CORUS SHARES TUMBLE AFTER DIVIDEND CUT, WRITEDOWN.
Takes writedown of $1 billion on TV, radio assets
TORONTO • Corus Entertainment Inc.’s stock plummeted to a record low after it slashed its dividend and devalued its television and radio assets by $1 billion, a drastic reality check for a traditional media player grappling with industrywide digital disruption.
The Toronto-based broadcasting and production company’s stock fell almost 18 per cent to $5.13 on the Toronto Stock Exchange Wednesday after it announced it will cut its dividend by 79 per cent to 24 cents per nonvoting share as of Sept. 1. It will instead direct the cash to more quickly repay the debt it was saddled with two years ago when it bought Shaw Communications Inc.’s media assets for $2.65 billion.
Corus also wrote down its TV and radio assets by $1.031 billion to reflect current market value, a non-cash goodwill impairment charge that resulted in a quarterly loss of $935.9 million in the three months ended May 31. Without the charge, its adjusted profit increased to $78 million from $70 million in the same period last year, largely thanks to reduced costs.
Chief executive Doug Murphy cautioned investors to “anticipate a bumpy road over the short term” as television advertising revenue, which dropped more than Corus expected this quarter, is likely to continue its decline.
“As you are all aware, our industry is in a state of flux as new choices emerge and consumer behaviours change,” Murphy said on a conference call with analysts.
But Murphy said the new capital allocation plan, which aims to reduce leverage to under three times debt to segment profit, presents a “thoughtful, realistic” strategy that will prepare Corus for the future.
It plans to focus on key content targeted at the “most coveted audiences” of women and families, follow viewers online and use technology to improve revenue, be it through automated, micro-targeted advertising and the ability to insert ads into video on demand offered over cable providers’ new set-top boxes.
Murphy said Corus is working with TV providers such as Shaw and Rogers Communications Inc. to test out new technologies on their new set-top boxes that use Comcast’s X1 platform.
Cormark Securities analyst David McFadgen lauded the tech efforts, but questioned whether they will ever be able to generate enough revenue to compensate for the revenue declines on the traditional side of the business.
Murphy said it’ll take a few years, but hopes the strategy will give investors confidence.
“We don’t expect to turn the corner that quickly based on the current trends, but we are resolute in our belief that… what we’re doing is essential to position the business for a stabilized revenue line on national advertising,” he said.
Corus is far from alone as media companies cut costs as advertising dollars shift to online platforms such as Facebook Inc. and Google Inc.
Television advertising has also fallen as viewers increasingly cut their cable packages to watch video online on giant platforms like Netflix Inc.
Younger viewers are less likely to lock into TV contracts in the first place.
Analysts expected Corus to cut its dividend as its yield was previously 17 per cent, far above industry norms of about 2 to 4 per cent. Bay Street predicted steeper cuts in May after the Competition Bureau blocked Corus’ sale of two French-language channels to BCE Inc. for about $200 million.
While the dividend cut — it goes into effect Sept. 1, with the first payment expected in December — was even higher than predicted, Desjardins analyst Maher Yaghi said in a note to clients that deleveraging is “a better use of free cash flow than dividends at this moment.”
“Overall, this morning’s results show that the environment is challenging for intermediaries such as Corus,” Yaghi wrote. “However, the company is managing its expenses tightly, allowing it to maintain decent profitability and free cash flow.”
Despite the challenges, National Bank analyst Adam Shine upgraded his rating on Corus to sector perform from sector underperform after it released its results and management discussed its priorities of reducing debt and diversifying revenue.
“The key is whether management can execute to achieve more stable results, which nobody expects in the short term and won’t be easy longer term,” Shine said in a note to clients.