Southern Cross Media : SCA 2024 Annual Report (SCA Annual Report 2024)

About this update from Southern Cross Media Group Limited

A N N U A L R E P O R T Southern Cross Austereo Year In Review SCA maintained dominant audience shares in our core metro and regional radio and digital audio markets during FY24, despite the most recent financial year being a challenge for the industry and our company. With persistently high inflation and slowing economic conditions, broadcast advertising markets were depressed for much of the year. Group revenue of $499.4 million was 1% below FY23, and underlying group EBITDA of $66.2 million was 14.3% below FY23. Performance improved in the second half, driven by SCA's continuing dominance of the lucrative 25-54 audiences in metro and regional radio markets, improving share of metro advertising revenue markets, strong growth in digital audio revenues, and cost discipline. We are seeing this momentum gather pace in FY25. METRIC 1 FY24 Revenue $499.4M Expenses (underlying) $433.2M EBITDA $55.5M Underlying EBITDA $66.2M NPAT ($224.6) Underlying NPAT $11.2M Digital EBITDA ($10.9M) Net debt on 30 June 2024 $107.5M Free cash conversion 86.0% Full year dividends (cps) 1.0 Despite challenging advertising market conditions, our improved financial performance in the second half has provided strong momentum into FY25. Our national leadership in the core buying demographics for men and women aged 25-54 provides our sales teams with a strong platform for continued growth into FY25. In the fast-growing digital audio sector, LiSTNR reached over two million signed-in and addressable users, with around one million of these interacting with LiSTNR monthly. This is testament not only to the range of engaging content on LiSTNR but also to the excellent and personalised user experience the platform delivers. The LiSTNR AdTech Hub is driving premium commercial returns for our advertisers and driving growing interest. The LiSTNR AdTech Hub Comparison to FY23 FY23 Variance $504.3M (1.0%) $427.1M (1.4%) $73.3M (24.3%) $77.2M (14.3%) $19.1M n.m. $21.9M (49.2%) ($17.6M) 38.0% $105.0M ($2.5M) 82.5% n.m. 6.80 (5.80) enhances our advertisers' ability to connect with relevant audiences on LiSTNR and other digital audio distribution platforms. Against the backdrop of inflationary pressures, we kept non-revenue- related costs to $308.4 million (excluding non-recurring items), and we are activating further meaningful and permanent cost reductions for FY25. We have re-commenced a strategic review of our non-core regional television assets and are in active negotiations with several parties with an interest in acquiring those assets. The sale of our regional television assets will enable us to focus on optimising our leading radio and digital audio assets, led by LiSTNR, HIT and Triple M. Amounts stated to be 'underlying' exclude the $326.1 million ($228.3 million after tax) non-cash impairment of the Broadcast Radio Cash Generating Unit (CGU) in FY24, and other significant items in both periods relating to restructuring, corporate activity, and non-recurring items. Contents Year In Review Above Chairman's Statement 02 CEO's Report 04 Operational Review 06 Sustainability at SCA 12 The Board and Leadership Team 20 Additional Stock Exchange Information 92 Corporate Directory 94 Year In Review 2024 Annual Report REGIONAL 8.71M * Total FM, AM and DAB+ audience 5.80M * Total Hit FM and DAB+ audience 4.61M * Total Triple M FM and DAB+ audience 3.29M ** Total TV reach 1.75M *** Average monthly unique radio streamers 15.8M *** Average monthly streaming total listening hours 7.27M ^ Average monthly unique podcast listeners 2.08M ^^ Total LiSTNR signed-up users *Source: GFK Radio 360 Ratings, Total Radio. Survey #5 2024 - Metro (FM & DAB+). Canberra, Newcastle, Gold Coast Survey #2 2024 Mon-Sun 5:30- 12mn Cume. Bundaberg, Esperance, Kalgoorlie, Bendigo #1 2021. Karratha, Mt Gambier, Coffs Harbour, Griffith, Port Hedland Broome, Wagga Wagga, Central Qld, Orange, Bunbury, Atherton, Albury, Warragul #1 2022 (FM/AM) Mon-Sun ROS Cume. Xtra Insights Survey #1 2023 Mon-Sun ROS, Cume Reach, Mt Isa, Kingaroy, Shepparton, Emerald, Mildura, Maryborough, Bendigo, Mackay, Bundaberg, Central Coast, Townsville, Cairns. Xtra Insights Survey #1 2024 Mon-Sun ROS, Cume Reach, Roma, Geraldton, Mt Gambier, Port Macquarie, Albany, Hobart, Wheatbelt, Dubbo, Mackay, Esperance, Toowoomba. **Source: Regional TAM data. Total people. 4aggs (Network 10 + Sky News Regional), WA (Network 10) and Tas (Seven Network and Network 10). Average weekly reach (1 min cume). 0200-2600. Consolidated 7. Sun-Sat. Wk 27 2023-wk 26 2024 (02/07/23-29/06/24; excl summer and Easter). Diary markets - last available survey. 