Quoted Business speaks to the finance directors of two
Aim-listed media companies, Media Zest and Shed Productions, to
find out about the challenges they are facing and their outlook on
the future. With share values crashing, the outlook for many quoted
companies is uncertain. The media sector not only has to contend
with worse falls than the market generally, but companies which are
dependent on advertising for their revenues are finding times
particularly tough. Advertising budgets are often among the first
to be cut during a downturn. Aim-listed media business MediaZest occupies a developing niche
within the advertising sector in digital point-of-sale displays, so
is at the sharp end of retailers' decisions on advertising
spend. Winning new business and collecting cash are the two key
challenges currently facing the company according to chief
executive and finance director, Geoff Robertson. "It's very up and down at the moment depending on
whether individual clients see the value in MediaZest's offer
to help them in these difficult trading conditions," says
Geoff. The company provides technical and creative digital media
solutions to retailers to engage and attract consumers, such as
standalone networked displays, holographic displays, interactive
displays, image projection, directional sound technology and audio
systems. Their challenge, Geoff explains, is to get buy-in to these
new and innovative digital pointof- sale products. Opportunities for the taking "Expanding the number of sites to support our business
model is difficult in the current market, but there are
opportunities," says Geoff. "It depends how retailers are
reacting to the downturn. Some are simply battening down the
hatches and won't try anything new. Others are taking the
opposite approach and looking for alternatives to traditional
methods to do something big to attract new customers and gain
market share." Once clients have invested in the technology, they can re-use it
for future campaigns leading to repeat business. He says there is a
growing trend towards retailers sharing the costs by getting
together to work with suppliers to invest in and use technology to
improve sales and branding. This year, clients including O2 and Foot Locker have used
MediaZest technology at multiple retail sites. But a number of
other projects which they expected to complete in the first half of
2008 have been delayed by clients. "People are paying more slowly and cash collection is
key," says Geoff. "And when the banks aren't paying
on time, you know times are difficult." Improving cash flow with invoice
discounting MediaZest incorporates Touch Vision, a business that counts
among its customers more than a dozen educational institutions.
"The education sector is less affected by the general economic
downturn as the public sector is still paying on time," says
Geoff. "Although margins in this market are tight, Touch
Vision provides countercyclical revenue streams to the retail
business. It also enables us to increase our scale, which in the
audio-visual supply and installation market is essential to gain
the best discounts available and to allow operational efficiency in
our engineering function," says Geoff. In February 2008, Touch Vision entered into an invoice
discounting agreement with its bankers. This has generated further
working capital to fund the growth of the business. "It has been extremely successful in reducing the time lag
between payment to suppliers and receipts from customers and we are
now negotiating to provide a similar facility for MediaZest
Ventures, which should help our cash flow situation," explains
Geoff. Share price challenge at Shed Cash collection is not such a major issue for independent film
production company, Shed Productions. Instead, echoing the
sentiment of many in the industry, finance director Jonathon Kemp
says the share price is their biggest challenge at the moment. The
company finds that, like many others, Shed is to some extent tarred
with the same brush as ITV, even though the company is not
advertisingled to the same degree and the majority of its
commissions come from the BBC. Shed specialises in contemporary,
original drama and factual entertainment programming such as
prime-time hits Waterloo Road, New Tricks,
Supernanny and Who Do You Think You Are?. Low multiples "Most media businesses are currently trading at huge
discounts and low multiples," Jonathon says. He explains:
"We're currently on a multiple of four compared to around
eight on flotation. This makes acquisitions, especially sharebased
acquisitions, hard as we can't offer sellers a high multiple or
we dilute our own earnings." Shed has used debt finance for past acquisitions, but Jonathon
says that debt has become both more expensive and increasingly hard
to find. Also, continuing to use debt for acquisitions would
eventually push the gearing beyond a level at which both management
and investors would be comfortable. Plus, they are finding few
acquisition opportunities available. "There's not a great
deal coming to the market at the moment. I've seen only 3 or 4
information memoranda this year compared with at least 30 last
year. Companies are reluctant to come to the market as they know it
will be hard to get the valuation they want with media companies so
lowly valued at the moment." Confident for the future Aside from the pressure on the share price, Jonathon says the
underlying business is performing well, both from organic growth
and through its recent acquisitions. Shed retains control and
ownership of the programme rights for all its productions and has a
growing library of programmes. The company also generates
substantial additional revenue streams through exploitation of the
ancillary and secondary rights in its programme brands through
Outright Distribution, a wholly owned distribution arm. Despite current economic woes, Jonathon is upbeat about future
prospects. He says the company is "de-risked" to a large
extent by having a good spread of business, with four production
companies producing a good mix of programmes plus the distribution
arm. "It helps that the BBC is a major buyer and its budgets are
protected for the next few years at least. There is still the same
demand from broadcasters for good prime time programming so
commissions are continuing at pretty much the same level as the
last few years." Shed has also made acquisitions in the US, and while they are a
small player in US industry terms, they see huge growth potential.
"One of the good things about the US is that broadcasters pay
for productions on a value rather than a cost-plus basis
– fees are based on ratings success." The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
UK: Media Strategies - Coping With The Challenges Of The Downturn
Last Updated: 3 December 2008
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