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Corus Entertainment Inc. said it may soon breach its debt covenants and that it’s planning further restructuring as advertising revenue continues to tumble.
The Canadian television broadcaster issued a so-called “going concern” warning in quarterly financial results that fell well short of analyst expectations. Toronto-based Corus reported revenue of $332 million in the fiscal quarter ended May 31, a 16 per cent drop from a year earlier.
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The decline in advertising revenue and profitability, and the possibility that it will be offside on covenants by September, “cast significant doubt about the company’s ability to continue as a going concern, and therefore the Company may be unable to realize its assets and discharge its liabilities in the normal course of business,” Corus said in a filing.
The shares fell 25 per cent to 15 Canadian cents as of 11:26 a.m. in Toronto.
The company is about to lose the rights to key programming and trademark deals with Warner Bros Discovery Inc. to rival Rogers Communications Inc. The channels, which include HGTV and The Food Network, are highly profitable, but Rogers will own those rights as of Jan. 1.
Corus will carry on with new programming under different brands.
Corus, which has cut hundreds of jobs recently, needs “a much more aggressive cost-cutting drive,” Scotiabank analyst Maher Yaghi wrote in a note to investors Monday.
“The loss of high-margin advertising revenues remains very difficult to offset,” Yaghi wrote. “We don’t expect trends in TV revenues to reverse in the coming months and hence we expect Corus to push further deep cuts in order to protect the balance sheet.”
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On an adjusted basis, Corus lost about $20 million in the fiscal third quarter.
Corus expects television advertising revenue to fall by a similar percentage in the current quarter. It attributes weak sales sales to lingering effects of the Hollywood writers’ strike, foreign competition in the digital video market and low advertising demand in linear television.
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