Southern Cross Media Group Limited (SXL.AX) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Southern Cross Austereo's Full Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, SCA's CEO, Mr. John Kelly. Please go ahead.

Good morning, and welcome to Southern Cross Austereo's results presentation for the year ended 30 June 2025. I would like to acknowledge the Gadigal of the Eora Nation, traditional custodians of the land on which we meet today and pay my respects to their elders, past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples here today. I am John Kelly, CEO of SCA, and I'm joined today by our Chief Financial Officer, Toby Potter. We'll hear from Toby shortly with a detailed overview of our financial performance. And at the end of our presentation, Toby and I will be happy to answer your questions. I will first give you an overview of our results and achievements for FY '25. And in doing so, I draw your attention to the usual disclaimer at the end of the presentation. Before I present the financial and operating highlights from our strong performance for FY '25, I wanted to start my presentation today with an overview of our strategy in action as summarized on Slide 3. The SCA team has successfully balanced improving the operational and financial performance of the business while at the same time achieving critical and strategic milestones. SCA is now in the final stages of transformation from a traditional media company to a digitally focused technology-driven audio company. Our challenge and opportunity is now to create the future of Australian audio. We now have a fully refurbished broadcast business that has the right technology to produce, distribute and monetize Triple M and Hit across 135 stations in 53 markets throughout Australia, anywhere, any place at any time. We have built a best-in-class and proudly Australian digital audio business in LiSTNR. After only 4 years, we have grown a known LiSTNR base of 2.4 million Australians with revenues in FY '25 of $45 million, growing at close to 30% per annum. LiSTNR is now EBITDA cash flow positive, and we expect to continue our current earnings growth trajectory into FY '26 and beyond. We have been very active in the last 2 years in reducing our cost base and CapEx spend in a sustainable and permanent manner. We are committed to continuing our efficiency drive and expect our cost base to reduce further in the years ahead. A media company performs best when there is certainty as to the operating cost base and momentum with top line revenues. The operational leverage opportunity from a cash flow earnings upswing is both immediate and significant and provides opportunities to both reduce debt and most importantly, return improved dividends to shareholders. For over 18 months, we have communicated to the market that we have demonstrable operating momentum, and we have been proactive in providing updated guidance to the market throughout FY '25. I am pleased to be able to report that this guidance has been met and in some cases, significantly exceeded within the results we have provided to the market today. I hope you will observe our renewed confidence and further commitment in our FY '25 results presentation today and in our fulsome outlook and guidance statement for FY '26. So with those opening comments, let's turn to Slide 4 and discuss the highlights of our FY '25 results. SCA has delivered a strong result for FY '25 with revenue, EBITDA and NPAT all up year-on-year. Through hard work and commitment from our people, we have delivered on our transformation strategy with strong growth in digital audio, continued cost and capital discipline translating to improved financial performance across all key metrics, underpinned by low leverage. The highlights on this slide are for our continuing operations being audio, excluding television and nonrecurring items, where our revenue was $421.9 million, up 5%. Revenue-related costs were up 10.8%, which is attributable to our higher revenues. Our strong focus on cost management resulted in a 2.5% reduction in non-revenue-related or NRR costs to $263.5 million. Our EBITDA was $71.1 million, up $18.2 million or 34%. Our NPAT was $15.1 million, up $10.6 million or 239%. Net debt reduced by $40 million in FY '25, down to $67.6 million. The SCA Board has decided due to sustained operational momentum and financial discipline across the business to declare a fully franked $0.04 per share final dividend for FY '25. Toby will walk through reported to continuing operations results in his presentation shortly. Turning to Slide 5. This slide sets out key high-level operating and financial drivers from our FY '25 results and the ongoing positive traction we delivered against each of these drivers. SCA is leading Australian audio with the largest and best-performing audio network. We have 3 key audience pillars where we provide compelling content to the audiences that matter. Firstly, we have the Metro Radio 25 to 54 demographic, which we unquestionably and unequivocally dominate nationally, leading the audience share of the critical and lucrative 25 to 54 demographic, the 32 consecutive national metro radio surveys. Beyond the capital cities, we have scale where SCA reaches over 70% of all regional Australians. And thirdly, we have the known and addressable audience via our digital offering with over 2.4 million signed up users through our owned and operated LiSTNR ecosystem. LiSTNR is Australia's best digital audio business. It is the largest and fastest-growing local operator in the fastest-growing segment in Australian media. It continues to grow the category. And importantly, it generated $2 million EBITDA in FY '25 and is now EBITDA cash flow positive after only 4 years. Our LiSTNR AdTech Hub is market-leading and provides us with a competitive advantage. It is driving superior commercial returns through premium CPMs, empowering our sales team to generate improved returns from programmatic advertising. It is worth highlighting that more than 70% of revenue briefs in FY '25 incorporated the LiSTNR Ad Tech Hub, further improving the value and ROI to our business partners. The SCA team remains