ARN Media Limited (A1N) Earnings Call Transcript & Summary

Good morning, and welcome to the Annual General Meeting of HT&E. I'm Hamish McLennan, Chairman of HT&E. With me in the room today are my fellow directors, Roger Amos, Paul Connolly and Belinda Rowe. Also joining us in the room are our CEO and Managing Director, Ciaran Davis; our CFO, Andrew Nye; Company Secretary, Jeremy Child; and Louise King, our auditor from PwC. I'm informed there is a quorum present and accordingly declare the meeting open. This is the second year we've held our AGM online. Over the last 12 months, we have become familiar with using video conferencing for meetings, and online is now a typical format for AGMs. While Australia's COVID-19 response has been successful from a public health perspective, we are conscious the global pandemic continues to bring uncertainty and unease. We hope our people, their families and our shareholders are coping with the stress and changes it has brought. The COVID-19 pandemic has dramatically impacted our way of life, also our consumer behavior, disrupted business models and resulted in widespread falls in global and local advertising revenues. HT&E navigated the period well and has maintained its strategic focus, strengthening our core Australian radio operations, investing in our digital audio growth strategy, and maximizing shareholder value as we exited several noncore investments. Confidence in the radio market is returning, and radio's relevance remains very strong. ARN experienced growth in total listening across COVID-19 with ARN commercial radio now reaching 5.3 million people weekly from breakfast to drive. ARN remains the best-performing audio company in Australia, both commercially and in ratings, delivering advertisers integrated, unique and engaging content from some of the world's best talent across radio, music streaming and podcasting. ARN's mission remains to deliver Australia's most complete radio offering to be everywhere our audience want to be and content they want to consume. We are confident we have the brands, technology investments and talent to deliver this on our -- for our listeners, advertisers and shareholders. HT&E's business is very well capitalized. At December 31, 2020, the company had $112.1 million net cash and access to over $250 million in funding. Because of the uncertain economic outlook at the half year, the Board suspended the dividend to preserve capital. It subsequently made the decision not to declare a full year dividend, recognizing the level of inherent economic uncertainty attributable to the pandemic. However, we are committed to reinstating the dividend policy in 2021 if market conditions and performance allow. We recommenced the share buyback in September 2020, following the release of the half year results and improving ad market conditions. The buyback is accretive, acting to boost underlying returns for shareholders. We continue to work with the business founder of Soprano, a growth business operating in the highly attractive CPaaS, communications platform as a service, sector to maximize value for our 25% stake. We also announced the appointment of Macquarie capital to explore liquidity options for our stake in Soprano and are pleased with progress to date. As part of delivering value for shareholders, HT&E acquired a 4.7% strategic interest in local outdoor advertising company, oOh!media, in the first half of the year for $18.1 million. At year-end, the stake was valued at $45.9 million, a gain of $27.8 million. Our investment in oOh!media demonstrates our understanding of the sector, and we continue to focus on the right opportunities for our business. The dispute with the Australian Tax office on the New Zealand branch matter continues. We are still waiting a response from the Australian Tax Office on our objections to the amended assessments from 2018. The Board remains confident of HT&E's position and are prepared to pursue the matter fully through to litigation. Looking ahead into 2021, HT&E's business remains well placed to capitalize on the exciting growth opportunity in digital audio. We have the benefit of a proven senior management team, world-recognized broadcasters, and a clear focus around maintaining our position as the leading audio entertainment business in Australia. We believe that with the continued consolidation in media markets and with its deep media experience, HT&E's Board will be looking for further opportunities to maximize shareholder value. Before handing over to Ciaran, I'd like to thank our people for their dedication particularly given the challenging conditions we faced during 2020. I also wish to thank my fellow Board members for their contribution and dedication. Our Board is a great team, having a good mix of skills and experience, and it continues to be a pleasure to work together on ensuring the best for this company. Finally, thanks to you, our shareholders, for your continued support. This Board and management team remain aligned and determined to achieve the best possible returns on your investment over the long term. We look forward to your continued support. Before I move to the resolutions, I'd like to invite the CEO and Managing Director, Ciaran Davis, to give a presentation on the company. Thank you.

