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Edited Transcript of GTN.AX earnings conference call or presentation 29-Aug-19 12:30am GMT

Full Year 2019 Gtn Ltd Earnings Call

Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Gtn Ltd earnings conference call or presentation Thursday, August 29, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Scott E. Cody

GTN Limited - COO & CFO

* William L. Yde

GTN Limited - MD, CEO, President & Executive Director

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Conference Call Participants

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* Julian Mulcahy

Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the GTN Limited 2019 Year-end Earnings Conference Call. Today's conference is being recorded. Representing the company today are Bill Yde, Managing Director and Chief Executive Officer; and Scott Cody, Chief Financial Officer and Chief Operating Officer.

Before I turn the call over to Bill, I would like to remind the listeners that this call is subject to the disclaimer and important information included in the company's year-end earnings presentation.

With that, I'll turn the call over to Bill Yde, Managing Director and Chief Executive Officer. Bill?

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [2]

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Thank you. And thanks to everyone for joining us this morning.

Revenue from continuing operations remained unchanged at $185 million with all 3 of our operating geographies outside of Australia being up over fiscal 2018. Australia revenue declined 7% compared to the previous year. Revenue for our non-Australian markets increased 8% compared to fiscal 2018. For fiscal 2019, 49% of our revenue was generated outside of Australia. The decrease in revenue in Australia combined with higher expenses led to decreased EBITDA and adjusted EBITDA.

Australia, our largest, most established and profitable market, had a difficult year. After a strong first quarter, Australia was -- revenue was down almost 7% compared to fiscal 2018. This was due in part to difficult market in general, and as previously advised, the loss of several key clients. We have taken a number of steps to reverse this trend. These include hiring a manager focused exclusively on our television revenue as well as a dedicated manager focused on advertising accounts that have not yet engaged ATN, employing more sales representatives and promoting Marketing Strategy Director, Kelly McIlwraith, to Commercial Sales, Marketing and Strategy Director. Kelly now has responsibility for all Australia revenue. She previously focused on enhanced research initiatives such as a successful rollout of Neuro Insight to numerous GTN clients. Our network continues to have a strong position in the major metropolitan markets in Australia, and we expect to be able to stabilize revenue into the future and return to growth.

Canada was up 11% over fiscal 2018. EBITDA declined for the period primarily due to the additional cost related to signing a multiyear contract with Rogers in Toronto to become a radio and television affiliate. We believe that this contract contributed to our strong growth in the second half of fiscal 2019 as revenue increased 10.4% for the period in local currency, which was the highest growth in the group. We expect that the Rogers contract will generate additional revenue in the future as it significantly strengthened our network in Toronto, which is the largest and most important market in Canada. We've also added valuable inventory from our existing affiliates as well as entering new affiliation agreements. And we believe that this will help to fuel future growth in Canada.

Our U.K. operations had a solid 2019. Revenue increased 7%, which led to solid EBITDA growth. Despite the challenging environment, our U.K. operations continue to be a steady, reliable source of cash flow for the company.

Our Brazilian operations continue to progress nicely. Revenue increased 12% in local currency compared to fiscal 2018, which was the highest growth achieved by any of our markets. However, unfavorable exchange rate movements reduced this growth to less than 4% in Australian dollars. EBITDA decreased for the period as we continue to reinvest in the market. During the period, we opened both Campinas and Brasilia, bringing the number of our Brazilian markets to 7. In line with our growth strategy for Brazil, we plan to open the Curitiba market soon. We will continue to invest in Brazil as we see the potential upside to be significant, but future market expansions will not likely result in a meaningful increase to expenses.

I will now turn the call over to Scott for a complete review of the financials.

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Scott E. Cody, GTN Limited - COO & CFO [3]

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Thanks, Bill, and good morning, everyone. Revenue from continuing operations remained unchanged at $185 million. Revenue from all of our operating geographies outside of Australia was up over fiscal 2018. When compared to fiscal 2018, Brazil revenue was up 4%, Canada revenue was up 11% and U.K. revenue was up 7%. Australia revenue decreased 7% compared to fiscal 2018.

Adjusted EBITDA, which we define as earnings before interest, taxes, depreciation and amortization adjusted to include the noncash interest income generated by the financing component of our long-term station affiliation agreement with Southern Cross Austereo and excluding transaction costs and foreign exchange gains and losses, was $37.5 million, a decrease of 22% compared to fiscal 2018. This was consistent with our trading update forecast of $37 million to $38 million from 26 June 2019.

Adjusted EBITDA was down due to higher expenses. The largest component of the expense increase was station compensation. Some of the causes of this increase were additional station compensation associated with a renewal of a key affiliate group in Australia, the Rogers Toronto affiliation in Canada and an increase in variable compensation in the United Kingdom due to higher revenue as well as market consolidation and additional compensation in Brazil related to both opening new markets and expanding existing markets.

We consider it appropriate to add the financing component of our long-term station affiliation agreement with Southern Cross Austereo to EBITDA because EBITDA includes a large portion of noncash station compensation expense related to the agreement. By including both amounts in adjusted EBITDA, we believe it provides a clear view of the financial impact of the agreement.

Adjusted NPAT, which is defined as net profit from continuing operations after tax, adjusted to add back the tax-effected noncash amortization expense related to acquired intangible assets, was $20.3 million, a decrease of 31%. In addition to the shortfall in adjusted EBITDA, adjusted NPAT was negatively impacted by $1.3 million of additional depreciation expense in fiscal 2019 related to the adoption of AASB 16 leases.