0600-2400. Cen - 2007. Dar - 2011. Sgt - 2015. ***Source: Triton Metrics. ^ Source: Triton Australian Podcast Ranker, LiSTNR Sales Representation. ^^ Source: Firebase Authenticated User Counts as at 30/09/24. ^^^ Source: LiSTNR Digital Audio Network: 10M Australians per month, including LiSTNR streaming, podcasts, Soundcloud and Sonos. Year In Review | 1 Southern Cross Austereo Chairman's Statement I am honoured to present my first annual report to shareholders as Chair of Southern Cross Austereo, having taken over that role in March this year. I would like to start by acknowledging the shareholder journey and our disappointing performance for the past year. We recognise that we must do better to position Southern Cross Austereo as a leader in the Australian radio and digital audio markets with enhanced profitable unit economics and growth. The most recent financial year was a challenging one for our company. With persistently high inflation and slowing economic conditions, broadcast advertising markets were depressed for much of the year. Group revenue of $499.4 million was 1% below FY23, and underlying group EBITDA of $66.2 million was 14.3% below FY23. The company recognised a non-cash impairment charge against the value of broadcast radio licences of $228.3 million after tax. The impairment reflects observed market pressures, independent estimates of radio broadcast growth rates showing declines over the forecast period and a consequent reduction in long- term growth rates. We also recognised a separate and higher growth digital audio segment for the first time in FY24. We responded to these challenges with initiatives to transform our operating model to capture a larger share of available revenues while also completing our digitisation capex program and resetting our cost base, and we expect to see the benefits of these actions in future periods. 2 | Chairman's Statement 2024 Annual Report The Board decided not to pay a final dividend for FY24. While the group's leverage remains well within our banking covenants, the Board considers that preserving cash to reduce the group's net debt is in the best interests of shareholders. The Board expects to maintain this capital management position in FY25 while resuming payment of dividends towards the lower end of the target payout range (65% to 85% of underlying net profit after tax). During the year, we were disrupted by the non-binding indicative proposal received in October 2023 from the Consortium of ARN Media and Anchorage Capital Partners. The proposal was complex, requiring the break-up of highly integrated radio and other assets of SCA and ARN to re-allocate them to the members of the Consortium and to a new digital joint venture. Most of the consideration for SCA shareholders would have been shares in a reconstituted ARN which was difficult to value. Our Board and executive team engaged with the Consortium's proposal for nearly seven months, only for the Consortium to withdraw its proposal in May 2024. I expressed my frustration at the time that the Consortium should have identified any potential material concerns much earlier in the process. While our management team did not lose focus on daily business activities during this process, it did mean that some business transformation initiatives were paused or slowed until the outcome of the Consortium's proposal was known. Three longstanding Directors have retired from the Board this year. My predecessor as Chair, Rob Murray, along with Glen Boreham retired on 27 March 2024 and Helen Nash retired on 30 September. Each of them served on our Board for around nine years during which they made valuable contributions to the Board's decision-making, as well as being active on the Board's committees. Helen chaired the Board's People and Culture Committee for three years, and Glen chaired the Digital Transformation Committee for a similar period. I would particularly like to acknowledge the contribution of Rob, who became Chair in the middle of the lockdowns and other challenges of the COVID-19 pandemic and led a process to refresh the Board and plan for future succession. Rob also helped drive SCA's executive succession planning that has seen changes in the roles of CEO and several other members of SCA's senior leadership team in the past two years. We were delighted on 1 October to welcome Marina Go as a director and as Chair of the People and Culture Committee. Marina brings experience in executive and non-executive roles across a range of listed and private companies in diverse sectors including media. As outlined in the report of our CEO, John Kelly, SCA is focused on the future. Broadcast advertising markets remain inconsistent and short, but we are well positioned to profitably grow our share of those markets while we continue to lead the local market in the high-growth digital audio sector. Our restructured commercial teams are consistently growing SCA's share of metro radio advertising revenues, and we continue