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

Thank you for standing by, and welcome to the Southern Cross Media Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Rohan Lund, Managing Director and Chief Executive Officer. Please go ahead.

Good morning, everyone, and welcome to Southern Cross Media Limited's results for the 12 months to 30 June 2026. My name is Rohan Lund. I'm the MD and CEO of Southern Cross Media Group. Joining me this morning is our Chief Financial Officer, Scott Butterworth. Today, we'll give you an update on the full financial results of Southern Cross Media Group, provide an update on the merger of Southern Cross and Seven West Media and give an update on current trading conditions as well as market outlook. After the presentation, we'll take questions from investors and analysts. If I could take you to Slide 3, which is headed investment overview. Southern Cross Media is Australia's leading multi-platform media business. We have unmatched reach, more than 20 million Australians every month. No other Australian media company connects with more people than us across broadcast, streaming, digital, audio and publishing. We create the content advertisers trust and audiences choose. We're the #1 TV network, #1 in audio for people aged 25 to 54 and the leading publisher in WA. We offer trusted live and local sport, news and entertainment, content that resists fragmentation and AI substitution. We also carry strong social trust with initiatives such as the Channel 7 Telethon in Perth and the Good Friday appeal for the Royal Children's Hospital, Melbourne. No media company contributes more to charitable causes in this country. We have high-impact digital assets. 7plus audiences are up more than 50% and are now Australia's largest and fastest-growing BVOD service. LiSTNR's revenue is now growing faster than audio broadcast revenue is declining, which is a first for us. The Nightly has about 3 million readers. Our group digital revenue grew 11% in FY '26, which we will accelerate this year. The market opportunity is attractive. The Australian digital ad market is worth around $25 billion, and broadcasters are still underpenetrated in it. Advertiser demand for our product is increasing underpinned by more than 17 million first-party data records. As you'll hear more about later, our financial base has been reset. We delivered $30 million in synergies from the Southern Cross and Seven West Media merger earlier than expected. $145 million to $150 million cost-out program is underway, and we now have a $569 million refinanced bank facility in place. If I can take you to Slide 5, just to talk through key messages. I want to cover 3 things here. Number one, the business has been reset financially; number two, we're building for growth in value; and number three, our strategy is underpinned by culture and trust. First, our results. Revenue was $1.87 billion. EBITDA, including onerous, contracts was $200 million, which was ahead of the revised guidance of $185 million to $190 million that we provided on 11 June. We've been resetting the group's cost base to sharpen segment accountability by reducing middle management and lowering corporate overheads. We've consolidated our banking arrangements into a single facility and we're exiting the majority of our Seven West Ventures businesses. Together, these steps let us stay focused on our core business. We've strengthened our business position across TV, audio and publishing and we have a clear strategy to create value by investing in trusted live and local content, by building audiences on and off our network, by connecting advertisers with audiences where they are, leveraging the scale of our combined portfolio and rebasing our culture to increase trust. Take you to Slide 6 of the presentation. Our financial results reflect difficult trading conditions for disciplined management. Revenue was $1.87 billion, down 4.4%. That reflects a $125 million market contraction, which has been partly offset by $41 million from share growth. Total expenses were $1.678 billion, down $51 million or 3% due to disciplined cost management and the acceleration of the synergy savings, which we were able to deliver earlier than expected. EBITDA, including onerous contracts, was $200 million, which is down 12.8%. NPAT was $9.9 million, down 58%. This reflects lower operating earnings and $33 million in significant items related to the merger and restructuring. Net debt was $363 million, up 1.6%. We now have a new $569 million cross-group syndicated facility in place and cash flow available for debt servicing was $41 million. Reported leverage was 1.8x, up 0.3x, but mainly reflecting lower earnings. If I can take you to Slide 7, business outcomes. Across FY '26, we held our leading positions in TV, audio and WA Publishing, and we grew share where it matters. In TV, our national audience share grew from 41.2% to 42.5%. TV ad revenue share grew from 40.4% to 41.6%. 