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

Welcome to Southern Cross Austereo's half year results conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, SCA's CEO, John Kelly. Please go ahead.

Good morning, and welcome to Southern Cross Austereo's results presentation for the half year ended 31 December 2024. 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 newly appointed Chief Financial Officer, Toby Potter. Toby has been with SCA for over 10 years in various finance and transformation roles and provides a comprehensive and compelling skill set to assist myself and our leadership team in continuing our growth journey and improving shareholder returns. Toby takes over from Tim Young, who left SCA on 31 January, and I would like to take this opportunity to thank Tim for his significant contribution to the company during his time with us. We will 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'll first give you an overview of our results and achievements for the first half. And in doing so, I draw your attention to the usual disclaimer. SCA has delivered a strong result for the first half of FY '25, and we have excellent momentum as we progress through the second half of the year. Through hard work and commitment from our people, I am delighted to say that we have delivered on our transformation strategy with continued operating momentum translating to improved financial performance across all key metrics. The strong operating momentum from the second half of FY '24 continued into the first half of FY '25, and we are now dominant in the audience that matters in our core metro, regional radio and digital audio markets. Our focus on executing our transformation strategy and meeting our key commitments, namely, revenue growth, cost and capital discipline and LiSTNR profitability has translated to improved financial performance with EBITDA growth of 47% on the back of 5% growth in audio revenue. We have also continued to exercise cost and capital discipline with nonrevenue-related costs in our continuing audio operations declining by $5 million or 3.2%, with the recent completion of additional cost out initiatives providing a further optimized audio operating model. LiSTNR continues its upward trajectory and is now in profit-making territory with market-leading revenue growth of 42%, contributing to an improvement of $9 million in earnings for the half. The positive impact from the unwinding of working capital, in addition to ongoing declines in CapEx, has resulted in a reduction in net debt with leverage now down to 1.58x with further reduction through improved cash flows by 30 June 2025. Turning now to Slide 4, which sets out the key financial aspects of today's half year results. We have achieved strong audio earnings growth in the first half, underpinned by continued cost discipline and a strong growth in digital audio. We provided highlights in this slide from the half year '25 result for our continuing operations, being audio, excluding television nonrecurring items, where our revenue was $209.7 million, up 5%. Our strong focus on cost management resulted in a 3% reduction in nonrevenue-related or NRR costs to $135.4 million. Our EBITDA was $31.2 million, up $10 million or 47%. Our NPAT was $3.6 million compared to a $2.2 million loss in H1 FY '24. Our digital audio EBITDA was $0.1 million, and this compares to a loss of $8.6 million in H1 FY '24. As previously flagged, the Board has decided to not declare an interim dividend as the group prioritizes debt reduction. At the bottom of the slide, we have included our HY '25 earnings, including the discontinued TV segment. Toby will walk you through reported to continuing operations results in his presentation shortly. Turning to Slide 5. This slide sets out some key high-level operating and financial headlines from our HY '25 results and the positive traction we have delivered against each of our key commitments. SCA is listed as 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 delivered positive EBITDA for the first half. 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 teams to generate improved returns from programmatic advertising. It is worth highlighting that 62% of Q2 revenue incorporated the LiSTNR AdTech Hub, further improving the value to our business partners. The SCA team remains focused on cost and capital discipline. Again, we have delivered lower NRR costs and CapEx this half. Toby will cover our cost and capital discipline performance in more detail in his presentation shortly. SCA is leading Australian audio. 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 for 28 consecutive national metro radio surveys. Beyond the capital cities, SCA reaches 70% of all regional Australians. And thirdly, we have the known and addressable audience via our digital offering through our owned and operated LiSTNR ecosystem. Moving to Slide 6. SCA is all about audio. As we successfully execute our strategy, this strategy is delivering growth and improved financial performance, which you can see in today's results. We remain focused on building the audiences that matter, the metro 25 to 54 audience, and our unparalleled regional scale and reach and monetization of those audiences. Our regional radio network is over twice the size of our nearest competitor. LiSTNR is Australia's best digital audio business with scale, capability, strong revenue growth and profitability. It continues to grow users, up over 2.2 million signed up now. And importantly, it continues to grow profitability, achieving positive EBITDA this half. Moving to Slide 7. Audio is in growth with audience at scale and broadcast revenues resilience being supplemented by the best-in-market growth in digital revenues. The sea of audio will continue to rise and the collaboration of the industry participants, as led ably by CRA, will benefit all parties. Moving to Slide 8. Our digital audio business achieved EBITDA profitability in the first half, up an impressive $8.7 million on the prior comparative period. Our trailing last 12 months revenues were $42 million, which is a 48% increase on the comparative period. I would like to highlight that this market-leading increase in digital audio revenues coincides with a period where SCA has also increased its metro radio revenues and market share. Put simply, there is no cannibalization effect. Furthermore, SCA has also continued to drive and grow the CRA digital audio market as our first half revenues were up 42% with the broader digital audio market up 30%. We remain confident as the opportunity to maintain our strong digital audio revenue growth through further improvements in our AdTech Hub and improving our ease of trade capability to allow us to compete head-to-head with the global digital tech platforms. Slide 9 shows the LiSTNR addressable signed-up users since June 2021. We now have over 2.2 million signed-up users with over half of them actively engaged on a monthly basis. We have achieved this in 4 years, and we continue to grow this base each and every week. Importantly, monthly listening hours on the LiSTNR platform continue to grow strongly, up from 2.9 million in July '23 to over 5 million in the current period. Slide 10 highlights our metro radio national leadership in the core buying demographics of women, men and total people aged 25 to 54, which covers more than 70% of all agency briefs received. It shows that our league grew in the first half with average 25 to 54 audience share growing 0.9 points year-on-year to 27.6%. We achieved a particular dominance through the winter sporting months where our audience share was up 1.4 points, and this was achieved on a reduced content cost base. This strong market position continues to provide our sales teams with a point of focus and differentiation and a compelling platform for continued share growth into the second half of FY '25 and beyond. As the right-hand chart demonstrates, SCA has grown in metro radio revenue share in all but 1 month in calendar year 2024, and there is further opportunity for further share growth. Moving to Slide 11. SCA regional Hit and Triple M networks, combined with our represented partner networks, has unrivaled scale and reach. Boomtown represents the 10 million Australians living in regional Australia. SCA owned and represented broadcast network accounts for over 70% of the Boomtown regional radio audience with twice the 25 to 54 audience demographic reach of our nearest competitor. Scale is the audience that matters in regional Australia, and we have the largest and most comprehensive network of regional stations, connecting advertisers to 133 stations in 73 markets, accessing 3.74 million listeners. I'll now hand over to Toby to take us through the half year '25 financial results in more detail.

