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

Thanks, Ashley. Good morning, everyone, and welcome to Seven West Media's results for the first half of the 2025 financial year. I'm Jeff Howard, Managing Director and Chief Executive Officer of Seven West Media. And joining me is our Chief Financial Officer, Craig Haskins. I'd like to start by acknowledging 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 present -- our people present this morning. 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. These results reflect a solid operating and financial performance, managing through the impact of the Olympics in the first quarter and offsetting soft second quarter ad market with some share gains. Importantly, we have audience and revenue momentum heading into the second half of FY '25. We have maintained our ongoing cost discipline. Excluding the Olympics and the FIFA Women's World Cup that we had in the previous corresponding period, Seven's total TV audience was up 1.5%, including a 43% increase with 7plus and a modest 1.8% decline in linear TV viewing. Pleasingly, we saw a revenue share-led rebound in Q2, underpinned by our content strategy, including the successful summer of cricket on 7 and for the first time on 7plus. Seven's total TV advertising revenue declined by 6%, in line with the trading outlook we provided at the AGM on the 7th of November last year. This was in an ad market that declined just over 5% in the half. However, after adjusting for the Olympics and the FIFA Women's World Cup, underlying revenue was down just 1%. Our total TV revenue share increased by 0.5 points to 41.5%, a record result for a non-Olympics broadcaster in an Olympics period. Our first half costs were down 2% despite ongoing cost pressures and the unwinding last year of the onerous provision for Cricket. Full year costs are tracking to our guidance of a decrease of $20 million to $30 million year-on-year with an ongoing commitment to drive further efficiencies. The key highlight in the half was the launch of 7plus Sport with the addition of Cricket for the 2024-'25 summer to be followed by the full AFL season from next month. We saw 347,000 new registered users sign up to watch the Cricket on 7plus with nearly 70% of them in the high-value 18 to 54 demographic. I'll now hand over to Craig to take you through the financial results.

Thanks, Jeff, and good morning, everybody. Seven West Media reported total group revenue and other income of $727 million, which was down 6% against the first half FY '24 result. The decline of $48 million was attributable to a $45 million fall in Seven's total TV revenue and a $3 million decline in the West. The impact of the weak market, which Jeff noted, was partially offset by the gain in revenue share and we believe the impact of the Olympics on our year-on-year revenue was in the order of $30 million. The prior corresponding period also included a one-off bump of $7 million from the FIFA Women's World Cup. In view of operating conditions, a 3% decline in the West revenue was a solid result. Operating expenses before depreciation and amortization were $635 million, down $16 million or 2% on the PCP. Our cost-out program reflects significant work done across the business in controlling content, people and operational costs despite contracted increases in those content costs, EBAs and the ongoing impact of high inflation across our entire business. As you're aware, the prior period also included a $16 million benefit from the onerous provision we had against our Cricket contract. So, this half's cost result reflects the full impact of Cricket costs incurred. With revenue down 6% and costs down 2%, Seven West Media's EBITDA before significant items was down $32 million or 26% to $92 million. Depreciation and amortization expense was up 17% or $3 million on the PCP, reflecting a $1.5 million increase in fixed asset depreciation and a $1.8 million increase in make-good depreciation due to the acceleration of the Melbourne lease term as we get ready to move later this half. EBIT before significant items declined by 33% to $71 million and net finance costs of $20 million reflect higher drawn debt over the period and market rates. Our significant items expense before tax of $21 million was up $8 million recorded in the PCP. Underlying net profit after tax, excluding significant items, was $37 million, down $26 million or 41% on the PCP. Turning to Slide 4. Seven West Media statutory profit after tax was $18 million and basic EPS was $0.011. Excluding significant items, underlying EPS was $0.024. Significant items before tax of $22 million include $9 million of Project Phoenix costs, which are not able to be capitalized due to accounting standards, but are treated as significant items consistent with prior periods. We've recognized $14 million of fair value loss adjustments on Seven West Ventures portfolio, primarily relating to a write-down in the value of our View Media Group to its original carrying value and also our holding in situ, which -- both of these were offset by a positive mark-to-market movement on our cash swap over ARM. These significant expenses have been partially offset by a gain recognized on a program valuation change. You'll also note that in the PCP, we recognized a gain of $15 million relating to the right-of-use asset on our current Melbourne lease, which we're now not renewing. Turning to Slide 5 and cash flow. Cash flow before temporary capital items of $52 million translated to a decrease in Seven West Media's net debt of $42 million for the half. In line with previous presentations, we've made adjustments for onerous contracts, noting that previously, there was a difference between cash and EBITDA relating to the onerous cricket provision. We've also made an adjustment for Project Phoenix costs incurred during the half. Both of these impacted working capital. As we're now in the go-live stage of Phoenix this half, going forward, we expect to see reduced significant items relating to this project and therefore, improved cash conversion for the group. Working capital represents normal movements in typical items such as accounts receivable and payable and timing associated with program work in progress, deferred income, et cetera. It also includes approximately $8 million of noncash contra advertising utilized during the period by our Ventures portfolio companies. We've made no tax payments in the half with these to occur in the second half on lodgment of the FY '24 tax return. The balance of the recurring cash flows include net finance costs, CapEx, including software and lease payments. We expect second half temporary and capital items to remain consistent with the first half and we expect to recognize make good payments in the second half as we finalize the exit of our property leases in Melbourne and Martin Place. Seven West Media finished the half year with net debt of $260 million and leverage of 1.7x, which is up slightly on the 1.6x reported at 30 June, but well within covenants. We remain very focused on driving cash flow and maintaining conservative leverage. Hence, the Board continues to hold off on any capital management initiatives, but we'll continue to assess these opportunities at each reporting period. Turning to Slide 6, our cost-out program. This slide should now be familiar and it shows year-on-year impact of higher costs expected in the business that we've addressed in our cost-out program of $108 million. As Jeff noted, we're very committed to cost discipline and efficiency across Seven West Media. There was good cost control in both Seven where costs were down 2% and the West where costs were down $2 million and in corporate down $1 million. We continue to hold guidance of FY '25 costs in the range of $1.2 billion to $1.21 billion or $20 million to $30 million lower than FY '24. That's a net decrease of 2% year-on-year. We remain committed to find new initiatives and our ambition as we go through this half and into FY '26 is to try and maintain costs flat, notwithstanding the inflationary impacts we will see in the business. I'll now hand back to Jeff to take you through the next part of the presentation.

