Southern Cross Media Group Ltd (ASX: SXL) shares have leapt more than 10% in morning trade, after the media group delivered better than expected first half results.
Weak media markets have weighed on Southern Cross Media, however it was able to deliver results in line with guidance issued in October and investors have reacted positively. Southern Cross shares are currently trading for $0.83, which is a 10.86% jump on yesterday's close.
Southern Cross Media results
Southern Cross Media saw revenue decline to $308.1 million in 1HFY20, down 8.2% from $335.7 million in 1HFY19. Excluding AASB 16 treatment of leases, earnings before interest tax depreciation and amortisation (EBITDA) declined 27.7% to $62.2 million from $84.8 million. Underlying EBITDA was down 26.7% to $62.2 million from $84.8 million.
The media group reported net profits after tax (NPAT) of $20.4 million, up significantly from the $119.2 million loss reported in 1HFY19. Underlying NPAT, however, declined by 31.1% to $28.6 million from $41.5 million in 1HFY19. An interim dividend of 2.75 cents per share was declared, down 26.7% from 3.75 cents in the prior corresponding half year.
Weak media environment and cost savings
The group believes that sales teams performed strongly despite the weak media environment, with national regional radio advertising revenues outperforming metro markets. Digital audio radio revenues increased 140% compared to the prior corresponding period, led by PodcastOne Australia and sales representation for SoundCloud.
Excluding adjustments for AASB 16, operating expenses of $248.8 million were 1.9% lower than in 1HFY19. Southern Cross Media commented that this reflects ongoing discipline in management and operating costs.
The group expects further savings in layout and discretionary costs in the second half, thanks to actions taken in the first half. Full year costs are forecast to be $5–$10 million below the prior year. These forecast savings are after accounting for increases of $8 million in wages and other contracted costs, along with approximately $4.5 million in incremental operating costs for the full year resulting from the outsourcing of broadcast transmission and television play out services.
Redwave acquisition
The Redwave acquisition was competed on 31 December 2019 and Southern Cross expects it will contribute $2 million to EBITDA in the second half and be accretive for earnings per share and return on invested capital. Redwave's 8 radio stations in regional Western Australia will be rebranded within Southern Cross Media's Triple M and Hit networks from 16 March 2020.
Debt funding
Southern Cross Media reported net debt of $330.5 million at 31 December 2019, up from $295.1 million at 30 June 2019 as a result of debt funding of the Redwave acquisition. The group reports that its balance sheet remains strong and that it is appropriately geared with significant covenant headroom and strong cash conversion.
Outlook
Southern Cross Media has advised that advertising markets remain challenging across January and February with similar levels of trading to the first half of the year. Nonetheless, analysis is forecasting improvement led by the insurance and banking sectors which were both weak in 2019. The group also expects that local and federal governments will resume spending following the post-election hiatus.
