Best of the Week: Sneaky announcements, and has Nine really gone to war with Facebook? (No.)

[View web version]( BEST OF THE WEEK And another thing... September 27, 2019 Want to know the perfect week to lose your voice? Try a week when I’m on stage moderating a discussion between execs from the platforms and the traditional media. And hosting the Mumbrellacast. And being interviewed on a radio show. And doing an hour-long slot reviewing the next day’s newspapers live on telly. So welcome to Best of the Week, written with a sense of relief that over the next 48 hours I’m not going to need to croak much more than “Go on then, just one more glass”. And if this week’s BOTW is a bit shorter than usual, bear with me. A good night’s sleep, rather than a Friday night writing marathon seems like a sensible route to recovery. Or at least, the above sentence is what I over-optimistically wrote early on Friday afternoon when it looked like I’d have this thing wrapped up earlier than usual. Then that plan blew up. If you’re an ASX company with bad news to announce, then a good time to drop it is after the market closes on a Friday night. In theory the announcement will get lost in people getting on with their weekends. Or if you’re really looking for perfect timing, pick a Friday night where it’s a public holiday in Victoria, while the country gets ready for an interstate AFL grand final. Like last night. So it was always going to be worth opening the document when the perpetually troubled Pureprofile released an announcement onto the ASX at 5.26pm. And anything Pureprofile can do, Trimantium GrowthOps can do later. At 6.59pm, TGO told PPL: “Hold my beer”, and posted its own announcement. In both cases the companies’ own auditors last night warned the market - in remarkably similar language - that they may not be viable as a going concern. In Pureprofile’s case it took auditors until page 65 of the annual report to come to the point. And in GrowthOps’ case, the bombshell - and it was a surprise to read it - came on page 77. For Pureprofile it’s been on the cards for a while; With GrowthOps, although I’ve had doubts about the model - which I’ve been expessing here in BOTW - I didn’t expect we’d arrive at this point so fast. Where will Pureprofile find $20m? Let’s start with Pureprofile. You may recall that I wrote about Pureprofile less than a month ago when [CEO Nic Jones departed after a relatively short, and thankless, stint](. Pureprofile, let me remind you, is an online survey company for which founder Paul Chan had a bigger vision - an opportunity to develop an intricate understanding of online consumers’ interests and to target them accordingly. Pureprofile floated on the ASX four years ago, but bad strategic moves, board wars, and a growing debt have seen it rapidly run out of options. It’s now worth just a 30th of its peak market capitalisation. Last night’s bad news suggests that while Pureprofile’s existence as an ASX company is probably coming to an end, its lender may well become its future owner. The annual report reveals that Pureprofile is now in debt to lender Lucerne to the tune of exactly $20m. That’s up again from the $15.6m they revealed just last month. The interest rate is fixed at a punishing 20% a year, and it all becomes due on October 1 next year. Which is just one year and three days from now. And my maths tells me that by then it will be at least $24m. The company delivered an EBITDA (earnings before interest, tax, depreciation and amortisation) loss of $714,000 in the financial year that ended in June. (Thanks to write downs the headline number was even worse.) Even if it recovers to its small EBITDA profit of $741,000 from the year before, it’s not going to come close to the $20m+ it will need to find. And it’s now pretty much run out of parts of the business to sell off. Those glancing at a seperate PR announcement emanating from Pureprofile last night, might think things look quite rosy. It put out a separate statement on the debt facility claiming its “turnaround and growth strategy has been strengthened”. However, one of the things I learned from covering Ten’s demise on the ASX a couple of years back is that the auditors don’t like PR spin. These days, whenever I have doubts about a company, I search the text of their updates for the phrase “going concern”. It came up in the auditor note for PPL last night. Grant Thornton was pretty dour on the outlook: “The group incurred a net loss of $14,460,042 during the year ended 30 June 2019, and as of that date, the Group’s current liabilities exceed its current assets by $20,139,244. “These events… indicate that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern.” Quite. However, as I say, I’m not sure that Pureprofile is finished altogether. Lucerne is not lending the money for philanthropic reasons. Remember how CBS - which was owed money in Ten’s insolvency - ended up as the new owner? Lucerne’s head of funds management Aaryn Nania has joined Pureprofile’s board. I suspect that when the company finally runs out of road in the months ahead, Lucerne will lose its $20m, but end up as the new owner. GrowthOps versus gravity Still I wasn’t really expecting two “going concern” auditors’ notes in one night. But I had been keeping an eye on the TGO ASX ticker this week. While I’m certainly