oOh!media Limited (OML) Earnings Call Transcript & Summary

Good morning, everyone. My name is Tony Faure, I'm the Chair of oOh!media Limited, and it is now the scheduled time for the meeting, and I'm advised that the necessary quorum is present. I therefore have pleasure in declaring the 2023 oOh!media Annual General Meeting open. I'll begin by acknowledging the traditional custodians of the land on which we're meeting, and I pay my respects to elders, past, present and emerging. Today, we are joined by shareholders in person here at oOh!’s North Sydney office and virtually through the online platform and by phone. Today, I'm joined by my fellow Directors, CEO and Managing Director, Cathy O'Connor; and non-Executive Directors, Philippa Kelly, Tim Miles, Jo Pollard, Andrew Stevens and David Wiadrowski. Also here today in person is Chris Roberts, our Chief Financial Officer and Joint Company Secretary; Melissa Jones, our Joint Company Secretary; and oOh!media's external auditor, KPMG, represented by audit partner, Kiki Peterson. Fellow shareholders, in my address today, I'll provide an overview of our financial results for 2022, a brief discussion on dividends and capital management and an update on board changes and key management appointments. Before commencing a review of FY '22, I wanted to acknowledge the presentation we provided last week at the Macquarie Australia Conference which included an update regarding our early 2023 performance, which Cathy will discuss in further detail. Whilst the first quarter and April revenue performance reflects short-term market volatility, oOh!’s revenue and earnings are historically weighted to the second half of the year and the fourth quarter, in particular. And while we were disappointed in the share price decline last week, we remain firmly of the view that the medium term fundamentals for Out of Home remain positive and oOh! is uniquely positioned to leverage that growth opportunity. First, a brief recap of our FY '22 financial results. Out of Home continued its strong structural growth momentum as one of the fastest-growing major media formats in 2022. oOh! continued to successfully capitalize on this audience growth across our key Out of Home formats to deliver a significantly improved financial result compared to the prior year. Total revenue for FY '22 increased by 18% to $592.6 million. Revenue in our key formats of Road and Retail grew above pre-pandemic FY '19 levels, while revenue in the Fly format grew strongly as airline capacity continued to increase. The 18% increase in revenue translated to an adjusted gross profit of $274 million. We maintain strong operating leverage to grow earnings faster than revenue, which resulted in adjusted underlying EBITDA increasing by 64% on the prior year to $127.1 million. oOh! delivered an adjusted net profit after tax of $56.2 million, up 343% on the previous year. On a reported basis, EBITDA increased by 20% to $288.1 million. oOh! reported a net profit after tax of $31.5 million compared to a net loss of $10.3 million in the prior year. Cathy will discuss these financial results in more detail and also provide an update on trading for the current year in her address. Our financial position continued to strengthen during the year. Net debt at the 31st of December 2022 was $32.9 million compared to $63.5 million at the end of -- sorry, at 31st of December 2021. Our credit metrics continued to improve with the company's gearing ratio, which is the net debt over the adjusted underlying EBITDA, as at the 31st of December '22 of 0.3x compared to 0.8x on the 31st of December 2021. Shareholders will recall that our policy is to pay dividends in the range of 40% to 60% of adjusted net profit. For FY '22, adjusted net profit was $56.2 million. The Board declared a final dividend of $0.03 per share fully franked, bringing the full year dividend to $0.045 per share fully franked. This represents a 47% dividend payout ratio. During the year, we also announced an on-market buyback of up to 10% of issued share capital based on the strength of our balance sheet and the expected future cash flow generation. Your Board will continue to assess capital management options with a focus on striking an appropriate balance of maintaining the group's strong financial position and investment in growth initiatives with returns to shareholders. As we announced at last year’s AGM, Mick Hellman resigned from the Board in April 2022. Mick is the Founder and Managing Partner of HMI Capital Management, which was previously the largest shareholder in oOh!. Following the sale of HMI’s shareholding in oOh! in April 2022, Mick resigned from the Board. Our Board now comprises 7 directors, which we think is appropriate both in terms of size but also in relation to the mix of skills and experience each director brings to the Board and to the company. We were pleased to announce the appointment of Chris Roberts as our Chief Financial Officer in August 2022. Chris was previously oOh!’s Group Commercial Finance Director and has held a variety of senior finance-related roles during his 6 years with the company. Chris' appointment reflects the depth of talent within our organization, and we were delighted to be able to promote from within the company for such an important role. He replaced Sheila Lines who signaled her intention to pursue new challenges, having made a significant contribution during her 4 years as CFO at oOh!. More recently, we announced the appointment of Paul Sigaloff to the newly created role of Chief Revenue and Growth Officer. This is a key appointment as part of our digital strategy, and Cathy will provide more detail in her update on oOh!’s growth strategy. In closing, I want to acknowledge and thank our people at oOh! for their focus and dedication over the past year. oOh! delivered a strong financial result in calendar year '22. This demonstrates our capacity to capitalize on the structural growth in Out of Home and the continued implementation of our strategic initiatives to innovate and transform our network. But it also demonstrates the continued efforts of our people to support our clients to leverage our leading network across Australia and New Zealand to deliver results. Notwithstanding the recent market volatility, we remain excited about the prospects of Out of Home as a growth media segment. Shortly you will hear more from Cathy about our plans to leverage this growth and implement our strategy to deliver sustainable value creation over the medium and long term. Let me conclude by thanking our shareholders for your continued support of oOh!. Cathy?