Thank you, John, and good morning, everyone. In my presentation today, I will be focusing on our continuing operations, our cost out performance and further reductions in our net debt. I will also talk to the TV divestment, including related exit costs and nonrecurring items. Before I do that, over the next few slides, 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 result through to the underlying results of our continuing operations, which comprises audio and corporate. For complete transparency, we've provided various reconciliations to our reported results in the appendix to today's presentation. If you have any questions about those items, I'd be pleased to deal with those at the end or offline. Let's now move to Slide 13. With the net profit after tax from the TV segment reported as discontinued operations, our group revenue was up $10.6 million or 5% to $209.7 million. Total expenses were up $5.9 million or 3% to $185.6 million. Reported EBITDA was $24.1 million, up $4.7 million or 25% from the prior corresponding period. And reported NPAT was $3.2 million, up 5.5% on the prior corresponding period. The first half reported results include nonrecurring costs of $7.1 million in comparison to $1.9 million in the prior corresponding period. These nonrecurring costs relate to the restructure of our operating model and deliver ongoing cost savings in excess of $20 million per annum. The discontinued TV operations include $0.8 million in operating net profit after tax from the TV segment and a net $3.8 million gain relating to the divestment of our TV assets. A summary P&L from our discontinued TV segment is included in the appendices on Slide 30. Moving to Slide 14. There are lots of columns on this slide. Let me take you through the detail. We will walk from our reported result through to the result 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 30. Column 3 sets out the nonrecurring items that relate to the divestment of television. These consist of transaction costs, resultant redundancy costs and a net $3.8 million gain relating to the divestment of our TV assets. Column 4 shows the audio and corporate nonrecurring items of $7.1 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 result, 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 that 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 have set out our half year result for continuing operations, excluding nonrecurring items. Revenue was up $10.6 million or 5% to $209.7 million, driven by growth in both digital audio and broadcast radio. Total expenses were flat at $178.5 million. This was despite inflationary pressures and reflects the embedded cost discipline and effective cost management that remain an ongoing focus for the business. Nonrevenue-related costs were down $4.5 million or 3.2% to $135.4 million. Commissions and growth of integrated audio campaigns has driven increases in revenue-related costs, up from 19% of revenue in H1 FY '24 to 20.5% of revenue in H1 FY '25. Corporate costs were $14.6 million, up $1.7 million on the prior corresponding period, and this reflects the impact of contracted price increases and higher provisions for variable remuneration, which has increased in line with business performance. Further detail on corporate costs is included in the appendices on Slide 31. EBITDA from continuing operations was $31.2 million, up $10 million or 47% on the prior corresponding period. Depreciation and amortization was $15.9 million, up $1.4 million, and this reflects the changing nature of SCA's asset base as investments in the LiSTNR platform are amortized over a 3-year period. Depreciation and amortization is expected to reduce in line with CapEx on a go-forward basis. Net finance costs were $10 million, up $0.6 million, reflecting the noncash write-off of establishment fees relating to the previous debt facility. Net profit after tax for continuing operations was $3.6 million, up $5.9 million on the prior corresponding period loss of $2.2 million. Moving now to broadcast radio on Slide 16. Broadcast radio revenue increased by $4 million, up 2.2% to $187.6 million. Metro radio revenue increased by $3 million driven by strong share gains with SCA growing revenue share to 27.6% in the first half of FY '25, up from 26.7% in the prior corresponding period. This share gain was largely driven from agencies with agency revenue up 4.3%. You can see this increase in agency-related advertising revenue for H1 FY '25 in the bottom left-hand bar chart. Regional radio revenues were flat with strong national growth from government and automotive sectors offsetting local revenues that were impacted by a weak retail SME market. Despite ongoing inflationary pressure, total expenses were up modestly to $141.8 million with ongoing discipline and effective cost management reducing nonrevenue-related costs, which were down $2.1 million or 2% to $104.4 million. Revenue-related costs grew by $3.1 million or 9.2% to $37.4 million, and this was due to higher commission payments and the cost of integrated audio advertising campaigns, which have assisted in driving revenue and share growth. Broadcast radio EBITDA was $46 million, up 7.1% or $3 million with a margin of 24.4%, up 1.2 points on the prior corresponding period. Moving to Slide 17 that covers our digital audio results. As you heard from John, digital audio continued its strong operating momentum from FY '24 into the first half of FY '25, achieving positive EBITDA for the half. Digital revenue increased by an impressive 42% or $6.5 million to $22.1 million driven by strong growth in owned in-stream and podcast revenue and our market-leading adtech capabilities, which continue to grow our share of the market. On the costs side, our continued focus on cost discipline and effective cost management resulted in a reduction in overall expenses down 8.7% to $22 million. Nonrevenue-related costs were down 20% or $4.1 million, reflecting the benefits of increased scale and reduced marketing requirement. H1 FY '25 digital audio EBITDA was $0.1 million, reflecting a $9 million improvement versus the prior corresponding period. We'll now move to SCA's cash flow on Slide 18. Net cash from operations was up $10 million to $30.5 million for the first half. This strong growth was driven by improvements in operating results and strong cash collection profile. Free cash flow of $24.4 million was up $13.9 million, reflecting a planned reduction in net CapEx investment, down $4.4 million to $2.2 million, with gross CapEx reduced from $11.7 million to $4.8 million. Net financing payments of $6.8 million were flat versus the prior corresponding period, and tax payments were $2.9 million higher due to the timing of tax refunds. Operating cash conversion increased to 115.9% from 70.4%, 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. Noting that the seasonality of revenue profile favors first half conversion, it is estimated that the full year cash conversion will be in the range of 75% to 85% of EBITDA. The impact of no FY '24 final dividend was $5.3 million versus the prior corresponding period as the group focuses on reducing debt. Moving now to debt and capital management on Slide 19. Our improved cash conversion in the first half has resulted in a reduction in net debt down to $93 million from $108 million at the end of FY '24. Leverage at December 2024 was down to 1.58x with further reductions expected through improved cash flows by June 2025. Pleasingly, as we announced on 13 December last year, 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 $118 million at December 2024 and matures in January 2028. Moving to Slide 20. You have heard throughout our presentation today about our embedded cost discipline and effective cost management. This slide sets out the impact of inflation and cost out initiatives from H1 FY '23 to H1 FY '24 through to H1 FY '25. A strong focus on cost discipline has contributed $10.2 million to the first half EBITDA result. Importantly, ongoing cost management remains a key priority. And full year nonrevenue-related costs are forecasted to be less than $270 million. The structure of our TV exit will minimize future stranded costs with the representation of local TV sales driving a circa $6 million cost increase in audio. This will be offset by incremental revenue from Network 10. Moving to Slide 21. Over the last 5 years, we committed to an extensive CapEx program to digitize the business. This program has included building the flexibility and resilience of our integrated networks, which has enabled efficiency gains in our operating model. With investment in adtech, digitization and centralization of SCA's audio operations now complete, our CapEx program is continuing to reduce with CapEx in H1 FY '25 of $4.8 million, down from $11.7 million in the prior corresponding period and on track to be less than $10 million for FY '25. It's worth noting that capital investment in core broadcast is minimal with capital-intensive functions such as transmission outsourced to third parties. The majority of our capital investment expenditure is focused on delivering revenue and earnings growth. And changes to our operating model efficiency have led to minimal maintenance CapEx. I will now hand back to John.