focused on cost and capital discipline. Again, we have delivered lower NRR costs and CapEx in FY '25. Importantly, approximately 90% of incremental revenue is converted to earnings. This operational leverage and cash flow earnings upswing is significant and consequently, our leverage is down to 1.1x at 30 June. Toby will cover our cost, capital discipline and improved cash flow performance in more detail in his presentation shortly. Our exit from regional TV is now complete with the go-forward simplified business model enabling us to now review and reduce corporate costs. Moving to Slide 6. At SCA, we are focused on delivering in the areas that matter. And in the next 3 slides, we will step through the audience, commercial and operating metrics that matter in our ongoing transformation journey. We remain focused on building the audiences that matter, the Metro 25 to 54 audience, our unparalleled scale and reach in regional Australia and the known and addressable LiSTNR digital audience. We remain the dominant network in the core 25 to 54 audience demographic and have now established a 9-point gap to our nearest competitor. So why do we focus on the 25 to 54 demographic? Well, because it's the Audience That Matters for marketers with this demographic being the focus of more than 70% of advertising briefs. This demographic is known as the money demographic and represents a key focus point for all media players across the globe. SCA's regional Hit and Triple M networks, combined with our represented partner networks has unrivaled scale and reach and accounts for over 70% of listening across regional Australia. We have seen a sustained build in our regional network and have grown audiences by 24% since FY '21. LiSTNR is Australia's best digital audio business with scale, capability, strong revenue growth and profitability. It is proudly homegrown and independent from global tech companies, meaning that we can operate and activate to meet the needs of our local market at speed and with precision. LiSTNR has grown in a consistent and progressive manner to over 2.4 million signed up users and is now EBITDA cash flow positive in just over 4 years since launch in 2021. New strategic partnerships with Foxtel and Mandara will grow our digital audience even further in FY '26. Moving to Slide 7. None of the audience metrics matter unless they are being matched by corresponding growth in the commercial metrics that matter. The 3 graphs on this slide demonstrate the sustained improved performance in our key commercial metrics across our metro, regional and digital pillars. For the metro radio market, SCA achieved a 29.5% share in the fourth quarter of FY '25, with our full year share up 1.1 percentage points to 28.3%. We see a clear opportunity and are seeking further revenue growth by closing the gap between audience and revenue share, noting that each additional share point is worth around $6 million in gross revenue. For regional radio, we continue to increase our revenue share with 6 consecutive months of SMI share growth. Local and national customer counts were up consistently in the second half with good momentum carrying into the first quarter of FY '26. As I mentioned on the previous slide, LiSTNR now has 2.4 million signed up users with revenues of $45.2 million in FY '25, up 29% on FY '24. Early signs in Q1 FY '26 indicate that we are continuing to grow share in all 3 content pillars, which sets us up well for the year ahead. Moving to Slide 8. This slide sets out some key operating metrics that are leading to improved financial and cash flow performance. We remain focused on cost discipline. Our cost efficiency programs have removed more than $60 million in savings across CapEx and OpEx in the last 3 years. NRR costs have been held flat since FY '23 with CPI and contracted price increases fully offset over this period. We expect NRR costs to remain below $270 million in FY '26. With our digital transformation complete, there is minimal legacy CapEx required, and our ongoing maintenance CapEx's forecast to remain flat at around $10 million per annum. Since FY '23, our headcount has reduced by 22% or 348 roles with around 120 roles relating to the exit of TV. Approximately 40% of the current workforce are directly revenue-generating roles with the remaining roles in content production and back-office support. Moving to Slide 9. A key part of our improvement in the Audience That Matters has been the remarkable resurgence of the Triple M network over the past 3 years. Triple M is core to the Australian cultural landscape with its focus on rock, comedy and sport. It is also our live and local network with many of our announcers an integral part of their local communities. Triple M is now dominant in the Audience That Matters with 3 #1 stations in our target 25 to 54 audiences for Brisbane, Adelaide and Perth. Since 2023, Triple M has achieved a remarkable 42% share gain, going from a 13.6% share to a 19.4% share in survey for 2025. Triple M is the premium audio destination for sport with our AFL, NRL and Cricket coverage reaching 1.1 million listeners across Australia. Moving to Slide 10. This slide highlights the robust nature of broadcast radio with around 78% of Australians consuming broadcast radio each week, either by broadcast or by streaming. As the chart demonstrates, exclusive broadcast monthly listeners have fallen by 18% of Australians from 66% in 2021 to 48% in 2025. However, this 18% reduction has been almost totally offset by the 16% growth in the streaming cohort from 14% to 30%. Put simply, radio now has a new life through the emergence of new ways of distribution through streaming and through the adoption of platforms like LiSTNR, where you can listen to any of our 135 radio stations anywhere and anytime. SCA continues to build dominant radio brands locally and nationally by nurturing talent and creating highly engaging programming for consumers. The continued migration of broadcast audience to digital with its highest CPMs will future-proof the medium as digital consumption continues to trend up. I will now hand over to Toby to take us through the FY '25 financial results in more detail.

