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

Good morning. I'm Kerry Stokes, Chairman of Seven West Media. Welcome to this Annual General Meeting of the company. There is a quorum present, I declare the meeting open. Firstly, let me introduce the directors and members of our Board. I'm joined today by Teresa Dyson, Colette Garnsey, Michael Malone, Ryan Stokes; Michael Ziegelaar; Jeff Howard, our Managing Director and Executive Officer. Also, joining us is Warren Coatesworth, our Company Secretary; and representatives from our auditors, KPMG, are also at the meeting today. I'm happy to report that Seven West Media is still one of Australia's leading and agile, ambitious businesses. We're squarely focused on delivering world-class market-leading content in news, sport and entertainment that attracts large sought-after audiences across our broadcast, digital and publishing assets. We face industry-wide challenges, including a subdued economic environment that is putting sustained pressure on advertising and federal government policy settings that are creating unnecessary roadblocks. Your Board acted swiftly this year to confront the headwinds facing our industry, initiating a group-wide restructure of our operations and management. This was designed to invigorate the business and set us up to best exploit modern consumer habits, fast-track transformation, control costs, grow audiences and maximize revenues. Along with several management changes, former Chief Financial Officer, Jeff Howard, was promoted to Managing Director, Chief Executive Officer. This preceded a new operating structure in which 3 streamlined divisions were created: television, digital and Western Australia. This positions the digital operations as our top growth priority and fundamental driver of our future earnings. While we drive substantial change to bring consumers and advertising together, our broadcast division once again dominated cementing its place as the market leader, reaching 17 million viewers nationally every month. Seven prize sports programming centered on our 2 most loved national sports, AFL and Cricket continue to deliver exceptional audiences all year. Our new exclusive rights to major sporting events meant viewers, rights can now watch the AFL Cricket for the first time, free and live on our streaming services, 7plus as well as other digital assets. 2024 AFL Grand Final recorded the largest ever audience for AFL Final on a streaming platform. This is just the beginning as we have big plans to dominate sporting broadcast in Australia on all platforms. Not to be outdone, our news and current affairs programs, general interest and drama continue to attract strong audiences. I'm proud to say our West Australian operation continues to set the stage for our national business with deep and unrivaled integration in the community, securing exceptional market dominance across broadcast, print and digital. The division also is a market leader in digital innovation, best exemplified by the successful launch this year of Australia's newest and fastest-growing national news brand, the Nightly. Its impact with readers and advertisers will help drive further adoption of technology that will transform how our business both delivers news and tells the stories connecting communities in all corners of our vast country. There is no better example of this than the telephone, which this October brought the entire state of Western Australia together to raise an incredible $83 million for second vulnerable kids. Our people are deeply ingrained in our towns, our cities, and we fight for our viewers and readers. We are a business built and loved by millions of Australians who make up our broad set of family. This is a stark contrast to overseas-based streaming platforms. Unlike them, we pay our taxes, we look after our people, and we follow strict broadcasting rules for this country. Unfortunately, the federal government has failed to grant a legislative environment that allows Australia unfettered and guaranteed access to free sporting programming. Our parliamentarians are not doing enough to reinforce and strengthen the anti-syphoning rules in order to give every Australian access to free iconic sporting events of national significance. Seven will continue to give audience first-class free and live content across all our platforms, and we'll fight to protect families from unfair and un-Australian price barriers for viewers. Our new management has taken a decisive proactive step to modernize our culture and continue to build a positive inclusive, creative and high-performance environment that we're all proud to work in. Our national broadcaster, the ABC Four Corners program, recently veered well away from the ABC's charter to engage in an egregious and unfair assault on our business and the reputation of our good people. Our formal complaint to the ABC, making a compelling case Four Corners clearly failed to meet the broadcasters' own principles of impartiality, accuracy and fairness has unsurprisingly been ignored. Despite our request, the ABC's Ombudsman has refused to investigate the matter. The Four Corners back fired on the ABC as it itself is now the subject of hypocrisy, entrenched cultural problems, including racism, misogyny and bullying, little of which has been reported by it on its national networks. This attack failed the dent, spirit and pride of our incredibly talented hard-working and professional teams at Seven. Despite the ongoing difficult economic conditions, the federal government's failure to create a fair media policy framework to continue to reduce costs and stabilize the business to set us up for sustained growth. We are fortunate to have in place a great team of creative people who have made an incredible contribution to our success over many years. On behalf of the Board, I'd like to thank you, as shareholders and our staff for your ongoing support of Seven West Media as we navigate this challenging environment in order to propel our business forward for a successful future. I'd now like to welcome Jeff Howard to speak to you. Jeff?

