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

Thank you for standing by, and welcome to the Seven West Media FY '24 Results Call. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Jeff Howard, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, and good morning, everyone, and welcome to Seven West Media's results for the 2024 financial year. I'm Jeff Howard, Managing Director and Chief Executive Officer of Seven West Media. Joining me this morning is Chief Financial Officer, Craig Haskins. I'd like to start by acknowledging the Gadigal people of the Eora Nation as 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. There is no doubt that FY '24 was a tough year for Seven West Media and probably many in the sector. Today, we'll take you through our results, our strategy and then provide you with a trading update. After the presentation, we'll take questions from investors and analysts. Across FY '24, our content strategy drove audience growth in both linear TV and digital and helped underpin a total TV market revenue share of 40.2%, up 1.7 percentage points on the prior year. We saw a strong audience growth on 7plus, with its minutes viewed increasing 39% across the year. Also in the digital area, we launched a highly successful new digital news platform, The Nightly as well as 7NEWS.com.au's app. It's early days, both are performing very well. Our revenue was impacted by continued weakness in the total TV advertising market, which declined 8.2% across the year. Our cost growth of 2% was in line with guidance and an expanded FY '25 cost-out program commenced in June. Also, in June, we announced and completed an organizational restructure to support a refresh strategy that will ensure SWM is well positioned to meet the challenges and opportunities of the changing media landscape. Under the new model effective from FY '25, SWM comprises 3 divisions: television, digital and the West. While each division will operate as an accountable and transparent profit center, they work collaboratively to drive group revenue, productivity and cost efficiency outcomes. We are already starting to see the benefits of the changes made and are totally focused on delivering valuable outcomes for shareholders. Results for FY '24 reflects the ongoing decline in advertising markets, which was partially offset by growth in Seven's revenue share of the total TV market. Group revenue of $1.4 billion was down 5% on FY '23. Operating cost growth was held at 2%, in line with guidance. The first phase of the announced cost reduction program delivered $25 million of savings in the second half, which saw a 4% decline in costs versus the same period in FY '23. Group EBITDA before significant items of $187 million was down 33% on FY '23. Statutory net profit after tax of $45 million was down 69% on FY '23, while underlying net profit after tax after excluding significant items was $78 million, down 46%. I'll hand over to Craig to take you through the financial results in more detail.