Thank you, John, and good morning, everyone. Now to Slide 12. In my presentation today, I will be focusing on our continuing operations, our cost outperformance and the significant reduction in net debt that we have achieved in FY '25. Similar to how we presented our half year results, I will present our results on a reported basis with TV reported as discontinued operations. I will then step you through a walk from our reported results to the consolidated operating results through to the underlying results of our continuing operations, which comprises audio and corporate and excludes nonrecurring items. I will also talk to the TV divestment, including related exit costs and nonrecurring items. As per our usual practice, I've provided various reconciliations to our reported results in the appendix to today's presentation. If you have any questions about those items, I'll be pleased to deal with those at the end or offline. My presentation this morning will illustrate that the transformation of SCA into a best-in-class audio business is evident in our FY '25 financial results with growing revenues, strong cost discipline, reducing debt and strong free cash flow. With that introduction, let's now move to Slide 13. With net profit after tax from the TV segment reported as discontinued operations, our group revenue was up $20 million or 5% to $421.9 million. Total expenses were up slightly by 0.9% or $3.2 million to $362.5 million. Reported EBITDA was $59.3 million, up $16.8 million or 39.4% on FY '24 and reported NPAT was $9.2 million. Reported results include nonrecurring costs of $11.8 million in comparison to $10.7 million in the prior year. These nonrecurring costs relate primarily to the restructure of our operating model and deliver further ongoing cost savings in excess of $20 million per annum. The discontinued TV operations include $2.8 million in operating net profit after tax from the TV segment and a net $1.3 million gain relating to the divestment of our TV assets to Paramount and Seven West Media. A summary P&L from our discontinued TV segment is included in the appendices on Slide 28. Moving to Slide 14. As I mentioned earlier, I presented a similar slide at our half year results. Let me take you through the detail. We will walk from our reported results through to the results from our continuing operations. Working from left to right, column 1 is our reported result that I just ran through on the previous slide, which includes the NPAT from TV reported as discontinued operations. Column 2 reconsolidates the TV segment into the P&L and further details on the performance of our TV segment are included in the appendices on Slide 28. Column 3 sets out the nonrecurring items that relate to the divestment of television. These consist of transaction costs, resulting redundancy costs and a net $4 million impairment reversal and a net $1.3 million gain on sale, both relating to the divestments of all our TV assets. Column 4 shows the audio and corporate nonrecurring items of $11.8 million that I ran through on the previous slide and the related tax impact. The total of columns 1 through 4 gives us the consolidated operating results, excluding nonrecurring items. To arrive at our continuing operations comprised of audio and corporate, we deduct the results of our discontinued TV segment, which is column 6. I appreciate there is a little bit to digest there. I'm happy to take your questions during Q&A or offline after the call. For the remaining slides in my presentation, I will be focused on the results of our continuing operations, excluding nonrecurring items. Moving to Slide 15. Here, we've set out our FY '25 results for continuing operations, excluding nonrecurring items. Revenue was up $20 million or 5% to $421.9 million, driven by growth in both digital audio and broadcast radio. Importantly, total expenses were broadly flat at $350.7 million. This was despite inflationary pressures and reflects the embedded cost discipline and effective cost management that remain an ongoing focus for the business. Importantly, non-revenue-related costs were down $6.7 million or 2.5% to $263.5 million. Commissions and growth of integrated audio campaigns has driven increases in revenue-related costs up from 19.6% of revenue in FY '24 to 20.7% of revenue in FY '25. EBITDA from continuing operations was $71.1 million, up $18.2 million or 34% on the prior year. Depreciation and amortization was $30 million, up $1.9 million on FY '24, reflecting the investment into digital assets that are depreciated over a shorter period. Depreciation and amortization is expected to reduce in line with CapEx on a go-forward basis. Net finance costs were $18.3 million, down $0.3 million, reflecting lower base interest rates and lower average net debt, partially offset by higher borrowing margins and the $0.6 million noncash write-off of establishment fees in the first half relating to the previous debt facility. Corporate costs have been shared across TV and radio and were $28 million in FY '25. Slide 29 in the appendices provides further information on corporate costs. Net profit after tax