7plus had 16.7 million registered users up from 15.8 million in FY '25. We're the #1 rated TV network and the fastest-growing BVOD service. In audio, our metro 25 to 54 audience share increased from 35.2% to 36.8%. Audio ad revenue share grew from 28.3% to 30%. The number of LiSTNR registered users grew from 2.4 million to 2.7 million. Triple M is the #1 for men aged 25 to 54. It is the #1 for women aged 25 to 54 and weekly listening is 6 hours and 27 minutes up 15 minutes. In Publishing, the West monthly audience grew from 3.2 million to 3.5 million, while the Nightly's digital edition opens increased from 1 million to 1.2 million. The Game tipping app revenue grew its registered users 16% to 123,000. Take you to Slide 8, combined platform. Our combined platform is powerful, and it's resonating with audiences and advertisers alike. The chart here shows our national cumulative reach by time of day combining Southern Cross Radio and 7 TV. Together, we reach more people across the day than either platform alone with reach building strongly into the evening and only 38% of our total audience watches 7 and listens to Southern Cross Audio. Why is this relevant? Well, here's what our advertisers tell us. 90% are likely to plan campaigns using both audio and TV in the next 6 months. But 25% don't feel confident planning, running or measuring cross-media campaigns, and 40% feel overwhelmed by the number of platforms available. Right now, only 14% of advertisers buy from both 7 and Southern Cross. That's the opportunity ahead of us. We've already had some early wins. A health insurer ran cross-promotion across Triple M and 7's AFL properties, a $1.2 million campaign. A direct bank extended its customer outreach with a joint Sunrise and LiSTNR campaign, which was a $1.4 million campaign. Our combined portfolio is delivering high intent, high-value audiences for advertisers backed by rich first-party data and digital sales technology. On Slide 9, I'll just talk to our strategy. Our strategy is simple. We connect Australians with what matters to them. That means playing to our strengths and appointment viewing. We create moments that capture maximum attention and ritual that keep audiences coming back. I talk internally about keeping the fire burning and the importance of news, sport and local in our content for all 3 businesses. We also talk about turning headwinds into tailwinds, which we see in 3 steps. We meet our audiences where they are. We meet our advertisers where they are, and we reimagine the way we work to be more efficient in how we do that. Our brands are trusted live and local. In television, they are Seven and 7plus; in audio, Hit, LiSTNR and Triple M; in publishing, it's The West, Perth News and the Nightly. All our brands are underpinned by a culture of trust. Slide 10, creating value from strategy. This slide shows how we create value from our strategy, which in part boils down to strengthening Australia through trusted media. We bring Australians together through content they love and trust, and we turn that connection to audiences that work for advertisers. That happens in 5 steps. We deliver the content people love, content that's trusted live and local, sports, news and entertainment. We create audiences at scale across metro and regional markets on and off our networks. First-party insights or knowing who our audiences are and what they want and advertiser solutions, ones that are audience-led with proven outcomes, and every brief be it agency or direct will be answered with our legacy and digital assets. This is underpinned by 3 things: multi-platform capability and cross-promotion across Seven and 7plus, Hit, Triple M and LiSTNR, The West and the Nightly and using our Phoenix trading platforms and our leading data platforms, RediQ. Our people, culture and values of Do What You Say, Go Together, Put Your Heart Into It and Get Stuff Done and our financial discipline. On Slide 11, I describe the new refresh team. Since May this year, we've changed our executive leadership team, which now consists of a highly experienced team with strong leaders who have the skills and knowledge to help us achieve our ambition. We've welcomed Angus Ross back to the business, who leads television and streaming. He has 27 years in media behind him. Before this, he was Group Managing Director of Television at Seven. John Kelly does an outstanding job leading audio. John has been in media for 28 years, and he was previously CEO of Southern Cross. Maryna Fewster does an outstanding job leading the publishing business. She brings more than 10 years in media, having joined the group from COO at iiNet. On the enablement side, we have Rebecca Ackland, our Chief People and Culture Officer, who has 8 years in media and previously in that role at Southern Cross. Stephen Haddad is Chief Technology Officer with 14 years in media and previously COO at Southern Cross. Natalie Harvey, I'm excited to say, will be joining us next month as Chief Revenue Officer. Natalie has a -- has had a 20-year media career, including senior sales roles at Seven and joined us from Mamamia where she was the CEO. And Scott Butterworth, sitting next to me is our CFO with 17 years in finance, most recently as CFO at PEXA. I lead the group as Managing Director and CEO. I had spent 12 years leading media businesses up to a decade ago. And most recently, I was the CEO of NRMA before joining Southern Cross Media Group. I'll now hand over to Scott to take you through the financial results in more detail.