Thanks, Jeff. Television revenue was down 6% to $1.24 billion, driven by the $84 million or 7% decline in advertising revenue. This is partially offset by an increase in other revenue, which is largely program licensing and content fees. As mentioned, the total TV market fell by 8.2% in the year, led by the metro market, which was down 12.1% and regional, which was down 5.5%. The BVOD market grew 12.7%. After 9.1% first half decline, the second half moderated to be down 7.2%. The metro decline eased to 10.9%. Regional remained down 5.5% and BVOD was up 12.9%. Broadcast audiences were up 0.5% for the year, driven by solid performance of entertainment with our -- 5 of our 10-part programs increasing audience year-on-year and achieving solid growth in major sport audiences. Minutes consumed on 7plus increased by 39%, which skewed to younger demographics across both live viewing, which was very strong and our on-demand library content. BVOD consumption accelerated in the second half. Our NBCU content on 7Bravo and 7plus also performed well in attracting younger female audiences in line with our plan. The strength of content drive consistent and growing audiences and led to a gain in the total TV revenue share of -- to 40.2%, which was up 1.7 share points on FY '23. That share growth was achieved in all 4 quarters of the year. Share growth was worth $44 million and went some way to offsetting the $99 million impact of the market decline. The difference then in the year-on-year advertising revenue decline is the impact of the extra week of the Com Games in FY '23, less the one-off impact of the Women's World Cup in July. Despite solid growth in BVOD revenue, we're still under-indexing on our digital revenue growth, which is one of the key drivers behind the recent organizational changes, which Jeff will talk to later. The continuing tough economic environment has had an impact on most advertising categories. Discretionary retail, travel, banking and telecommunications rolled down as was advertising on household goods and consumer electronics. Interestingly, automotive and real estate were bright spots. There's also an emergence of advertising in certain seniors categories. In the case of gaming, industry spend was well down on the prior year, which we believe is attributable to the anticipated legislative changes. Television operating costs increased 2% on FY '23 to $1.068 billion. As a reminder, we experienced a 7% increase in first half costs versus the same period in FY '23, which was largely attributable to content investment. However, as we guided to, second half costs were actually declined by 4% versus the second half of '23, thanks to the $25 million cost out program. Second half costs were $498 million, down $19 million on the PCP. So with a 6% revenue decline and a 2% increase in costs, television EBITDA fell $93 million or 35% for the year. The second half EBITDA result was a significant improvement on the first half, which as you recall, fell 41% or $18 million. The moderation in market decline, continued share growth and the positive impact of the cost-out program saw second half EBITDA fall by $13 million or 19% on the PCP. The decision to restructure and step up the cost out program in June was necessary to meet the challenging and uncertain advertising markets as well as to address the impact of a number of other factors, such as the end of the benefit of the onerous provision on Cricket as well as continued inflationary pressures across the business. Turning to Slide 5 and the West. Management delivered on their strategy of accelerating digital growth while holding the line on print and maintaining a sustainable cost base. The West continues to grow its digital subscribers, and as Jeff mentioned, launched The Nightly in late February, which is a digital-only national newspaper. Total digital audiences between The West and The Nightly are now 4.5 million with about 60 million monthly page views, which is up 10% year-on-year. The West revenue was up 1% in FY '24. Advertising revenue was flat year-on-year and circulation revenue was down 3%. The West continues to capitalize on commercial print opportunities, and this is driving new revenue at a positive, albeit lower margin. Excluding the incremental commercial printing costs, FY '24 costs have been held flat, including the cost of new digital product launches. The EBITDA decline of 13% on FY '23 reflects the move from high-margin circulation revenue to lower-margin commercial printing. Turning to Slide 6 and the statutory results. Seven West Media reported a statutory profit after tax of $45 million and basic earnings per share of $0.29, both down 69% on FY '23. Net profit, excluding significant items, was $78 million, which was down 47% and underlying EPS was $0.051. Significant items before tax were $44 million. Consistent with prior periods, we recognized $19 million of Phoenix build costs as a significant item and these are not able to be capitalized due to accounting standards. The $17 million fair value loss on investments primarily relates to the day 1 loss adjustment on the ARN investment made in November and subsequent unrealized losses on the cash settled swap. Restructuring costs of $10 million were recognized, which relate to the cost-out program announced at the AGM as well as a new cost-out program that commenced in late June. The program valuation adjustment of $15 million relates to a one-off program write-off as well as an increase to the onerous provision of a legacy studio contract. It should also be noted that the onerous provision relating to our old Cricket deal was fully utilized in '24. These significant expenses have been partially offset by a one-off gain recognized on the change to the expected term of a property lease, which was discussed at the half year. Cash flow before temporary and capital items was $54 million for the year. The year-on-year decline in cash flow was driven by the decline in EBITDA and the net build in working capital, offset by decreases in finance costs as well as CapEx and lease payments. The working capital increase reflects a decrease in year-end payables, program work in progress and around $15 million of contra advertising. Temporary and capital items include the $23 million tax refund received in the first half and the onerous contract impact of $39 million, which is largely attributable to the Cricket provision. As mentioned, the new Cricket contract commenced in FY '25. So going forward, we expect the onerous provision to be around $2 million per year. The $19 million build cost for Project Phoenix is also recognized as a significant item and is nearing completion and due for launch later in the fiscal year. FY '25 build costs are expected to be around $13 million. We also spent $7 million on the share buyback program and in refinancing our debt facility. We finished the year with net debt of $301 million, an increase of $52 million from June 23. Closing leverage was 1.6x. And excluding the impact of the ARN investment, reported leverage would have been 1.3x and net cash generated of $15 million. Improving our cash generation and maintaining appropriate leverage is a key focus, and our cost-out initiatives announced reflect this. The Board has determined to keep the dividend on hold given prevailing market conditions and the buyback program will not be renewed. Both will be reviewed again in future reporting periods. As we look to FY '25, our CapEx is currently forecast to increase as we relocate our premises in Melbourne and finalize the Martin Place exit. Both moves come with make-good obligations, which the group is managing carefully. I'll now hand back to Jeff to take you through the next part of the presentation.