for continuing operations was $15.1 million, up $10.6 million on FY '24 NPAT of $4.5 million. Moving now to broadcast radio on Slide 16. Broadcast radio revenue increased by $10.2 million, up 2.8% to $376.8 million. Metro Radio revenue increased by $7 million, driven by strong share gain with SCA growing revenue share to 28.3%, up from 27.2% in FY '24. This share gain was largely driven from agencies with agency revenue up 5% to $146 million. You can see this increase in agency-related advertising revenue for FY '25 in the bottom left-hand bar chart. Regional radio revenues were flat at $164 million, with strong national growth from government and automotive sectors offsetting local revenues that were impacted by a weak retail SME market. Despite ongoing inflationary pressures, total expenses were flat at $279.6 million with ongoing cost discipline and effective cost management, reducing non-revenue-related costs, which were down $4.2 million or 2% to $204.2 million. With total expenses flat year-on-year. This ensures complete conversion of revenue growth to EBITDA. Revenue-related costs grew by $4.2 million or 5.9% to $75.4 million, and this was due to higher commission payments and the cost of integrated audio advertising campaigns, which have assisted in driving Metro radio revenue and share growth. Broadcast radio EBITDA was $97.2 million, up 11.5% or $10 million, with margins of 25.8%, up 2 points on FY '24. Moving to Slide 17 that covers our digital audio results. As you heard from John, Digital Audio has continued its strong operating momentum, achieving positive EBITDA for the first half and for full year FY '25. Digital revenue increased by an impressive 28.8% or $10.1 million to $45.1 million. This was driven by strong growth in owned in-stream revenues, up 32% and Podcast revenue up 44% and our market-leading Ad-Tech capabilities, which continue to grow our share of the market. On the cost side, our continued focus on cost discipline and effective cost management resulted in a reduction in overall expenses, down 6.3% or $2.9 million to $43.1 million. Non-revenue-related costs were down $7.3 million or 18.9%, reflecting the benefits of increased scale and reduced marketing requirement and fully offsetting the $4.4 million increase in revenue-related expenses. FY '25 Digital Audio EBITDA was $2 million, reflecting a $12.9 million improvement versus FY '24. We'll now move to SCA's cash flows on Slide 18. Net cash from operations was up $29.7 million to $67.1 million for FY '25. This strong growth was driven by a focus on cash collections and the runoff of TV receivables. Free cash flow of $52.1 million was up $31.1 million, driven by an improvement in net cash from operations and a further reduction in net CapEx, down $2.1 million to $6.8 million. As I mentioned on Slide 15, net financing payments of $13.8 million are flat with the benefit of lower borrowings being offset by slightly higher margins on the new debt facility and the payment of $0.7 million in establishment fees as part of the calendar year '24 refinance. Tax payments of $2 million were broadly in line with FY '24 due to the similar taxable profit and tax refunds from prior years. Free cash flow available for dividends or debt reduction is up $30.9 million to $36.3 million and operating cash conversion increased to 112.4% from 67.2%, reflecting stronger operating cash from operations, the positive unwinding of working capital from a higher June 2024 receivables balance and tighter control on the timing of payables. Moving now to debt and capital management on Slide 19. Focus on operational improvements, including continued cost discipline has delivered a significant reduction in net debt, down $40 million to $67.6 million from $107.5 million at the end of FY '24. The leverage ratio at June 2025 was down to 1.1x, driven by improved EBITDA and cash conversion and our key debt measures are well below covenants. We are forecasting for our ongoing leverage ratio to remain below 1x. Off the back of continued operating momentum and a sound balance sheet, the Board has declared a fully franked final dividend for FY '25 of $0.04 per share. During the first half, we successfully refinanced our $160 million syndicated debt facility with no change to key financial covenants, and this facility provides the group with sufficient operating headroom. The new facility was drawn to $103 million at June 2025 and matures in January 2028. Moving now to Slide 20. As mentioned, the Board has declared a $0.04 per share fully franked dividend for FY '25. This reflects the group's reduced debt, low future CapEx requirements, positive digital contribution, reduced operating cost base, resulting in a strong future cash earnings and approximate 80% conversion of incremental revenue to EBITDA. FY '25 EPS was $0.063 per share with the $0.04 dividend representing a 64% payout. Dividends in FY '26 are to be within the target range of 65% to 85% of underlying NPAT. Future capital management will prioritize the distribution of fully franked dividends whilst maintaining the leverage ratio below 1. I will now hand back to John.