Thank you, Chairman. Good morning, everyone. It's a real privilege to lead our great Media business. Seven West Media is, first and foremost, passionately focused on creating and delivering valuable connections. We're very proudly a content-led business. Every day, our audiences are growing as they engage with that content, whether that be news, sport or entertainment on broadcasting, our publishing assets or our digital properties. Our data platforms connect with our partners with that audience like never before, enabling those audiences to be reached at scale or at a totally micro level. Our FY '24 results reflected the challenging macroeconomic environment. Seven grew its audiences across total television. Broadcast audience was up 0.5% and 7plus consumptions grew by 39% in the financial year. Against this, revenue share was up by 1.7 share points or the equivalent of $44 million. However, in a television advertising market that was down 8.2% or nearly $300 million in the year, group revenue, including share of associates of $1.4 billion was down 5% on FY '23. In an inflationary environment, operating cost growth was held 2% during the period with a 4% year-on-year decline achieved in the second half. Statutory net profit after tax of $45 million was therefore down 69% on FY '23, while underlying net profit after tax after excluding significant items was $78 million, down 46%. Group earnings before interest, tax, depreciation and amortization or EBITDA before significant items was $187 million, down 33% on FY '23. Net debt of $301 million increased from $257 million as of 30 June '23, driven by the $67 million that we invested in the purchase of the ARN Media shares. Underlying cash generation, excluding this investment was $16 million. Reported net leverage was 1.6x. However, when we adjust for the ARN investment, underlying leverage was 1.3x. Our objective is to build a better media business, one that will prosper despite our industry's current structural changes and the broader economic challenges. Our priority is to focus on delivering on our digital future while we optimize our traditional assets, finding new revenue streams and business opportunities and managing our costs responsibly. To do that, we need to think differently about how we work and how we are structured. In June 2024, we introduced a new operating model of 3 divisions to help us achieve that ambition, digital, television and Western Australia, which are all supported by every department across Seven West Media. This structural change does not mean we are moving away from converged audience thinking if that's what our advertisers want. What we are doing is making sure we deliver the best of Seven's assets in the most flexible ways we can and making sure we have dedicated resources focused on driving that digital future. By focusing on these areas, we can build a resilient and future-ready organization that can thrive in the evolving media landscape. Content and valuable connections are at the heart of our strategy. We are committed to producing and delivering high-quality news sport and entertainment content that resonates with our audiences and can be monetized effectively across all our platforms. This includes investing in original content, securing exclusive rights to major sports events and continuously enhancing our news coverage. It would be remiss of me not to acknowledge some of the tougher parts of the last 12 months. Seven West Media has been subject to a number of claims and media coverage. Where they do exist, we are addressing the various behavioral issues that have come to light and a number of people have already left the company as a result. Unfortunately, some historic issues are still playing out, and we are dealing with these appropriately. Our digital platforms, particularly 7plus continue to see excellent user growth and engagement. 7plus is a streaming powerhouse that's at least as good as the global SVOD platforms. It has high brand recognition. It already has one of the biggest content libraries and the biggest fast or free ad-supported television channel selections available, all for free. 7plus will soon become the regular home of first-run exclusives to drive newer, younger audiences. We've been revving up everything we do with 7plus over the past 12 months as we get ready for Seven's biggest game changer, the arrival this summer of the cricket and the 2025 AFL season. 2 of Australia's most loved sports will be available on digital for free for the very first time. Early results indicate this is a growing audience, growing a new audience for Seven. It is not cannibalizing our existing broadcast audience. Sport will also drive daily habitual audience behavior and the consumption of 7plus' content library. For advertisers, this represents the start of a golden opportunity to capture and engage millions of new, younger sports fans who can now watch for free on their device of choice. Our digital strategy extends beyond content acquisition. We are investing in technology and working with market-leading partners such as AWS and Databricks to enhance the 7plus user and advertiser experience. The integration of AI in the 7plus personalization engine has allowed us to provide tailored content recommendations, significantly boosting audience engagement and retention. Our data-driven approach ensures that we can deliver the right content to the right audience at the right time, maximizing both viewer satisfaction and advertising effectiveness. The Phoenix