SCA to raise $169m in equity funding, flags further cost reductions

Southern Cross Austereo (SCA) has begun raising $169m in fully underwritten funding in a bid to keep the media company afloat during the economic crisis caused by coronavirus (COVID-19).

In addition, it has flagged further cost cuts, with $20m to $22m to come out of marketing, programming and other costs, leading to reduced marketing and promotions, less spend on programming, and reduced travel, entertainment, conferences and equipment upgrades.

The business has been on a push for support following a voluntary suspension of trading as it looked at ways to improve its liquidity and pay down debt.

Alongside the funding, SCA has also increased its debt leveraging from 3.5 to 4.5 times its net debt/earnings before interest tax depreciation and amortisation (EBITDA) and will drawdown $50m of its existing facilities immediately.

The total cost savings flagged amount to $40-45m in ‘non-revenue related costs’ during the 2020 calendar year. Should the impact of COVID-19 be worse than currently expected, SCA has advised those figures could increase.

The business has already issued pay cuts across its business and put a stop to non-essential recruitment.

Capital expenditure reductions of $3m-6m over the next two financial years have been flagged and CAPEX guidances for FY20 have dropped to $17-18m.

The interim dividend for FY20 has been cancelled, allowing the business to retain $21m in cash. It is not expected SCA will pay dividends in FY21.

According to an Australian Securities Exchange (ASX) announcement, advertising revenue for the nine months leading to March 31 was down 10% on the same prior period and the company is not providing guidance going forward. A 30% drop across the end of FY20 and beginning of FY21 is expected.

The cost cutting will be taken from two key places according to the ASX announcement. The salary and bonus reductions already installed by the business have resulted in $20-23m in savings and cuts in marketing and promotions will result in $20-22m in savings. Travel, entertainment, conferences and non-essential equipment upgrades have all ceased.

SCA hasn’t traded since March when shares were $0.16

$121m of the equity raising has been underwritten by Macquarie Capital. $47m is coming from institutional placement. The current offer is 9c per share, a 45% drop from last trade price of $1.165 as of close March 23, when the company last traded.


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