Southern Cross hunts Acquisitions and prepares to be Hunted

Southern Cross Broadcasting (SCB) has declared it is looking for acquisitions, with first quarter revenue up 14% and its share price breaking the $15 barrier for the first time.

With SCB exceeding market capitalisation of $1 billion – also for the first time – Southern Cross Chairman, John Dahlsen has told the company’s AGM in Melbourne that canny acquisitions and tight management have powered the company’s record annual results for 2003-’04 and more growth opportunities are being sought.

“We are still seeking to grow by acquisitions.

“… revenue projections for the second quarter … indicate that the first quarter revenue growth has not slowed.

“We have not seen any signs to suggest any significant market softening in the second half.”

SCB shares shot to $14.80 in mid-morning trade yesterday, peak at $15.11, before settling at $14.70.

Dahlsen says he sees further potential for growth in revenue share across SCB’s key regional markets, with annual revenue at $416 million – an increase of 16% over last year:

“Our revenue continues to grow, driven both by the strength of the advertising market and market share improvement of our businesses.

“Our margins are among the best in the industry, due to a culture of cost control.”

Dahlsen says Southern Cross has a proven track record of growing by acquisition:

“Our gearing is low and is projected to lower further, as we near the end of our digital tv capital expenditure program. We have positioned the company to effectively meet future challenges and offset new or higher costs associated with affiliation fees, regional tv localism, digitisation and a more competitive radio environment.”

In other developments since the AGM, SCB Managing Director, Tony Bell, has warned the stakes will be high for potential predators, if changes to cross media ownership laws make his company a target.

Bell says SCB is both a target and an acquirer: “Other businesses would have to attempt to extract greater value to reflect any premiums that would be paid on acquisition and, with a company as well run as Southern Cross Broadcasting, that may not be as easy as it may be with other companies.

“On the other hand, we are not sitting there as a target. We’re also very interested in media changes and leaving our options open to identify any opportunities which might arise.”

In a further development, Southern Cross has called for an end to regulations, which prevent organisations owning more than two radio stations in the same market.

John Dahlsen told the AGM that this would result in “… a more diverse range of popular formats and provide operational, synergistic benefits to broadcasters, potentially delivering higher quality programming.”

In its annual report, SCB describes itself as “… the only national news talk radio network covering Australia’s major capital cities. Most of the network’s on air presenters are the dominant personalities in their markets and its news teams ensure that every major event – local, national and global – is covered.

“The company’s sales teams are among the most highly trained in commercial radio. They are equipped with the latest computerised sales management tools and systems to ensure effectiveness for clients and to efficiently provide data and information to management. The network benefits from the sharing of ideas for promotions, advertising, marketing and program content.

“Members of the News Talk Radio Network generate hourly news services every day, which are delivered by Southern Cross Syndication to 161 radio stations in every state of Australia, making Southern Cross Network News the most widely heard commercial radio news service in the nation.”

SCB comprises 3AW and Magic 693 in Melbourne; 2UE in Sydney; 4BC and 4BH in Brisbane; and 6PR and 96fm in Perth.

In the report, Dahlsen says 2004 has been an exceptional year for the company with a very pleasing financial result.

“The company’s financial position continues to strengthen with strong operating cash flows, earnings per share growth of 31% and gearing reduced to 39%. The directors have declared a final dividend of 30 cents per share fully franked, increasing the total dividend for the year to 60 cents per share fully franked, an increase of 5.3%.

“The radio division achieved a particularly strong result in a very competitive market by delivering earnings growth of 70% on the previous year. The overall strength of the advertising market has undoubtedly underpinned Southern Cross Broadcasting’s strong performance. However, it is important to acknowledge that the company has delivered growth that, in every instance, is well ahead of the market. This is an excellent achievement and testament to the hard work and ability of Managing Director, Tony Bell, and his outstanding team.

Neil Balnaves, Executive Chairman of the Southern Star Group, joined the Board of Southern Cross Broadcasting as a director on 5 May 2004. The company has made excellent progress in positioning itself to minimise the impact of a more competitive radio environment and to offset new or higher costs associated with affiliation fees, regional television localism and digitisation.

“The company’s strong and experienced management team remains creative and
innovative in an ever changing environment. 2005 will see a renewed focus on commercial airtime management which, in turn, will deliver revenue gains across the company.

“Southern Cross Broadcasting is well placed to continue delivering attractive returns to shareholders. We welcome Southern Star’s shareholders to the company. The company is in a strong financial position, has good momentum in its core markets and a clear strategy to continue building on the outstanding growth achieved over the past decade.”

Tony Bell says 35% increased net profit is attributable to a concerted effort by all business units to grow revenue market share and contain costs.

“Over the past 12 months, the company has increased sales revenue by $58.1 million or 16.8%. Our broadcasting division achieved revenue growth that exceeds the regional television and metropolitan radio advertising revenue markets growth of 10.9% and 11.7% respectively, in the same period.

“To offset new or higher costs associated with affiliation fees, the provision of local news services, centralisation of operations and distribution and digitisation, Southern Cross Broadcasting has taken many steps to ensure that earnings continue to grow for the benefit of all shareholders.

“Key activities undertaken to maximise the company’s operating margins include: containing costs at all business units; delivering innovative sales and marketing concepts to drive ratings and market share growth; and committing dedicated resources to introduce a commercial airtime management system with a view to optimising commercial airtime inventory.

“Media and advertising market conditions are expected to remain strong in the year ahead, with television and radio industry revenue growth estimated at around 8% for the 2005 financial year.

“In the absence of unforeseen circumstances, the company is well placed to achieve further growth in the current financial year. Southern Cross Broadcasting is committed to enhancing its position as one of Australia’s most successful and profitable media companies. Our network of media assets has the potential to reach 94% of the Australian population via the combined mediums of television and radio.

“We will continue to investigate new growth opportunities in areas that leverage the strength of these quality assets. We look forward to the year ahead with great confidence and to executing a strategy that is focused on building upon our position of market leadership and maintaining a strong resolve to continually improve the company’s performance.”