trading platform will open for bookings in just a few weeks and will go live in the first quarter of calendar 2025. Phoenix will allow our customers to buy seamlessly, trade dynamically and on a converged basis nationally across metro, regional and streaming. It will be the only trading platform in the market covering those 3 markets. Phoenix will allow us to maximize inventory utilization and drive yields to achieve better outcomes for campaigns and revenue. Our digital and television platforms continue to reach more than 17 million people nationally every month. With a robust digital presence, including 7plus the nightly and sevennews.com.au and a truly national broadcast network, we reach audiences across all corners of the country. The West has continued to transform its business, driving a greater share of its revenue from digital subscriptions and circulation through high-quality local editorial. The result of this focus is demonstrated in the leading readership and circulation results across the country as well as the strong growth in digital subscriptions. The West has also successfully expanded nationally with new ventures such as the digital newspaper, the Nightly. In just its first 7 months, the Nightly has established an audience of more than 2.5 million unique users every month, and you can expect to see more market-leading innovations coming out of the West. As the Chairman said, the regulatory environment is presenting new challenges, particularly when it comes to the digital and social media giants. We are actively advocating for fair regulations that ensure a level playing field for all media companies. From a trading update perspective, as anticipated, the first half of FY '25 trading has been mixed, reflecting the impact of the Olympics. Based on performance to date and forward bookings, Seven's revenue for the first half of FY '25 is currently pacing down approximately 6.5%. When we adjust though for one-off events such as last year's FIFA Women's World Cup and the Paris Olympics, we estimate Seven's underlying first half revenue will be approximately 1% lower than the same time last year. This has been powered by the strong content on Seven and 7plus and in particular, premium sports content, including the AFL Finals and the Cricket, which will continue through the year. Seven West Media West Media remains on track to deliver the full year net cost reduction that we flagged back in August of $20 million to $30 million versus FY '24. I'm super excited about the opportunities that lie before us. Our focus is on delivering exceptional content, engaging our audiences, creating and delivering valuable connections. This will drive our digital future and underpin sustainable growth. My thanks to the Chairman and the Board of Directors, our entire executive team and to all the people at Seven West Media for their hard work and dedication through FY '24. Thank you also to you, our shareholders, for your continued support. We are committed to delivering value for shareholders, employees and the communities. Together, we will build a better Seven West Media. Thanks.

Thank you, Jeff. 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 will take the notice as read unless there is an objection. If as a holder of ordinary shares or proxies or authorized representative, you would like to ask any questions, I will take questions during the course of the meeting, which relate to the resolution then being put. Questions relating to general business will be taken at the end of the meeting. I ask you to direct all questions to me. Please move to the nearest microphone at either end of the me. Show your red or yellow card you are given when you're registered and please give your name. Before each resolution is put to the meeting, we'll display on the screen the count of proxies as directed on the proxy form. Those proxies count reflect the valid proxies lodged by the deadline stipulated in the Notice of Meeting. As Chairman of the meeting, I propose to cast all available undirected proxies in favor of each resolution. You will see from the screen's display significant numbers of our shareholders vote by proxy. Accordingly, in my capacity as Chairman and in accordance with the constitution, I demand that a poll be taken on items 2 through 5. These items will be put to a poll at the end of the meeting. First item of business to lay before the meeting, financial statements and reports of directors and auditors for the year ending 30th of June 2024. There is no need for a formal resolution on this item, so the item is excluded from the proxy form and will not be voted on. Prior to the meeting, we received a number of pre-submitted questions from shareholders about the company's approach to capital management, particularly in regard to dividend and when it will be reinstated. For some time now, the Board has suspended payments of dividends having regard to a number of factors. These included the current market conditions, the company's focus on paying down debt and ensuring the company was in a position to take advantage of any market opportunities. Like all of our shareholders, I would very much like to see the dividend reinstated. The Board will do so when it considers it prudent to pay a dividend on an ongoing basis. The Board will continue to review this at each half year and full year period. If there are any questions from holders of ordinary shares in the room? Again, please move to the microphone, show your card and give your name, please.