not suggesting insider trading, somebody seemed to be anticipating bad news, with the share price sliding by a third just since Monday. GrowthOps - aka Trimantium GrowthOps, or simply GrowthOps as they now label themselves, was floated on the ASX only just over 18 months ago. It was a roll-up of Melbourne creative agency AJF, along with a bunch of second string agencies. Masterminded by Phillip Kingston, the plan was for the sum of the parts to exceed the whole. Kingston’s reward for engineering the plan was to end up with 20% of the company after the float. It floated at one dollar per share, and shortly afterwards briefly rose as high as $1.35. But for more than 12 months now, the share price has been in decline, with the fall accelerating over the last month. On Friday it closed at 24 cents. In other words, as it stands, those who invested when it floated 18 months ago have lost 76% of their money. There’s plenty to be said about decisions made since the float - to launch and then almost immediately cancel a share buyback; to acquire Asia Pacific Digital and take on its associated debt before quickly writing down $22.5m in its valuation; and to buy commercial property software company Xperior. I’ve never really been able to make sense of what the unifying strategy is. But it doesn’t seem to be working, whatever it is. Last night, auditors Deloitte put it starkly, and in coincidentally similar language to Pureprofile’s auditors: “For the year ended 30 June 2019 the group recorded a net loss of $65,010,000 and used net cash in operating, investing and financing activities of $13,717,000. “The conditions… indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern.” The report also reveals that last month the company breached its financial covenant with its lender Westpac, with the ratio of its debt being too high compared to its profits. Westpac has given GrowthOps until the end of November to get that back on track. The debt facility itself - $14m - must be cleared by November 14 next year. At the end of June, TGO had just under $8m left in the bank, down from $22m at the same time a year before. Which isn’t to automatically suggest GrowthOps is close to going under. AJF remains the jewel in the company’s crown. The figures don’t spell out what AJF’s contribution is specifically, but it does reveal an EBITDA profit from the creative segment of $3.5m on a turnover of $10m. My guess is that AJF, whose clients include Holden and Target, is the main contributor to that A further $2m profit comes from GrowthOps’ technology segment. But these profits are dragged back down from the vaguely named “other segments” of TGO, which reported a $7.4m loss. Overall, it added up to a $1.2m EBITDA loss for the year. Meanwhile, the update also reveals a number of related party transactions involving TGO’s directors. TGO has been lending money to the Phillip Kingston-aligned super company Sargon Capital. And paying rent to a Sargon company too. And it spent $100,000 on what it simply describes as “services” from job software company Paddl, which is controlled by TGO chair Dominique Fisher. I don’t suggest there is anything untoward about any of the above, by the way - merely that related party transactions indicate something about how a company does business. The GrowthOps story seems to be accelerating. It will be fascinating to see how the share price reacts when the ASX reopens on Monday. That, of course, is if shareholders spotted those Friday night updates. Panels and platforms Which finally takes me to what I thought I’d be focusing on in today’s email. Tuesday took me to The Ivy in Sydney, where industry body NewsMediaWorks held its annual Inform conference. And unusually for me, it found myself trying to take the heat out of a debate rather than get one fired up. The panel I was moderating featured two execs from the big tech platforms, Facebook and Google; and two from the news media, Nine and News Corp. It got spicier than is usual for an industry panel, even one featuring people from companies so philosophically opposed. Sometimes I go into that sort of event expecting to referee a fight. This time it was slightly different; the theme was partnerships, and my brief from NewsMediaWorks was to lead a nuanced conversation where we talked about the areas where Facebook and Google help the traditional media, as well as (of course) exploring the problem areas most recently identified in the ACCC’s platforms inquiry. My colleague Hannah Blackiston wrote up the debate - and [you can read her article here](. We also discussed it in [this week’s Mumbrellacast](. After we got off stage, a major talking point was the views of Nine’s MD of commercial partnerships Lizzie Young. She went hard, particularly against Facebook’s news partnerships lead Andrew Hunter. Sitting on stage at right angles to the panellists I couldn’t easily see body language. But afterwards more than one of those in the audience (okay, two people) commented to me about it. This was more than an executive trotting out the company talking points. Young was genuinely fired up. But before we get into the substance of the debate, I should add an element of background information on how we prepared for the session. A small thing can sometimes create ripples. In this case, I wonder if an email mishap may