Thanks, Tony, and good morning, and welcome, everyone. Thank you for attending today's AGM, either in person or online. For my CEO address to shareholders today, I'll first present a summary of our financial results for calendar year '22. I will then discuss the fundamental opportunities we see for the continued growth in the Out of Home sector. I will then review our growth strategy at oOh!. Specifically, that is a strategy which is centered on leading Out of Home to a digital-first future, capturing audience attention in public spaces at scale and making it easier for our customers to achieve better outcomes. I will conclude with an update on our trading. As Tony mentioned, Out of Home continued its strong structural growth momentum in 2022 as the medium continues to leverage enhanced digitization and more compelling creative content to deliver improved results for advertisers. oOh! continued to successfully capitalize on audience growth across our key Out of Home formats to deliver an 18% increase in revenue to $592.6 million. Our strong operating leverage, combined with ongoing operational discipline, delivered a strong uplift in earnings with adjusted underlying EBITDA increasing by 64% on the prior year to $127.1 million. oOh! delivered an adjusted net profit after tax of $56.2 million compared to $12.7 million for the prior year. Tony has already mentioned capital management in his address. I would echo Tony's comments that the company remains in a strong financial position, which resulted in an increase in dividends paid to shareholders last year, together with the implementation of the on-market share buyback from September 2022. Let me now turn to the Out of Home media segment and our continued conviction in the long-term structural growth prospects of Out of Home compared to other forms of media. As you can see from this chart, on a year-to-date basis to March 2023, according to SMI data, the out-of-home industry has surpassed its historical high in 2019 to command a 14.6% share against other media. According to the Outdoor Media Association in Australia, the out-of-home sector is expected to grow at a compound annual growth rate of 9% from 2022 to 2026. And one of the questions I'm most often asked is why? Why is Out of Home growing against other media? And why will it continue? Well, there are a number of key fundamentals driving this growth in Out of Home. Out of Home is an industry that is united and works together. While it remains competitive in the day to day, we come together for the greater win. This is demonstrated by the significant investments in improved measurement at an industry level, which will continue from Move 1.5 to move 2.0 in 2024. As other media segments fragment, the cost effective reach of Out of Home to reach large audiences is proven through our lower relative CPMs. As an industry, the continuing investment in creative innovation, such as 3D anamorphic video and content, is creating greater engagement with audiences. And the continued appeal of digital out of home, offering increased flexibility and new ways to buy, such as programmatic and data-led buying, is allowing out of home to be compared and measured against all other digital media. And these advancements in measurement and digital will continue over the next 5 years as the sector and the operators within it become increasingly sophisticated in demonstrating relative ROI to other media. oOh! is the largest player in the Out of Home sector across Australia and New Zealand, which means that we are uniquely placed to capitalize on the expected growth in Out of Home. This slide demonstrates oOh!’s scale in the Out of Home sector. The chart on the left is SMI data, which represents revenue from the larger advertising agencies, which comprises approximately 83% of total sector revenue. Looking more broadly across the portfolio, oOh! had a leading revenue share of 40% across Australia and New Zealand in Q1 of 2023. This slide on the right also demonstrates the recovery in earnings post the COVID period and oOh!’s underlying EBITDA profile. Having a largely fixed cost operating model, our adjusted underlying EBITDA is sensitive to revenue. And in 2022, an 18% growth in revenue resulted in a 64% growth in adjusted underlying EBITDA. I'd now like to spend a couple of minutes updating shareholders on our growth strategy to leverage our leading market position to capitalize on this expected growth in Out of Home. And our strategy is focused on 3 main areas: Firstly, leading Out of Home to a digital-first future; capturing audience attention in public spaces at scale; and making it easier for our customers to achieve better outcomes. And I'll make some brief comments on each of these 3 areas. Leading Out of Home to a digital-first future. When we talk about the digital future, we're talking about growth through asset digitization and further growth through increasing digitization of trading and automation. To drive this digital trading strategy, as Tony mentioned, we have announced the appointment of Paul Sigaloff to the position of Chief Revenue and Growth Officer. Paul is a highly regarded digital media leader and was previously the Vice President of Yahoo! Asia Pacific. Paul's appointment demonstrates the appeal of Out of Home to digital media executives, given its rising prominence as a sector. Paul will direct, guide and further shape how we play in the digital marketplace. We announced two new supply side partnerships with platform partners, Vistar and Hivestack. These platform agreements enable digital programmatic trading to a broader section of the digital market. And we have launched over 200 new assets for March year-to-date. This includes the extension