its audience shares in all the key demographics for the calendar year. Our free digital streaming service, 7plus is the #1 in BVOD. The West dominates print and digital news media in Western Australia, and is the best performer among its peers on a national basis. Why does being #1 in television matter? Clearly, it means that more people are tuning into Seven than any other network, and that we have the shows people want to watch and talk about. It also creates a strong perception of success and leadership among advertisers, media buyers, our staff and other key stakeholders. Every additional audience share point we gain has a direct and tangible impact on our revenue and on our bottom line. I'm very proud of the entire team across Seven West Media for their great work over the past 2 years. The improved performance has been driven by the relentless pursuit of 3 strategic priorities we introduced in the second half of calendar 2019. Those priorities are content-led growth, including making unbelievable television. Secondly, transformation, including finding smarter and more effective ways to deliver our objectives. And thirdly, capital structure and balance sheet, with a clear focus on paying down debt and repairing the balance sheet. We're 2 years into that plan, and we have made excellent progress. In terms of content-led growth, we have revitalized our lineup of entertainment tentpole shows to complement our dominant spine of 7NEWS, Sunrise, The Morning Show, The Chase, Home and Away, and Better Homes and Gardens. The new tentpole shows have changed our demographic profile, bringing more 25-54s and 16 to 39s to our business and making 7plus the leader in BVOD. While we have revitalized the schedule in record time, it's worth remembering that revenue share growth lags ratings improvement. We'll continue to monetize these successes in FY '22 and beyond, and we expect to be #1 in revenue share for the first half of FY '22. The Tokyo Olympics clearly demonstrated the potential, effectiveness and power of our platform, and we continue to look for content partnership opportunities with global players in subscription video on demand. Our data offering has been completely rebuilt. 7REDiQ and our SWM-iDs now position us as the best in market, delivering strong results for our clients. Across the group, we have simplified our operating structure and redefined the work practices. The continued push to reset our cost base by $200 million and to ensure that the cost out is permanent has been extremely important in ensuring we have a sustainable business. We sold our stake in Airtasker in April this year with a net proceed of $45 million to help repair our balance sheet. Seven West Ventures has completed several new investments since mid-August, and now has a portfolio value of more than $70 million, with more underway. Our balance sheet is in substantially better shape than it was 2 years ago. While net debt has reduced by more than $320 million over the past 18 months, we retired $250 million of debt during FY '21, and we are confident the balance sheet will sustainably support our strategies and plans going forward. Our key priorities moving forward includes sweating the assets we have, further paying down debt and capital management initiatives. Our FY '21 financial results reflect the continuing success of our transformation strategy and the recovery in advertising markets during the year. The metro TV advertising market grew 11.5% during FY '21, including a 25.8% increase in the second half. 7plus increased its revenue 78% in FY '21 compared with 55% growth in the BVOD ad market. A 7% reduction in operating expenses, plus revenue growth contributed to 105% increase in underlying EBITDA to $254 million. Underlying EBIT increased 141% to $229 million, and underlying net profit after tax was $126 million. Seven Digital was a standout performer during the year, increasing its EBITDA 131% to $60.5 million. We recorded a gain on significant items before tax of $277 million, which included a partial reversal of impairments and onerous contracts. In FY '21, we achieved a 40% reduction in net debt to $240 million, and our leverage ratio now stands at 0.95x. Seven West Media is unashamedly a content company, and our focus on investing has driven our return to market leadership across linear and digital television. This will create significant revenue upside as we maintain the momentum. The Tokyo Olympics gave us an incredible start to FY '22, and a powerful platform to promote our upcoming content on Seven and 7plus. The Voice launched off the back of the Olympics and became the #1 regular series of 2021. The AFL is Australia's #1 sport, and the 2021 Grand Final became Australia's #1 television program. We have an unmatchable 2022 schedule with a massive Kickstart strategy for a year with an exciting summer of cricket with the Ashes Test series, BBL and WBBL, plus key horse racing, Supercars including the Bathurst 1000, in December and the Beijing Winter Olympics in February. In July, we will present the 22nd Commonwealth games from the U.K. As a content company, reflecting and celebrating the diversity of Australian society, both on the screen and in our business, is a key priority. We're constantly working to improve gender balance at Seven West Media. 51% of our management roles are now held by women. And across our total business, 52% of all of our staff are women. We're part of The Everyone Project, an initiative from the Screen Diversity and Inclusion Network to improve on-screen diversity in all of its forms. We're also working on our Reconciliation Action Plan, which will include indigenous scholarships and programs at Seven. Our social responsibility extends beyond representation, which is why we are focused on contributing to a cleaner, more sustainable future. For example, we're engaging with several brands to partner with us on a carbon-neutral production for the next series of Farmer Wants a Wife. In February this year, we were honored to join with UN Women Australia as the Australian broadcast partner for International Women's Day 2021. We're also the official media partner of the White Ribbon Day 2021, which takes place on November 19. While you cannot flick a switch when it comes to rebuilding our audience numbers, the investment in our content is clearly paying dividends and in record time. Across FY '21, we were #1 in 31 ratings weeks, with our closest rival winning 21 weeks; 1 week was a tie. In comparison, in FY '20, we were #1 in just 18 weeks. So far in calendar year 2021, we've been #1 in 26 weeks, and will end the year as the #1 network. Our share of the television advertising market in FY '21 reflected the content gaps we experienced in FY '20, and a slow start to the calendar year, which is the riskiest period of our schedule. The content has now improved significantly, and so will our revenue. There is a $90 million upside opportunity when we return to our historical revenue shares. We expect to lead revenue share in the first half of FY '22. The BVOD market continues to grow rapidly, fueled by changes in how, where and when Australians consume video content. 7plus is performing very strongly in terms of growth in both audience and advertising revenue. 7plus increased its revenue 78% during FY '21 and saw share of the BVOD ad market increased by 4.8 points. Seven's digital EBITDA has soared since FY '18, with a compound annual growth rate of 110%. One of the major milestones achieved during FY '21 was their agreements with Google and Facebook over payment for our news content. The result was an exceptional outcome for our businesses generating a significant earnings contribution. This combined with the strong growth from 7plus gives us the confidence that Seven's digital earnings will more than double during FY '22 to over $120 million. Four years ago, our digital earnings were just $6 million. The team at The West continues to push hard driving readership and digital subscriptions across our print and digital products. The growth in readership of The West Australian is a result of the team's unrelenting determination to hold the line on print, and to also understand the audience and find growth in areas of opportunities. At the same time, PerthNow is gaining new users and building a large audience, which is a great result for a site that competes against the big national players. Print and digital audiences grew during FY '21 with the readership of The West Australian and The Sunday Times up 19%. PerthNow and The West digital also increased their audiences' circulation revenue, which includes digital subscriptions, grew 5% for the year and now represents approximately 35% of total revenue. Advertising conditions remain mixed, with a strong performance in retail, offset by softer conditions in travel, auto and real estate. WAN delivered on its FY '21 savings targets with costs down $13 million or 8.9%. The strong performance of the business has seen us dramatically improve our debt position. Net debt has been reduced from $564 million in FY '19 to $240 million in FY '21, a decline of 57%. Our net debt-to-EBITDA ratio now stands at less than 1x, down from a consistent 2x or worse since FY '17. This is our lowest level of leverage since 2004. A $600 million revolving debt facility was refinanced last month, underwritten by ANZ and Westpac. Its maturity has been extended to October 2024 with a lower cost of funding. The facility means we will be required to hold less cash on the balance sheet, further reducing interest costs, and the previous restrictions on capital management have been eased. On November 1, we announced we had entered into a conditional share sale agreement to acquire all the businesses and related assets of the Prime Media Group via the acquisition of Prime Television (Holdings) Pty Limited, Seven Affiliate Sales, Pty Limited, and all of their subsidiaries. The proposed acquisition will be subject to a vote by Prime shareholders in December. Combining the 2 businesses will create the leading wholly owned commercial premium broadcast, video and news network across Australia, reaching more than 90% of the population every month. Prime shareholders will achieve a significant premium for their shares, and Seven West Media shareholders will benefit from a transaction that is highly earnings-accretive, both before and after synergies. For Seven West Media, the proposed transaction is a real game-changer and will deliver significant value creation by providing advertisers with a single platform to reach metropolitan and regional markets, cutting the workload of advertisers and agencies in half, unlocking the premium and integrated revenue potential of the combined metropolitan and regional audience base across broadcast and digital platforms. Enhancing and expanding the presence and reach of 7plus in the regional markets is another great benefit. Generating estimated cost synergies of $5 million to $10 million on an annualized basis, the cost savings are expected to be fully realized within 12 to 18 months of the acquisition being completed. Revenue upside is also expected, but has not been quantified at this stage. Now to a trading update. As I mentioned earlier, we'll win the television rating survey year with or without the Tokyo Olympics in total people. That will represent our first total people win since 2018. We're well positioned to hit our target of a 40% share of the metropolitan television advertising market in the current 6-month period. Revenue from 7plus has soared 145% since the start of the FY '22 year, including post-Olympics growth of about 50% in September and October. Our target of $15 million to $20 million in new cost savings in FY '22 is also on track. The revenue growth and cost savings give us confidence that we will exceed analysts' consensus forecast for FY '22 of EBITDA of approximately $260 million by between 7% and 10%, excluding any benefits from Prime. In conclusion, I'd like to thank you, our shareholders, and all of our staff for your ongoing support. Our company is in much better shape than it was 2 years ago, but we're not going to stop now. We'll continue to work harder and smarter to make Seven West Media even stronger and more successful and to grow our value for all of our stakeholders. Let me end with a short reel that reflects how we have performed this year. [Presentation]

