Good morning, and welcome to ARN Media's FY 2026 first-half results presentation. My name is Michael Stephenson. I am the Chief Executive Officer of ARN Media, and this morning I am joined by Alexis Poole, our Chief Financial Officer. Today, we are once again streaming from our North Sydney studios. Today, I am going to share with you our company highlights and summarize our first-half results before handing over to Alexis to walk through the financial results in detail. I will then take the opportunity to reiterate our vision for the future of our company and provide a trading outlook before opening for questions. There are three key things that I would like you to take away from today's presentation. Firstly, we have stabilized the core business. Secondly, we are on track to deliver AUD 55 million of cost savings by the end of 2027.
Finally, our underlying audience performance is strong, but our metro radio revenue share is below our audience share and below our expectations. Our immediate focus is on regaining the revenue share that we have lost over the past 18 months, primarily because of brand safety issues in KIIS Breakfast. If we could turn to slide five. At our full year results, we said that we would be focused on stabilizing the core radio business and the divestment of non-core assets. I am pleased to say that in the half we have done this. We have entered into an agreement to sell Cody Hong Kong to DFI Retail Group. This simplifies our portfolio, provides greater financial flexibility, and creates certainty for our shareholders. Subject to final approvals, we expect this transaction to complete shortly. During the half, we also finalized a settlement with Quasar Media.
This settlement also provides certainty for our shareholders. Most importantly, it gives us the freedom to execute our plan, and regain lost revenue free from the brand safety and regulatory issues that have existed previously. The Henderson case continues to be a matter before the courts, and of course, we won't comment on that today. Last year, we made a commitment to transform our business, to create a leaner, fitter, and increasingly more digital organization, and we are making excellent progress. We have an unrelenting focus on disciplined cost and capital management. In the half, we have reduced costs by AUD 12 million and have a clear line of sight to deliver AUD 55 million of cost out by the end of 2027. The metro radio business is ready for growth.
We have spent the last six months developing new breakfast shows and selecting fresh new talent. I am pleased to say that we are close to finalizing talent agreements for our new shows in both Sydney and in Melbourne. I can announce today that both shows will launch this year, and both will be live and free. Our regional performance has been excellent, with strong audience revenue and EBITDA contribution. We've made a strategic investment in digital capability. We developed a clear digital strategy, and we have moved away from unprofitable podcast partnerships. Now, digital revenue and EBITDA is growing. IHeart is at the very center of our long-term strategy. In the half, we have created more iHeart original content. We have delivered eight iHeart live events. In June, we officially launched video on the iHeart platform. This is going to be an absolute game changer for ARN.
At the same time, through the half, we've continued to build our next-generation data infrastructure. We've further developed our data partnerships, and we've launched new data products. It has been a very, very busy period, but I'm proud of our team, and I'm pleased with what we've achieved. Of course, there is still a lot more for us to do. Turning to our result. Revenue for the half was AUD 128 million, down 14% on the prior period, impacted largely by brand safety issues in KIIS Breakfast and the federal election in the prior year. EBITDA was AUD 18 million for the half, down AUD 6.8 million versus the prior period. Digital EBITDA was AUD 2 million. Net debt reduced by AUD 28 million to AUD 49 million, driven by strong cash conversion and disciplined working capital management. Alexis will share a lot more detail later in our presentation.
We have a very clear plan to transition to a more digital business. However, in the short term, we must continue to stabilize the core radio business and regain the revenue share that we've lost over the past 18 months because of issues surrounding brand safety. I'd like to take just a moment to explain why this is so important. Right through the cycle, radio markets will decline by 2% to 3% per year, and digital markets will grow by 12% to 13% , 14%. We've passed the point of inflection. Any declines in radio markets will now be offset by the growth in digital markets. We're operating in a growth market. ARN is Australia's number two radio network. We have a 28 share of audience. We reach 12 million people every month, and we reach 7 million Australians on the iHeart network. Our audience performance is strong.