of our large format digital position in Sydney, signing a long-term agreement to represent Ei’s 17 digital billboards, which are positioned on major roads and motorways, providing valuable coverage on key routes. The next focus of our strategy is capturing audience attention in public spaces at scale. The increasing digitization in Out of Home is leading to new levels of innovation and creativity, which is inspiring advertisers to try new things in the medium. It also opens up new ways for Out of Home to participate in other addressable revenue markets. These include 3D anamorphic, full motion video billboards. These are high-investment creative opportunities for advertisers. We are launching oOh! dimensions in the second half of FY '23. This will represent Australia's only truly national 3D anamorphic offer, creating iconic moments for advertisers, leading to high levels of social sharing and talkability, and this provi providing brands with a unique storytelling opportunity in Out of Home. We've continued to roll out content partnerships with Newscorp, the AFL, Tennis Australia and others. These partnerships provide us with content for our place-based and some road environments, but they also allow us to compete for sporting sponsorship revenues, which was formerly the domain of free-to-air television and radio. While many would perceive opportunities in Out of Home to be largely about signage oOh! has 9,000 video-enabled screens that provide a mass reach broadcast platform for a video advertiser. The digital video market was worth over $1 billion in Australia in 2022, with a further $192 million spent on video social platforms, such as Instagram and Tiktok. So to participate in this growing revenue market, we have created a new and complementary product called, oOh! motion, to educate advertisers on how to create a strong alternative channel for their social and video content. The third element of our strategy is making it easy for our customers to achieve better outcomes. In this post-COVID era, we have continued to educate our customers on the ways in which consumers move about the public spaces in Australia and New Zealand. And we launched major research studies in both markets to support the strong return of citizens to the public space. This has provided fresh perspective on how to reach audiences across diverse Out of Home environments and it demonstrates our thought leadership and interest in the sector. We've made improvements to the ways in which we sell our Street Furniture assets removing the restrictions to package buying and offering new ways to target across time, demographic and geography. This is a more flexible Street Furniture offering, which opens up our products to a broader range of advertisers over time and we are now in market, educating customers about this. And our better ways to buy and brand tracking initiatives are building a strong evidence base of case studies, which demonstrate the ROI of oOh! campaigns and our ability to generate real sales results for advertisers. Let me now turn to some commentary on our current trading performance. We delivered a presentation at the Macquarie Australia Conference last week. And today, in view of that, I will be providing some additional context to the update we provided at that conference. As we disclosed, we saw trading softening, particularly at the end of Q1, with a decline in short-term in-month bookings compared to the prior year. Where we had been pacing at 8% when we reported our full year results in February, we saw a decline in short money booked in March, resulting in a Q1 revenue growth of 3%. Shareholders would recall that Q1 is typically the smallest quarter for oOh!, with revenue and earnings weighted towards H2 and the fourth quarter, in particular. While oOh! grew market share in 3 out of 4 categories for the quarter, we lost share in the Street Furniture category, primarily as a result of the City of Sydney contract. We understand that April was a weaker month across media. However, we are seeing an improvement in our May and June 2023 performance compared to last year. May booked media revenue is currently ahead of the final booked May '22 position by 5% and is pacing ahead of May '22 by 11% at the same time last year. June booked media revenue is close to 80% of the final booked June '22 position and is pacing 14% ahead of the same time last year, with 7 weeks to go. Q2 revenue is currently pacing overall at similar levels to Q1 at 3%, subject to the final weeks of trading. Pacing in Street Furniture is currently pacing positively in both May and June. However, the outcome for these months in Street Furniture is not certain at this point. We've also set out in the appendix some additional slides to provide shareholders with further information, including insights into the performance of key advertiser categories. Our CapEx year-to-date has been tracking in line with our guidance of $40 million to $50 million for the full year, with supply no longer causing the same issues as it did for us last year. Our guidance for CapEx remains contingent on the awarding of tender outcomes and the granting of development approvals in line with our expectations. There has been no change in any significant contract status compared to the position we outlined at the release of our results in February 2023. And our share buyback commenced on the 5th of September 2022, and we've bought back over 51 million shares. We expect the program to be complete by the 30th of June 2023. In closing, I want to acknowledge the efforts of our people across oOh! for their continued contribution to our business. I also want to thank our shareholders for your ongoing support. Thank you.