Thanks, Toby, and moving to Slide 22. Our TV exit is close to completion. As we announced on the 17th of December, we divested our 3 Agg TV assets to Network 10 with expected cash proceeds of $15 million to $20 million payable over the next 5 years. With all regulatory approval received, the sale to Network 10 will complete on the 1st of March 2025. This morning, we announced the signing of a binding term sheet for the sale of the remainder of our TV assets to Australian Digital Holdings for overall cash proceeds of $6.4 million, of which $3.8 million relates to upfront cash consideration and a further $2.6 million to be received through the provision of transitional services arrangements. We expect the total estimated cash consideration from the sale of our television assets to be in the range of $19 million to $24 million, and this represents a multiple of 4 to 5x the forecasted FY '25 pro forma TV EBITDA. We expect the transaction to complete in the coming weeks. Slide 24 sets out our expectations for FY '25 and beyond. Audio revenues continue to pace well into H2 FY '25 and are expected to be 6% ahead of the prior year for Q3 FY '25. With strong digital audio momentum continuing, LiSTNR is forecast to be profitable for FY '25, which will have been achieved in 4 years since 2021, which is a remarkable achievement for any business, let alone a digital media start-up. We also expect double-digit revenue growth for LiSTNR to continue into FY '26. With further second half cost out activities now complete, we expect to now deliver an FY '25 nonrevenue-related cost base below $270 million with CapEx forecast to be below $10 million for FY '25. We also expect the FY '26 NRR cost base to be below $270 million and CapEx at circa $10 million. Our leverage ratio at December has reduced to 1.58x with further reduction by June '25 through improved cash flows. In summary, and in closing, the SCA team is focused on accelerating shareholder value through monetizing the benefits of our fully digitized audio strategy and by delivering operational efficiency through meaningful and permanent cost reductions. The entire SCA team is reenergized by delivery of our consecutive half yearly improvement in our operating and financial performance. Our focus remains on further improving the positive operating momentum within SCA to drive improved results and returns for all SCA stakeholders. 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 now be happy to take any 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 Brian Han with Morningstar.

