What: Southern Cross Media Group Ltd (ASX: SXL) on Wednesday reported a massive swing from a net profit of $96 million in the 2013 financial year to a net loss of nearly $300 million in the year to 30 June 2014.
It's not all that bad however, as the majority of the loss was due to a writedown in the value of the group's regional TV and radio assets. On revenues of $640 million Southern Cross generated a net profit before significant (and one-off) items of $79.7 mllion, down only 7.1% on the previous year.
So What: Well the bad news for shareholders is that the $375 million of writedowns, specifically relating to goodwill associated with the group's regional free-to-air broadcasting operations, has added further doubt that the company can improve in the medium term.
Southern Cross divides its business into radio, TV and digital assets. The radio group includes the Today FM and the Triple M Networks. Today FM services most areas of the country and is the country's number-one FM network, including channels such as 2Day FM, SAFM and b105 in Brisbane. The recent defection of drawcards Kyle and Jackie O to a rival station has not helped the segment.
The TV segment broadcasts Ten Network Holdings Limited (ASX: TEN) TV shows to regional customers. Unfortunately for Southern Cross, Channel Ten's shows have been poorly received this year and appear to have contributed to a loss in market share.
What Now: The share price rose a little on the announcement of the results, perhaps indicative of the market's doubt about the company achieving previous guidance, but is still down over 30% for the year. Analysts don't expect earnings to improve in the short to medium term due to the weak TV advertising market and apparent loss of market share in radio. Operational costs are also increasing, all leading to a generally dour view of the future of the company.
On the plus side, the group is only trading on a price to earnings ratio of around 10 and providing a forward dividend yield of 7%.
