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

Thank you for standing by, and welcome to the Southern Cross Media Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Heith MacKay-Cruise, Executive Chairman. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining the Southern Cross Media Group's results call for the 6 months ending December 30, 2025. Today marks the first financial results that Southern Cross Media Group have delivered as a merged entity after the successful implementation of the scheme of arrangement completed last month. Before the team presents the first half 2026 financial results, I would like to make some comments and remarks regarding the key management personnel changes announced to the market yesterday. The Board recognizes these announcements are significant, but in our view, following a period of major change as our 2 market-leading companies successfully merge to form a major media platform company. The changes we have announced are about accelerating the delivery of our strategy and positioning the company to move more quickly and realize the benefits of our merger. This will include accelerating initiatives to drive revenue and cost synergies and to create new solutions for SCA customers, including through innovative use of data. The appointment of Scott Butterworth as CFO is an exciting and timely step for SCA. Scott has extensive experience in large-scale customer-facing multidisciplinary leadership roles, most recently as Group CFO at PEXA Group Limited. As Interim Executive Chairman, my focus will be on ensuring that SCA is best positioned to respond with agility to market opportunities and risks, manage costs effectively and be more results orientated. I want to emphasize the inherent value of the merged SCA's array of talent, brands and community impact, of which the Board, leadership group and more broadly, all team members are very proud of. Today, we'll give you an update on the merger of Southern Cross and Seven West Media, take you through the first half results for SWM and SCA as well as the pro forma consolidated results and give an update on current trading conditions as well as a market outlook. After the presentation, we'll take questions from investors and analysts. The merger of SCA and Seven brings together 2 very complementary businesses, spanning free-to-air TV, streaming, audio, digital and publishing assets and market-leading brands, creating a leading integrated multimedia platform. Seven brings nationwide coverage through its broadcast channels, digital streaming on 7plus and publishing through the Western Australian and The Nightly. Similarly, SCA delivers audio coverage right across Australia with the Hit Network and Triple M and LiSTNR for digital streaming and podcasts. SWM and SWA and SCA are attracting and growing audiences with our key brands delivering audience growth on their own in the half. When we put the businesses together, we are the home of Australian content across all platforms, giving us unique scale to attract and grow high-value audiences. Our coverage of regional Australia is unmatched with 73% of all regional radio listeners and 46% share of all regional TV viewers. Together, we will offer seamless and scalable advertiser solutions and combined data and insights. We now plan to achieve at least $30 million of cost savings and are targeting this for fiscal year 2027. Now let's look at the combined financial performance. On a pro forma basis, revenue for the December half was just over $1 billion, down 1.5% compared to the previous corresponding period. This was despite share gains across both audio and television in a frustrating economic and advertising environment. Revenue-related costs declined 1.2% to about $160 million, while nonrevenue-related costs were well controlled, up only 0.6% to $740.4 million. EBITDA was $106.9 million, down 14.5% with NPAT of $34.7 million, down 16.5%. Net debt was down 4.8% to $338.2 million. We are focused on reducing debt and so have not declared an interim dividend for the half. Turning now to the performance of our TV and publishing business. Seven West Media had a record TV revenue share in the December half and continued its operating costs and capital discipline. Revenue for the half declined 2.7% to $792.2 million. TV revenue was down 2.7%, while West Australian newspapers declined by a similar percentage. Revenue-related costs were down 2.2% to $117 million, while nonrevenue-related costs increased approximately $8 million or 1.3% to $608.3 million, with cost actions partially offsetting inflation and the uplift for the renewed AFL rights agreement. Seven West Media's EBITDA declined 28.7% to $66.9 million. Net profit was down 42.2% to $21.9 million, and net debt was reduced by 3.3% to $277.4 million. Turning to Slide 8. Across the industry, total TV audiences are growing, up 2.6% in total people and 4.3% in 25 to 54 year olds, with BVOD audience growth offsetting broadcast declines. Seven's total TV audience growth outperformed the market, up 3.4% in total people and 4.7% in 25 to 54s. Seven's total TV revenue outperformed the market with revenue back 2.7% in a market that declined 10% on the previous corresponding period. Seven delivered a record total TV revenue share of 44.1% in the half, up 2.7 points on the previous period. Total costs were up 0.7%, with cost-out measures offsetting contracted increases of about $30 million. EBITDA of $66.9 million in the half was in line with AGM guidance. Now on Slide 9, 7plus now leads the market. We achieved a record 7plus revenue share of 44.2% in the December half, which was up 7.4 percentage points on the prior period. 7plus revenue grew 15%, outperforming the market. 7plus had audience growth of 55% in all people and 51% on 25 to 54s during the December half. Its audience share was 44.6% for all people and 43.7% for the 25- to 54-year-old demographic. These results were achieved through a focused effort to grow users and engagement. 7plus' daily active users increased 26% to 551,000 in the December half, giving it a compound annual growth rate of 20% since fiscal year of 2024. Those users are also consuming more. Streaming minutes were up 62% year-on-year. Live premium sport drove strong audience engagement on 7plus. The AFL's Grand Final 7plus average audience was up 51% on the prior year. The Ashes reached 3.8 million people on 7plus up 54% and BBL reached 2.4 million people, up 77%. On Slide 10, you can see that The West continues to demonstrate strong digital momentum. The West digital platforms had a combined 56.8 million page views in December and an audience of 5.7 million, up 27% year-on-year. The Nightly's audience was up 25%. It is truly national with more than 80% of consumption outside of Western Australia. Print readership remains strong with over 900 paid titles being printed and sold weekly. More than 20% of Western Australians read at least one addition of our newspaper each and every week, the highest metro market reach of any masthead in Australia. The West is also driving engagement through innovations such as the enhanced the Nightly app, The Nightly new ROAM travel edition, upgrades to the Western Australian News brand and the successful Resources technology showcase event in August of last year, which drew more than 25,000 visitors. Disciplined financial management saw The West report December half EBITDA of $14 million, down 5% on the previous corresponding period. Revenue was down 2% or $2 million due to advertising market conditions, although the decline was partly offset by digital gains. Costs were reduced by 1% through workforce efficiencies. I'll now hand over to John Kelly to run through the audio results for the first half.

