Half year results by broadcast media group Southern Cross Austereo were generally greeted as better than expected despite continuing weakness in the advertising market dragging on revenue.
Southern Cross argues that radio, and the audio market in general, is going through a cyclical fall rather than being attacked via its structure.
The audience for radio and audio is strong and growing but the advertising revenue is, like the rest of the media, weaker.
Southern Cross says advertising spend was down across the entire radio market.
Metro audio advertising revenues fell $15.9 million or 13.2% to $104.6 million. Regional advertising revenue was down 5.7% to $88.8 million. Overall audio revenue for the six months dropped 8.4% to $210.9 million.
But the audience stayed, as this chart shows:
Overall, the company posted an 8.2% fall in revenue to $308.11 million for the half year to December. Net profit after tax was $20.4 million, up from a net loss of $119.3 million in the same half in the prior year. Profit, excluding significant items, was down 32.7% to $26.62 million.
On the ASX, Southern Cross shares jumped almost 14% to close at 86 cents.
CEO Grant Blackley has responded to a downturn in advertising by cutting costs, urging his extensive sales team on, and by investing in new on-demand and personalised audio products.
“Our strategy is a duel transformation strategy,” he told AdNews. “We improve what we've got, invest in new products and be creative, and have a reasonable risk appetite to new products.
“We're doing both of those things regardless of the market in terms of how it's performing."
The strategy slide from the half year results:
“But the market hasn't lived up to the expectations of most with this very broad contraction," says Blackley.
Southern Cross reports the advertising market continued to be challenged across January and February this year with similar levels of trading to the first half of the year.
“We also had a serious and complete look at our entire cost-base just prior to Christmas and that resulted in us saving a substantial amount of future costs,” says Blackley.
That will result in a full year saving of $5 million to $10 million.
“The balance sheet is in good shape and we have very strong cash conversion of 91%.
“We've done a lot of heavy lifting and work to ensure that we have a cost base that is less than the prior year accounting for increases in the business.
“We are predominantly an audio company and the audio sector is in healthy shape,” he says.
“We are seeing some cyclic influences on the radio where others in the broader market might be seeing some structural influences.
“So I see that audio will rebound and we hope that will not only be supported at the grassroots linear level of our broadcast stations, all 96 of them, but most importantly without doubt, we see an accelerated capacity for digital audio products to be accepted by consumers and most importantly monetised by agencies and advertisers.”
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