Thanks, Rohan. I'll now take you through the results in 3 parts: the group earnings and what moved them, an overview of how each of the 3 businesses performed and then separately the balance sheet cash flow and debt position. One note on the basis of presentation before I start. Everything in this section is shown on a pro forma basis as though SCA and Seven West Media had been combined for the whole of FY '26 and the whole of FY '25. The statutory result and the reconciliation between that and the pro forma view are contained in the appendix. I'll start with Slide 13, which sets out the group result. As Rohan has already noted, FY '26 was a difficult year for advertising markets with total TV advertising down 9.9% and total metro audio advertising down 6.8% on fiscal '25. Given this backdrop, group revenue was $1.87 billion, down 4.4% from fiscal '25. This largely reflects the tough markets in TV and audio advertising particularly in the legacy segments, partly offset by share gains and supported by digital revenue growth. Revenue-related expenses fell by 5%. That is slightly faster than the 4.8% decline in advertising revenue mainly reflecting tight commission management in the TV segment. Operating costs fell by 2.6%, helped by merger synergies, general spend control and commercial broadcasting tax relief. Reflecting the impact of subdued market conditions on our operating leverage, EBITDA before the onerous contract provision release was $191.9 million, down 15.8% at a margin of 10.3%. Including the positive impact of onerous provision releases, EBITDA was $200 million. Below EBITDA, 3 items are worth calling out. Depreciation and amortization expense rose $15.7 million to $88.3 million. About $24 million of the movement is due to the resetting of asset values upon the acquisition of SWM by SCA. This was partly offset by changes to the estimated useful life of the LiSTNR assets and lower CapEx. Notwithstanding these dynamics, we expect D&A to trend down in FY '27 as the effects of acquisition accounting washed through. The effective tax rate fell from 26.7% in FY '25 to 22.6% in FY '26. This is primarily due to the impact of Home and Away-related producer offset rebates recognized during the year. Significant items of $32.9 million after tax were down by about 1/3 on the prior year. The prior year included investment revaluations. This year, the main items related to merger transaction fees and restructuring costs. The overall effect of these movements is that NPAT for the year was $9.9 million compared to $23.3 million in the prior year. I'll turn now to Slide 14 to explain the revenue movements for the year. This chart is the whole revenue story on one page. We started the year at $1.956 billion and finished at $1.87 billion. I'll take you through the major movements. Declines in the advertising market took about $125 million out of the top line. $116 million of that in television where the market was down 9.9% with the balance across audio, where the metro market was down 6.8%. Publishing was also impacted by the soft conditions. Overall, the market outcome reflects economic weakness and the runoff in prior year federal election activity. Against that, share growth gave us back $41 million. Total TV revenue shares were up 1.2 percentage points to 41.6%, driven by our strong ratings performance in sport, morning, news and our tentpole programs. Metro audio revenue share was up 1.7 percentage points to 30%, reflecting ongoing improvements to our programming mix and talent roster. Underneath all of this, digital revenue grew 10.7% to $320.3 million. That growth is what is progressively changing the shape of our top line. I'll turn now to a discussion of operating expenses on Slide 15. Group operating costs came down 2.6% to $1.423 billion. Two things pulled costs down and two pushed them up. First, down, cost improvements. Merger synergies delivered $22 million in the year. The full $30 million annualized benefit is now in place, a year ahead of the schedule we set at the time of the merger. Separately, other cost actions delivered $50 million driven by content cost reductions and removing duplication and operating model changes. Second, we also benefited by $15 million relative to fiscal '25 due to relief from commercial broadcasting tax payments. Working the other way, contracted cost growth added $21 million. Most of that is due to a step-up in AFL fees with the growth in future payments to be in line with inflation. Lastly, $30 million of cost increases was due to the impacts of inflation on personnel, content and other operating costs. Given these dynamics in the cost base, our ongoing expense reduction work remains a significant importance to the company, and I want to say more about that as I turn to Slide 16. Our cost reduction program redesigns the group around 3 businesses with clearer accountabilities with less middle management and corporate overhead, using group-wide scale and procurement and to remove duplication and redesigning the work itself through a process change, automation and the like. It will be substantially delivered by the end of fiscal '27 and progress to date is in line with our expectations. Around 250 people, roughly 8% of the workforce left the business during FY '26, and we are already making headway with important nonlabor savings in areas such as content and corporate costs, such as insurance. As previously announced, we expect the program when complete to deliver $145 million to $150 million of annualized savings. That figure includes the $30 million of merger synergies already delivered. I'll turn now to Slide 17 to summarize the performance of our 3 operating businesses. If you want further information, you will be able to find it in the appendix to these slides. Television suffered the most from the decline in the market during the year. However, while the market was down 9.9%, TV's revenue decline was restricted to 6.6% reflecting a record 42.5% audience share in a non-Olympic year, and revenue share up 1.2 percentage points to 41.6%. Additional support was provided to the revenue line by digital, which grew at 10.6%. Pleasingly, 7plus became Australia's fastest-growing BVOD service during the year, reflecting a full year benefit of AFL programming on the platform. Partly offsetting the revenue decline was strong expense management with revenue-related costs down 8.4% and operating costs coming in 2.2% lower. Audio had a very strong year, notwithstanding the metro market -- metro advertising market being down 6.8%. Overall, revenue was up 1.9% with Metro share up 1.7 percentage points and local revenue growing 3.2%, albeit the national regional segment did decline sharply as national advertisers pulled back on spend in the regions. The number I'd draw your attention to is digital. Audio digital revenue grew 14.3% and for the first time, its growth has more than offset the decline in broadcast. That crossover is the thing we have been building LiSTNR for. From an expense point of view, revenue-related expenses grew representing increased ad sales and revised contract arrangements. Good operating expense discipline continued as the business drove a wide range of labor and discretionary expense reduction initiatives. Publishing EBITDA was held to a decline of 2.4% despite soft conditions. Revenue of $187 million was down 3.1% due to lower advertising with circulation and subscription revenue held flat. Included in the revenue line are digital revenues, which increased 5.7% to $27.9 million. Operating costs were down 3.2% through efficiency initiatives targeting personnel and printing costs. I'll turn now to cash and debt. Moving to Slide 19. Cash generation was down this year with several reasons for this movement. First, cash flow available for debt servicing fell to $41 million against $86.8 million last year. This was due to lower EBITDA and a cash conversion ratio of 71%, which was down from 85% in FY '25. That decline partly reflected noncash items, such as the onerous contract provision release included in the reported EBITDA number. Working capital usage was also higher than in the previous year's period, with most of the increase representing the unwind of leave provisions as people left the business. Partly offsetting this CapEx fell 22.5% due to the runoff in prior year property and technology projects. Lease payments also fell 11.3% as we compress to property usage. Second, whilst financing costs were down in the year because of lower interest rates, we did incur $22 million of merger-related transaction fees. SCA also paid a dividend during the first half of '26, but this was largely offset by the effect of the sale of Ventures assets by SWM. overall, the cash movement, excluding debt drawdowns, was negative $5.7 million during the year and net debt finished at $362.8 million. Given the year we've had, a merger completed, a restructuring underway and $22 million of transaction costs paid, holding net debt broadly flat represents a not unreasonable outcome albeit one that we are keen to turn around. Let me now turn to Slide 20, which provides information on the group's debt structure. Group ended the year at a reported leverage of 1.8x and interest cover at 7.1x. Both movements relative to fiscal '25 are earnings driven rather than debt driven. The more important development on this page is the refinancing. We've replaced a separate SCA and Seven West Media facilities a single group-wide syndicated facility of $569 million arranged by ANZ Commonwealth Bank and Westpac. Doing that, we reduced total syndicated commitments by $116 million and increased short-term facilities by $15 million to $60 million. So we've taken costs out while improving day-to-day flexibility. The facility is split across 3- and 4-year tranches. Existing FY '28 maturities have been pushed out. And there are now no syndicated maturities until fiscal -- till the end of July '29. Covenants are unchanged from previous Seven West Media facilities, net leverage below 3.25x and interest cover above 3x. At 1.8x and 7.1x, we have good headroom against both. That completes the financial section. Fiscal '26 was defined by market declines in legacy channels, partly offset by share gains in digital growth and cost discipline. That sets the frame for FY '27. I'll now hand back to Rohan to review our priorities for next year and to summarize the outlook.