Thanks, Cathy. Today, we're conducting the AGM as a hybrid meeting. The notice of meeting was provided to shareholders, and I will take it as read. I'll now outline the procedures for today's meeting. Before moving on to the various resolutions to be considered today, for those here in person, I'd like to draw your attention to the voting and question procedures for today's meeting, which are shown on the screen. Please take a moment to read the slide. While shareholders attending in person read through the voting and question procedures on the slide here in North Sydney, I'll explain the procedures to those shareholders attending virtually. If you are joining the meeting virtually, please read the slide currently on your screen. In order to vote or ask a question virtually during the meeting, you'll have to register for a voting card. You can do this by clicking on the Get a Voting Card box. You will then need to enter your shareholder number and post code or the proxy number if you are a proxy holder. Please note that only shareholders, proxy holders or shareholder company representatives may vote. Eligible shareholders will be able to cast their vote for, against or abstain for each resolution during the meeting. Once you finish voting on all resolutions you choose to vote on, you must submit your vote by clicking the Submit Vote or Submit Partial Vote button. You'll be able to edit your votes by clicking Edit Card until voting is closed at the end of the meeting. You'll be given 5 minutes at the end of the meeting to finalize your vote and a count downtime will appear so you know how much time is left to do so. In accordance with the company's constitution and as set out in the Notice of Meeting as Chair, I have determined that voting on each of the resolutions will be conducted by a poll. The results of the meeting will be released to the ASX as soon as possible after the conclusion of this meeting. I now declare that poll open. Where the chair has been appointed as a proxy, I intend to vote all undirected proxies in favor of each resolution. Once you've registered to vote, you'll be able to ask the question during the meeting through the Ask a Question box. You'll be able to either select to ask a general question or to ask a question on the specific resolution. You must select the Submit Question box to lodge your question. If you're asking multiple questions, please submit each question separately. I encourage shareholders attending virtually, who have questions, to submit their questions through as soon as possible. For those of you who are listening to the meeting over the phone and would like to ask a question, you'll need to dial star 1 on your keypad. The teleconference moderator will ask your name, then introduce you and prompt you to ask your question at the appropriate time. For each item of business, we'll take questions from the floor first, then telephone questions and then questions raised by the online platform. We will attempt to answer all questions raised during the meeting. However, if the same or a similar question is received multiple times, we will only answer that question once. We'll now move to the formalities of the meeting. The first item is to receive and consider the company's report for the financial year ended 31st of December 2022. Cathy and I have already discussed the company's performance during the year. Kiki Peterson from KPMG is available to take questions about the conduct of the audit and the preparation and content of the independent audit report. There is a separate agenda item dealing with the remuneration report. There will be no vote on this item relating to the financial report. It's a discussion item only. I will now address any questions relating to this item of business or any general business questions. Are there any questions from the floor? Are there any telephone questions?

