Seven West Media has bitten the bullet and booked a whopping $1.1 billion impairment on the value of its business, a move which it says was primarily driven by a subdued advertising environment.
Outlining its half-year results to the market this morning, Seven West said it had wiped $960.9 million off the value of its TV business because of the softer advertising conditions, while it took a smaller hit in its newspapers and magazines business of $65.7 million.
“This adjustment reflects the revision of future growth rates, given the recent subdued advertising conditions, which we must account for,” Seven West CEO Tim Worner said.
“This does not diminish our belief in the future of free-to-air television or our ability to maintain leadership, revenue share and cost control in the business.”
The announcement came as Seven West reported an 8% drop in underlying profit to $137.5 million for the half year to December 2014.
Worner said the impairment was a “prudent” move for Seven West to make.
“Today's statutory result reflects the tough economic conditions impacting consumer confidence and advertising expenditure over the past six months, and we believe it is prudent that we adopt a more conservative approach to the valuation of our business,” Worner said.
It said that it saw the advertising market in gentle decline for the rest of 2015.
Seven West's TV business booked earnings before interest and tax of $181.7 million, on revenues of $677.2 million. Its margin was 26.8%.
Meanwhile, its share of the advertising market was 40.4% for the half to December last year, slightly lower than its 40.8% share across the whole of 2014.
With a significant decline in its TV business, Seven West was hard at work this morning promoting its pivot to online and digital media.
It said demand for online video grew strongly, with more than 62.8 million videos streamed over the half-year period, which is up 28% on the previous half. There was also a 36% bump in online catch-up service Plus7 videos streamed in the half.
Seven West's merger with WA Newspapers looked decidedly less rosy at the end of the half due to a general economic slowdown in the WA economy hitting classifieds and automotive advertising in The West Australian newspaper.
The slowdown in WA meant its total segment revenue was down by 10.3% over the same period a year ago, to $125 million.
However, its earnings before tax fell by 26.8% to $28.4 million.
It highlighted ongoing cost efficiencies achieved by merging the Seven TV and West Australian newsrooms. While not fully implemented as yet, its costs went down by 4% for the half to $96.6 million.
Seven West's magazine business followed the same line as its newspaper business, with its total revenue down 7.8% to $114.1 million.
Its earnings dropped by 9.8% to $12 million.
Seven West said it would increasingly focus on total audiences rather than just print audience, while it flagged an increase in above-the-line marketing of its titles to increase circulation.
Interestingly, on an earnings call to analysts, Pacific Magazines CEO Peter Zavecz singled out New Idea as a title where the strategy would be employed.
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