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

Good morning. I'm Kerry Stokes, Chairman of Seven West Media. Welcome to the Annual General Meeting of the company. There is a quorum present and I'm pleased to declare this meeting open. First, let me introduce to you the members of the Board. I'm joined this morning by John Alexander; Teresa Dyson; Colette Garnsey; David Evans; Ryan Stokes; Michael Ziegelaar; James Warburton, the Managing Director and Chief Executive of Seven West Media. Michael Malone is joining us by phone. Also joining us is 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 authorized representative, you would like to ask questions, I will take questions during the course of the meeting, which relate to the resolution being put. Questions related to general business will be taken at the end of the meeting. [Operator Instructions]. I'm delighted to report that Seven West Media has continued to lead the media sector over the past year and we are well placed to enjoy another stellar year in 2023 and continued growth beyond. Seven was not only Australia's most watched TV network in 2022 financial year, but it was also posted the greatest share of revenue combining to deliver the group's best result for the past 11 years. Meanwhile, 7plus is now more than 13 million registered users and well positioned to grow rapidly, thanks to new content deals, including the AFL and recently announced NBCUniversal deals. Our newspaper and digital business in Western Australia has produced its special result for 5 years, now reaching 82% of the state's population. West Australian Newspapers' 21 titles across the city and regional areas in Western Australia dominate the market and the expansion of our digital assets continue to attract a younger audience across the state. Our transition to a comprehensive multi-platform media business is delivering tangible results with Digital expected to generate almost half of our earnings over the next couple of years. The success of 7plus continues to build with the take-up of accelerated by the successful Tokyo Olympics, Commonwealth Game and the Beijing Winter Olympics as well as other premier Sports productions during the year. As reported in September, we renewed our broadcast and digital rights to Australia's most successful and widely watched bought the AFL and hold the rights for another 9 years. Digital rights are key elements of the new deal, and we'll see AFL games on 7plus from 2025. While our broadcast -- our premier sports events, including the AFL continue to dominate audience. Our general entertainment programs and news and public affairs programs also achieved market leadership in 2022. The expansion of our Free-to-air coverage was heightened last year with the acquisition and successful integration of the Prime network. This integration provides us with unrivaled audiences in regional areas and allows us to sell fully integrated national advertising packages. Seven is now the only truly national commercial broadcast network, reaching 91% of the Australian population and holding a natural position as the #1 network. Meanwhile, our partnerships with Google and Facebook continue to generate new and growing income streams for the group. As a result of gaining access to even bigger audiences both in Australia and overseas. We continue to urge the new government to retain free carriage of our digital services on every device in the market. The Federal government's prioritization of a legislative prominence regime is an extremely important issue. Free TV services bring Australia together. We need to maximize their availability to all Australians, ensure the prominence of Australian television services on smart TVs and other connected devices. It's most urgent regulatory issue for the television sector right now. We strongly support the Communication Minister's view that regulation is needed. We welcome the Federal government's recently announced comprehensive review of the anti-siphoning scheme, modernizing the scheme is fundamental to ensuring important Australian support remains free and universally available to all Australians. To achieve this in a modern media environment, the scheme must be extended to subscription streaming of providers. Giving back to the community is an important part of what we do, was demonstrated recently by Channel 7 Telethon in Western Australia, which raised a record $71.3 million to 97 highly deserving children's charities and organizations. In addition, Channel 7 supported the 2022 Good Friday Appeal to raise $22.3 million to enable the Royal Children's Hospital in Melbourne, to provide world-class care to children around Australia. The expansion of our platforms has been in combination with continued prudent financial management, and our debt is now at the lowest level since Seven West Media was formed. We continue to work on carefully managing our operating costs in every part of our organization. In addition to share buyback commenced during the year, this buyback is up to 10% of the issued capital as highly earnings accretive. The Board reviewed the potential reinstatement of dividends in August and a term to buyback was the most compelling capital management option available at that time. Having said that, the Board and I acknowledge questions received from shareholders on dividends ahead of this meeting. We shared the desire of shareholders for a balanced capital management policy as regards to dividends. The Board and management have maintained a disciplined focus on strengthening the company's balance sheet and preserving the capacity for investments where growth opportunities arise, such as the Prime transaction. As a consequence, dividends have been suspended for some time. The Board will continue to maintain a prudent approach to capital management and will review the potential payment of dividend at each period results subject to prevailing market conditions. Lastly, our Board composition. After more than 9 years on the Board, John Alexander has decided he will not stand for reelection for today's meeting. On behalf of all the directors, I would like to thank John for his valuable contribution and his leadership with Remuneration and Nomination Committee. As part of the process of managing succession and renewal of the Board, we'll continue to review the Board's composition to ensure it remains appropriate for the operations of the company. On behalf of the Board, I thank you, our shareholders and our staff for your ongoing support of Seven as we chart a new and exciting course in Australia's media sector. I'd now like to welcome James Warburton to speak to you.