have resulted in Nine now being interpreted to have sent a bigger signal than intended. Different conference moderators prepare for panels in slightly different ways. Some organise a conference call with all the panellists beforehand. Some leave it til the day. Personally, I think a conference panel is different to an interview for a news story, where it’s usually not wise to offer the subject too much of a script ahead of time. But when I moderate panels, I think that giving people advance notice of what areas you intend to cover allows them to give better thought out answers. Very few of us are at our most erudite on stage. So a few days out, I usually email panellists a list of roughly the topics I might ask about, and invite a one-on-one follow-up call if they want one. They rarely do, but the tone is set. This time, something went awry. When I hit reply-all to the email linking me to the panelists I didn’t notice a tiny typo in Lizzie’s email address. So she never got my brief. Being well qualified to talk about the issues, that hadn’t concerned her. She knew the topic was the relationships between news organisations and the platforms, but not necessarily my aim to move on from the “frenemies” cliche. I was determined not to say frenemy on stage. We only discovered the email mishap a few moments before we took the stage. I started gently. I was interested to explore how each of our four speakers - News Corp’s digital boss Julian Delany and Google’s head of news and publishing partnerships Kate Beddoe being the other two - actually do their jobs. The roles of Beddoe and Hunter in particular are intriguing - not only to help publishers navigate the (to the outside world) baffling complexities of Google and Facebook structures, but also to be advocates for the news industry within their own companies. News evangelists, if you will. And the jobs of news company executives are much more complex these days too. It’s a much more interconnected world, with few out-and-out friends or enemies. Dammit, I nearly said frenemy there. And for the second question I aimed to keep it constructive too, asking for examples of collaboration. Of course, I was planning to get to the tension points, but Young did not want to wait. It’s actually quite rare to hear somebody on stage talk honestly about projects that aren’t working out. Particularly in the early stages. But not this time. Nine’s involvement in creating video content for the Facebook Watch tab has been a huge disappointment, Young suggested. Average viewing times for its Facebook-exclusive daily news show hosted by Sylvia Jeffreys are small, just 20 seconds, she indicated. And the politeness you might have expected about being invited to participate in the experiment even if it had not worked, was not there. Young gave the impression that Nine was feeling used. She argued that it was time to start demanding better deals from the big platforms. The crumbs from the digital giants’ tables are no longer good enough, appeared to be the wider message. Nine had stayed away from Facebook’s News Accelerator initiative, a project designed to help journos grow their digital skills. The message from Young was not dissimilar to the one given, albeit in slightly more measured tones, from News Corp’s chief operating officer for publishing Damian Eales, during his keynote to the audience immediately before our session. But I think it’s possible to read too much into Young’s comments. I don’t think it was the declaration of out-and-out war from Nine that some have been taking it as. I don’t think we’ll see a new, scorched earth policy where Nine starts refusing to engage with Facebook and Google. Pragmatically, it’s not in a powerful enough position to do so. Not least because of the reliance of its publishing arm on its Google deals. But at the very least, it was an unscripted insight into how news media execs are really feeling about the big two. Weekends are for sleep With an unscripted late night and early start for BOTW thanks to our friends at GrowthOps and Pureprofile, it might be time to pop back to bed for a while. My colleague Hannah - hannah@mumbrella.com.au - is on the newsdesk across the weekend. And I welcome your thoughts to tim@mumbrella.com.au . (I finally crossed the 300,000 unread messages threshold yesterday - 300,146. Apologies for my inevitable tardiness in replying.) Before, I go: A final reminder on the Mumbrella Next Awards, recognising talent in their first ten years within the industry. Officially the closing date was yesterday, but I happen to know the entry website won’t get turned off til after the weekend. So get that late, late entry in via the [Mumbrella Next Awards site](. And we also unveiled a new initiative this week - a series of 90 minute [Mumbrella Masterclasses]( running in Sydney and Melbourne. The first four topics are behavioral economics (with Adam Ferrier, of course); TikTok for marketers (Mark Ritson says its bullshit, Gary Vee loves it - you’ll be able to make up your own mind); understanding the seniors market; and best practice in influencer marketing. Have a great weekend. Toodlepip... Tim Burrowes Content Director - Mumbrella Mumbrella | 46-48 Balfour Street Chippendale NSW 2008 Australia This email was sent to {EMAIL}. 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