Activist investor Sandon Capital has taken aim at broadcaster SCA, saying the board of directors is in “self-preservation” mode in a tough advertising market.
The fund manager has attacked the company’s decision to resume paying dividends, its announcement of an “unrealistic” executive bonus scheme and says SCA needs to further reduce debt levels.
“We are stunned that the board has decided to resume payment of dividends, especially in light of the uncertain outlook,” Sandon Capital’s Gabriel Radzyminski said in a letter to Heith Mackay-Cruise, the chair of SCA.
Sandon Capital said it believes SCA has valuable assets but that its full value can only be realised with “board and management changes”.
The board of SCA replied that it had support from more than 50% of its voting capital including Thorney Investment Group (and Associates) (15%), Spheria Asset Management (10%) and Ubique Asset Management (10%).
“SCA considers the resolutions (to spill the board) being proposed by Sandon are a considerable distraction and unnecessary cost,” the directors said in a notice lodged with the ASX.
SCA, in a trading update last week, reported “strong” audio revenue, up about 9% and ahead of its own guidance, for the first four months of calendar 2025.
However, CEO John Kelly said the post-federal election advertising market is short with limited visibility, which makes it difficult to forecast in the lead up to the end of the financial year and beyond.
The company reported revenue up 5.3% to $209.7 million for the half year to December, delivering on its "transformation strategy". Net profit after tax was up 5.5% to $3.2 million.
Sandon Capital, which last month increased its holding in SCA to above 5%, said it was pleased to learn that audio revenues grew by about 9%.
“However, the trading update fails to detail the impact on revenue from recent federal election advertising,” Sandon‘s Radzyminski said.
“Due to the one-off nature of election advertising, we do not consider the revenue growth provides an accurate representation of the underlying business, nor is it representative of the sustainable future growth rate of the company.”
SCA also reported cost cutting and now intends to resume paying dividends to shareholders.
“Given the cyclicality of media businesses, we consider that prudent shareholders (and directors) would prefer to see far lower debt levels than those that persist in SXL (SCA) today,” Sandon Capital said.
“We do not consider the decision to resume dividends at this stage to be a prudent decision given the CEO’s own admissions regarding the difficulties in forecasting revenue growth and the lack of further reductions of the cost base.
“We consider the decision to resume dividends to be a purely defensive move by the board; read in the context of our discussions regarding the need for changes at board level.
“This decision appears to be an attempt by the board to placate shareholders. We are confident most shareholders will see this decision for what we consider it to be – an ill-advised and short-sighted attempt at ‘self-preservation’.”
SCA, separately to the trading update, also announced a short term incentive scheme for senior executives, with a share price target of $1.20. SCA shares last traded at 71 cents.
“We consider the share price targets to be unrealistic,” said Sandon Capital.
“A shareholder arguing that share price targets are too high may sound counterintuitive, yet this is our considered position.
“Generally, long-term incentives must be hard to achieve, yet plausible. They must also avoid anchoring management, directors and shareholders to beguiling, yet unattainable targets.
“Targets that cannot be achieved will eventually lead to disillusionment for all stakeholders.
“Furthermore, anchoring at such levels becomes problematic as it encourages ‘roulette’ style strategies, where poor decisions might be made to gamble a company’s future just to reach those otherwise ‘unattainable’ targets."
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.