Thanks, Craig. Turning now to the strategy for Seven West Media moving forward. The organizational restructure announced in June this year is designed to drive accountability and performance to maximize our revenue, to embed cost discipline across the company and to drive profit and cash. It creates 3 focused priorities for the adoption of a profit center model: Digital, television and the West. The profit centers own the end-to-end value chain and have complete accountability for delivering audience, content and earnings. Our overarching aim is to build a better digital media business, to take control of our own destiny, to redefine what success means for Seven West Media and then to look ahead. Delivering a digital future is our first key priority in a market that is expected to grow faster than most other media segments. SWM has a huge opportunity to position itself as an outperformer. 7plus is a very successful digital platform, and we can do more in the entire digital space to drive growth for SWM shareholders. At the same time, we will optimize our traditional assets in television and print. Managing cost responsibility is a key focus as evidenced by the expanded cost-out program that we've announced in June this year. And importantly, a clear ambition is to find new revenue streams and new opportunities for the business. Turning to Slide 10. Our digital strategy is all about growing, engaging and monetizing our digital audience and driving exceptional return for shareholders. Our content and platforms are critical to that strategy. And importantly, our content is market-leading across digital, television and publishing. We can, however, do a better job in monetizing our digital business. Our new structure will improve our ability to deliver a digital future. Group MD of Digital, Gereurd Roberts, has full control of the total digital value chain from audience acquisition to engagement and content strategy. The digital team will also ensure our go-to-market strategies position SWM to fully address the revenue growth opportunity in the BVOD and broader digital advertising market. 7plus is a, if not the leading brand in terms of awareness and frequency of visit in the premium BVOD category and ranks well ahead of many premium SVOD operators. Our challenge is to convert that awareness into audience growth, increasing consumption and inventory monetization. As we mentioned earlier, minutes were up 39% in FY '24, while BVOD revenue was up 10%, leaving us with a significant opportunity in this space. We've seen a 30% increase in consumption of on-demand content, driven by exclusives such as the highly successful U.K. series, Mr. Bates Vs The Post Office, which was a big hit on 7plus earlier this year, and we keep looking for those exclusives. Across the year, we saw a 50% increase in consumption of our live content, including the FIFA Women's World Cup and our tentpole programs. We are seeing clear momentum into the AFL Grand Final, Australia versus India Test Cricket series in the BBL, all of which will be on 7plus this year. We are creating a new digital first go-to-market strategy to help -- to drive a step change in BVOD inventory monetization, which is skewing, in particular, to younger demographics. As we've talked about before, we are doing a lot of work in the AI area with partners, including AWS and Databricks to better serve the content 7plus users want to see and to create new opportunities for our advertising partners. Having already shown an ability to accurately predict audiences on 7plus 28 days in advance, our Databricks partnership is moving into a new phase. We are implementing an AI factory. AI leaders, engineers and data scientists from Databricks will be embedded into SWM to deliver new advanced products, train our teams and help put Seven at the forefront of the Gen AI revolution. And of course, we'll be very focused on how we commercialize this for the benefit of our shareholders. 7NEWS.com.au is Australia's fourth biggest news website by visitation. In June, we launched a new app to drive traffic and strengthen user loyalty to the website. While early days, we will be pursuing substantial growth from 7NEWS.com.au in FY '25. With our television and print assets, our aim is to create resilient earnings and cash flow by proactively and effectively monetizing our market-leading content and our mass audience reach against a sustainable cost base. Our content strategy was successful during FY '24, evidenced by our television and digital audience growth across the year driven by new sport and general entertainment. Free-to-air television remains a very powerful vehicle for advertisers and marketers, and we must, as an industry, continue to promoting its strength, its reach and its effectiveness. Our television business is focused on maximizing revenue, earnings and cash flow, notwithstanding in advertising market conditions through disciplined cost control to ensure maximum operating leverage when market conditions improve. Like digital under Group MD Angus Ross, television now has end-to-end control of its value chain from audience acquisition via marketing, content strategy and execution and monetization and cost accountability. Similarly, The West under CEO, Maryna Fewster, has total ownership of SWM's operations in WA. They've been operating on this basis for some time. And quite frankly, performance in The West has been relatively better as a result. This ownership and accountability mindset has also seen The West innovate and drive change faster than Seven has over the last couple of years. We need to find new revenue opportunities across television and publishing and are working hard in that area, including the creation of new go-to-market strategies. Phoenix trading platform will launch later this year, enabling significantly more effective inventory management and driving up the yield. Creative collaboration across all of Seven West Media's business is in full swing and it steps up since the organization restructuring in June to ensure that we achieve incremental promotional and revenue opportunities and that we leverage shared services. Our cost discipline remains in place. At the same time, we are very focused on ensuring we maintain or editorial and content quality. As mentioned, the cost out program announced in the FY '23 AGM was expected to deliver $25 million of benefits into FY '24. That did happen in the balance of $35 million into FY '25. In response to the continued market challenges, committed net cost increases, including the [ underutilization ] and inflation. The group has resized this program. The revised FY '25 cost out program is $108 million. We've already locked in nearly 2/3 of this program with the balance identified and to be secured over the course of the year. FY '25 cost guidance of $1.2 billion to $1.21 billion will deliver a net saving of roughly $20 million to $30 million compared to FY '24, and we will be aiming for more. Revised operating model entrusts all departments to continually challenge the operating processes, structures and ways of working to expand this program in to '25. The Nightly is a fantastic example of how we are finding new revenue opportunities. Launched in February this year The Nightly, the digital-only newspaper website and app delivered free to devices every week night at 6:00 p.m. Eastern standard time. In less than 6 months, The Nightly has become an extraordinary success. In June, we had a unique monthly audience of over 2.3 million and more than 5 million page views, making it the fastest-growing news brand in Australia. It's now a credible challenger to establish new brands such as The Australian and the AFR. The Nightly was launched with a particular focus on the East Coast, where it has found its biggest audience since day 1. It has also received strong support from advertisers. It's attracting a premium in terms of advertising and driving incremental revenue for the group. Most importantly, we expect it will be EBITDA positive in FY '25 after breakeven first 5 months. We have big plans for The Nightly over the next 12 months to continue building its audience and revenue. Turning now to Slide 14 and the trading update. The total TV advertising market is expected to grow modestly in July and August, although Seven's share will be impacted by the Olympics. Our September and October bookings are currently tracking down 4% to 5% as compared to the same time last year. As mentioned, the FY'24 total TV market advertising revenue share was 40.2%, and we're targeting to increase that again in the new financial year. Our Cricket ad bookings are tracking 11% up versus the same time last year, and our full year costs are expected to be $20 million to $30 million lower than FY '24 based on the cost-out benefits identified today. That concludes the presentation. Before we take questions, a quickly acknowledgement of the people at Seven West Media. We have a great team at SWM and for some, it has been a tough few months. I want to be really clear that the actions of some individuals do not reflect the values, behavior and attitude of the business as a whole, which is home to some of the best, hardest working and most passionate media professionals in Australia. As I've said in a number of forums, a number of people who have displayed a behavior that doesn't reflect SWM's values have already been removed from the company. As part of the changes we've made, we are focused on building a stronger, high performance-based culture that enables our great people to thrive and where unacceptable behavior is not tolerated. Thank you for your time, and we are now happy to take questions.

