Southern Cross Media Group has reported an underlying net profit of $68.5 million, an increase of 31% on last financial year in its annual results presentation. The radio and tv group had underlying revenue of $502 million, an increase of 20% on the previous financial year. The company’s radio businesses grew by 6.7% last financial year (5.7% growth in regionals and 8% in metros), while its regional television businesses showed 1.5% profit growth.
“Radio once again proved to be a steady performer, it has provided stability throughout the economic cycle.” CEO Rhys Holleran told analysts today. “Metro growth was above market average and regional was a little lower but still positive.”
Regional radio contributed revenue of $158 million to the company’s bottom line, with regional tv recording revenue of $270 million. SCM also reported the newly acquired Austereo metro radio stations earned revenue of $74 million in the last three months of the financial year, since the merger.
The talk about ‘underlying’ results is because transactions to do with the Austereo merger, just four months ago, caused some one-off fluctuations on the normal business operations that have been taken out to give a more consistent view of the company’s financial position.
Looking at those underlying results and comparing like for like figures with last financial year, SCM reported an increase in sales of 4.7% to $719 million and EBIT of $2.4 million, an increase of 8.4%. Earnings per share from continuing operations, an indicator of profit related to each issued share, doubled from 5.8 cents last year to 11.6 cents this year.
The company will pay a fully franked dividend per share of 3 cents, taking the full year’s franked dividend payments to 10 cents per share.
The integration of Austereo stations into the group has progressed successfully and ahead of expectations according to Holleran, who says the merged Southern Cross Austereo brand is “a truly national multi-media company.”
After the Austereo merger the company is carrying $693 million in debt, but Holleran and CFO Steve Kelly told analysts the debt is very manageable: “Our modeling shows we would have to drop by over twice the amount of the worst market falls to hit the covenants in the borrowings. The banks recognise we are doing a good job in the business of media management. We would need pretty tragic circumstances to start hitting the top end of those covenants.”
Holleran and Kelly would not comment specifically on whether the company would prioritise paying down debt, or maintaining the debt level and paying increased dividends to shareholders, but Kelly told analysts it is “a question constantly on the mind of board members.”
With retail advertising being an important revenue source, Holleran commented that retailers are having a hard time, with both structural change in the industry, and also specific regional problems occurring during the financial year, such as natural disasters and the rising Australian dollar, which is bad for inbound tourism.
Commenting on the synergies being achieved by the Southern Cross Austereo merger Holleran said staffing, professional fees (such as telecoms and data costs), and sales are the areas he is focusing on right now to achieve synergies. He said the colocation of sales teams is happening successfully and ahead of schedule, and noted that SCM now owns 100% of Newcastle stations NX and KO FM after acquiring the other half of the previous SCM/Austereo joint venture.
There has been a significant investment in staff talent, balanced with tight cost controls in other areas. “You can’t get good results in this business without investing in talent,” said Holleran.
The positive results give Holleran “confidence we have done the right thing for this company and its shareholders,” in acquiring Austereo. A significant amount of goodwill was gained in the company balance sheets with the addition of Austereo to the merged business entity. The transaction costs of the Austereo acquisition were $41 million.
The company now has one management structure and Peter Harvie has been appointed to the board.
Cautious about specific predictions about how the next financial year would pan out, Holleran said indications are that advertising markets are “choppy, uncertain and short.” The last two months for SCM have been below expectations. “Media are sensitive to lots of things, especially retail, the experts are predicting no growth or slow growth in the advertising market, but we expect our company will deliver above-market results.”