Thank you, James. We'll now attend to the business of today's meeting. The notice convening the meeting has been in your hands for some time. I'll take the notice as read unless there is an objection. Again, holders of ordinary shares or a proxy or authorized representatives of an ordinary shareholder may ask questions using the Lumi AGM platform, and I will take questions which relate to resolution being put. Any questions relating to general business will be taken at the end of the meeting. If we experience significant delays today in receiving questions submitted by shareholders through the virtual meeting platform, we will endeavor to come back to those questions during the time set aside for general questions. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, polling on the resolutions is now open. The voting icon is now visible on the Lumi AGM platform. Selecting this icon will bring up a list of items and present you with the voting option. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed at the end of the meeting. Results of the voting will be concluded once the voting is closed and released to the ASX later today. So please look out for the ASX release to see the results. As you'll see from the screen displays, a significant number of our shareholders vote by proxy. Before each resolution is put to the meeting, we'll display on screen the count of proxies as directed on the proxy form. As Chairman, I propose to cast all available undirected proxies in favor of each resolution. First item of business is to lay before the meeting the financial statements and reports of directors and auditors for the year ended 26th of June 2021. There is no requirement for a formal resolution on this item, so this item is excluded from proxy form and will not be voted on. There haven't been any questions submitted on the annual accounts for the year under review.