Thanks, Craig. Seven's total TV advertising revenue decline of 6% was impacted by sporting events and the 5.4% first half decline in the TV ad market. Within that, the metro market was down 10%, regional was more resilient, down 5% and the BVOD market grew nearly 20%. Premium sport drove Seven's audience and revenue improvement, particularly through Q2, led by 7plus. The revenue result reflects 2 distinct quarters. In the first quarter, our total TV revenue was down 8%, reflecting the Olympics and the Women's World Cup. TV was down 10% and 7plus was up 3%. Our revenue share of 39.4% for the first quarter was down 2.8 points. In the second quarter, however, our total TV revenue was down 4%, driven by a weaker market, but offset by solid growth of Test and BBL Cricket from November. TV revenue was down 7%, while 7plus was up 23%. Our content strategy after the Olympics maximized our revenue opportunity from September through the second quarter. Our revenue share in the second quarter was 43.8%, up 4 points year-on-year. That gave us a total TV revenue share of 41.5% for the half. Other revenue decline includes the non-renewal of the Meta agreement. And as Craig has said, our costs are tracking in line with our commitments to the market. Turning to Slide 8. We successfully executed our content strategy to mitigate against the impact of the Olympics in Q1 and drive growth into Q2 with the launch of the Cricket on 7plus and extended seasons of My Kitchen Rules. Given the Olympics, we moved some of our content later into 2025. As mentioned, audience, excluding the Olympics and the Women's World Cup in '23 was up 1.5%. Our audience share in the first half was 41.1% or 43.4% excluding the Olympics. Key content grew its audience year-on-year, including the AFL Test and BBL Cricket, My Kitchen Rules, Home and Away, The Front Bar and TV Week Logie Awards. Pleasingly, over summer, we saw Seven's audience grow by 6% with growth across both linear and 7plus. It's also great to see commercial peers are growing their audiences as well. Content costs declined 1%, notwithstanding inflationary impacts and the full cost of the new Cricket contract without the benefit of the onerous provision. On Slide 9, we've executed a very deliberate strategy to own our sport across all our platforms. You've seen that with Cricket over summer and we will be launching new AFL content in March. Going back, though, the AFL Grand Final recorded its largest audience since 2016 with a national average audience of more than 4 million, including 654,000 viewers on 7plus, a 44% increase year-on-year. This delivered us a new record for 7plus revenue. The Australia versus India test series delivered record audiences up 39% year-on-year, a stellar result. BBL's new format is paying off. BBL saw its highest viewership in 5 years with total audience up 21% year-on-year. The remarkable final saw a 40% audience increase. Our Cricket strategy has driven 16% revenue growth year-on-year and we expect similar momentum heading into the 2025 AFL season. The 7plus Cricket audience over the summer was well above our expectations. This underpins our view that the '25 AFL season and the new ancillary programs on 7plus will achieve strong audiences that will maximize yield based on our cricket learnings and the new Phoenix trading system. Turning to Slide 10 now. 7plus' total audience increased by 36% during the first half with VOD up 24% and live streaming up 49%. Summer audiences surged nearly 80% year-on-year, driven by the summer of Cricket. Almost 350,000 new registered users streamed 7plus to watch the cricket over the summer. Just under 200,000 of them went on to consume other 7plus content, demonstrating high engagement and audience retention. The launch of our 7plus First strategy is already driving new, younger, high-value audiences with shows such as Ludwig, Murder in a Small Town and coming very soon, Suits LA. Our partnerships with Disney, Paramount, NBCU, Warner Bros., Lionsgate and ITV continue to enhance our content library, underpinning that VOD leadership. The implementation of Seven's AI Factory partnership with Databricks will deliver AI-led solutions that drive revenue, increase audience engagement and optimize our go-to-market proposition. We are seeing early success with dynamic ad loads and audience churn analysis with the platform open to advertising partners to collaborate on pilot studies. And our market-leading customer data platform, 7REDiQ powered by data on about 15 million Australians is serving deterministic and predictive customer insights. The chart on the right of this slide shows why we're focused on that high-value audience growth. Growth in audience as well as minutes consumed is key to driving growth in the BVOD market and we can see that here with the growth in revenues since the AFL Grand Final. Turning to Slide 11 in the West. The West continues to execute on its strategy of accelerating digital growth in audience and paying subscribers holding the line on print and reducing costs. In the first half, [ WAN ] recorded strong growth in digital audiences, including 62.5 million monthly page views, an increase of 10.6% year-on-year. The Nightly grew to 8.3 million page views in just its ninth month after its launch on 26th of February last year and has seen