Sun | Aug 19, 2018

CVM losses worry auditor as debt climbs - Chairman says cost cuts, capital injection bearing fruit

Published:Wednesday | November 8, 2017 | 12:00 AMAvia Collinder
Wayne Chen, chairman of CVM Television Limited.

Financial losses at CVM Television Limited continued to mount last year, and its auditors have highlighted concerns about the company's cash flows and indebtedness, according to the audited report released for the October 25 annual general meeting.

However, CVM chairman Wayne Chen says that a programme of cost containment has been successful, with a "huge improvement" in the level of losses year over year, while also citing plans to improve marketing in order to drum up advertising business.

At year ending December 2016, CVM reported $348 million in annual revenue and made a loss of $25 million after tax credits. Revenue increased modestly relative to the $333 million collected in 2015. Losses that year were shy of $82 million.

CVM's losses have now accumulated to $833 million, up from $808 million in 2015. Its working capital is in deficit as is its equity base.

The numbers are concerning to at least one shareholder who reached out to Gleaner Business shortly after the AGM.

"Five years ago, sales were $600 million. Sales in the last financial year were $400 million. The company is carrying forward a loss of $800 million and rising. The shares of the company have no value," he said.

PricewaterhouseCoopers in its audit report appended to the financials made direct reference to Note 2(a), indicating that the company's future health rested on its ability to sustain cash flows at levels sufficient to service its debt and cover operational expenses. That cash flow generation would, in turn, be dependent on two things a renegotiation of existing borrowings and new marketing strategies.

"Should these assumptions not materialise, this will pose a going concern risk to the CVM Group," PwC said.

The financials indicate that the company has restored some of its net cash holdings, which spiked from $135,000 to $12 million, year on year.

CVM meantime faces debt charges of around $13 million annually the average paid out in the past two years. It holds $516 million of long-term loans, $416 million of which is owed to two entities connected to principal owner Michael Lee-Chin AIC Barbados and AIC Jamaica.


Indebted to Lee-Chin


"The debt is owed to the same person who owns it [CVM]. The liabilities only represent the capital that has been put in it, and you will also notice that the losses have fallen significantly," said Chen, referencing the $50 million of pretax losses that were carved off the 2016 results.

He adds that Lee-Chin, "the major shareholder, had injected several million dollars and continues to inject capital into the station."

CVM Television is held by Lee-Chin's Portland Holdings Limited. Its broadcasting operations include CVM TV and cable affiliate CVM Plus. The company holds second place in the market with 34 per cent market share in 2016, according to the latest all-media survey, but that is an improvement on the 27 per cent share recorded two years before.

CVM's directors said in notes to the 2016 financials that while the company has turned in a "negative report" on "all significant indicators", it remained a going concern with plans to pursue marketing "aggressively" alongside further cost containment.

Cost cuts so far have seen a downsizing of sales and other staff, and changes to programming that have resulted in more repetition, according to the shareholder, who requested anonymity to share information.

Chen responded that the programme changes, repeating of movies and staff cuts were all guided by cost-benefit analyses done by management.

In the 2016 financials, advertising, promotion and public relations costs was cut in half, from $8.6 million to $4.8 million; while staff costs plummeted from $195 million to $162 million year on year. The spend for local and foreign programmes also fell from $37 million to $17 million.

The station has introduced CVM Live, a nightly news programme hosted by Richard Chen. Richard, Wayne and Lee-Chin are brothers. The chairman said Richard was selected for the programme in an open and competitive process. He said other new programmes had been introduced but could not recall what they were at the time of the interview.

Lee-Chin, who Chen said has more than 90 per cent shareholding in CVM, declined to comment for this story, saying CVM was a private business.




CEO Shamena Khan, a Guyanese national, was away from the island when Gleaner Business reached out for a response. The Human Resources Department advised that they would convey the questions submitted by email to her last week. She was also said to be unavailable in follow-up calls this week.

Chen said the ongoing operating changes at the company are paying off.

"The auditors said the marketing needs to improve to reflect the value that can be given to advertisers. I would not get into the specifics of it, but certainly the marketing will be ramped up to improve advertising revenue," the chairman said.

"The cost containment has certainly paid dividends, as you can see, in the losses, so now it is to get the ad sales up ..." he added.

Asked about the shareholder's complaint that the marketing and sales staff was dramatically reduced, Chen said the cuts were basically to "direct employees" and not the function itself.

"As you know, selling can be outsourced. You have agencies and organisations set up directly to do sales," he said.

The chairman also said capital is being injected "as needed".

"Bear in mind that there has been a significant upgrade in equipment," said Chen. "The station is now all digital that was done over the last two years," he added, while maintaining that the station continues to achieve more than 90 per cent coverage of the island.