Chairman, [indiscernible] shareholders about the performance of the company, its share price and reinstatement of dividends. Could you please provide comment?

Thank you, Jeff. Last year, I stood before you as Chairman, and talked about the plan James had put in place to improve our content to attract audiences and revenue to transform your company and reduce debt. Very pleasing to be able to stand before you today, as you've just heard from James, to be the #1 network in 2021. Earnings growth in '21 has continued into '22 and has helped repair our balance sheet. The work James and his team have done, reducing debt has enabled 2 things. Firstly, the purchase of Prime for cash which has resulted in this earnings accretive for shareholders. And secondly, it will give the Board an opportunity to explore capital management options for the first time since 2018. While I'm not committing to a time table at this point, I will commit that we'll review the reinstatement of dividends in 2022. As I said last year, I'm completely aligned with shareholders' appetite for a dividend.

Chairman, another pre-submitted question has been received from a shareholder. How much did Seven West Media receive from JobKeeper? And is there any intention to pay this back?

Thank you, Jeff. FY '21 results included $25.7 million of JobKeeper benefits, similar to what we received in 2020. The JobKeeper subsidy operated as designed in this period, and relieved us from having to make hundreds of staff redundant. Seven West Media was limited in its ability to stand down staff to reduce costs even in periods where we were seeing greater than 50% revenue declines. This was due to need to continue to produce the news throughout the pandemic, which is considered as an essential service. The SWA income taxes payable in respect of '21 are twice as much as the JobKeeper we received. It's also worth noting that JobKeeper receipts are assessable income for SWA. So close to $8 million of the JobKeeper received is returned to the ATO as tax payments. Are there any other questions on this item?