Chair, I confirm there are no questions via phone.

Sorry, was there a question? No. Thank you. And are there any questions submitted via the online platform?

There are no questions on the online platform.

Okay. If there are then no questions, we'll move to the resolutions of the meeting. Resolution 1 is the adoption of the remuneration report. This is the resolution relating to the company's remuneration report for the year ended the 31st of December 2022. The resolution is set out in the slide. I'll now address any questions relating to this item of business. Are there any questions from the floor? Are there any telephone questions?

There are no questions via phone.

And are there any online questions?

There are no online questions.

Okay. Please now record your vote for Resolution 1 on your voting card. [Voting]

We'll move to Resolution 2, which is the reelection of Director Philippa Kelly. The Board strongly supports the reelection of Philippa Kelly as Philippa contributes to the Board with significant experience in governance, risk management, property and finance matters. I'll ask Philippa now to say a few words.

Thank you, Tony, for the opportunity to share some background with you today, and good morning. I am full-time Board Director. And in addition to my role at oOh!, I chair an ASX 200 company, Lifestyle Communities, which develops and manages movement time in communities in Victoria. I'm also an independent director of AustralianSuper, and I chair its investment committee. And I was previously Deputy Chancellor of Deakin University. My early background was as a mergers and acquisitions lawyer before moving into investment banking, advising on all matters of equity raisings and financing other corporate transactions. And more recently, as an executive, I spent 20 years in leadership roles amongst a number of property companies and with particular experience across real estate investment and fund management in Australia and the U.S. So as a result of that broad experience, I believe I bring a diverse range of skills and commercial experience to the oOh!’s business, including the 20 years experience in the property industry and with a deep understanding of landlord customer relationships, retail assets and revenue streams; secondly, transactional and capital management expertise; and thirdly, building team capability across growth organizations. So subject to being reelected today, I look forward to continuing as the Director of oOh! and chairing the Remuneration and Nominations Committee and sharing my experience and working with my fellow directors to achieve oOh!’s growth agenda. Thank you.

Thank you, Philippa. Questions on Resolution 2. Are there any questions from the floor? Are there any telephone questions?

There are no questions via phone.

And are there any questions via the online platform?

There are no online questions.

Okay. In which case, please cast your vote. Detailed on the slide are the proxy votes for this item submitted prior to the meeting. As I've said previously, the Directors, with Philippa abstaining, unanimously recommend that shareholders vote in favor of this resolution. So please now record your vote on your voting card. [Voting]

Resolution 3 relates to the reelection of Tim Miles as a Director. The Board again strongly supports the reelection of Tim as Tim contributes to the Board with significant experience in technology, digital development and sales and marketing matters and is based in New Zealand, where we have a significant business. Tim will now say a few words.

Thank you, Tony and fellow shareholders. Good morning. It has been my privilege to represent the shareholders as a director over the past 4 years. I've also served as a member of the Audit and Risk and Compliance Committee and I chair Technology Committee. I've an extensive background on implication of technology in digital to deliver commercial outcomes for shareholders. In my past, I have been the Group Chief Technology Officer for Vodafone Group or plc. I've been the CEO of Vodafone in the U.K. and in New Zealand. And I've also been the Chief Executive Officer of Spark Digital. Turning to currently, I serve on the boards of Genesis Energy, which is a New Zealand based generator and retailer; a mobile house company called Fortysouth; and an early-stage technology business based in the U.S., Nyriad. I also Chair a not-for-profit, the Gut Cancer Foundation of New Zealand. Only 2 of my governance appointments are listed, that being oOh! and Genesis, the remainder are private. I can confirm that I do have the time to devote to oOh!media on behalf of shareholders. Today's business environment is extremely dynamic and in recent times, even more so, with the additional challenges provided by pandemic. I've been very fortunate to experience rapid change and disruption in many of the businesses I've worked in. This created a challenge and opportunity. And I'd very much like to continue to work with management and our fellow directors to reshape oOh!, to create shareholder value. I would greatly appreciate your support to continue the work that we've begun. Thank you very much for your consideration.

Thank you, Tim. Are there any questions on Resolution 3 from the floor? Are there any telephone questions?

There are no questions via phone.