strong growth in total unique audience since launch. The Nightly has been a great example of collaboration across SWM. Advertising revenue declined 8% year-on-year, impacted by inflation and interest rate conditions. The supermarket sector was the main contributor. Circulation revenue increased 1.3% due to the strong performance of print circulation with recent cover price increases driving this in the right direction. Costs have declined year-on-year on reduced headcount and a reduction in paper costs despite 3.5% growth in wages in the WA market. To Slide 12. Our strategy is built on 4 key objectives. One, building a better digital media business, driving our own future, redefining our success and determining what's next. Delivering on that digital future is fundamental. Seven's Premium Sport and VOD content is creating a step change to drive high-value audience and capture a bigger share of the growing digital advertising pie. We are launching new premium content to grow younger high-value audiences. These audiences create attractive opportunities for digital and converged advertising campaigns. Cricket launched on 7plus late last year with strong results to date. And as we said, AFL is coming to 7plus next month. We've launched our 7plus First strategy with premium first release series starting on digital first to drive adoption of 7plus as a premium VOD service. We have a new digital sales leadership team and the team structure and it's already delivering the conversion of audience to revenue as we've seen with the 23% revenue growth 7plus achieved in the second quarter. At the same time, we're optimizing our traditional assets with initiatives such as improved industry collaboration to promote the strength and effectiveness of total TV, driving industry synergy and efficiency to underpin economic resilience. Our aim is to drive resilient earnings and cash flow from our broadcast TV assets by monetizing the strength of our market-leading content and mass audience reach. There's been a lot of focus on Meta and its payment or nonpayment for news content. I'm optimistic that the Albanese government is progressing the news bargaining incentive and that they will act in the best interest of the Australian people to support their access to our reliable and trusted Australian news services. Managing costs responsibly is, as you know, one of our core competencies. We are continuing to aggressively manage costs without compromising content and editorial quality to maintain earnings and cash flow. This will create earnings leverage ahead of an advertising market recovery. Our content schedule is now clearly aligned with revenue opportunities to drive returns. Incremental investments we are making such as ancillary AFL programming and additional digital sales headcount are driving growth opportunity. These have been offset by incremental cost initiatives. The AFL season launch in March will represent a step change for our monetization of the most valuable sports rights in Australia with premium content over 7 days, creating significant new high-value audiences and revenue opportunities on Seven and 7plus. The new AFL programming will enable us to own the footy and drive high-value audiences into sport on 7plus and chase premium revenue. Another example of finding new revenue streams is The Nightly, which continues to grow its audience revenue and earnings. Moving into its second year, The Nightly will continue to shape national debate as it grows its influential national audience. Looking at Phoenix quickly. Bookings for Phoenix opened in December last year and it goes live on the 2nd of March. Phoenix represents the future of audience trading in Australia, providing next-generation solution for agencies and advertisers. It will deliver national dynamic audience trading, a first for free-to-air TV and BVOD platforms in Australia. Our latest testing indicates a significant amount of the inventory will be freed up through inventory optimization. It enables customers to buy seamlessly and on a converged basis across metro, regional and BVOD, a step change for customer experience. And it ensures that every campaign is delivered in full, maximizing yield at every spot and eliminating any over-delivery or make goods. While early days, we are very excited about what Phoenix will do for Seven, especially as we continue to drive our overall strategic agenda. Turning now to the trading update on Slide 14. The market is improving with Q3 bookings tracking up in the low single digits. The second half is expected to benefit from a couple of key tailwinds. The launch of free AFL streaming on 7plus next month, as we've talked about, is expected to deliver revenue growth. Our current AFL bookings are tracking favorably year-on-year. And the upcoming federal election is also anticipated to drive incremental revenue into late Q3 and into Q4. Our cost-out program remains on track with FY '25 cost guidance of $1.2 billion to $1.21 billion maintained. Based on current expectations and assuming the ad market remains relatively consistent, second half earnings are projected to show modest growth compared to the second half of FY '24. That concludes the presentation. Thank you for your time this morning. We're now happy to take questions from investors and analysts.