[Operator Instructions] Your first question comes from Entcho Raykovski with E&P.

My first question is probably quite an obvious one, but I think worth asking. Can you talk to the share -- the specific share impact of the Olympics? And if not for the quarter, because I realize it probably would be significant for Q1, then what do you think it's going to be for the first half and then the full year? And you've obviously, usually, provide a share target for the year. I don't know if I can try and pin you down on what would be a reasonable share target, given that you have the Olympics impact? And then -- but then you'll see the benefit from digital sports rights from November onwards. That's the first one. I've got a couple of others, but I might leave that with you first.

Yes. Okay. I think as we've looked at Olympics over the years where we've had them, we've probably seen a share point or 2 move from the industry to the holder of the Olympics. So we would expect that probably to happen in this case. Obviously, we also see a market growth on the back of Olympics typically as we go through an Olympic sort of cycle. So we'd be sort of expecting some sort of market to be up a bit and then share to be down a bit. So sort of blend each other out. In terms of share target, yes, we have sort of given share targets historically, given those sort of uncertainties around Olympics and where we're at, at the moment, the sports rights coming in. We've called out, particularly in the trading update that we are expecting share growth, but we haven't put a number on it yet. We might look at that as we get closer through the year.

Okay. And then the 4% to 5% decline in September, October, is that just for the avoidance of that? Is that the total TV operations? And are you continuing to see a dynamic of growth in BVOD offsetting some of the linear declines?

