Tony Bell is happy with the stock market’s response to Wednesday’s results presentation, with yesterday’s share price for Southern Cross Broadcasting up by about 50 cents at the time radioinfo spoke to him.
Bell announced net profit growth of 25.4% for the company, and a 32.5% growth in sales revenue. The Southern Cross Radio Division achieved a revenue increase of 11.3%. “It’s a good performance,” according to Bell.
Southern Cross will pay a fully franked dividend of 33 cents, up 10% on the previous corresponding period, bringing the full year dividend for the company to 66 cents per share.
Bell spoke to radioinfo about the company’s performance and future outlook:
radioinfo: In a year where there were plenty of highlights, what was the most significant for the company?
Bell: Overall, it has to be Southern Star performing so well for us in just 12 months.
radioinfo: What is your assessment of your radio division in the current radio market?
Bell: Our radio division performed to expectations in a high growth advertising environment for the radio industry.
radioinfo: Can you break out Radio a little more. What proportion of the business is it?
Bell: Radio is about one third of our broadcast business. It had a good 6.6% sales growth, to $97.4 million. Earnings before interest and taxes for Radio was up 14.3% to $15.4 million.
radioinfo: Has 2UE’s performance improved from last year?
Bell: 2UE has performed better and we expect that to continue, but a more competitive radio market in Sydney still presents challenges for 2UE.
radioinfo: What is the best city in terms of radio station performance?
Bell: Melbourne is the best, with 3AW and Magic doing very well for us. 3AW rated Number 1 in all surveys in 2003, 2004 and 2005 to date and has benefited further from the fragmentation of audiences in the highly competitive FM market. Magic 693 in Melbourne has also performed well.
radioinfo: Do you still hold a strategic interest in SEN?
Bell: We own 15% of Pacific Star, which is the operator of SEN.
radioinfo: Is that strategic in the sense that it helps you keep John Singleton’s stations out of the Melbourne market?
Bell: That’s not the purpose of our strategic holding.
radioinfo: What about other states?
Bell: 96FM has continued to rate well in the 25 to 40 age group. The 96FM/6PR combination achieved revenue growth well above the market average, contributing considerably to earnings growth.
The 4BC/4BH combination has continued to strengthen our audience delivery and revenue earning opportunities in the Brisbane market. The combination maintained its level of earnings contribution.
radioinfo: In your presentation, you spoke about the company being interested in expansion if media laws change. Where are the opportunities?
Bell: There are very limited opportunities in radio and press, and our tv operation already covers most of Australia now.
If you look at tv, it is hard to think of new markets. It is unlikely any of the capital city television stations will come on the market in the near future, so the opportunities are fairly closed to us in that area.
In radio, it is also hard to identify a network that would be available at a sensible multiple that would make it if interest to us. The same for press.
So while law changes may present opportunities, it is hard to identify, at this stage, whether there would be any assets that would present a sensible opportunity for us.
We are always thinking about this, but we would have to tell the market first if we had any specific plans.
radioinfo: You have been very positively rolling out your digital tv services. Do you see opportunities there?
Bell: Convergence presents an opportunity for tv, especially in the digital mode. It will give us the opportunity to offer a broader range of services, for example, the information in newspapers will migrate to the screen and digital tv will allow us to take advantage of this.
radioinfo: Does digital radio present the same sort of opportunities?
Bell: Radio is still in analog, and if it doesn’t move soon we may find that others on the digital platform may become competitors, for example mobile phone companies may want to provide portable audio entertainment services.
Digital Radio will allow us, as an industry, to move to the digital platform, which will lessen the likelihood of competition.
radioinfo: You bought Satellite Music Australia. Is this part of your digital radio strategy.
Bell: It is digital, but it provides radio channels to pay tv and to stores. It has a different purpose for us in our overall strategy from digital radio.
radioinfo: Would you like to expand into internet businesses beyond what you already have in terms of websites for your other businesses?
Bell: The internet is an important part of people’s lives, so of course we want to be in it, but when we have looked at it in the past, no business has yet presented a compelling business case for us to expand into the internet at this time.
Trading conditions in the electronic media have been strong this year according to Bell, who says the company also realized a $6.2 million net gain from the sale of 4BC’s Brisbane building when it recently moved.
In other areas of Southern Cross, the company has come to the conclusion that, due to changes in viewing habits, movies and mini series will, in future, have less prominence within the free-to-air viewing line-up and are, in general, likely to be repeated less often than in the past. Because of this, it has made some changes to the way it accounts for these assets by re-assessing the amortisation profile for movies. It has chosen to adopt an amortisation profile that is significantly more weighted towards the first screening, which is more likely to accurately capture the change in viewer habits.