However, our metro radio share is well below our audience share. This is our single biggest opportunity. You can see on this chart, we're a 25% share of audience in the metro markets, yet we're only an 18.5% share of revenue. Our revenue share has decreased by more than 6 points over the last two years, largely because of concerns around brand safety. The good news is, of course, the brand safety issues that we've had are now over. Every share point is worth AUD 6 million. That means there's AUD 38 million worth of revenue upside for ARN if metro radio share can improve and we can regain what we've lost. 80% of this falls straight to the bottom line. This is not an unrealistic expectation. We were a 25 share of revenue less than two years ago.
Whilst we continue to transform our business and enter new markets, and this is critically important, regaining lost radio share is the lowest hanging fruit, and it's our single biggest growth lever in the short term. At our full year results, I shared our vision for the future of our company: to transition from a radio business to an entertainment company. A little later I'm going to reiterate our strategy, the importance of iHeart to our business, and the huge opportunity for growth that comes as we diversify our revenue and enter the AUD 5 billion digital video market. Right now, I hand to Alexis to walk you through our financial results in detail.
Thank you, Stepho, and good morning everyone. I will take you through the financial performance for the first half of 2026, and more importantly, the progress we have made, strengthening the fundamentals of the business. Against a challenging backdrop, ARN is now more resilient, disciplined, and financially stronger than it was 12 months ago. We have strengthened the balance sheet, reduced debt, divested non-core assets, reset the cost base, generated strong cash flows, and accelerated our shift to digital and data-led revenue. We have been super busy resetting our business. Now to the numbers. Revenue was AUD 128 million, down 14%. Adjusting for last year's federal election and ATN contract negotiations, it was down 10%. Despite these headwinds, EBITDA was AUD 18 million and free cash flow was AUD 19 million. We delivered a further AUD 12 million of cost savings, bringing total savings since 2024 to AUD 43 million.
Net debt reduced to AUD 49 million, and digital revenue now represents 11% of group revenue, and digital EBITDA increased 55% to AUD 2 million. ARN is leaner, financially stronger, and more digitally focused than it was a year ago. Now to revenue on slide 14. The prior period includes AUD 7 million of one-off revenue items relating to the federal election and ATN contract negotiations. On a like-for-like basis, revenue declined by 10%. The regional revenue was down just 1%, with local regional revenue growing by 3%, reflecting the strength of our local market positions and the continued value that advertisers place on ARN's regional presence. Digital revenue grew by 2%, driven by growth in streaming revenue of 16%, demonstrating that our strategy to grow audience and monetize across digital platforms continues to gain traction.
Metro revenue declined 20%, reflecting the ongoing impact of brand safety issues carried over from 2025 and into the first half. As Stepho noted earlier, our biggest opportunity is to leverage our strong metro audience positions and rebuild revenue share and continue to diversify the business. Turning to slide 15. This EBITDA walk demonstrates the benefit of the hard work done on the cost base and how those savings have helped offset revenue headwinds. EBITDA was AUD 25 million in the prior period. Our productivity program delivered AUD 12 million in savings, increasing EBITDA to almost AUD 37 million on a like-for-like basis. We deliberately reinvested part of these savings back into the business, including AUD 3 million in data, tech and digital capability. We will also absorb inflationary pressures while benefiting from AUD 5 million of lower talent costs following the departure of Kyle and Jackie O.
Post-revenue decline, EBITDA for the half was AUD 18 million. Turning to digital on slide 16. Digital revenue increased to AUD 14 million in the first half, up 2% on the prior period, while digital EBITDA rose 55% to AUD 2 million. Digital EBITDA growth materially outpaced revenue growth, reflecting the improved earnings quality of our digital business. This was achieved despite lower podcast revenue, following our deliberate exit from low-margin third-party agreements. We prioritize higher quality earnings reinvestment in ARN-owned products and deeper integration in the iHeart ecosystem. ARN's disciplined cost management continues to deliver a meaningful reset of the cost base while creating capacity to invest in future growth. As this slide shows, operating costs reduce from AUD 97 million to AUD 85 million, a reduction of AUD 12 million, 13% year-on-year. Importantly, this reduction was achieved while continuing to invest in the business.
