oOh!media is looking hard at costs and sending its sales team hunting in response to a sudden drop in advertising bookings.
The out of home company has revised down its full year earnings, saying market conditions are subdued. Underlying EBITDA is forecast to be between $125 million and $135 million for the full year, down from previous guidance of $152 million to $162 million.
Underlying net profit after tax for the half year to June was down 24% to $9 million.
oOh!media, which has until now been a beacon of light in a tough advertising market, has seen a fall in bookings, post the close of the financial year, for its big roadside billboards.
"Management has a clear view of what actions may need to be taken should trading conditions change, and is proactively targeting further cost savings," says CEO Brendon Cook.
However, the business is cash flow positive with solid cash generation expected for the second half of the year. And there has been no material reduction in contract renewals.
Cook says recent earnings outlooks from the vast majority of media companies, and SMI results for July, have confirmed that July and August in particular have been "extremely tough" in the advertising market.
This, in all likelihood, will mean significant declines across overall media spend for these months, he says.
"While September is not as bad, and seems to be improving, it will be a poor quarter for media overall," he says
"The business has seen an unprecedented decline in media revenues across Q3 and it will be the first time in the company's history with a negative quarter.”
The company had expected that early signs of improvement in the housing market in June and July, stimulated by reduced interest rates and tax cuts to take effect, would drive up advertising spend.
"However, in more recent weeks we saw a deceleration of pacing into the third quarter and once it was clear the trend was not going to reverse and we formed a view ... that it was no longer likely would be able to meet our earlier guidance range,” he says.
"I acknowledge the impact that this unexpected announcement has had on the confidence in the market as reflected in the share price drop.
“Management and our broader teams are doing everything within our power deliver as good an outcome in these conditions as possible.”
This slide, from a briefing to analysts, shows oOh!media's plans for the secodn half of the year:
There are some signs that there's more business coming but Cook doubts whether it be enough to make up for the negatives over a full year.
However, Cook is upbeat on the future of out of home advertising and expects the sector to continue to gain market share across media formats.
“We continue to lead the industry in creating a new media business and we are best placed to help drive the out of home industry’s share of overall media spend from 6% to 10%,” he says.
Cook called the earnings downgrade “a disappointing outcome”.
However, he believes this to be a temporary event driven predominantly by weaker market conditions.
“While the recent adjustment to our earnings forecast for the year due to current market conditions is disappointing, the company has tested a number of potential scenarios for future trading and has concluded that no equity raising is required, excluding the company’s dividend reinvestment plan. This conclusion is, in part, because of the highly cash generative nature of the business.”
Cook also points to the diversification as a key factor in lifting revenue when advertising spend has slowed in the market.
Revenue overall was up 5% to $304.9 million in the half year to June despite the fall in roadside billboards, as this chart shows:
“The diversity and scale of oOh!’s multi-platform portfolio delivered a solid performance in the half despite tough external conditions,” says Cook.
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