Ad spend impact highlighted as ASX-listed media companies report financial results

The significant impact of COVID-19 on advertising spend in the last six months has proven apparent as media companies from across channels report their full-year and half-yearly results.

ASX-listed Seven West Media (SWM) today reported a 15.2 per cent drop in advertising spend in FY20, including a 40.8 per cent drop in the last quarter of the financial year. This included a 14.1 per cent decrease in metro free-to-air advertising in FY20, and 33.7 per cent fall in Q4.

The bright spark was broadcast video on-demand (BVOD) revenues, which increased 30.5 per cent in FY20 to $162 million and were up 14.7 per cent in the fourth quarter. The group claims 7Plus’ average monthly share was 46 per cent from April – July 2020.

In total, the media giant’s group revenues were down 14 per cent year-on-year to $1.23 billion, including a 33 per cent drop in revenues during Q4. Underlying EBITDA was $129.6 million and group EBIT was $98.7 million, down 48.8 per cent and 54 per cent year-on-year respectively, although digital EBIT growth was reported to have increased 92 per cent over the same period. The final net loss after tax reported was $200.1 million.

SWM managing director and CEO, James Warburton, said the first 12 months of his tenure had progressed a new group strategy, even as the COVID-19 crisis created unprecedented challenges for media companies. A key element of this has been content-led growth, and programs highlighted in the results as paying dividends against declines in sports programming included Big Brother in June as well as Farmer Wants a Wife.

“We have made material progress on our transformation plan despite the challenges that COVID-19 has thrown us. It’s not changed our plan, but assisted us to accelerate the transformation,” Warburton said.

He also noted the $170 million in gross costs removed from the business, a figure that reflects headcount cuts, a renegotiated AFL deal, consolidation of regional and community assets and divestments. SWM also generated $150m in gross proceeds from asset sales.

Warburton said the advertising market remained volatile, with July free-to-air revenues down 15.8 year-on-year, even as he indicated the rate of decline was moderating. Digital subscription revenue across metro and regional products such as thewest.com.au was also expected to deliver some stronger returns moving forward.

Advertising spending decline was also apparent at Southern Cross Media Group, which reported an 18.2 per cent decrease in FY20 revenues to $540.8 million. This reflected declining ad spend across both audio and TV. EBITDA for the full-year was down 36.9 per cent to $93m, with underlying NPAT down 51.6 per cent to $35.8m. However, Southern Cross cited positive EBITDA contribution across all four quarters, and a stronger balance sheet after raising $169m and reducing net debts downwards. Expenses during the period reduced by $65.8m, and a raft of operation improvements were flagged as trimming costs, including staff cuts.

Regional radio revenue was less impacted than metro revenues. Metro radio revenue was down from $236.4m to $176.4m in FY20, while regional radio revenue dropped from $187.4m to $162.8m.

Digital also proved a bright spot for Southern Cross Media Group, with 96 per cent growth in podcast revenue year-on-year and a 112 per cent increase in addressable advertising revenue year-on-year.

In its results, Southern Cross said the impact from COVID-19 saw Q4 revenue reduce by approximately $35m compared to average Q1-3 revenues.

Group CEO, Grant Blackley, said monthly revenues had improved since the peak of the COVID-19 first wave in April and May 2020. But it was clear easing of restrictions had a direct correlation to positive advertiser sentiment and revenue.

“Strategic decisions taken in recent years will enable the business to emerge from COVID-19 crisis with a lean and efficient operating model focused on recovering the earnings lost in the year just ended,” Blackley said.

The ad spend decline story was arguably most stark at oOh!Media, which reported a 33 per cent drop in revenues for the half-year to $205 million. The ASX-listed out-of-home player’s underlying H1 2020 EBITDA was down over $40m year-on-year to $10.8m, while the underlying net loss after tax was $16.9m compared with an $18.2m profit in H1, 2019. As a result, oOh! filed a net loss of $27.5m for the first half.

In its presentation, oOh! noted COVID-19 restrictions resulted in market decline of 36 per cent in Australia and 41 per cent in New Zealand during the reporting period.

Across the portfolio, commute products, including rail assets, saw half-year revenue declines of 35 per cent to $72.2m year-on-year, while road product revenue declined 19 per cent to $54.6m but had started to recover by June. oOh!’s retail revenue dropped 34 per cent to $40.9 million in H1, 2020, while the worst hit areas were unsurprisingly airport and office assets, which declined 45 per cent to $18m and 51 per cent to $11.2m, respectively.

In his presentation, oOh! CEO, Brendan Cook, highlighted the work done to strengthen the balance sheet including a reduction in net debt to $115.2m, fresh debt arrangements, rent savings and a reduction in operating costs including employee cuts. This saw the group save about $80 million.

According to Cook, the situation is improving, with total out-of-home audience volumes in the week of 17 August back up to 75 per cent of 2019 levels, from a record low of 57 per cent in mid-April. The company also claimed combined roadside and retail audience volumes in suburban areas are sitting at 68 per cent of 2019 levels, while regional areas have recovered to 93 per cent.

Trading in August was pacing at 60 per cent of previous year levels unlike May 2020, which represented just 25 per cent of the same level as May 2019. Cook said the New Zealand market’s recovery after first-wave restrictions lifted indicated things should continue to improve in Australia.

“Our strategy remains focused on capitalising on these key structural drivers of growth and leveraging our diverse product portfolio, backed by data, to deliver results for advertisers,” Cook said.

Despite this, both SWM and oOh!Media have declined to provide any earnings guidance for the next 6-12 months.

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