We are removing structural costs while we are investing in the capabilities needed to support future growth. Stepping out our multi-year cost out program on slide 18. In 2025, we embedded a stronger productivity mindset, enabling us to increase our total cost savings target to AUD 55 million over the 2024-2027 period, well above the original ambition. As this slide demonstrates, our productivity program continues to deliver ahead of expectations. In the first half of FY 2026, we delivered a further AUD 12 million in savings, bringing cumulative savings to AUD 43 million. Importantly, we have already actioned a further AUD 7 million of initiatives for the second half of 2026, and our productivity program will deliver a further AUD 5 million in 2027, giving us the clear visibility to approximately AUD 55 million of cumulative cost savings by 2027.
The key takeaway is that we are strengthening operating leverage and creating capacity to invest into future growth. Turning to slide 19. As mentioned previously, strong cash generation remains a defining feature of ARN's financial performance. Operating cash flow was AUD 13 million, representing an operating cash conversion rate of 145%, reflecting disciplined capital management. Free cash flow was supported by AUD 10 million of proceeds from non-core asset sales, primarily reflecting the partial sale of our SCA shareholding, and the continued execution of our regional property monetization program. These initiatives support our disciplined approach to capital management and balance sheet optimization. As a result, ARN generated free cash flow of AUD 19 million, representing a free cash flow conversion rate of 202%. Turning to the balance sheet on slide 20. Despite the challenging operating environment, we closed the half with significantly stronger balance sheet and greater financial flexibility.
Cash increased 72% to AUD 18 million, supported by strong cash generation, proceeds from asset optimization and disciplined capital management. We continued to deleverage the business with net debt reduced to AUD 49 million. Reported net assets were AUD 239 million, down AUD 36 million on the prior period, primarily due to non-cash impairment charges of AUD 25 million and litigation-related items. Excluding these items, net assets actually moved in a positive direction. Importantly, the impairment has no impact on cash flow, debt facilities, or covenant headroom. As we prove out our strategy, we get to write back that value onto our balance sheet. We also continue to simplify the group with Cody Hong Kong sale agreement recognizing a net asset position of AUD 4 million, a significant improvement on the prior year. ARN remains committed to returning capital to shareholders through dividends.
As the group continues to diverse non-core assets and progresses the resolution of litigation matters, the board will continue to assess dividend payments in the context of earnings, cash flow, and capital requirements. The key takeaway is that ARN exits the half with a stronger, more flexible balance sheet supported by high cash, lower debt, and improved liquidity. You can see that ARN's leverage on a continuing operations basis has reduced materially over the past two years and remains comfortably below our target range. Net debt has reduced by AUD 39 million from AUD 88 million in June 2024. Net leverage was approximately 1.5 x EBITDA, well below our target of less than 3 x. The group has AUD 140 million of debt facilities and, as at 30 June, AUD 73 million of undrawn capacity.
As we head to the completion of the sale of Cody Hong Kong, proceeds of which will be applied to net debt, but more significantly, it will release AUD 30 million of Australian bank guarantees and also parent guarantees. Before I hand back to Stepho, let me recap the first half's financial performance. Despite a challenging backdrop, ARN has continued to reset its cost base, continued to strengthen its cash generation, continued to materially simplify and de-risk the balance sheet, continued to accelerate the shift to higher quality digital earnings and revenue, and most importantly, we continue to build stronger operating leverage, creating a clearer pathway to long-term shareholder value as we regain revenue share and continue to diversify the business. Thank you. I will hand back to Stepho now.
