TV3 owner MediaWorks records NZ$314.4 mln annual loss

By Gareth Vaughan MediaWorks, the private equity controlled parent company of TV3, posted a NZ$314.4 million loss in its last financial year with its bottom line savaged by a NZ$257.8 million goodwill impairment charge. The annual report of MediaWorks' former parent company HT Media Holdings, just filed with the Companies Office, shows just how bad things were at the group bought by Australia's Ironbridge Capital for about NZ$790 million in 2007 before  a capital restructure late last year. The recapitalisation saw NZ$70 million of equity pumped into MediaWorks  to repay debt, reset fixed interest rate swaps and provide ongoing liquidity. It also involved Goldman Sachs JBWere taking a 12.9% stake. However, MediaWorks' annual report for the year to August 31, 2009 suggests the group, which also includes TV channel C4 and a stable of radio stations such as Radio Live, The Rock and More FM, still faces major financial challenges. It notes MediaWorks had total bank borrowings of NZ$553 million at August 31, of which NZ$545.6 million were drawn down. All borrowings were reclassified as current liabilities, which technically means they're due for repayment within a year, after MediaWorks' breached all three of its banking covenants. However Kerry McIntosh, Ironbridge's New Zealand operational partner, told interest.co.nz the only reason debt was shown as being current was because the HT Media Holdings group was going to be liquidated. "In reality our banking facilities now have a term of 2013 or 2014. As part of the recapitalisation our annual cash interest commitments have reduced from $50 million to $30 million which puts us on a far stronger footing than we have been historically," McIntosh added. Ironbridge borrowed about NZ$530 million, mostly from ABN Amro, Royal Bank of Scotland and BOS International, to help fund the acquisition of MediaWorks. Its 2007 takeover deal saw a 70% stake bought from Canada's CanWest Global Communications and the remaining shares acquired from minority investors including Brook Asset Management. Once the deal was completed, Ironbridge delisted MediaWorks from the stock exchange. On top of its bank debt the group had loan notes and preference shares, taking net debt to NZ$803.6 million. Total current liabilities, including a NZ$30.7 million derivatives liability, were NZ$914.1 million. This meant as of August 31 - prior to the recapitalisation - MediaWorks had an equity deficit of NZ$350.3 million. The massive impairment charge was calculated using future earnings forecasts taking into account group performance, both at the end of the last financial year and forward projections, as well as economic conditions. Total goodwill was slashed 40% to NZ$383.6 million from NZ$640.9 million. The NZ$314.4 million annual loss compares to a loss of NZ$40.4 million in the year to August 2008. Revenue fell 11%, or NZ$31.9 million, to NZ$255.5 million. Expenses, including NZ$91.8 million of finance costs, fell 6%, or NZ$21.1 million, to NZ$308.4 million. Notes in the annual report point out the financial statements weren't prepared on a going concern basis. This was due to the net deficit recorded, which the company attributed to adverse economic conditions, non-compliance with banking borrowing covenants and the planned restructure and liquidation of HT Media Holdings. "After considering the capital restructure and reviewing latest forecast information, the directors' have concluded there are reasonable grounds to believe that the group will be able to pay its debts as and when they fall due and payable," the report says. Directors' note that advertising market conditions in 2009 were generally regarded as the most challenging in the industry's history. MediaWorks made just NZ$2.2 million of its NZ$255.5 million annual revenue from sources other than advertising. Group earnings before interest, tax, depreciation and amortisation fell 16%, or NZ$10.4 million, to NZ$56.2 million. The annual report also reveals MediaWorks had a potential tax liability of NZ$23.7 million due a dispute with the Inland Revenue Depart over funding instruments known as optional convertible notes, or OCNs. Following the capital restructure, including the transfer of MediaWorks' shares into a new holding company - GR Media Holdings - KordaMentha's Grant Graham was appointed liquidator of HT Media Holdings on Monday. MediaWorks' annual loss was almost as big as fellow advertising revenue dependent private equity owned firm Yellow Pages Group. It lost NZ$338.3 million in the year to June 2009 and now faces potential sale by its banks keen to limit any losses they book on Yellow Pages' debt. View HT Media Holdings' full annual report here.