Thanks, Toby. And moving on to Slide 21. SCA is proudly an Australian-owned company, which provides local and relevant content to communities and partners with local businesses in more than 50 markets across the length and breadth of Australia. SCA owns Australia's leading and largest audio ecosystem. At the heart of this ecosystem is LiSTNR, homegrown, sovereign and independent of the global tech platforms. LiSTNR is supported and driven by our brands and best-of-breed domestic and international partners across broadcast, streaming and podcasts. We have in our presentation today taken you through our digital transformation journey and our performance across the audiences that matter and the commercial and operating metrics that matter in the audio space. We provided in this slide a summary of the SCA audio scorecard. The scorecard provides a real-time snapshot of the progress we have made as an audio company in the last 3 years. We now have the dominant digital audio ecosystem in LiSTNR, which has both scale and profitability and will undoubtedly be our growth engine for revenues and cash flows into FY '26 and beyond. We have our leading broadcast offering through Triple M and Hit that is dominant and growing in the Audience That Matters through a focus on profitable live and local content that resonates with audiences and advertisers alike. We are confident that this targeted the scale strategy will deliver improved earnings outcomes in the coming years. Our audio ecosystem has delivered an audio scorecard that objectively places SCA today as Australia's leading audio company with plenty of upside across all key measurements as we realize the benefits of our past investments and of our digitally focused audio strategy. So moving now to Slide 23. As I mentioned at the start of this call, our FY '25 results and our trend lines in FY '26 provide us with the confidence to provide a fulsome outlook and guidance statement for FY '26. In relation to short-term outlook, we note that we have achieved modest growth in audio revenues for July and August 2025 as assisted by continuing Metro Radio share growth and digital audio revenue growth. In our FY '26 guidance statement, we note that digital audio revenue growth is forecast to continue at current double-digit growth rates with share maintained. Total revenue is forecast between $435 million and $440 million. Revenue-related costs are forecast at approximately 20% of revenue. Non-revenue-related costs are forecast to be below $270 million. Underlying EBITDA is forecast between $78 million and $83 million. Following completion of SCA's digital transformation investment cycle, CapEx in FY '26 is forecast to remain at no more than $10 million. Leverage ratio at June '25 is now at 1.10x and forecast to remain below 1.0x through both improved operating results and a reduction in net debt. And finally, at our current and forecast leverage ratio levels, SCA intends to pay dividends in the range of 65% to 85% of underlying NPAT. In summary and in closing, as I said at our FY '24 results back in August 2024, the SCA team is focused on accelerating shareholder value through monetizing the benefits of our fully centralized and digitized audio strategy and by delivering operational efficiency through meaningful and permanent cost reductions. Our focus has not changed. And as you would expect, given our strong FY '25 results, the entire SCA team is reenergized by the delivery of our sustained improvement in our operating and financial performance. For SCA, the operational leverage opportunity from a cash flow earnings upswing is demonstrable and significant and provides opportunities to both reduce debt and most importantly, return improved dividends to shareholders in FY '26 and beyond. So that concludes our presentation. As Toby mentioned earlier, the presentation includes an appendix with additional details for you to consider, including a reconciliation to our reported results. Toby and I will be happy now to take questions that you may have. I will now hand back to our operator to facilitate the Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Roger Colman from Pax Pasha Private Limited.