Thanks, Alexis. In February, I shared our vision for the future of our company to transition from a traditional radio business to an entertainment company, a company focused on the creation, the distribution, and the monetization of content. We have a very, very clear strategy: create great content, distribute it across all platforms, amplify that content on social to engage our audiences and our advertisers. That is our plan. Our focus is on maximizing the return on our existing content and talent investment by using our leading radio brands and number one radio shows, and our new stars to create content for every other platform, content for radio, content for podcasts, increasingly content for video, and of course, social platforms.
Radio remains the foundation of this business, but what we are building around it is something bigger, a platform that brings together audio, video, social, and in-real-life experiences to create one connected entertainment ecosystem. At the very, very center of our digital strategy is iHeart, the world's largest free streaming platform. Our partnership creates long-term competitive advantage for ARN. It gives us access to global development and product teams via a long-term license agreement. Critical to our long-term plan is the ongoing development of our next-generation data platform. Over the half, we have continued with our data partnerships with Westpac, with Experian, and with Azira to enrich our audience segments with banking, consumer lifestyle, and location-based data. We now have over 800 audience segments that advertisers can use for targeting. We are building a first-party data asset at ARN that dramatically improves the monetization of our growing digital audiences.
It is my view that the convergence of audio and video is a clear medium-term opportunity for ARN. We launched short-form and vertical video on the iHeart platform in June, and next year we will start live streaming long-form content. Video advertising in video content arrives in September. It is this strategy that I expect will help us to grow and diversify our revenues, whilst improving the long-term monetization of the core audio assets we already have. The implementation of our strategy will fundamentally change the shape of our revenue. Today, 45% of our audience is delivered on a digital platform, but it is only 11% of our revenue. At a time, any decline in radio revenues will be more than offset by the growth in digital revenues.
This growth will come from audio and video podcasts and video live streaming, both of which attract a CPM that is three to five times higher than the traditional radio yields that we receive. The creation of video content using our existing talent and the monetization of short-form video on social is going to allow us to participate in the AUD 5 billion digital video market and the AUD 2 billion social video market. It's this clear gap between audience share, revenue contribution, and margin that highlights the significant runway ahead for monetization and, of course, supports the digital transformation program that we're undertaking. Turning to page 30. As we've said previously, our plan will be executed in three phases over five years. Our immediate priority is to regain the revenue share that we have lost.
In the midterm, we'll be focused on accelerating our digital transformation, leveraging our investment in data, our investment in video, and our investment in digital capability to enter new and emerging markets. Right through the cycle, we'll develop new products, new services, and we'll develop digital adjacencies that will allow us to enter high-growth digital markets, and further diversify revenue and earnings over time. Turning to page 31, to our outlook. We expect the total audio market to be flat in FY 2026, excluding the election revenues from the prior period, with low single-digit declines in radio markets being offset by the growth in digital revenue. We expect our metro radio share to improve throughout the year, regional radio share to be flat, and digital revenues to grow in the mid-teens. We will, of course, continue to be focused on executing our cost out plan.
As I mentioned earlier, there are three key things that we'd like you to take away from today's presentation.
Can you hear it at all?
Firstly, we have stabilized the core business. Secondly, we're on track to deliver AUD 55 million of cost out by the end of 2027. Finally, our metro radio revenue share is behind our audience share. Our number one priority is regaining the revenue share that we have lost over the past 18 months. Thank you for your time, and we will now open for questions.
Good morning. I'm Fiona Ellis-Jones, Head of News and Information at ARN. I'll be moderating today's live Q&A. If you have any questions for Stepho and Alexis, please do put them in the chat, and we'll endeavor to get to as many as we can. Analysts will have the chance to ask questions verbally. We do have a few questions already, so let's go to them now. Stepho, first to you, and the question: If you were sitting in our seat, what would you need to see before becoming more positive on ARN?