Thank you, Hamish. Good morning, everyone. 2020 was an extraordinary year, challenging and uncertain as the economy and media sector were significantly impacted by lockdowns. However, thanks to the huge efforts of all of our staff, HT&E has emerged a stronger and better company. So I'd like to take this opportunity early in today's address to thank all of our people for their commitment and to reiterate to them the thanks of the Board and on your behalf, the shareholders. We asked an awful lot of our people who took a 20% pay cut for 5 months, worked longer hours for less while juggling personal and additional family responsibilities. Their innovation, their desire to do the best work in a challenging environment and at times insecure is to be commended. And I'm very proud of how our team responded and grateful for their dedication and enthusiasm shown by everyone. Looking at our full year results and against the backdrop of significant revenue declines, statutory revenue was down 22% to $197 million. The company acted quickly in April to identify and realize one-off cost savings of $13 million, which contributed to reducing total costs by 16% to $156 million. HT&E was able to access federal government funding in the first round of the JobKeeper stimulus package with a total benefit of just over $10 million, which we have excluded from our underlying results. This funding helped protect against deeper job cuts that would otherwise have to be made. And thanks to our improving business performance as the year progressed, the company was not eligible for the extended JobKeeper program. All Board members and staff took pay cuts and no incentives were awarded to KMPs with the result that EBITDA was down 35% to $49.3 million and NPAT down 55% to $18.5 million. Our outdoor business in Hong Kong, Cody, has also had a challenging 18 months, with the political environment impacting advertiser confidence in the second half of 2019 and early into 2020. And although protests had largely abated towards the end of February, advertising markets did not have an opportunity to recover in time before the outbreak of COVID-19. Advertiser demand for advertising -- outdoor advertising, sorry, was significantly impacted by reduced footfall and commuter volumes caused by the lockdowns. Total revenue was down 34% to $16.5 million, with our tram shelter network the most impacted, down 46%, with roadside revenues faring slightly better back 29%. Cost measures plus the benefit of reduced variable rent payments, saw total costs lower by 30%, resulting in a 39% drop in EBITDA to $7.7 million. Hamish has already spoken about our intentions regarding our 25% shareholding in Soprano, but to reiterate, the business recorded strong revenue and gross profit growth in 2020, delivering an impressive 63% margin, up 3 percentage points on 2019. Resulting underlying EBITDA for the 12 months grew 45% to $25.5 million, driving a 29% increase in HT&E's share of NPAT to $3.3 million. Soprano completed the acquisition of Silver Street, a Singapore-based CPaaS business in December. This acquisition provides a further platform into Asia and bolsters Soprano's cloud communications capability and bulk messaging SMS system. We continue to work with Macquarie Capital regarding our sale and the business -- of the business and had very strong initial interest. Turning now to ARN's performance, where radio revenues although outperforming the broader radio market were down 21% to $165 million. Pleasingly, our consistent rating success, together with a clearly articulated commercial go-to-market approach, saw us gain commercial share in the second half of the year. Our broadcast radio revenues have now exceeded market growth in all but 1 quarter over the last 2 years. And importantly, we have not relied on price discounting to win share, setting us up for a faster recovery in 2021. Digital audio revenues grew 122% on a like basis. The momentum in podcasting and the streaming outlined at the half continued with monthly revenues exceeding the $1 million mark for the month of November. Strong cost management and swift cost control measure were taken to reduce costs by 10%, with EBITDA for the year dropping 37% to $46 million, a better-than-expected result given the challenging environment we faced. So 2020 is behind us, and I'm pleased to say that ARN has emerged a stronger operational and strategic business with clear focus on how to drive long-term growth for the company. We are fortunate that our core broadcast radio assets continue to perform strongly, are the best in market, and the advertising sentiment for radio remains incredibly resilient. Looking to the future, we are building a business that would become Australia's destination of choice for audio content and commercial innovation. We're implementing a strategy that is delivering results today and setting the business up to capitalize on the exciting opportunities that present themselves in the world of audio. The first of our 6 pillars for growth is to maximize the value of our radio content and to continue delivering ROI on the great talent and brands that we have at our disposal. Secondly, we are looking to increasingly leverage our exclusive iHeart radio license to expand our audience base and provide new commercial opportunities. We will grow our premium addressable first-party data to meet future media buying needs of our commercial partners and continue to build a technology stack capable of delivering real sites and programmatic solutions for our clients. As we have seen during COVID in particular, the core of our business is our people, and we are investing in the structures, systems, processes to build a culture that enables them to do their best work, drive greater career opportunities and, ultimately, stronger business performance. We are developing new and innovative products, particularly digitally focused, to take to market in order to exceed client expectations. And over time, we will look to diversify revenue beyond pure advertising and into new monetization opportunities. This strategy is already delivering results, and we're very pleased with the momentum we are building so far in 2021. We are very focused on driving rating success and are delivering continued dominance in the market. In the most recent survey results, ARN is the #1 network with a 17.5% share, 2.5 points clear of our nearest rival. We're the #1 network for 11 surveys in a row. We're the #1 network for the key breakfast daypart. We now reach 5.3 million listeners a