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Macquarie Radio Network Limited: Result Update

Sep 21, 2015 | Team Kalkine
Macquarie Radio Network Limited: Result Update

Corporate update

On 30 January, 2015, the company completed the sale of its Perth radio station 96 FM to APN News and Media Limited for $ 76.1 million. It is actively looking for a buyer for its Macquarie Regional Radio Pty Ltd and the sale is highly probable. In its results announcement, both businesses are presented under discontinued operations. On 31 March 2015, the group acquired 100% of the share capital of Fairfax Radio Network Pty Ltd from Fairfax Media Limited in exchange for shares in itself. This is a proposed merger of equals bringing together the leading news-talk radio operations in Australia which will occupy the number one position for ratings in Sydney and Melbourne. The joint venture will also consolidate the operations of five other radio stations across Australia: 2UE (Sydney), Magic 1278 (Melbourne), 4BC (Brisbane), Magic 882 (Brisbane) and 6PR (Perth). As part of the transaction and because of regulatory requirements, the company will seek to divest 2CH and Macquarie Regional Radio network. On 27 February 2015, the Australian Competition and Consumer Commission (ACCC) announced that it would not oppose the transaction. MRN has provided the Australian Communications and Media Authority (ACMA) with an undertaking to divest 2CH in Sydney and 4LM in Mt Isa.


Consolidated Results (Source: Company Reports)
  

Results for the year ended 30 June 2015

Following approval from the shareholders, the merger with Fairfax Radio Network became effective on 1 April 2015. To give effect to the merger, the company acquired 100% of the share capital of Fairfax Radio Network in exchange for 93,196, 512 in new shares issued to Fairfax Media Limited. And an equalising cash amount of $ 18,141,209. Following the transaction, existing shareholders of the company held 45.5% with the balance held by Fairfax Media Limited.
 
In accordance with Australian accounting standards, the transaction has been treated as a reverse acquisition with Fairfax Radio Networks being the acquirer for accounting purposes. Consequently, the financial results for the year ended 30 June 2015 include nine months (July 2014 to March 2015) of Fairfax Radio Networks results and three months (April 2015 to June 2015) of the combined entity.

Reported revenues came to $ 97.46 million and underlying revenues to $ 97.05 million compared to $ 84.96 million and $ 84.96 million respectively in the previous year. Reported expenses were $ 93.23 million while underlying expenses were $ 91.01 million. Consequently, reported EBITDA was $ 7.12 million while underlying EBITDA was $ 8.95 million. Reported profit before tax and profit after tax was $ 4.21 million and $ 5.09 million respectively while underlying profit before tax and profit after tax were $ 6.04 million and $ 6.37 million respectively. The adjustments to EBITDA are $ 2.23 million in redundancy and restructuring costs and a gain of $ 409,000 on sale of property plant and equipment.
 
Executive chairman Russell Tate said that the financial results for the year ended 30 June 2015 should be treated in isolation and that there is very little that can be taken from these results as a pointer to the future performance of the company. Following the signing of the merger agreement, the focus shifted to planning operational and structural changes to maximise the benefits of the merger and many of these changes were implemented immediately. A total of $ 10 million in costs and operational synergies had been realised and the one-off costs recognised in FY 2015. Further significant costs and operational synergies are expected in FY 2016 and revenue synergies are now starting to emerge from the national network and the enhanced sales opportunities that it represents. The yearly progress made in identifying synergies clearly indicate that the earnings potential, both short-term and long-term, exceeds the sum of the parts.
 
The company believes that earnings for FY 2016 in the form of EBITDA will fall in the range between $ 20 million and $ 25 million, and the key factor in earnings growth and trajectory will be the rate at which the revenue potential of the network can be converted. The reaction from clients and media agencies to the share of the national audience which is now being offered by the network together with the recognition of the market appeal of the 40+ demographic (which the network dominates) provides confidence that there is potential to significantly increase the share of overall radio spend over the next two or three years. Over that period, a sustainable increase of $ 15 million-$ 25 million in annualised revenue over this period is expected to be achieved.


MRN Daily Chart (Source: Company Reports)
 
The stock is trading at the current price of $1.140.

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