Ferret's Stock to Watch: SOUTHERN CROSS BROADCASTING08:41,...

Ferret's Stock to Watch: SOUTHERN CROSS BROADCASTING
08:41, Thursday, 24 March 2005

THE MEDIA COMPANY THAT LOST ALAN JONES

Sydney - Thursday - March 24: (RWE Aust Business News)
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OVERVIEW
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Southern Cross Broadcasting (Australia) Ltd (SBC) managing
director Tony Bell has rarely made an error of judgement in building up
a leading media empire across the country in radio and television.

To most analysts Bell is a whiz at his business.

But he did shake the market a while back in the radio division
when he let top 2UE morning broadcaster Alan Jones go to 2GB in what
appeared to be a misreading of Jones's worth as a revenue producer.

Jones pulled 2GB back from the brink and brought in a huge
amount of new business at the expense of 2UE.

A couple of weeks ago Corporatefile interviewed Mr Bell and the
following exchange over the radio division followed.

Corporatefile pointed out that Southern Cross's radio
broadcasting revenue was up 11 per cent in the first half compared with
national metropolitan radio revenue growth of 14 per cent.

It said this implies some slippage in Southern Cross's revenue
market share, and asked Mr Bell what the outlook is for revenue growth
given an increasingly competitive and fragmented radio market.

"The national metropolitan radio revenue growth of 13.7 per cent
reflected both a healthy market and the absorption of the new,
high-rating Nova group of stations," Mr bell said.

"Our Sydney station 2UE's revenue growth has been less than
market growth, however we believe that as Sydney's number 3 rating radio
station, it is a high-rating station with very firm foundations for
future success.

"2UE has a strong line-up of personalities in John Laws, Mike
Carlton, John Stanley, Steve Price and Stan Zemanek and the market
continues to support the station," he said.

"With the impending launch of DMG's new FM stations in Sydney,
Melbourne and Brisbane, those markets will be further fragmented which
should have a positive impact on our Talk Radio network."

Corporatefile made the point that EBIT from radio broadcasting
was up 26 per cent in the first half to $9.7 million.

It asked Mr Bell what the outlook is for radio earnings in the
current second half, and what scope is there to achieve further cost
efficiency in 2UE's operations given slower revenue growth.

"We expect radio market revenue growth in the 5 to 7 per cent
range in the second half," he said.

"We will continue to focus on operating cost containment,
increased audience and revenue share, including superior sales
initiatives.

"In the absence of unforeseen circumstances, we expect radio
earnings growth in the second half," Mr Bell added.

Overall picture on first half result
------------------------------------

On the overall picture Corporatefile said Southern Cross
Broadcasting recently reported net profit of $33.3 million, before
non-recurring items, for the first half ended December 2004, up 27 per
cent from $26.1 million in the previous corresponding period.

Mr Bell said the company expects advertising market revenue to
grow by around 6 per cent in the second half.

"This is consistent with the industry forecast of steady growth
in the 5 to 7 per cent range for calendar year 2005.

"In the absence of unforeseen circumstances, we expect to
achieve earnings growth in the second half," he added.

Corporatefile pointed out that Southern Cross's revenue from
television broadcasting was up 10 per cent in the first half, but EBIT
rose only 5 per cent.

"Our regional television division incurred new and higher costs
associated with affiliation fees, transmission of digital services,
provision of local news services, which we commenced in the second half
of the 2004 fiscal year, and centralisation of operations and
distribution," Mr Bell said.

"Affiliation fees increased as a result of an estimated 16 per
cent increase in the percentage payable on revenue written by our
stations in the Queensland and northern NSW markets.

"A similar increase was incurred in our southern NSW and
Victorian markets in fiscal year 2004.

Mr Bell said Southern Cross will have spent around 80 per cent
of its digital rollout and digitisation capital expenditure by June 30,
while the costs associated with providing dual analogue and digital
services have also increased.

"Programming costs for our metropolitan television station,
Channel 9 Adelaide, were higher than CPI escalation in the first half
and comparable to increases experienced by Network Nine.