Thanks, Heith, and good morning to all. Turning to Slide 12. The SCA audio business has performed very well in the first half of FY 2026 with revenue growth and cost reductions providing an EBITDA of $40.1 million, up 28% on the prior year. Pleasingly, we have seen earnings growth in both our Broadcast and LiSTNR Digital segments in an otherwise challenging media market. Our operating cash flow has also been strong, further reducing net debt to $60 million. Turning to Slide 13. We are particularly pleased with our earnings turnaround, which commenced in FY '24 as we move through the investment digital transformation phase and commenced to reap the benefits of a fully refurbished and digitized audio business with LiSTNR at the heart of our market-leading audio ecosystem. The EBITDA growth CAGR for the period FY '24 through FY '26 is an impressive 15%, which is best-in-class in the Australian audio market. We continue to focus on growing audiences and revenue share while seeking further cost efficiencies through continually optimizing our operating model. Our earnings growth track record, coupled with the significant integration opportunities provided by the Seven broadcast, digital and publishing assets, provides us with significant confidence in achieving continued earnings growth in the audio business. On Slide 14, we highlight our performance in the first half with the audio metrics that matter. At SCA, we have an unequivocal focus on driving the performance in audience, revenue and cost measures that fuel sustainable earnings growth. Core to this focus is maximizing our performance in the audience that matters, which for metro radio is the advertiser demo of choice being the 25-54 demographic, which attracts over 70% of advertising briefs. We continue to dominate this demographic with 36 successive ratings victories with a circa 35% national audience share. Our brand-friendly and fiercely local content has enabled our highly skilled sales teams to achieve sustained monthly share growth in the metro markets with a 2% plus share uplift year-on-year. SCA now has a 30% revenue share, which is still some 5% below our 25 to 54 audience share, with every share point representing a [ $6.6 ] million revenue uplift opportunity. LiSTNR continues to go from strength to strength and now has over 2.5 million signed in listeners. And there is a significant opportunity to increase sign-ups and LiSTNR engagement through cross-promotion on Seven and 7plus. LiSTNR revenues continue to grow with double-digit growth and now represent well over 10% of audio revenues. Our proprietary LiSTNR AdTech hub provides us with significant advantage in targeting and premiumizing digital advertising campaigns, providing our partners with market-leading ROI and LiSTNR with best-in-class CPMs. So a report card for the metrics [indiscernible] reads well for first half FY 2026 with more room for improvement in the period ahead. I'll now hand over to Toby Potter to take you through the financial results in more detail.