Thank you, Chairman. Good morning, everyone, and thank you for joining us today. The past 12 months have seen Seven firmly establish itself as the best-performing and fastest-growing company in the Australian media sector. The focus and successful execution of our strategy over the past 3 years with the acquisition of the Prime Group assets and the strong growth of 7plus in our digital platform, along, of course, with the outstanding success of our television broadcast business, have made Seven the undisputed leader in the national total television advertising market, that is capital cities, regional broadcast and BVOD. We have a better business, one that is well placed to continue our recent growth and to build on our leadership position. Seven reaches more people nationally every single day than any of our competitors. We're #1 in audience share and most importantly, we've converted that to the #1 position in revenue share. The West Australian publishing division is a strong business and continues to perform well, driven by management's ongoing execution of a strategy to hold the line on print, reduced costs and turbocharge its digital and subscription offerings. Our digital businesses, including 7plus, accounted for more than 40% of earnings compared with just 2 years ago -- just 2% 4 years ago. Across our entire business, we're totally focused on increasing our leadership and ensuring that our position translates into growing revenues, earnings and shareholder returns. The FY '22 results we announced in August represented the best Seven television EBITDA result in 11 years, the best EBITDA result from West Australian newspapers in 5 and our best group result in 6 years. Group FY '22 EBITDA of $342 million was ahead of guidance we gave in early May this year of between $335 million and $340 million. Seven is now the #1 network nationally in audience share and we've converted that, as I said earlier, into the #1 position in revenue share. Across the year, we had a 39.1% total television share across metro, regional and BVOD and 7plus continued to outperform the BVOD market growing 57% year-on-year in a market that grew for 47%. The strategic Prime transaction created a powerful unmatchable -- unmatched national television, print and digital company. Seven West Media now reaches 91% of all Australians every month. As stated in FY '22, we had a 39.1% share of revenue, including the Tokyo Olympics. We're targeting 39% in FY '23, which will be an underlying improvement as the current financial year excludes the Olympics. For FY '24, we are targeting a 40% share of revenue. Compared with FY '22, that represents approximately $30 million to $40 million of revenue upside. Our ambition is to secure an ongoing 40% share of the national total television advertising market. Across FY '22, Seven was #1 nationally in prime time in total people and all key age groups. We were #1 in terms of the number of weeks won in prime time. We were #1 in the capital cities. We were #1 in the regional markets. And 7plus was #1 in terms of BVOD minutes. And of course, as I said, we were #1 in terms of revenue share. In early September, we announced that Seven had secured the AFL media rights from 2025 to 2031, covering broadcast and for the first time, very importantly, the digital rights. AFL is a crucial part of Seven's DNA, and it's an important part of our content strategy. Our partnership with the AFL over many decades has helped make it Australia's #1 sport and we're looking forward to building on that partnership with the AFL Commission in the years to come. Securing a comprehensive package of digital rights for the AFL was our absolute focus. For the first time, fans will be able to access the AFL, the best games and all video content live and free in a way that suits them. Our AFL rights fee will increase 14% in calendar year 2025 and then 2% per year after that. A better way to look at that is it represents a 3.6% annual increase in rights fee over the life of the new agreement compared to the final year of the existing deal. In late October, we announced a multiyear content agreement with NBCUniversal, one of the world's leading entertainment and media companies. The agreement will bring thousands of hours of additional content to Seven and 7plus, creating significant new revenue opportunities. On 15th of January next year, we will launch a new channel, 7Bravo, both on free-to-air and on 7plus. We've secured the rights to all of NBCUniversal's scripted network and cable dramas and comedies for years to come, gained access to library and classic scripted dramas from NBC's catalog and to become the free-to-air home in Australia of NBCU's library of blockbuster movies. The agreement with NBCUniversal will underpin growth in Seven's broadcast and BVOD revenue share with launch costs, is expected to be slightly EBITDA positive in FY '23. And in future years, we expect this agreement to deliver double-digit EBITDA contributions per annum, subject to advertising market conditions. As our business pivots to growth markets, we have seen a dramatic increase in our digital earnings from $6 million in FY '18 to $139 million in FY '22, or roughly 40% of today's group earnings. And this is from just 5% of our viewing. While broadcast remains critical and drives the network, new content, such as the NBCU deal and the AFL deal from '25 will continue to drive digital growth. Our 7plus platform has been a key focus in recent years, and it's a remarkable success with more than 13 million registered, verified users. Since the acquisition of Prime, 7plus has seen a 60% jump in regional users and a 100% increase in minutes watched in regional markets. The West Australian is one of the strongest and fast growing -- growing news brands in Australia with impressive results across both print and digital. Digital subscriptions and audience -- audiences are showing great growth with digital circulation revenue up 43% in FY '22. One in 6 West Australians consumed the newspaper, which is the highest market penetration of any news brand in the country. On a cross-platform basis, that accounts for the newspapers and websites, it's 82% of the state reading The West. Again, that is the highest market penetration of any news brand in the state. The WA retail advertising market was strong in FY '22 and while some other key categories are yet to return to their pre-pandemic levels. The West EBITDA in FY '22 was the best result in 5 years growing 73% if you exclude temporary savings. Just a couple of weeks ago, we released our first sustainability report, which you can find on the Seven West Media corporate website. The report outlines for all of our stakeholders, including advertisers, partners, investors and our employees what our sustainability approach is. The sustainability activity is undertaken and the positive impact those activities have had on our employees and the communities we operate in. Our sustainability priorities fall into 4 pillars: representing Australia, opportunities for future generations, uniting people and communities and environmental awareness. We believe that it is in these 4 areas that Seven West, as a leading media company, can have the greatest impact and make the most difference. In March this year, Seven West Media became the first media company in Australia to be awarded the Workplace Gender Equality Agency's Employer of Choice for Gender Equality citation. The criteria for these citations is rigorous. We're one of just 12 companies to receive the highly regarded citation this year, recognizing Seven West Media's employer committed to achieving gender equality in the workplace. Our balance sheet has improved significantly over the past 3 years, and this strength means our company is well placed we head into a period of economy-led uncertainty and provides us the flexibility to respond to the opportunities and challenges that might lie ahead. Net debt at the end of FY '22 was $256 million or 0.7x net debt-to-EBITDA and up $16 million in the year, given it includes the $108 million in relation to the Prime acquisition. Given the strength of the company's balance sheet and growing earnings, we announced a nonmarket buyback of up to 10% of Seven West Media shares, which has commenced. The 3-year strategy that started in late 2019 has significantly transformed our company, creating a much simpler, stronger and more profitable television, digital and print business. Having successfully delivered this strategy, we now look forward to the next 3 years, where we will continue to build a more diversified media organization. We will remain focused on being audience-led and digital first, powered by data and tech. We'll step up our focus on monetizing total television audiences. That is across broadcast and digital, including material non-advertising revenue, such as subscription revenues. Our low gearing creates capacity for further growth and further capital management initiatives. We will continue to invest in the business and focus on generating strong cash flows, while also investing to drive growth across the business and diversify our portfolio of assets. Content that engages Australia and drives audiences is at the heart of all that we do. More people watch Seven than any other network and we believe that with next year's powerful lineup of content across the screens of Seven, we will continue to grow our share of audience and underpin further revenue growth for Seven West Media. Turning to our trading update, which is based on year-to-date performance and current forward visibility. As flagged at the FY '22 financial results announcement in August, the Olympics in FY '22 have impacted relative trading conditions in the first half of FY '23. For the first quarter, Seven secured the #1 national total television share of 40.2% in a market that was down 6%. For the second quarter, we currently expect Seven to increase its total television share year-on-year in a relatively flat market. Overall, therefore, for the first half, Seven's total television revenue is expected to decline 8% or 2% adjusting for the Olympics impact. Including the recently announced NBCUniversal deal and related costs, FY '23 costs are expected to be between $1.225 billion and $1.25 billion. Incremental revenue should offset related costs on the new deal. In conclusion, I'd like to thank you, our shareholders and all of our staff for your ongoing support. Our company is growing and leading the market in terms of content, audience delivery and innovation. We're giving the Australians the content they want, delivered how they want to receive it, and we are working closely with our advertising clients to deliver great results and new market-leading innovations. The year ahead will, of course, present challenges, but I'm confident that Seven West Media is in great shape to achieve great results for all of our stakeholders. Before I hand back to the Chairman, for the formal items on today's agenda, please enjoy a reel that highlights one of Seven West Media's undisputed strengths, our market-leading news and public affairs national offering. Thank you. [Presentation]