You're guiding nonrevenue-related costs to be below $270 million. Can I just confirm, $270 million was also the cost base in F '24 on an equivalent basis?

That's correct, Brian.

Okay. How would corporate costs change without TV going forward?

Look, I think as the business changes, we're looking to keep corporate costs as well as every other part of our business under control, and I would expect corporate costs also to be at least the same or lower in future years. That's our intent. And clearly, with the sale of the TV business, we're a smaller business. So we need to adjust our cost base, all parts of our business, particularly in the corporate area, to meet that need.

So in essence, for this year, the cost out initiatives will basically act to offset all natural inflation in the cost base. Is that the way to look at it for this year?

Yes. I think what we've tried to do during the year, which we spoke about last year at the end of our FY '25 (sic) [ '24 ] results and again at our AGM, is that we've been very active in the cost out front during the first half and in recent weeks in relation to actually putting in place the cost initiatives to be -- have the certainty with the statements we've made in the outlook statement [ re ] our cost base moving forward. So to be clear, we're saying it's going to be lower than the $270 million of this year on a normalized basis. So -- and we're very confident in that because those activities have been completed.

Okay. And can you talk about the shape of your digital radio cost base going forward, as in the circa $32 million, $33 million annualized nonrevenue-related cost base there, is that the sustainable level going forward? Or would it need to step up to maintain top line growth?

Look, I think I look at it slightly differently, which you look at it as a margin business of sort of 25% on a sustainable basis. So when we look at that business, clearly, it has higher revenue-related costs in relation to some of our podcast revenue share deals. But in relation to the standard costs, we're clearly investing in the business. But if we can keep that cost base to CPI and make the offsetting changes in broadcast, that's what we would like to achieve. At the end of the day, LiSTNR and digital audio is our growth engine. And we won't be restricting the investment in that, but assume CPI for that part of the business in terms of just nonrevenue-related costs.

The 25% margin that you were talking about, is that benchmarked against something?