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

I've got a few quick ones, hopefully, easy to get through. Just firstly, you comment that you expect modest earnings growth in the second half. Does that -- just for the avoidance of doubt, does that take into account the negative impact of the Meta deal ending?

Yes.

Okay. So, not on an underlying basis, actual earnings delivered.

Yes. Actual.

Okay. Cool. And then can you perhaps talk about the level of visibility you have into the remainder of Q3 and then into Q4? You no doubt, you're aware how short the market is and we forever talk to media agencies and buyers and they tell us that they don't have a whole heap of visibility. So just, I guess, your level of confidence that the bookings trajectory can continue.

Sure. So obviously, January is done. February, from a broadcast perspective, very well advanced to the point where we've got a little bit of the [ valves ] left, which we'd expect to fill over the remaining sort of couple of weeks. Digital, very different, as you know. We can continue to attract good revenue opportunity as we go through the month. Yesterday was a very good example of that, fantastic win by the Eagle. We got to get that in. But we drove a pretty good revenue outcome from a 7plus perspective yesterday on the back of the coverage of the Super Bowl. And that's the sort of opportunity that we can see from a digital perspective as we move forward. March from a broadcast perspective, we're probably about 70% to 75% of what we'd expect at this point. And again, the same sort of story from a digital perspective. The AFL starts on the 6th of March. So, we'd expect to see good bookings for AFL ahead of time, but we'd also expect to see some hopefully good money coming through once the season launches for basically most of March. Q4, a bit harder to call at this point. We've got some good forward bookings, but it's pretty early to be giving sort of detailed comments around April through to June.

Okay. That's great color. And you've mentioned the federal election. Are you seeing any spend already coming in ahead of the federal election? And is it going through media agencies? I mean I'm conscious that last time around, Clive Palmer spent quite a bit and that wasn't necessarily captured in SMI numbers. So, may not necessarily be picked up by the market. And so are you seeing that spend coming through? And what do you expect the benefit will be from the federal election in the second half, either to the whole market or to your revenues? Any sort of color would be useful.

So, we're starting to see some of the government sort of telling everybody how good a job they've done over the last few years and that typically comes through agency. We've also seen a bit of Clive money already, relatively small start, but it's still very early and obviously, election hasn't been called yet. So, I'd expect to see that continue to build as the election is called and we get into the guts of it. In terms of what we expect to see, I mean, we did a pretty good job with election last time, whether we can repeat that or better that, time will tell. It's probably too early to give proper color on election given, as I say, it hasn't been called yet, but we're confident that it will drive some benefit in the Seven and the West over the second half.