Thanks, Scott. I'll now talk through the FY '27 priorities, and I'll provide a trading update. We have 5 clear priorities for FY '27, and they're completely in line with the strategy I described earlier. The first is playing to our strengths in trusted live and local content. Second, we want to meet our audiences where they are. We want to maintain and build on the gains we made in FY '26 and push our engagement further off platform into different formats and across brands. Thirdly, for our advertisers. We're embedding our total TV and total audio propositions with digital at the core and building on our digital publishing offers, turning our first-party data into a real product and converting advertisers who work with just one of our platforms today, into multi-platform partners. This also means capturing the full value of our content from platforms to take advantage of it without appropriate compensation. Fourth is reimagining our ways of working. That means delivering on the $150 million cost reduction program we've already set out and changing the way we work across all of our businesses, so we can be leaner and more agile. And fifth, reputation and engagement. We're focused on building trust with our audiences, with our advertisers, our people and our partners and strengthening a culture built around shared values and working together as one business. If I can take you to Slide 23, which is the trading and the outlook. Television revenue was tracking roughly flat year-on-year. And pleasingly, July is slightly up which is a positive way to enter the year. The market itself, we understand, is down mid-single digits, but we've been offsetting that with stronger share gains again and with help from a very successful Commonwealth games. Audio revenue in the first quarter is tracking up low single digits, and publishing revenue is also holding steady year-on-year. It's been a very strong start in July. More broadly, the advertising market is still short and volatile and sentiment amongst consumers and advertisers mixed. On costs, the program is on track. We expect total operating expenses to grow below inflation, and our cost-out actions are tracking to plan for delivery in FY '27. We're expecting some one-off costs from major sport events this year, and that is the recently concluded Glasgow Commonwealth Games and the Rugby League World Cup in October and November. The full benefit of the cost-out program will flow through in FY '28. Trust comes from doing what you say you'll do and consistently delivering. We intend to earn your trust this year. That concludes the presentation. Thank you for joining us this morning, but now very happy to take any questions from investors and analysts.