Thank you, Chair. David Kingston, K Capital. Look, we all acknowledge that traditional media is challenged. So, that's a give in. However, this company has got incredibly powerful assets. But at the same time, I'd just like to make a few comments as I'm permitted under the Corps Act. The overall outcome, Mr. Chair, for shareholders for a number of years has been very poor. Where is the Stokes magic? You're renowned as a brilliant family. The performance of Seven Group has been fantastic. Where has it gone for Seven West Media? Seven West has a current market capitalization of $250 million. Let's add the net debt of $300 million. We've got an enterprise value of $550 million. Approximately 85% of earnings come from television and the balance from print. The current enterprise value is a fraction of the revenue of $1.4 billion and a very low multiple of 3x EBITDA. It is sad because Stokes family is fantastic. What you've done in Seven Group is brilliant, but the magic has deserted Seven West Media. Moving on, a little bit of history comment. Seven purchased this company, the media company in 2011 for an amount of $4.1 billion. At the time, Mr. Chair, you were quoted as saying you're extremely excited about the growth prospects. The deal was partly funded by a $700 million raise at $5.20 a share. Since then, Seven West share price has been terrible. It's fallen 97%. The deal was done at $5.20, 10 years ago, the stock was $1.30. 3 years ago, the stock was $0.60. Today, it's $0.16. Sadly, Seven West shareholders have been punished with large capital losses and also no dividends since 2017. The issue here for shareholders is, is there any hope? Noted the progress with cost control, costs for FY '25 guided down 2% but also a statement in the annual accounts that September, October '24 bookings are down 4% to 5% versus previous corresponding period. So, it does seem as though there's another weak year pending in financial '25 for Seven West Media. I have 2 questions, Mr. Chair. Should the 13,000 shareholders give up on Seven West Media or is there hope for capital gain and dividends? Because the only reason shareholders participate in a company is either capital gain or dividends. The second question I have, Mr. Chair, if someone could clarify why the company has spent a lot of money on buying a major stake in ARN Media, Radio Group at a price that's currently way above the current share price. Thank you, Chair.

Thank you. That's a pretty broad range of questions and observations. Unfortunately, I actually agree with you. There's nothing you've said that isn't true or accurate. I wish there was some magic. We live in an environment which has changed dramatically and it's changed because of the advent of streamers people like Amazon, Google, Facebook, who are eating our lunch. And we've got a government and a policy setting, which make it impossible to contain them. They take our product; they redistribute it in various fashions. The clip it, they put it on YouTube. They do all sorts of things with it for which we get no reward. We've spent the last few years fighting as hard as I can fight to try and get the government to look at how we can better manage our own affairs here to see a reward for the journalism that our company produces, not just our company. I talk in fact now to the industry because what you identified for Seven is now applicable to the whole industry, whether it's 10, 9 or ourselves. We're all facing the same problem. And we have between us, really great people working for us, really great journalists. And you can see it in the publications, you can see it in the television. You can see it in the news items we produce nationally across the whole country. But it's okay for these people to click it up and put it on TikTok on any form of platform they wish to without any reservation or control. If you go to TikTok, you'll see more exerts from home and away than you will in home and away. But we get nothing for that. And our government doesn't seem to think it's worthwhile doing anything about. We were fortunate in the previous government, Josh Frydenberg sat there and held the streamers to account, and he made them pay a fee for our journalism. And he did that through pure strength of argument. The current government doesn't seem to be able to continue that because they're advising us, they're not going to continue paying for that service. They think they paid too much and stealing is better if you get it free, they have to pay something for it. But we, I like you, want dividends from this company. My own income, particularly personally, is tied to dividends from this company because for what it is worth, I have more shares, much more shares in this company than I have in SGH. You might say it wasn't very foresighted, but all of my shares personally are on in Seven West. And for me, I want to see dividends reflow to the company. To do that, we have to stabilize some things. And it does need some government help. Help to stop people stealing from us, help to give us a level playing field so these people can't just come here and take everything. If you take the whole broadcasting industry together, 7, 9 and 10, 10 years ago, between us we were paying $1.3 billion a year in tax. This year, we'll probably pay between us maybe $200. Now, the streamers who took all that revenue pay 0. 