Southern Cross profits rewind amid stubborn television slowdown

Revenue from the company’s radio network grew 6.8 per cent to $3.2 million, above a market rise of 4.6 per cent, implying an increase in the company’s market share. But the company’s national radio revenue grew at a slower pace of 2.7 per cent to $5 million, as regional radio revenue declined and national advertisers reduced their spending.

Increased wage growth and higher software costs fed into a 1.7 per cent increase in expenses, slightly offset by lower television affiliation fees. In a bid to cut costs, SCA reduced its permanent headcount by about 12 per cent compared with four years ago, shifting the weighting of its workforce towards digital specialists.

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About 83 per cent of Southern Cross’ capital expenditure was funnelled into digital audio, including developing its LiSTNR offering, reflecting the company’s increasing focus on its digital services.

That segment was the company’s golden child, as revenue from LiSTNR grew 37.5 per cent, driven by growth in podcast revenue and advertising. Southern Cross expects digital audio revenue to be up more than 65 per cent over the previous corresponding period in the first two months of the year. However, the revenue from this segment remains much smaller than the amount earned by its traditional radio and television assets.

The company’s third quarter outlook for its traditional assets was less optimistic, as it forecast flat to low single-digit growth for its radio revenue and a 10 per cent to 12 per cent contraction in television.

Shares in the company were down 6.3 per cent to $1.04 per share at the close.

UBS telco and media analyst Tom Beadle said SCA’s results were worse than expected, and that there were likely to be challenges in the advertising market which would weigh on the company’s revenues.

Southern Cross expects digital audio revenue to be up more than 65 per cent over the previous corresponding period in the first two months of the year.

“SCA missed consensus estimates, and there’s uncertainty going into the fourth quarter, so there’s probably going to be a downgrade to our forecasts,” he said. “There’s a lot of macro concerns going into the fourth quarter, and the first cost that businesses cut is marketing.”

Despite continued decline in television, Beadle said the company’s decision to hold on to its assets was reasonable. “They can really milk that business for the cash flow it’s generating for a few years, and that’s probably a better outcome than taking the prices they were being offered for it,” he said.

But with a growing digital audio segment among the company’s redeeming features, Beadle said he maintained a buy rating on SCA.

Despite falling profits overall, the company announced a 0.1 cent increase in its dividend to 4.6 cents per share.

Notwithstanding reports that the company is looking for a successor as chief executive, Blackley, who is one of the longest serving leaders in Australian media, said he had no immediate plan to leave the firm.

“Ultimately, it’s up to the shareholders and board to make that decision, but I enjoy my time at SCA and I expect to continue to be CEO for the forseeable future.”