Thank you, James. We have every reason to be proud of our news and what we've achieved, not just what you saw in that reel now, but in all the regional services we developed over the last few years through regional Australia. We are the only network who cares truly about the whole Australian content and that includes major country towns where our news is the only news alone. We'll now turn 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. As Chairman, I propose to cast [ all of available undirected ] proxies in favor of each resolution. As you will 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 the screen the counter proxies as directed by the proxy form. Accordingly, my capacity as Chairman, in accordance with the constitution, I demand a poll be taken on items 2 to 8, these items will be put to a poll at the end of the meeting. Item 1. The first item of business [indiscernible] before the meeting, the financial statements and reports of directors and orders for the year ended 25th of June 2022. There is no requirement for a formal resolution on this item. So this item is excluded from the proxy and will not be voted on. Are there any questions on this item? Are there any questions for the company's order on the company's financial statements for the year ended 25th of June 2022? Thank you. The next 2 items of business relate to the reelection of directors. No nominations were received from other persons. The first director standing for reelection is Colette Garnsey, who is retiring and being eligible, offers herself for election. Ms. Garnsey's skills and experience, particularly in relation to consumer-facing companies and organizations are valuable to the Board as it seeks to maximize the value and strategic position the company's consumer and advertising-orientated brands and content. Ms. Garnsey is a member of the Remuneration and Nomination Committee. Are there any questions on this matter? The proxies lodged for this resolution appear on the screen.