Questioned about the outlook for affiliation fees, Mr Bell
replied that by June 30 the company would have borne the stepped-up
increase in affiliation fees in all of its four markets; southern NSW
and Victoria last financial year and Queensland and northern NSW in the
current year.

"Thereafter, that is in 2006 and until the maturity date of the
long-term agreement, increases are mild and would have minimal financial
impact," he said.

Mr Bell declared that the marked increase in Channel 9
Adelaide's earnings over the last 18 months is attributable to strong
advertising market conditions, greater market share as a result of
Nine's consistently top ratings and manageable programming cost
increases.

"We expect moderate growth for television earnings if revenue
growth slows to around 5 per cent in the second half."

Mr Bell said any change in Australia's cross media and foreign
ownership laws may provide opportunities for the company and
shareholders.

"This is because of our strong financial position with strong
advertising conditions, an efficient and effective operating structure,
a strong balance sheet, market capitalisation of around $1 billion,
comfortable gearing level and an open register, Mr Bell stated.

SHARE PRICE MOVEMENTS
*********************

Shares of Southern Cross Broadcasting fell 2c to $13.60
yesterday. Rolling high for the year has been $16.59 and low $10.45.

Dividend is 63c a share, producing a yield of 4.63 per cent. The
interim dividend of 33c represents a payout ratio of 67 per cent of
profit excluding the net non-recurring gain of $14.99 million.

In its most recent strategy Southern Cross Broadcasting has
entered a Heads of Agreement to acquire Satellite Music Australia for
total cash consideration of $11.7 million.

The acquisition is subject to the satisfactory completion of due
diligence.

Satellite Music Australia is the leading Australian supplier of
subscription music.

It provides 30 channels of music to pay TV operators and smaller
retail customers, as well as customised music with advertising content
to larger retail chains.

The current chairman, Greg Solomon, and managing director Rick
Solomon will continue with the business.

Commenting on the acquisition, Mr Bell said "Satellite Music
Australia is an excellent business in its own right, with long-term
contracts to supply Foxtel and Austar with music channels, and a large
stable of in-store music customers.

"The company has an enormous library of digitised music and has
developed cutting edge technology.

"We believe that the growth prospects for this business under
Southern Cross Broadcasting's ownership are strong, particularly with an
opportunity to more fully utilise our substantial sales force and market
presence," Mr Bell said.

BACKGROUND
**********

Southern Cross Broadcasting is one of Australia's leading media
companies.

The company was listed on the Australian Stock Exchange on
August 20, 1987.

Over the past decade the company has built up one of the most
impressive and diverse networks of radio and television operations in
Australia.

Its interests extend from metropolitan and regional television
to metropolitan radio, TV production and distribution and related
businesses.

Today, the group's extensive television and radio operations
reach 94 per cent of Australia's population.

Television interests cover metropolitan Adelaide and all
regional areas of Australia other than Western Australia.

Southern Cross Broadcasting's radio interests serve the Sydney,
Melbourne, Brisbane and Perth markets.

In television the company operates Channel 9 Adelaide; Southern
Cross Ten Southern NSW covering the ACT and southern NSW, Southern Cross
Ten Northern NSW; Southern Cross Ten VIC throughout regional Victoria;
Southern Cross Ten QLD; Southern Cross Tasmania; Southern Cross Darwin &
Southern Cross Central and Central GTS/BKN covering Spencer Gulf region
of SA, Port Lincoln and Broken Hill.

In radio Southern Cross operates 2UE Sydney; 3AW Melbourne;
4BC Brisbane; 4BH Brisbane; 6PR Perth; Magic 693 Melbourne; 96FM Perth
TV Production & Distribution and Southern Star.

Other businesses include Southern Cross Syndication, a program
distributor and supplier; Southern Cross Radio Monitoring, a monitoring
service for radio monitoring; Southern Cross Telecommunications, a
broadband network carrier covering Queensland; Spencer Gulf
Communications, a network carrier servicing the group's needs in
southern South Australia.

A strength of the group has been its ability to maximise
profitability in an ever-changing technological and competitive
environment.

Over the years, Southern Cross Broadcasting has successfully
restructured the operations of all divisions within the group.

ENDS

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I don't hold SBC