Canwest's Bad Earnings News, Write-Downs

Sydney, Nov 17, 2008 (ABN Newswire) - The Ten Network's major shareholder, Canwest Global Communications Corp has reported a fourth-quarter loss of $C1.02 billion ($US834 million) after taking write-downs on its television business.

The written-down was $C1.01 billion on the value of its intangible assets. Canwest joined CBS and the Washington Post Company in cutting the value of its intangible assets because of the slumping outlook for advertising and other revenues.

And the company says it has been forced to renegotiate with its lenders on its $C3.7 billion in debt to give it more leeway in meeting the restrictions on those huge loans.

And, on top of all that, the company expects its 2009 revenues to decline; as a result its shares closed at an all-time low of 73 Canadian cents on Friday, down 90% from $C7 at the beginning of the year.

The company recorded fourth-quarter declines in earnings in Canadian publishing, Australian television operations and even its Turkish radio stations: it's a company horribly exposed to the global economy (The good point was that it sold radio stations in Britain where media advertising has collapsed).

Canadian television, the cornerstone of the company's operations, lost $C19 million in the quarter, almost twice as much as what analysts were forecasting as slumping economic conditions (especially in the car and finance sectors) hit the group hard.

The poor financial results were reported Friday night, our time in Canada, 24 hours after 560 people were sacked from the various businesses (But not from the Ten Network). Those were the second cuts this year; Canwest chopped 200 people earlier in the year.

Canwest boss, Leonard Asper tried to refocus the market's attention on the operating results and not the write-down or the huge debts, or the new loan structure.

He said that the company generated $C588 million in operating profits, up 13% from 2007.

Total revenue was up slightly to $C3.2 billion from $C2.9 billion last year and operating profits from its newspaper and publishing operations grew in a tough market where its US papers are losing heavily.

But unkind Canadian investment analysts pointed out that Canwest has around $C1 million a day in interest and financing charges to meet, every day.

The non-cash write-down on goodwill and broadcast licences reflects sharply reduced profitability and lower expectations for the company's conventional TV assets, which include the Global television network in Canada.

CBS cut its intangibles by $US14.12 billion, the Washington Post company lopped nearly $US60 million from the value of the mastheads at the Company's community newspapers.

Both it and CBS looked at their asset values and conducted what's known as an "impairment test" which is a way of testing the carrying value of the assets on the balance sheet.

They concluded the downturn in the North American media markets, especially advertising, and the prospects for 2009 were not going to change and would reduce the earning capacity of the assets in question. Companies cannot reinstate write-downs.

Canwest's $C3.7-billion debt was taken on to finance past acquisitions: the former Southam newspaper chain from Conrad Black's Hollinger group in 2001 and then it spent the lion's share, spent $C2.3 billion for the Alliance Atlantis specialty TV broadcaster two years ago.

About two-thirds of the Alliance debt is held by New York-based investment bank Goldman Sachs whose private equity arm is a major shareholder in the joint venture vehicle with Canwest.

Much of that money is due at the end of next year.

Explaining the decision to take the huge non-cash charge, Canwest said in its earnings announcement:

"The write-down reflects a deterioration in the near term profit expectations for the Company's Canadian conventional television business resulting from expected softness in conventional television advertising revenues combined with structural and regulatory challenges specifically facing the Canadian conventional television industry. Net earnings were $279 million for the previous year.

"Operating profit in fiscal 2008 increased by 13% to $558 million from $492 million for fiscal 2007. Consolidated revenues for the year of $3,146 million increased 10% from $2,864 million in fiscal 2007. "

But that was the 2008 financial year and the company was very hesitant about its guidance for the coming year.

"In these uncertain economic conditions we remain focused on continuing to transform our business by utilizing technology and redesigning our workflows to improve the efficiency of our operations. 

"In addition, we continue to evaluate and selectively eliminate or monetize non-productive or non-core assets.

"While we anticipate that advertising revenues will be negatively affected by the current economic slowdown we expect that these measures will mitigate the effect of this downturn and at the same time better position the Company for the long term.

"The Company will also continue to focus its attention on growth media that respond to the evolving habits and expectations of consumers, advertisers and distributors and that have the potential to have a meaningful impact on our future.

"Given the uncertainty as to the economic outlook the Company has renegotiated certain provisions of its senior credit facility, including an increase to the total leverage ratio covenant.

"With increased financial flexibility and the operational/restructuring initiatives announced on November 12, 2008, the Company believes it will have sufficient liquidity to execute its business plans.

"Canwest remains dedicated to taking the necessary steps to provide the Company with the flexibility required over the longer-term, including further operational improvements and the sale of non-core assets."

That's the company really saying that it has no idea about 2009, but it has taken out a bit of insurance by cutting the value of the assets and lifting the amount of money the banks will allow it to borrow.

In effect, the way Canwest sees itself is by borrowing more and gearing up to survive, a risky idea given the gloom and doom that's about, particularly about companies with high debt levels.


 

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