Okay. And just very last one. I mean your revenue share performance was, I'd say, outstanding in the first half given the Olympics on 9, up 50 basis points. Do you think -- so do you think this came from 10, given obviously, the Olympics was being shown on 9? And can you see -- I expect you should be able to see a greater improvement in the second half year-on-year versus the 39.2% share you had in the PCP?

Yes. So on the second half, we'd be expecting some share growth. I think you're right, there was -- we definitely saw a shift in the dollars from others to the Olympics broadcaster in that first quarter, reflected in the number that I called out before. But in the second half, I think we've got some tailwinds that are going to help us drive that share growth, particularly in the fourth quarter with AFL. In terms of where it's come from, I'm not in the business of sort of calling out where we've got it from. But obviously, we're very happy with the 4 points that we picked up in the second quarter.

Okay. And sorry, just to -- I mean, if I'm looking at the second half, presumably, is it reasonable to assume a greater share uplift in 2H versus what you saw in the first half?

I wouldn't be banking on 2 repeats of Q2. Can we deliver effectively what we delivered in the first half again? I'd be hopeful that we can deliver that or a bit more.

Your next question comes from Kane Hannan with Goldman.

Maybe just aspiration for flat costs into '26. Just talk a little bit more about where you see those key areas of efficiency. I suppose confirming that aspiring for a flat cost base with an ad market that's back in growth given how you're talking about the second half outlook?

Yes. Thanks, Kane. So we -- hopefully, everybody has seen we've got a pretty good track record of finding costs everywhere. It's not easy, and we've had to make some tougher calls. Part of the cost out that we've done as part of the $108 million this year is tightening up our investment in the content side. So, we'll continue to do that. Some of the headwinds we've got going into '26, we called out a couple of years ago that the AFL contract is the new contract from this season. And we called out that initial uplift when we announced that a couple of years ago, I think it was 14% or 15% from memory. And then there was always the sort of the usual inflation that comes through a business like ours, both from our own people and EBAs, but also suppliers and content suppliers who have similar sort of cost pressures. So, we will continue to look for more efficient ways of doing everything we do. I think if we look back over time, we were probably one of the first to outsource a lot of our sort of process work offshore. We'll continue to look for ways to lead the market in terms of how we find efficient ways of doing what we're doing.

Perfect. And just some of the commentary around improving industry collaboration. Can you give us a sense of what you think the duplicate costs are in the industry, what the cost savings could be if the industry was to collaborate a lot more effectively than in the past?

Yes, Kane, it's probably a bit early to call out specific numbers or areas that we'd be looking at. But certainly, one of the things that I've been doing with Matt and [ Bev ] is just sitting down and talking about where we are doing things duplicate or triplicate in some cases and where we might be able to partner more effectively. We've got some great examples over time where we and Nine have done the playout center in Frenchs Forest. It's made it more efficient for everybody. So, long gone are the days of each of us having a helicopter. We share helicopters. So, there's a lot of examples we've already sort of pursued and I think there's a lot more that we'll be able to pursue as we go forward. Looking at the industry bodies as well, we want to make sure we're getting the best value out of the industry bodies that represent the industry. So, a lot to do on that front.

Yes, that makes sense. And then just if you do get that EBITDA outcome in the second half, just talk a little bit about where you think that the cash flow lands in the second half. I think you're talking about the tax payment, the make good payment on leases. Just anything else we should be thinking about from a cash flow outcome in the second half?

Kane, it's Craig. So yes, as we sort of flagged in the commentary, the make good payment. So, that's the final exit from Martin Place plus also we're moving into new premises in Melbourne. So, the old broadcast center will go as well. So, that combined probably north of $20 million. We've got tax of probably $13 million -- tax payment of $10 million and then some prepayments there. There'll be some CapEx associated with the move to the new Melbourne premises as well. So, we had a very good cash flow result in the first half. You'll also see a sort of normal working capital movements in the second half. So, whilst cash flow in the first half was very good, year-on-year, I would say the second half certainly gets a lot more challenging with some of those one-off -- with one of those one-offs. So, really looking into '26, when we sort of drop Phoenix expense, we don't have those make goods, et cetera. We normalize lower expense moving to the new premise in Melbourne and the like, that's when we think we should be in a better position to generate stronger cash flow.