Thanks, Fi. Well, first, I think there's a number of things to consider. The first is, I reflected a little bit of this in our presentation. The first is that we should feel confident that we're in a growth market. Right the way through the cycle, I believe any declines in metro radio markets will be more than offset by the growth in digital. We've got a very strong audience. Through the half, obviously, we entered into an agreement with DFI Retail to divest the Hong Kong business. We've also made a settlement with Quasar Media. We've reduced our cost base. We've reduced our net debt. The fundamentals of this business are very, very strong.
Of course, the big challenge, and what I see as a significant opportunity, is to regain the 6 points of revenue share that we've lost over the last couple of years for all of the obvious reasons. I think there's a lot for us to feel confident about in our ability to do that. It was only two years ago that we were at 25% share of revenues, and I have every expectation that that's where we'll return.
I see we do have a question on Cody Hong Kong, and we will get to that in just a moment, Stepho. First, how does the iHeart partnership translate into actual revenue growth in Australia?
Yeah, so again, in the presentation, I highlighted that we have 5 million signed-in users on the platform. We have a monthly reach of 7 million Australians accessing content on the iHeart network. We obviously have launched video in June on the platform. We invested heavily in data, in terms of time and resource, to develop data products over the course of the last six months. We have now got over 800 audience segments, and we are starting to see the revenues that that is generating. I think we should feel very confident that our ability to monetize the audiences that we have will continue to grow over time. We have spoken about the fact that 45% of the consumption of our content happens on a digital platform, but today it is only 11% of our revenues.
The opportunity to continue to build momentum on the digital revenue line is real and is happening.
Thanks, Stepho. Alexis, on Cody, does the Cody Hong Kong sale create capacity for dividends? Is it debt reduction, reinvestment, or is it actually all three?
It's actually all of the above. I just probably want to state we haven't changed our dividend policy. We still believe that returning capital to shareholders is what we want to do via dividends. As we progress through the completion of the sale of Cody Hong Kong and also resolving outstanding legal matters, we'll turn our hand to looking at paying dividends, but of course, looking at cash flows, performance, and other capital requirements.
Stepho, a question here from UBS. Alyssa at UBS: Hi, team. My question is following the departure of Kyle and Jackie O. Can you talk through how management is thinking about new talent benchmark, and rebuilding audience share? What are the key initiatives underway to address the talent gap and restore ratings momentum?
Yeah. Again, as I mentioned in the presentation, we are very close to finalizing all of the talent agreements with the new stars that will join ARN over the coming weeks and months. We also announced in the presentation that we will launch, this year, a new show in both Sydney and in Melbourne. Very rarely do you get an opportunity to reset your talent base, and that's what we've had in this six-month period. We've also been quite public about the point there where the fact that we're not going to rush it, and we haven't. There's been a lot of demand from a lot of people wanting to join ARN for these very premium roles in our breakfast time slot.
In terms of how we think about the KPIs, of course, we look at the basic KPIs of audience share, the reach that a particular program will deliver, the average audience, and of course, our ability to monetize that audience, both via the audience that it delivers, and also the ability to integrate brands in and around that content. It is interesting, I think, just to think about the economics of breakfast. Of course, it's a very high-demand day part. Where we were not that long ago was a show that delivered very strong ratings, there's no doubt about that. We weren't running full ad breaks, in terms of we had reduced the inventory because of the lower demand. The ad breaks that we had weren't full, and the price that we were selling it at was significantly lower than we had done previously.
We enter into a new world where, sure, the audiences might be lower to start with, and I have every expectation that will grow over time, but we will have full ad inventory. We have greater demand, and we will generate as much revenue as we did previously, albeit on a different model. I am quite excited by that.
Thanks, Stepho. Just a reminder, you can ask questions in the chat, and analysts are able to ask questions verbally. Stepho, what monetization uplift are you seeing from the 800 audience segments?
I believe that data is the currency of the future. It is why we launched a whole range of data partnerships at our upfronts last October. The result of those data partnerships with Westpac, Experian, Azira for location-based data, gave us the opportunity to generate 800 audience segments. 50% of the inventory that we now sell, digital inventory that we sell now has data attached. The revenue that we are delivering as a result of that is growing at about 70%, and I see absolutely no reason why that will not continue. We are building more data partnerships, new data products, and we are getting a lot better at telling that story in the market to advertisers.