The company continues to have a strong balance sheet with $50.7 million of cash, $63.6 million of debt, including leases and $12.8 million of net debt at 30 June 2019, after paying out over $30.1 million of dividends during the fiscal year. Total gearing of adjusted EBITDA to net debt was 0.34x as of 30 June 2019.

The Board has declared a final dividend of $0.032 per share to shareholders of record on 6 September 2019. This dividend will be 70% franked.

Finally, the share buyback, which commenced in February 2019 and was suspended as required in the period leading up to our full year-end results, will recommence after this blackout period has been lifted.

I will now turn the call back to Bill.

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [4]

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Our 4 markets continue to be very attractive networks, remain an extremely effective advertising medium. Nothing has changed. While we are disappointed with our recent performance in Australia, we remain excited by the opportunity in our current markets. We plan on continuing our work to maximize the potential of these markets.

And this ends our prepared remarks. We will now open the lines to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Julian Mulcahy from Evans & Partners.

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Julian Mulcahy, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [2]

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Just -- Bill, just maybe start with the Australian business. Are you still of a view that it's been -- I think of you as serious on your own goals and account loss rather than anything cyclical and structural and therefore, the operational leverage on the upside still exists?

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [3]

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Yes. I believe that we still have upside. Clearly, the markets have been very, very difficult, and we've had to make some internal changes to try to take care of our -- take more advantage of our strengths. Our biggest strength is that because we're a conglomeration of all of the stations giving us some mass share of all of the demographic markets, we have no limitation to any specific advertiser group in the country. When we own a mass portion of the demographics of every potential demographic, every potential advertiser in the country is a potential advertiser for us.

Through last September, we were clicking along so well and all of a sudden because the markets became extremely difficult, and most of the people we had -- that we had on our staff had been successful for a long time managing the accounts that they had and we're really not geared to going out and getting new advertisers. So what we've done is we've -- a lot of the exchanges just happened recently, we've geared it up to start a whole new staff which exists exactly like it did when we started this company. When we started this company, we didn't have any advertisers and everybody had to go out and farm new advertisers.

The existing staff we have, because they're very successful and have a lot of advertisers and takes a lot of time to farm new accounts, don't have the time available that they had in the early days. So this new group of, what we call, farmers is going to be key to the success as they generate more revenues from new accounts that aren't on. We have a better chance of recovering from the difficult times than if we were very narrow -- demographically challenged.

So it's a long answer, but I feel we still have upside. I feel that the conversion and the difficult times are going to still take a toll on us for a while. And being compared to the first quarter of last year which was very strong, it's not attractive, but we believe that we've made the changes. We don't believe that we're pigeonholed into a death spiral where revenue goes down and down.

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Julian Mulcahy, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [4]

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All right. And I mean, like, the first quarter is going to be tough comp, but then it should get very easy thereafter, sort of double-digit decline.

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [5]

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Yes. Yes. The September...

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Julian Mulcahy, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [6]

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So you would expect reasonable growth this year with not much increase in costs, so we should get that operational leverage on the upside?

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [7]

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Yes. Look, it's too early to tell, but we would be -- it would be reasonable to expect that the September quarter would be down and that the December quarter would be up. That would be our expectation, but we're not really giving any numbers to that yet. By the time we get to our AGM, we hope we'll have a little better handle on numbers to give people.

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Julian Mulcahy, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [8]

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All right. And just on Canada, with the benefit of having Rogers there, what's it done to sort of prices? Or what did you exit at in terms of price increases overall?

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [9]

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Look, we're getting better rates in Toronto, sometimes as much as 10% better rates just in Toronto alone. As you know, we have a new management -- or we have new management starting in Canada soon. So -- and we've made some changes in Canada as well as increasing the size of the sales staff and some of these changes will take a while to get hold. But we're comfortable that Canada will start looking better now.

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Julian Mulcahy, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [10]

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All right. And just on Brazil, I mean, you said that you can expand without adding much in a way of cost now. So profit should start to grow again is the expectation?

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [11]

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Yes. Look, we're -- all of the expensive markets we're in, we're opening in the Curitiba market in -- fairly soon. We're not putting helicopters up there. It's more light staffed. And so each of the markets we'll add from now on will have the expenses that all of the markets have -- that we've added in the past. So the expensive part of building Brazil is over. We may add affiliates from time to time, but we believe that for the next few years, Brazil should start generating higher and higher EBITDA numbers.

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Operator [12]

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(Operator Instructions) And our next question comes from the line of [Richard Cho], a private investor.

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Unidentified Participant, [13]

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Just a question on ongoing dividend. What can we expect in terms of -- yes, you've announced $0.03 now. Going forward -- approximate amount of dividends going forward, what would you estimate that to be?

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [14]

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The Board has now made...

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Scott E. Cody, GTN Limited - COO & CFO [15]

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That's going to be...

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [16]

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Go ahead, Scott.

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Scott E. Cody, GTN Limited - COO & CFO [17]

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That's going to be driven by the earnings. Basically, our policy is to pay out 70% to 90% of NPAT. So that has not changed. So it's going to be driven by the earnings.

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [18]

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Also maybe affected somewhat by the amount of cash we put into the stock buyback.

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Operator [19]

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(Operator Instructions) There are no further question at this time. Speakers, you may continue.

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William L. Yde, GTN Limited - MD, CEO, President & Executive Director [20]

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Thanks, everyone, for joining this morning. We remain committed to maximizing the potential of our markets and creating shareholder value, and look forward to speaking to you again after first half 2020 results. Thank you.

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Operator [21]

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And that does conclude our conference for today. Thank you for participating. You may all now disconnect.