Company Interview / oOh!Media confident of better 2H

Cathy O'Connor, the CEO of oOh!Media (ASX:OML), provides an overview of the company's recent performance and future plans. Despite a challenging year indicated by a 3% drop in first-half revenue and a 10% decrease in statutory profit, Cathy assures that the company has seen a record agency share and asserts its firm foothold in the media sector. Cathy highlights the increasing prominence of out-of-home as a mass reach medium and recognises the cost-efficiency it presents compared to other broadcast formats.

Cathy shares that attributes such as innovation in digital, growing audiences and strategic infrastructure investments in Australia and New Zealand are driving the sector's share upward. She mentions the decisive board actions to improve revenue performance, including operational adjustments, strategic investments, and expansion plans, specifically within the high appeal metropolitan precinct - Sydney CBD. Cathy anticipates a revenue share growth spurt from recent metro audience contracts in Sydney and Melbourne.

Explaining the 10% revenue drop in the retail business, Cathy points to the exit of the vicinity contract, while reassuring that oOh!Media still has the highest footfall in the remaining retail space than any other operator. She expresses confidence in competing well in the retail media sector. In terms of interest rates affecting the advertising market, Cathy feels the cyclical trends could aid recovery in difficult times. Lastly, Cathy touches on the measures adopted to maintain their costs within the existing envelope, ensuring no need for unforeseen or lumpy investments for growth.

Full unedited transcript:

0:12

Media has reported a 3% drop in first half revenue to $288.3 million, which it says is due to exit and renegotiation of contracts, as well as short term market share loss. Underlying profit at media fell 11% in the period to $18.2 million, while statutory profit was down 10% to 5.8 million. An interim dividend of 1.7 $0.05 per share, fully franked, has been declared, which is a payout ratio of 51% and we are seeing shares rise 6.5%. Let's get straight, though, to the CEO, Cathy O'Connor. O media CEO Cathy, I'm in a tough year, which I think you flagged as well in your results, particularly when it comes to revenue and profit. But you did see record sector agency share.

0:58

Yes So its interim results are a half way report card from media. And we are certainly operating in a very buoyant and growing media sector. Uh, and by that I mean the out-of-home sector, not not the broader media market, uh, which is, of course, not feeling quite the growth that we are. So we have a record share of all media in the SMI data, which is released each month of 15%. And that is an all time high. And what's driving this is the increasing prominence of out-of-home, uh, as a mass reach and probably the only remaining mass reach growth medium in the established media landscape. Uh, it's increasingly more cost efficient than other forms of broadcast, increasingly digital. And we see all this wonderful new infrastructure and new digital assets going in right

1:58

across the landscape in Australia and New Zealand And I only caught, uh, the brand new Metro rail line to meetings this morning. Uh, which is something that we are very proud to be bringing to advertisers. This half. So all of that innovation in digital and these wonderful sort of assets and growing audiences through population growth is really what's driving that sector. Share. You have mentioned that the board is taking decisive action to address revenue performance. How are you planning on doing that in the second half?

2:34

So revenue share and out-of-home. There is a big piece around assets and we have been underweight in the Sydney CBD in particular for some years since the Sydney Trains contract exited the business back in 2021, and we have been waiting for the opportunity to build back our Sydney metropolitan network. We've started that process. The Metro rail line is a big part of it. We signed the very first street furniture contract for the Woollahra Council, which is a very high appeal metropolitan precinct. And today we announce another anticipated 38 million brand new metro audience contracts in Sydney and Melbourne. So all of these things play into future revenue share growth. And we're also doing a lot of work with our sales teams, making sure that our pricing and our processes make us responsive to the

3:33

market and able to meet client and agency objectives quickly and efficiently. So a lot of improvements going on and a very strong asset story here, and that is already playing out in what we are seeing in the second half. We returned to good growth in Q3, uh, from August into September and beyond September. The outlook is robust, so really confident that our strategies are playing out effectively. Can you tell us what was behind the 10% drop in revenue in your retail business?

4:11

Yes, that's the vicinity contract. So as you know, that was a very large and is a very large contract of shopping centers. Uh, and that exited the business on January 1st. I think important to note that on media, in terms of the footfall that it's remaining retail business covers, it is 10 million higher than any other operator in the retail space. So we were big and we are still big and rapidly increasing the digitization of the remaining retail assets that we have. So feeling confident that, uh, we are going to compete well in retail media. Moving ahead. Do you think if we have seen the peak of interest rate hikes and they do come down from early next year as many are flagging, that is going to help out the advertising market as well.

5:03

I think it is. These are cyclical trends as we know. And where there's uh where there's tough times, there is generally recovery. So the beauty of our business as the largest player in our home is that we will benefit from that cyclical improvement, but we also have a structural growth story to tell. So the combination of those two factors should be bring consistent and sustained growth. Out-of-Home and our media as the largest listed player in the sector. Now we mentioned your dividend payout ratio 51%. I know you like to keep it between 40 and 60%. What's the likelihood that you can maintain that for the full year?

5:43

So as I said, we're confident that we have an improved outlook. Not many media companies are talking about improved outlooks. I notice that Seven West Media has reported versions of less decline. We couldn't be operating in a more different environment here. So with earnings growth comes dividend growth. Now seven West Media also flagging job cuts. Is there any sort of move to your staffing. You employ around 800 people.

6:12

So we run a very efficient business. You can see that in our gross margin and EBITDA margin expansion in the half despite the revenue loss. So we have long said that we we believe that there is growth in the existing headcount levels in the business. Unlike television, we are playing to a growing market. So you don't want to cut your capacity to grow. Uh, but of course, we remain responsive to market conditions. And should that change, uh, we would obviously be open to flexing the business in any way we needed to. Kathy, how much are you spending in terms of technology and also using sophisticated data?

6:53

So most of our technology and data costs are within the existing cost envelope. So we have said that we intend to keep our operating costs at or below inflation. That will certainly be the case this year. And that is a principle that we adopt moving ahead. So we don't see any unforeseen or lumpy investments. We'll need to make in our business and our technology and systems to get the growth we expect.