Yes.

Okay. So yes, total TV -- and I mean, what's the -- can you give us any sort of broad split? Is BVOD still growing in the double digits? Is it slowing down?

Again, with Olympics over the last couple of months and coming out into September, we've got AFL Grand Final and [ Brown ] now on 7plus this year heading into Bathurst and Cricket season. So we're seeing roughly that sort of behavior, but it is moving around, but that's why we called out a minus 4% to 5% from a total TV perspective for us, and that's bookings compared to the same time last year.

Okay. Great. And then just a final one. I mean, obviously, you're taking pretty significant action on costs, but are you worried about that expanded cost-out program having some impact on revenues as well? Like, I appreciate you need to take action. It's a tough market. How do you balance, I guess, that need for lower cost versus minimizing any subsequent revenue impact?

A really good question. It's something we actively think about. And we called out that we're focusing on driving those cost actions, but maintaining editorial and content quality. So that's been really important. What we've done is we've had to make some tough calls. But as you say, it's necessary to do that in a market that we're in. And while we're delighted with the share gains, it's the absolute revenue number that helps pay the bills. So we have to balance all those needs out. But as I say, focusing on where we can, preserving our ability to drive the content quality, both in television and in publishing and being more effective and more efficient on everything where we can.

Your next question comes from Lucy Huang with UBS.

Jeff and Craig. I've got 3 questions as well. Maybe if I can start with the share improvement we've seen, in total, TV last year. Just wondering if you can give us a rough magnitude in terms of what you've seen in terms of share gains across metro versus BVOD and regional? Was there one that kind of stood out a bit more than the others?

Lucy, yes, we saw pretty good growth from a metro perspective in share. We saw growth across all 3, but metro was slightly better than the other 2 categories. We saw growth in every quarter. So we're pretty happy across the year from a share perspective, getting growth in every quarter and across all 3 categories that we're pursuing.

Yes. No wonderful. And then just a question on the content deals. I mean, we've seen Meta pull away from the Australian market. Just how are you thinking about -- I know Google is probably about a year away still, but what are your thoughts on the potential ability for them to want to come to the party to renew that deal?

Yes, good question. I'm, obviously, a bit reluctant to talk about where Google is at and the conversations we've had with them. There's obviously a lot going on from a Meta Facebook perspective with the government and the social media inquiry designation or not, so we're active in that. But obviously, we're in pretty good conversations with Google. We have a couple of years to go on that deal. So we'll keep in conversation with them about where to -- as that comes to an end.

Yes. Understood. And then just one other one. I think in the U.S. is starting to see some generative AI deals being signed across the industry. Any color you can share on where at with this in Australia do you feel like it's still really early days? Or are we starting to hear some conversations being struck at the moment?

Yes, I think there are some conversations starting to happen. So we're actively participating in those conversations where we can. And we're also looking, as I said, from a 7plus perspective at how we build models and Gen AI capability into everything we're doing every day.

Your next question comes from Darren Leung with Macquarie.

I just have 3 as well, please. And I might just follow on Entcho's earlier question. So it sounds like the cost out program is a bit more targeted at the sales [ bit ] and I'll just have you confirm that. And I guess, I'm trying to reconcile, I guess, the comment to sort of growing market share. Like, give a little bit more sense on what kind of assumed market share growth will be more like years 2 or 3, just given a bit of a change in the go-to-market strategy?

I'd just make sure I understand the question. So the cost-out that we've done is across the entire organization. We haven't specifically targeted any part of the organization more than any other part of the organization. So we haven't sort of gone for nothing on certain parts of it to avoid or minimize impacts. Everywhere has been looked at. We continue to look at everywhere. Our desire to grow share isn't impacted by our need to find efficiencies from a sales department or a content department.

Yes, that's sensible. And just confirming the $102 million, is that the full period benefit? Or will we see a little bit more into FY '26?

So the $108 million is the benefit that we will get in FY '25 to the extent that some of those things happened a bit later in the year, then there'd be some full year effect into FY '26.

And just a second question. On the September and October trading. Can I just confirm, from a dollar perspective, it's roughly flat month-to-month, and it's really just a soft PCP that's resulting in the sort of improving growth rates on a year-on-year basis?

September, October?

Yes.