to connect advertisers to the largest radio audience in regional Australia. We have completed our major digitisation capex cycle and are seeing rewards from advertisers who can connect with targeted and addressable audiences through LiSTNR. Our regional television assets continue to operate profitably but are no longer core to our audio-focused business. Shareholders will be aware that we are in active negotiations with several parties with an interest in acquiring those assets. On behalf of the Board, I would like to thank our many stakeholders including our people, advertisers, partners, and the communities we serve around Australia for your ongoing support of SCA. In particular, I extend my thanks to you, our shareholders, for your patience and trust as we commit to delivering you improved returns in future periods. I trust you will enjoy reading our annual report. Heith Mackay-Cruise Chair Chairman's Statement | 3 Southern Cross Austereo CEO's Report We began the most recent financial year with a focus on growing our share of available advertising markets, improving our operating efficiency, and achieving profitability with LiSTNR. After a lag in performance during the first half of the year, we achieved many of these goals and have carried positive operating momentum into the first quarter of the new financial year. Most notably, our commercial share of metro radio advertising improved every month from December 2023 to June 2024, our digital audio revenue grew by 42% year-on-year, and LiSTNR became EBITDA positive in the final quarter of the year. Our business transformation program has so far permanently removed more than $30 million from our cost base. Despite these achievements, shareholders will be acutely aware that we fell short of our revenue and profitability targets in FY24. Broadcast advertising markets were especially challenging during the first half of the year, and it is clear we need to continue to grow our share of those markets, exploit our local leadership in digital audio markets, and transform our operating model to further reduce our cost base and improve commercial returns. I am confident we have the right strategy in place to do all those things. SCA is all about audio. This includes broadcast and livestreamed radio, music streaming, and on-demand podcasts. Radio is a resilient and powerful medium. The Infinite Dial Australia study in June 2024 found that 81% of Australians aged 12+ listen to radio each week, compared to 77% who watch free-to-air television. SCA's national Triple M and Hit Networks have large and loyal audiences in the segments that are most attractive to advertisers. In the most recent official metro radio survey in August 2024, SCA's metro stations recorded a total cumulative audience of 5.881 million listeners (including DAB+). Our national Drive show on the Hit Network, Carrie and Tommy, was number one nationally in early Drive and, for the fourth survey in a row, number one in Melbourne and Brisbane. The Fox was the most listened-to station in Australia and, for the sixth survey in a row, the most listened-to station in Melbourne. B105 was the number one FM station in Brisbane for the fifth survey in a row, Triple M was the number one FM station in Adelaide and its Breakfast show topped the survey for the twelfth consecutive time. SCA is acutely focused on the audiences that matter to our advertisers. We provide compelling content to our audiences and work with our advertisers to provide meaningful commercial outcomes for them and for SCA. The audiences that matter to our advertisers in metro radio are the key 25-54 Men, Women and overall buying demographics, with over 70% of agency briefs targeting these segments. For the last three years (25 consecutive surveys), our Networks have recorded the largest metro radio audiences in these segments. Since changing our commercial leadership and structures in 2023, we are increasingly converting our dominance of these audiences towards a corresponding share of advertising revenues. As mentioned earlier, we grew our commercial share of metro radio advertising in every month from December 2023 to June 2024. SCA has unrivalled reach in regional radio markets. Our Triple M and Hit Network stations, along with partner radio stations for whom we provide national sales representation, connect advertisers to 3.56 million listeners in regional Australia. This scale is what matters to national advertisers in regional Australia. Our LiSTNR digital audio ecosystem is our growth engine. Just three years since launch, it has become the leading local player in the fastest growing advertising segment in Australia. 