Chairman, there's a follow-up question on the first question from a shareholder that's come in to the platform. I'll read it out. It's quite lengthy. Mr. Stokes, at the 2017 AGM of Seven West Media, I pointed out to you that since your group took over running of this company, the share price had dropped by 93% from $10 to $0.67, and the dividend had dropped from $0.52 to $0.04. I asked you what the Board intends to do to restore the share price and dividend to a decent level. You answered that this would be the Board's #1 priority for the coming years. Since then, the share price has dropped a further 28% to $0.54. And ever since 2017, the dividend has disappeared completely. How can you state FY '21 was an exceptional year for the company with extraordinary financial result and give Mr. Warburton millions of dollars in bonus shares when the ordinary shareholders are being treated so abysmally? When are you and the Board going to do something for the ordinary shareholders?

I think we're doing [ something ] for the ordinary shareholders by improving performance. No question that there have been issues, particularly from the COVID. Before COVID, the company had a plan in place, which we have seen most of those issues resolved. And we were caught with our plans unable to be executed. We lost the Olympics from when we expected to have them a year earlier. A whole bunch of issues affected the company and our production's and our ability to put content to air, put the company in a very difficult position. And the share price reflected the difficulties we faced. James and his team with the efforts they've made have recovered that and the share price has began its recovery, and I'm confident that we'll see this year where we'll see the company's share price recognize the work that's been done, and recognize that the future is looking much brighter than it was before. None of us, directors or any of us get anything more out of the company when it's not performing. The directors themselves took less in fees this year because they went with the staff and went without directors' fees for 3 months. So we're all in the same boat together. But now we can see daylight, and I'm really beginning to get excited that we have a very good future ahead, and I hope we can restore the share value. And in time, as I mentioned earlier, I expect we can look at dividends again by the end of this financial year. Any other questions, Jeff?

No, Chairman, there are no further questions on this item.

Thank you. The next 2 items of business, items 2 and 3, relate to the reelection of directors. No nominations were received from other persons. And the first director candidate standing for reelection is David Evans, who is retiring and being eligible, offers himself for reelection. David brings a deep knowledge of financial, banking and commercial matters to the Board. His business acumen and understanding the company management are valuable to the Board's assessment of the company's strategic priorities as well as financial and nonfinancial risks. David is a member of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee. Are there any questions on this matter?

Chairman, there are no questions on this matter.

Proxies lodged for this resolution appear on the screen. Thank you. As I've directed, a poll will be taken on this resolution at the end of the meeting. Second director candidate offering himself for reelection is Michael Malone, who is retiring, and being eligible, offers himself for reelection. Michael is a highly experienced CEO and company director who has a proven track record as an entrepreneur and in building shareholder value. He brings this mindset and expertise to his role on the Board and its committees. Michael's technical and strategic understanding of technology is particularly valuable to the Board and management as the company undergoes its continued digital transformation. Michael is a member of the Audit and Risk Committee. Are there any questions on this matter?

No, Chairman, no questions on this matter.

Proxies lodged for this resolution appear on the screen. Thank you. I've directed a poll will be taken on this resolution at the end of the meeting. Next item for business is item 4, is the adoption of the remuneration report for the company for the financial year ended 26th of June 2021. The 2021 financial year continued to be unpredictable and challenging for the company with uncertainty in terms of the pandemic and the economy. The company has nevertheless performed strongly for our shareholders with unquestionably strong financial results, positioning us for future growth. The Board continues to review the company's remuneration framework to ensure it serves to attract and retain exceptional talent that aligns with shareholders' interest, and is fit for purpose for the years ahead. As part of this review, the Board introduced a minimum shareholding policy effective 1st of July 2021 to further promote the alignment between directors, executives and shareholders. Directors and executives have 5 years to build the required shareholding level. This year's short-term incentive outcomes were the first under our new executive remuneration framework. The company's underlying earnings before interest and tax were solid, and exceeding 100% range of target and the STI gateway opened fully. The Board believes the STI outcomes for the executives this year are fair and appropriate, and reflected a strong performance against both financial and nonfinancial performance measures, including significant progress made in our transformation strategy, repairing our balance sheet and making a necessary change for the business to capitalize on the market recovery. And the 2019 LTI award reached the end of a 3-year performance period on the 30th of June 2021. The award was tested and did not meet the performance hurdle. Therefore, it did not vest and all of 2019 LTI performance rights were lapsed. In the year ahead, we'll continue to review the company's remuneration framework to ensure it remains appropriate. I welcome discussions on the questions on the remuneration report for the year-end review. Are there any questions on this item?

Chairman, yes, there is a pre-submitted question received from a shareholder. Why overpay the managing director?