week, just short of record audience for the network. In Sydney, Kyle & Jackie O are the #1 rating breakfast show for 18 surveys in a row. KISS 1065 is #1 amongst 25 to 54 year olds for 14 surveys in a row and reaches over 1 million listeners a week. In Gold, in Melbourne, it's the #1 FM station for 10 surveys in a row and now records the highest audience in its history. Christian O'Connell is the #1 breakfast show for 7 surveys in a row. 97.3 had its best share in Brisbane since mid-2020, and 4KQ is the #1 breakfast show in that market. In Adelaide, Mix 102.3 is the #1 show for 8 surveys in a row and the #1 breakfast show. While in Perth, 96FM is building on the great success achieved in 2020 and continues to grow amongst all the change going on in that market. The new breakfast show has settled exceptionally well and is up to 10.4% share. We're also #1 podcast publisher in the country. Since the Australian Podcast Publisher rankings began in May 2020, the iHeart Podcast Network Australia has dominated, holding the #1 position with over 19 million Australian downloads in the month, 2.5x more than our nearest competitor. We hold the #1 and #2 podcasts as well as the #4, 6 and 8. Kyle & Jackie O are the #4 podcast in the country and the #1 on-demand radio show podcast. And we have a further 4 shows in the top 20. This momentum will continue as we invest in the onboarding of new podcast partners that will consolidate our leading position. We have commenced the production of new localized content with new shows to come in H2. We will be launching new products that cross-pollinate podcasts across our entire platform of audio assets, and we continue to set the standard for podcasting advertising measurement and attribution via our Podsights partnership. Today, the podcast commercial market is relatively immature, but we see brand investment in the platform growing exponentially over the coming years, and ARN is on track to deliver significant growth year-on-year, more than doubling last year's revenues. We're also incredibly excited about our iHeart Radio and our exclusive extension of this license to 2036, delivering a platform for all new audio formats, allowing our listeners to consume content however and whenever they choose. This digital audio ecosystem provides us with the best of both worlds: complete control over local content creation and monetization and data capability backed by global scale and a road map supported by significant investment in IP, infrastructure and AI development. Our experience and learnings over the past 6 years operating iHeartRadio continues to gain its momentum and scale. We're hiring digital expertise, bringing new skills into the business, and we have implemented a revitalized brand positioning, driving growth in brand awareness and registered listeners. Connecting our listeners with more of the radio music and podcast they love and delivering personalized recommendations is driving active unique audiences a month to close to 1 million, with total registered users now close to 2 million. And with time spent listening to our radio streaming up 13% year-on-year and 180% over the last 2 years, you can expect to see a lot more from iHeartRadio in H2 and beyond. This year has also seen us move quickly to bring new -- to bring to market new and innovative products and partnerships. Our successful dynamic audio product launched, bringing a personalization of digital advertising to the scale of broadcast radio, delivering more effective advertising and re-engaging new clients who have not been using radio for over 5 years. We have recently upgraded the products to include sponsorships and other audio products. We've also launched the Australian first neuro lab to optimize the power of audio, delivering a better understanding of content creation, audience connection and commercial investment, which our commercial partners are benefiting from. And in a world-first, in partnership with TikTok, we launched a new radio station on iHeartRadio, opening up new audiences and showcasing the unique talent -- sorry, the unique content that iHeartRadio offers to a massive community of TikTok users in Australia. If you haven't already tried, I'd encourage you to check it out on iHeart. I think you'd be surprised at the music that's actually trending on TikTok. And now that our audiences are engaging across our content via iHeartRadio, we're creating millions of first-party data signals through this interaction. This allows us to build quality segmentation options for advertisers, giving them highly targeted, efficient and effective ways to connect and influence consumers. We have invested in personnel across marketing, ad ops technology, analytics, to grow our digital audience and databank while building a technology stack that allows for monetization of that data. This data will be used to provide demographic, interest-driven and behavioral-based segmentation that advances our one-to-many relationship in broadcast to one-to-one in digital. Further, ARN can now provide creative solutions for advertisers where a single creative strategy can be delivered with thousands of messaging variations, enhancing the sophisticated targeting capability through first-party data segmentation. And the benefits of this, we are starting to realize. And finally, our trading update is seeing continued improvement in the market and our performance. At ARN, in an improving advertising market, total revenues for quarter 1 were back 2.5% on the prior period, with March finishing ahead of March 2020. Cycling COVID comparatives, Q2 is tracking well ahead of FY '20, with April revenues finishing 53% on the prior period. Forward bookings and briefing activity for the remainder of Q2 continue to strengthen, underpinned by strong performance ratings and business confidence. Growth in consumer demand for podcast listening, so Q1 digital audio revenues grew over 180% on the prior period, and we anticipate this level of growth to continue into Q2. In respect of costs, subject to current trading conditions continuing, we expect total people and operating costs to be in line with 2019. In Hong Kong, advertising revenues for Q1 finished marginally ahead in the comparative period for last year, impacted by COVID mobility restrictions in December and January. Improved April revenues, Q2 forward bookings and briefing activity suggest a return of customer confidence and an improving advertising market. Thank you for your time. Thank you for your support, and I hand you back to Hamish.