Thanks, John, and good morning. Moving to Slide 16. Due to the merger, we have a complex set of results, and I intend to step you through from the reported SCA results to the underlying results that highlight the true performance of the Audio business and then present the underlying pro forma results for the merged group. We are focused on being transparent and detailed reconciliations have been included in the appendices. Slide 17. Starting with the reported results. Group revenue increased 3.2% to $216.5 million, with EBITDA up 17.5% to $28.4 million. Net profit after tax from continuing operations of $1.2 million includes nonrecurring costs associated with the merger with Seven West and the costs associated with restructuring of the audio cost base. In regard to net profit after tax from discontinued operations, which is the earnings from the assets we divested to Network Ten in 2025, we reduced the expected profit share proceeds by $9.6 million, which reflects the decline in the Network Ten audience share, weaker-than-expected regional television markets and the delay in the realization of expected synergies. Moving to Slide 18. When you look through the nonrecurring items, the underlying performance of the audio business was strong. Revenue grew across both broadcast and digital, total expenses declined and EBITDA increased 28% to $40.1 million, with margins improving by 3.6 points. Total costs are down 1.2% with strong discipline over both revenue-related and nonrevenue-related costs. Revenue-related costs grew marginally, up 1.5% and were outpaced by the growth in revenue and as a result, reduced to 20.2% of revenue from 20.5% in H1 of 2025. Nonrevenue-related costs are down 2% as we continue to optimize the cost base of the business whilst maintaining revenue growth. The commercial success of LiSTNR has led to an increase in its useful life. And as a result, depreciation is down 18% on the prior period. Underlying NPAT increased to $12.8 million, which is up $9.2 million year-on-year. Slide 19 highlights the results of our broadcast audio business. Broadcast radio revenues continue to demonstrate resilience and outperformance with revenue growing 2% in a declining market. Metro radio share gains have offset a 7% decline in the metro radio market with revenue growing $0.6 million and share increasing from 27.5% to 29.8%. A challenging national market for regional radio has led to overall regional radio revenue decline of $1.6 million with strong local sales activity driving local radio revenue growth of 5%. Costs reduced again, lifting EBITDA to $52.7 million and margins to 27.5%, up 3.1 points, which underscores the strength of the operating model and our continued focus on efficiency. Moving to Slide 20. Digital audio remains a key growth engine and continues to go from strength to strength. Revenue increased 14%, outpacing the market and EBITDA improved materially to $2.8 million. This reflects revenue growth in owned inventory, strong performance in podcasting and ad tech and tight cost control. EBITDA margins have grown from 0.3% to 11.2%. Importantly, digital audio is on track to become a meaningful earnings contributor to the group, with cross-promotion synergies offering new opportunities for further growth. Moving to Slide 21. Cash generation continues to be a highlight of the audio business. Cash conversion was strong at over 110% or 90% on a normalized basis once you adjust for the timing of payment for transaction costs. CapEx remains disciplined. Tax payments benefited from timing and refunds and free cash flow increased to $15.8 million. I'll now turn to the pro forma results, which combine SCA and Seven West Media to provide a like-for-like view of the group following the merger. Moving to Slide 23. On a pro forma basis, revenue was down 1.5%, reflecting ongoing market conditions. EBITDA was $106.9 million with NPAT of $34.7 million. These results provide a clear baseline as we move through integration and begin to realize the identified synergies. Moving to Slide 24. From a cash perspective, the combined group continues to perform well. Pro forma cash conversion was 92.8% and net debt reduced over the half, reflecting disciplined capital management and strong underlying cash generation. Moving to Slide 25. At December, our pro forma net debt was $338 million with group leverage at 1.77x. Our priority remains debt reduction. We are targeting to achieve leverage below 1.5x, which will support balance sheet strength and in due course, the resumption of dividends. I will now hand back to Heith for the second half outlook and trading update.