[indiscernible] Could Colette please comment on who made the decision not to offer shareholders a full hybrid AGM with online participation through questions and voting? She's a Director at Magellan Financial Group, which has had a hybrid AGM last month. So why isn't Seven West Media doing the same, noting that Nine Entertainment is doing the same this morning?

Why would you put that to Ms. Garnsey? She's a member of the Board.

She has influence over the company. I'm just wondering if she is considering her other company that she's a Director of, does the same.

I'll let -- but the question rightly should have been directed at me, I think.

I did direct it to you as it could Colette.

Sorry.

I directed it. It's regarding this item, which is Colette's.

I'll let Colette answer that.

Thank you, Chairman. Thank you for the question. These matters are a matter for the entire Board to discuss and make a decision on. Each director brings an independent mind to that discussion. First discussions are held in camera within the Board meeting, and they bring their experience from other companies. And then the determination is typically made for what suits best the particular company in discussion.

Thank you. As directed, a poll will be taken on this resolution at the end of the meeting. The second director standing for reelection is Ryan Stokes, who is retiring and being eligible, offers himself for reelection. Mr. Stokes brings a deep understanding of media industry and considerable management experience to the Board, having fulfilled the executive and director roles within the company as predecessor entities for more than 20 years. Mr. Stokes' operational and strategic insights are particularly beneficial to the Board and Management, as are his expertise in investment, risk, people management and executive leadership. He is also a member of the Remuneration Committee. Are there any questions on this matter? I think you should be asked questions.