4 | CEO's Report 2024 Annual Report The 2024 Infinite Dial study found that 77% of Australians aged 12+ listen to digital audio each week, and 27% listen to livestreamed radio, up from 15% in 2022. The study also found that 48% of Australians aged 12+ listen to podcasts each month, up from just 25% in 2020. We are seeing similar and encouraging growth patterns on LiSTNR. We now have over two million signed-up users, over half of whom interact with LiSTNR each month. Stream starts on LiSTNR grew 17% and time spent listening grew 7% during FY24. This is testament not only to the range of engaging content on LiSTNR but also to the excellent and personalised user experience delivered by LiSTNR. This growth in audience, coupled with our strategic investment in the LiSTNR AdTech Hub, is driving inquiry from advertisers willing to pay a premium to connect their messages to targeted and addressable audiences. The LiSTNR AdTech Hub is now included in over 20% of digital audio campaigns. LiSTNR achieved revenues of $35 million in FY24 with year-on- year growth of 27% in the first half and 57% in the second half, LiSTNR delivered positive EBITDA in the final quarter of the year and is continuing that trajectory. With our major capex program now complete, we forecast LiSTNR to be cash flow positive in FY25. Put simply, SCA's LiSTNR is Australia's largest and fastest growing local operator in the fastest growing segment in Australian media. Our regional television business dragged on our results again. Television revenue declined by 8.7% to $97.5 million, and EBITDA decreased by 28.9% to $13.3 million, although these declines slowed in the second half of the year. We maintained tight cost controls but are exposed to CPI cost escalation in broadcasting transmission and playout contracts. We will actively progress opportunities to divest our television assets in the coming months. I am excited about the opportunities ahead and confident that we will deliver improved financial performance in FY25 and beyond. We will continue to transform and optimise our audio operations to drive efficiency with further meaningful and permanent reductions to our cost base. Our Triple M and Hit radio networks have strong content and engaged audiences, and a growing share of commercial returns. LiSTNR has a high quality and diverse range of livestreamed and on-demand podcast content and sophisticated ad-tech capability to drive commercial returns for advertisers. With our major capex cycle complete, we will improve the conversion of our revenue to earnings and cash flow to de-leverage our balance sheet and provide returns for shareholders. Finally, thank you to all our shareholders, advertisers, communities and employees for your ongoing support. John Kelly Chief Executive Officer and Managing Director CEO's Report | 5 Southern Cross Austereo Operational Review SCA's mission is to entertain, inform and inspire Australians, anytime, anywhere. In Triple M, Hit and LiSTNR, we have powerful brands with loyal audiences. We aim to diversify and grow those audiences in segments that matter to advertisers so that we earn a higher share of the available advertising revenue. Operational Review - Radio Radio revenue decreased by 1.6% to $366.6 million in FY24, due principally to an industry-wide decline of over 3% in metro markets. The impact on SCA of this decline was mitigated by the resilience of our regional radio operations, which grew revenue by 0.8% for the year. The impact was also mitigated by the improving performance of our metro sales team, which grew our commercial share of metro radio advertising in every month from December 2023 to June 2024. The audience that matters to advertisers in metro radio is people aged 25-54. Over 70% of agency briefs target that audience, whether focused on men, women, or all people. We build our metro radio shows with an acute focus on that audience. Our Hit Network stations focus on women aged 25-54, and our Triple M stations focus on men aged 25-54. In metro survey 5/2024, SCA's Networks recorded the largest national audience in the key 25-54 buying demographic for the 25th consecutive time Our share of this audience grew in each survey over the past 12 months. Individual show highlights included the consistent leading performance of Carrie & Tommy, our national Drive show on the Hit Network, and our Breakfast shows on B105 in Brisbane, Triple M in Adelaide, and The Fox in Melbourne, which is Australia's most listened-to radio station. 