Congratulations, John. Great presentation, operating performance. I had a quick question on your forward outlook. Today looks like it's having a reasonable or stronger September. What does your forward outlook look like?

Roger, thank you for your comments. Look, as we said, we've given some guidance in relation to July and August sort of modest growth, early single digits. Look, beyond that, we're pacing okay, but the market still remains unpredictable in terms of what it may do. So that's why we, I guess we limited our guidance at this stage just to July and August.

[Operator Instructions] Our next question comes from the line of Conor O'Prey from Canaccord Genuity.

Just also a question on the outlook and whether -- so I think the midpoint of the guidance revenue growth about 3.5%. Just wondering whether July and August, you're sort of positioning that a little bit below that guidance range? And then just trying to triangulate that against perhaps what you said in July where July, August were pacing sort of 5%. So things sort of slowed down since then?

Yes. I think that's a fair estimation, Conor. We did see some slowing. We did indicate that it was pacing 5%. It's obviously ended up slightly below that. I think we found that probably -- I think as you'll see from Nine and others have come out in due course, I think it has slowed in July and August. I think we remain comfortable with our overall revenue guidance that we provided for the full year. We're still seeing incredibly strong pacing with our digital properties. And we've got a lot of initiatives in market, particularly in our regional pillar, where we believe we will take dividends -- will provide us with improved growth in the back end of this year into the first half of next year. So yes, we remain comfortable with the guidance we provided on a full year basis.

And maybe just a question on digital audio. It looks like growth slowed a bit in the second half relative to the first half, and you might have been a bit behind market. in the sort of June half. Have I sort of got this math correctly?

No, we definitely went behind market. In fact, I think we very much outperformed market across the entire year, particularly in the second half. Look, I think most media players would say that May and June slowed off the back of a very strong April with the government spend and election. And that impacted us as it did all media companies. So no, I think certainly from a share perspective, we continue to grow share across all pillars across virtually every month across the year. So it's not a share issue, but yes, certainly, the market was a bit softer in May and June.

Our next question comes from the line of Michael [indiscernible].

It's a great result, guys. Well done on getting the debt and the TV down and offloaded. Just a question around digital audio. In terms of maybe potentially looking to monetize that outside of just the podcast, maybe around events. I know that some of the successful podcasts in the U.K. have done very lucrative events over there. And I just wonder if you had any plans to monetize it outside of the advertising.

Yes, it's actually a very good observation, Michael, and thank you for your call. Certainly, events has taken hold in the States and in Europe. podcast, like The Rest Is Politics, I think that's coming to Australia very shortly. Clearly, we've got some very popular podcasts, the likes of Hamish & Andy, The Howie Games and some emerging podcasts, particularly in the entertainment culture space. which I think we are looking to expand further and utilize events, not only from a monetization and profitability viewpoint, but also expand the scale and attention of podcast across the Australian landscape. So I think it's a good observation and something we'll be focused on in '25 and '26 and beyond.