0, no tax. How does that work? That works because they steal our content and they're allowed to do it. Unless somebody stands up at some point and says, our country is sacrosanct. We have our own rules. And it can be done. Ireland just took Apple on and finally made Apple pay tax of $18 billion. So, it can be done if you got a strong government with strong leadership who knows how to protect its citizens and how to protect its assets. The future, we will get what we need with this government or another government because we won't give up. It's too important. At the end of the day, Seven and our competitors at 9 and 10. If we give up, you'll end up having Sucker-burg as your news editor and Google and Apple, and you won't have local news, you won't have independent journalism. And I believe we're at the forefront of this, and we're fighting very hard. We have reorganized the company. It hurts me every time we restructure our company. We shouldn't have to be doing this. We should be growing our revenue base, but we haven't been able to. Yes. Would you mind wiping that, please? So, I have great sympathy for our shareholders. I really want to see a dividend reinstated. I want to see the shares at a decent price, and they should be a much higher price than they are now. And we can just do the best we can. But I am constantly meeting with members of government, putting our case from a whole bunch of issues. I don't think this government is as concise as coordinated as we've had with previous governments. No government so far has actually stood up. At the end of the day, we have these agreements, but we don't seem to come out on top. Foreign companies do. We've got to a point where it's so difficult to do business here now, where ARN will see a $20 million transaction, all of which is making life much more difficult. But, for us, advertising getting reward for the effort our people put in is paramount. And what I can do is do the best we can. I just commit to you that we never stop trying.

Thank you, Chair. I totally agree that the foreign digital companies are being given an unfair advantage, which is because the government should be looking after the local incumbents. So, I totally agree with that. Would you be able to comment on the strategy when you bought a large position in ARN, radio group at a price well above the current price?

We looked at how we could actually expand our influence with our current assets and was put to us by management at time ARN was the best opportunity. We studied it and thought that it was. Since then, there's been an implosion of radio assets, which have seen its price decline. And there has been no activity in the consolidation of radio that we actually expect it to happen. I believe consolidation in the industry will happen. And when it does, hopefully, we can participate in it. But I think bigger units will actually be more immune than smaller units. The next 2 items of business. Are any questions or our auditors on our financial statements before I move on. Just sitting here waiting for questions. I feel neglected when you don't ask any questions. I charge enough money; they should get some questions. You're off the hook again. The next 2 items of business relate to the reelection of directors. The first director candidate offering himself for election is Michael Malone, who is retiring and being eligible, offers himself for reelection. Michael is a highly experienced CEO and a company director has a proven track record as an entrepreneur and building shareholder value. Michael's technical strategic understanding of technology is particularly valuable to the Board as we undergo continued digital transformation. Michael is a member of the Audit and Risk Committee and a member of the Remuneration Committee. Are there any questions on this matter? Votings for this are on the screen. As I've directed, a poll will be taken on this resolution at the end of the meeting. Slide 2 is the reelection of Ryan Stokes second offering himself for reelection, who is retiring and being eligible, offers himself for reelection. Ryan brings a deep understanding of the media industry to the Board, having fulfilled executive and director roles in the company and its predecessor entities for more than 20 years. Ryan's extensive experience and expertise in investment, risk, people, management and executive leadership, operational discipline and performance are also particularly beneficial to the Board. Ryan is a member of the Remuneration Committee. Are there any questions on this matter?