Thanks, Toby. Moving to the next slide. Audio revenue in January was up 4% year-on-year with strong growth in digital offsetting the ongoing challenges in regional radio's national bookings. We currently expect audio revenue for Q3 to be broadly flat on the prior year. Total TV revenue in January increased 3%, driven by premium sport and digital growth. Including the impact of the Winter Olympics, we currently expect total TV revenue in Q3 to be down 2% to 3%, with our revenue share flat year-on-year. Consistent with the first half, we are targeting further savings in television to help offset the decline and so far have identified $20 million in new initiatives for implementation in this second half. On a group basis, based on the current market conditions, we are currently targeting revenue of $1.91 billion to $1.92 billion for full year fiscal '26. Total costs are expected to be approximately $1.7 billion for the group, down from $1.71 billion in fiscal '25. We are forecasting EBITDA to be in the range of $200 million to $220 million compared to $233 million on a like-for-like basis in fiscal '25. That concludes our presentation. Thank you for joining us this morning. We are now happy to take any questions from investors and analysts.

[Operator Instructions] Your first question comes from Ailsa Lei from UBS.

I've got 2 questions. Just firstly, on broadcast Metro and digital. Interested to see what you guys are currently seeing in terms of audience trends, in particular, any shift in the trend since the social media ban that came into place, whether there be more younger [indiscernible] listeners, et cetera, would be great.

Thanks for your question. We're not seeing any significant impact that's correlated through to revenue. That said, as I mentioned upfront, we are seeing a lot more viewership with regards to the total TV market, and that's represented not just with us at Seven, but also with the total TV landscape.

And then my second question is a lot of disruption in the digital audio space with the likes of Spotify now providing video podcast. How are you thinking about the constant step-up in competition across your -- for your LiSTNR app and the risk of continued reinvestments into the tech stack?

Yes. I think it's one of the things we looked at probably 4 or 5 years ago when we first started our strategy is that video would become an increasing consumption point for podcast or audio video podcast. I guess we have the advantage. We certainly have the advantage. LiSTNR is an owned and operated property, and we can pivot and develop LiSTNR to meet the needs of advertisers. But we're also very excited about using 7plus as potentially our video distribution tool moving forward, which then means sign-up listeners of viewers into 7plus, that's a huge opportunity to expand our 2.5 million sign-up base for LiSTNR. So exciting times ahead for us, and we'll certainly take advantage of those video podcast trends.

Your next question comes from Brian Han from Morningstar.

Heith, on the management changes announced last night, do you mind elaborating a little more on them as in -- was there an untenable disagreement on how to integrate the merger or the future vision of how TV and radio businesses will work together?

Yes, Brian, thank you for your question. First and foremost, the strategic intent of bringing these 2 businesses together to create a multimedia platform offering, that still holds true today and is the core essence of why we pulled the 2 businesses together. As I mentioned upfront and as announced last night, that is our strategy. So the key now is accelerating the delivery of that strategy and positioning our group to more quickly realize the benefits of our merger. And that culminated in changes to the leadership team as announced last night.

So it was about the delivery, the execution of this merger and that you thought a new management team is needed to execute that. Is that how we read it?

Yes.

And John I know it's early days, but do you think there's a fundamental difference between taking costs out of the radio business as opposed to taking costs out of a TV business?

Brian, I guess I have the benefit of 30 years in media, but probably people don't understand, I spent 17 years at Ten in both operations, strategy and finance roles. So I do understand, when I was at Ten, the Ten days, and I do understand cost efficiencies, and I do understand how to target cash flow returns. And you may recall back in those days, I think you were an analyst back in those days, we did 37% EBITDA margins and at the highest profit of any media company in the sector. So look, that's certainly going to be -- my ambition is to work with our teams to, as quickly as possible, have a look at all our assets, whether it be content, whether it be sales, whether it be back of house and work at how we can get efficiencies across the entire group, whether it'd be print, digital or audio or TV. So look, I'm excited about the opportunities ahead.

John, if you can get margins back to 37%, you're going to be an absolute superstar, John.

Thank you, Brian. That's a good North Star goal.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Heith MacKay-Cruise for closing remarks.

Thank you, Harmony, and thank you, everyone, for making the time to be interested in our company. We're very excited by the opportunities that the new company presents with regards to our multimedia platform, and we look forward to keeping the market and our investors updated as we progress on our initiatives to drive value and shareholder return. Thank you, and good morning.

That does conclude our conference for today. Thank you for participating. You may now disconnect.