Thank You, Ciaran. Excellent work. We now move on to the formal part of the meeting. The arrangements for voting and asking questions online were in the online guide with the ASX announcement of the AGM and also on our Investor Relations web page. In summary, they are as follows. To register to vote, click on get a voting card, enter your shareholder or proxy number and click submit details and vote. Your voting card will appear with the resolutions for vote, make your vote and then click cast vote or cast partial vote. If you wish to change your vote whilst voting is still open, click the edit card button. At the end of the AGM, a red bar will appear, counting down the remaining voting time. Please make any changes to your votes and submit before voting closes. [Operator Instructions] Questions could be submitted now before the AGM and after 5 minutes after the meeting closes. If your question has been answered and you would like to exercise your right of reply, you can do so by submitting another question. Please keep your questions relevant to the items of business at hand. I will now move to the matters as set out in the notice of meeting. Item 1 from the notice of meeting is the financial statements. I table before the meeting the financial report, directors' report and independent auditor's report for the year ended December 31, 2020 for consideration and invite any questions or comments that you may have on these reports or on any of the company management. As mentioned, the auditor of the company, Louise King, is in attendance and can answer any questions you may have about the conduct of the audit, the preparation and the content of the independent auditor's report, the accounting policies adopted by the company and the independence of the auditor. Are there any questions or comments? No questions have been submitted. So thank you. We now move on to item 2, reelection of director. Given this matter relates to myself, I'll ask Paul Connolly to take the chair for item 2.

Item 2 is for the reelection of Hamish McLennan as a Director. We ask shareholders to consider and, if thought fit, pass the following as an ordinary resolution, that Hamish McLennan, who retires as director by rotation of the constitution and the ASX listing rules and being eligible for reelection, be reelected as a director of the company. Hamish McLennan has acted as a Director and Chairman of the company since October 30, 2018. His experience is described in the notice of meeting. I now invite questions or comments on this resolution. I'm advised there are no questions. If there are no further questions related to this resolution, we move forward to voting on this resolution. I advise the proxies received in this resolution are shown on the screen. Please make your vote online for resolution 2. I now hand back to Hamish. Thank you.

Thank you, Paul. We now move on to the adoption of the remuneration report, which can be found on Pages 30 to 44 of the annual report. Item 3 is to consider and, if thought fit, pass the following as an ordinary resolution: that the company's remuneration report for the year ended December 31, 2020, be adopted. I note that this resolution is advisory only and does not bind the directors or the company. I now invite questions or comments on this resolution. There are no questions. As there are no further questions in relation to this resolution, we will now move to voting on this resolution. In accordance with the Corporations Act, no persons nominated as key management personnel in the 2020 Annual Report or their closely related parties as defined in the Corporations Act will vote on this resolution. I advise that proxies received on this resolution are shown on the screen. Please make your vote online for Resolution 3. [Voting]

Thank you. Shareholders are reminded that they can submit their vote online until 5 minutes after the meeting closing. Ladies and gentlemen, that concludes the business of the meeting. On behalf of the Board, I'd like to thank you for your support. I now declare the meeting closed. The results of the poll will be announced on the ASX later today and will be available on the company website. Thank you for attendance and participation in this meeting. As there is no further business, I declare the meeting closed. Thank you, everyone.