Well, it's benchmarked -- I think when you look at some of the larger players, SiriusXM, Wondery and some of the different aspects of some of the global, I think that's best-in-class sort of EBITDA margins. So we would hope that -- we've only been going for 4 years, but we would hope that as time continues, we continue to grow the top line at a strong double digit. With cost control, we would hope to approach that in the coming years, yes.

Our next question comes from the line of Charlie Kingston with K Capital.

Just a few questions, please. Firstly, around the balance sheet, well done on paying down some of that debt and the free cash that you're generating. But I'm just trying to get a sense of what level you would be comfortable with. And when do you expect those TV payments? I think in the presentation, you've said over 5 years. But just trying to get a pro forma sense of where your net debt will be and then at what stage are you comfortable. And do you think you can start to resume dividends or return some of that free cash flow to shareholders, please?

Yes. Look, net debt, as you know, is about $93 million. Clearly, from a leverage viewpoint, we've stated -- we've improved quite significantly in terms of our leverage from 1.87x at full year to 1.58x debt to EBITDA in terms of the banking covenant ratio. And we expect further improvement as we approach the FY '25 result. In terms of what target we would require, I think the clear intent of the Board, with the support of our major shareholders, is to continue to reduce debt through the use of our free cash flow. I would hope in the coming period, we'll be reassessing the return to a more normal dividend payout ratio. But at this point in time, we're fully focused on getting our gearing back below to a more sustainable level.

Okay. Now it's a minor point, but just on the free cash flow, I think your categorization is before net financing costs. Is that correct? I would have thought -- obviously, that's a real cost and you can't repay debt before that or dividends. So when you look at free cash flow, is it after net financing costs and tax or...

Yes. Thanks, Charlie. We look at the net cash from operations before the financing costs.

Okay. It's just a strange way of looking at it because it's a real cost but anyway. And then just on the cost out opportunity, I suppose it was asked previously, but I think on the run rate, your corporate cost is around about $30 million, correct me if I'm wrong. But I think that's circa 3x the level of your listed peer, A1N. So just hoping to get a sense, without TV going forward, is that too large? Is there an opportunity there to reduce costs? Because I would have thought that's a lot easier to take costs from corporate compared to revenue-related costs, et cetera, please?

Look, I think the way to look at -- I mean, what ARN or other people put in corporate costs versus what we put in corporate costs is obviously a question for them. And I think the way we look at it is we'll be all about audio very shortly. And we'll be happy to compare our overall EBITDA margins, free cash flow and every other measure against any other competitor. So I think the cost out we have done has been across all parts of our business. And I repeat, it's cost out activities which is complete, not planned to be complete. We've been working on this for the last 2 years. We've had significant cost out, and we'll continue to look at optimizing our business. But no, I look at entirety of our audio business. And I think on any measure, we'll stack up against any domestic or global peers.

And then just lastly, around your comment driving shareholder value. I think we've got around about $180 million of franking credits on the balance sheet, and that's above our market cap today. But I know it's hard to extract those or return those to shareholders. But is that something you are investigating to hopefully return those to shareholders? Or clearly, the prospect of consolidation has been an ongoing theme within radio and your register, clearly. But yes, maybe just a comment on if you are still -- maybe not, but is there a prospect of consolidation to create shareholder value? And is there any prospect that you're investigating to potentially release some of those frankings or just shareholder value in general because I suppose at $0.64, notwithstanding the recent bounce in the share price, it's still miles below historical levels. So just appreciate your thoughts on how we can continue to get the share price reflecting some of that value, please?

Yes. Look, Charlie, a lot in that question. But I guess the result, we're very pleased with. We're very pleased with the momentum we've got going into the full year. We expect to deliver very strong results for FY '25. And that -- as I said, that momentum really started in the second half FY '24. So we're pleased with our progress. In relation to the whole consolidation question, we are absolutely believers, like many of our media peers in Australia, that consolidation is both required and inevitable. And we think that will provide opportunities for all the media operators. We clearly think we're the best-in-class audio company in Australia. So if either a domestic or international operator wants to buy a best-in-class audio company, we're here. And does that provide opportunities for us to utilize and benefit from those franking credits and some restructure? Perhaps. And we clearly have that benefit moving forward. But yes, I think it's not our primary focus of franking credits, but I can see that's an asset that could be utilized and accessed in future years.

[Operator Instructions] I'm showing no further questions in the queue. Thank you all for your questions. This concludes the Q&A session. I would now like to turn the conference back to CEO, John Kelly, for closing remarks.

Thank you, Towanda. Appreciate that, and appreciate everyone for joining the call. And we look forward to speaking with you in the coming days, and thank you for your support. Goodbye.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.