[Operator Instructions] Your first question comes from Annie Zhu with Barrenjoey.

I just have 3, if that's okay. Firstly, on the TV segment, so EBITDA margin declined year-on-year from about 12% in the PCP to 9% this year despite having those benefits from the cost out program. Can you just talk through that? And also just looking forward, can we expect margins to improve with the further cost-out benefits? That's my first question.

Thanks, Annie, and thanks for your question. Maybe Rohan, if I provide few perspectives here. The margin contraction this year is reflective of the operating leverage in the TV business and put simply the cost reductions that we were able to push through the business weren't able to outrun the effect of operating leverage on the margins. In relation to next year, I don't want to provide forecast about each of the businesses, and that's largely because the revenue, as Rohan was saying, is actually quite short and volatile in the advertising market at the moment. So it's difficult for me to provide a perspective on how that will play out over the full fiscal year. In relation to costs, at an overall level for the group, we expect cost inflation to be well below the general level of inflation in the economy. A large amount of those cost reductions, which are underpinning that position come through TV because that's the largest part of our cost base.

I was just going to ask on digital as well. So digital revenue growth was quite strong, double-digit for both TV and audio and understand ad markets are uncertain, as you mentioned, but are you able to talk in broad terms that the outlook for digital and whether that's expected to accelerate versus the FY '26 performance?

Yes, Annie. It's Rohan here. No. My aim is to accelerate digital through this year. Certainly, with the type of content that we're pushing through the platforms on the TV side, but also with the growth in LiSTNR and what we're seeing in publishing, I feel at the moment that we're certainly -- we're seeing much stronger audiences coming through our platforms. I mentioned that 7plus asset was the fastest-growing BVOD last year, but we're seeing that continue to pick up at the moment. And like you indicated, it's a pretty big digital price out there. It's $25 billion digital market. And at the moment, we're not even scratching that. But we've got the largest BVOD service in the market. We've got this fantastic platform with LiSTNR and some fantastic digital publishing platforms that are all growing ahead of market. So we think the opportunity is very real.

Okay. Got it. And on the 250 FTE decline, are you able to roughly quantify the benefit from this or give some color on how significant it is part of the incremental $115 million to $120 million of the cost-out program that's left? And is there any further departures expected for FY '27, just noting that back in June, you called out 250 to 300?