30% 20% H2 Metro Radio Revenue Market Share 1 FY23 FY24 SCA Network Commercial Audience Share M-Sun 0530-2400 Metro Markets (SMBAP) 45% 43% 41% 39.2% 39% 36.91% 37.4%3 7.6% 37% 38.5% 35.1% 34.1% 35% 36.0% 33% 31% 29% 27% 25% S5 S6 S7 S8 S1 S2 S3 S4 SCA People 25-54 SCA People 25-54 PCP 1 Source: SCA Metro Radio Revenues / CRA Metro Radio Market Size 6 | Operational Review 2024 Annual Report Carrie & Tommy Metro and National #1 metro drive show 3-6pm P10+ 1 Highest drive show cume nationally P25-54: 1,505,400 and P10+ 2,693,700 2 +13.3% growth YoY P10+ metro share 3 Fifi, Fev & Nick #1 breakfast show in Melbourne P25-54 4 Most listened-to breakfast show in Melbourne in the past 12 months P10+ 5 In Sydney, Mick and MG have steadily built their Triple M Breakfast audience over the past two years, particularly for men aged 25-54, while 2DayFM continues to present opportunities for growth. We recently farewelled Hughesy, Ed and Erin after three-and-a-half years of waking up Sydney, and 2DayFM's listeners now have Jimmy & Nath for Breakfast, while Mike E & Emma have taken over national shifts on Nights during the week and Breakfast on the weekend. Both shows are well known to Sydney and national audiences, and we're looking forward to building their success. Sport continues to be part of Triple M's DNA, and we have been delighted with the audiences for Triple M's coverage of AFL and NRL in the 2024 season. In metro survey 5/2024, Triple M had the largest weekend radio audiences for AFL and NRL. And, after an outstanding international cricket season in 2023/24, we were pleased to reach agreement with Cricket Australia to extend our coverage of international cricket in Australia until 2031. Stav, Abby & Matt #1 breakfast show in Brisbane P10+ 6 #1 breakfast show in Brisbane P25-54 7 +19% growth YoY P10+ 8 Roo, Ditts & Loz #1 breakfast show in Adelaide P10+ 9 #1 breakfast show in Adelaide P25-54+ 10 12 in a row since S2 2023 11 The breadth of SCA's networks distributing radio and digital audio content to our audiences is a key differentiating factor for advertisers. SCA has 10 metro radio stations and 78 regional radio stations; in both cases, more than any other network. In metro markets and some large regional markets, our Triple M and Hit Networks also offer a suite of DAB+ music-focused stations. These provide more choice for music fans and incremental audiences for our advertisers. And all these stations are available around Australia on our LiSTNR app and website. SCA has unrivalled scale and reach in regional radio markets, which we call Boomtown. Our Triple M and Hit Network stations, along with partner radio stations for whom we provide national sales representation, connect advertisers to 3.56 million listeners in regional Australia. With the addition of our representation of the ACE Radio network, the reach of SCA's regional audience has grown 25% in the past five years. This scale, and the associated buying efficiency, is what matters to national advertisers in regional Australia. GfK Radio 360 Metro Survey #5 2024, P10+, Total Radio, Market Share %, Mon-Fri 3-6pm. GfK Radio 360 Metro Survey #5 2024, all regional and provincial markets relative to this date, P10+/P25-54, Total Radio, Cume Reach, Mon-Fri 3pm-6pm (metro and provincial)/Mon-Fri 4-7pm (regional). GfK Radio 360 Metro Survey #6 2023 vs Metro Survey #5 2024, P 10+, Total Radio, Market Share %, Mon-Fri 3pm-6pm. GfK Radio 360 Melbourne Survey #5 2024, P25-54, Total Radio, Market Share %, Mon-Fri 5:30am-9am. Based on average Cumulative Audience for 12 months, GfK Radio 360 Melbourne Survey #6 2023 - Melbourne Survey #5 2024, P10+, Total Radio, Cumulative Audience #, Mon-Fri 5:30am-9am. GfK Radio 360 Brisbane Survey #5 2024, P10+, Total Radio, Market Share %, Mon-Fri 5:30am-9am. GfK Radio 360 Brisbane Survey #5 2024, P25-54, Total Radio, Market Share %, Mon-Fri 5:30am-9am. GfK Radio 360 Brisbane Survey #6 2023 vs Brisbane Survey #5 2024, P10+, Total Radio, Market Share %, Mon-Fri 5:30am-9am. GfK Radio 360 Adelaide Survey #5 2024, P10+, Total Radio, Market Share %, Mon-Fri 5:30am-9am. GfK Radio 360 Adelaide Survey #5 2024, P5-54, Total Radio, Market Share %, Mon-Fri 5:30am-9am. GfK Radio 360 Adelaide Survey #2 2023 - Adelaide Survey #5 2024, P10+, Total Radio, Market Share %, Mon-Fri 5:30am-9am. Operational Review | 7 Southern Cross Austereo DARWIN REBEL & BREEZE CENTRAL / NORTH QLD SCA REPRESENTED STATION BROOME PORT HED LAND KARRATHA REMOTE WA CARNARVON GERALDTON KALGOORLIE NORTHAM MERREDIN PERTH COLLIE MANDURAH NARROGIN BUNBURY KATANNING BUSSELTON BRIDGETOWN ESPERANCE ALBANY SCA REPRESENTED REGION OVERLAP IN COVERAGE CAIRNS MAREEBA TOWNSVILLE CHARTERS TOWERS MT ISA MACKAY EMERALD ROCKHAMPTON LONGREACH REBEL & BREEZE GLADSTONE CENTRAL / NORTH QLD BUNDABERG MARYBOROUGH ROMA KINGAROY CHARLEVILLE SUNSHINE COAST REBEL & BREEZE BRISBANE DARLING DOWNS / BORDER TOOWOOMBA WARWICK GOLD COAST REBEL & BREEZE LOGAN / HINTERLAND REBEL & BREEZE DARLING STANTHORPE FLOW DOWNS / BORDER COFFS HARBOUR OUTBACK PORT MACQUARIE DUBBO BREEZE NSW FLOW NEWCASTLE ORANGE GOSFORD CENTRAL MILDURA SYDNEY CAMPBELLTOWN ADELAIDE GRIFFITH WAGGA WOLLONGONG WAGGA FLOW NSW CANBERRA FLOW FLOW VIC ALBURY SOUTH EAST SHEPPARTON / MT BULLER BENDIGO LIMESTONE COAST MELBOURNE FLOW VIC WARRAGUL TRARALGON FLOW VIC OWNED AND REPRESENTED RADIO HOBART 8 | Operational Review

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