Alexis, free cash conversion was very strong, as we saw in your presentation. How much of that is sustainable versus being timing-related?
Oh, yeah. We had a, I guess, a split of our results. We had really good working capital improvements, which will continue as we launch different projects and we have set up a procurement function. We have got a procure-to-pay going through, and in time we will continue to work on improving our days capital. We have benefit in the regional property monetization. There is a significant amount that came through, just approximately AUD 5 million. That will tail off as we reduce the amount of properties that we can sell.
Alexis, thanks. We have a question from Annie on audio, and this question is for Stepho. Annie from Barrenjoey, go ahead.
Hi. Good morning, guys. Thanks for taking my question. My first, I had a couple of questions. First one is just on the improved radio outlook. From the update you provided in May, outlook has been improved a bit and in line with the guidance you have. To that, can you talk about what you are seeing has driven that change?
Sorry. You are breaking up. It is not coming through my ear.
Just on the improved radio—
Yeah, we've got a pretty dodgy line to Annie. It's just on the improved radio market, Stepho. What was the question, Annie?
Yeah, can you hear me okay?
Yes.
Yeah, just on the improved radio outlook, can you talk about what you are seeing that has driven that change in the outlook comment? Has that been an improvement at the end of the first half or what you've seen in the second half so far? Also just related to that, can you talk about what you've seen in the trading the second half? So far, your PR noted a—
Stepho, the question is what you put down the improved outlook in the radio market to the end of H1?
Yeah, and I, excuse me. I don't use the word improved radio market. I think now the realities are the first half of the year, the metro radio market did decline by 6.6%. You strip out the effect of the election through that period, the underlying market is more like 3%, and I suspect that probably continues all the way through until the end of the year. If you think about right the way through the cycle, if the metro radio markets decline by 2% to 3% through that period, and digital markets are growing at 12% or 13%, 14%, you get a market position, a total audio market that's growing at about 1% all the way through the cycle out till 2030. I expect that's what happens.
The inflection point that we're seeing in radio and audio has happened far quicker than it happened, obviously, in television. I think we should have confidence in the market that we operate in. Then, of course, you think about our strategy and our ability to diversify revenue and earnings by entering into new growth markets, means we can also be in video markets, and other high-growth digital markets, which is certainly a part of our plan. I don't want us only to be leveraged to a traditional marketplace.
Stepho, the second half of Annie's question here is, can you comment on second half trading to date? Your peer had a good July. Did you see the same?
Yeah. We've given an outlook for the half which says that we're given the market conditions, obviously, as I just highlighted. We've also spoke about our share in the second half improving from the first half, which is what I'm currently seeing. I can't underestimate the impact that the brand safety issues have had on our business. Whilst that all ended in March, there is a lag between our ability to recover some of that market share that we've lost. I say the words lost because that's what I fundamentally believe. With all respect to my traditional competitors, I don't think they've won that share. I think we've lost it, and it's our opportunity now to regain that. I think you'll see that happen increasingly as we progress through the half and into next year.
Alexis, can I ask a follow-on to that question? Should investors expect working capital to normalize in H2?
Yes, they should. Yeah.
Stepho, final question, unless there are any more coming through in the chat or on audio. What's the strongest evidence that ARN can transition from a radio business to a broader entertainment company in your view?
I've spoke a lot about our strategy. At the very, very core of what we do, we're a content business. But of course, to grow and to monetize audiences across multiple platforms, to diversify our earnings over time, we must operate in different markets. The ability to create content once, distribute it across multiple platforms, and monetize it multiple times is obviously fundamental to that strategy. At the same time, and something I'm getting increasingly more excited about, is our ability to produce content that not always begins in radio and is amplified on other platforms, but potentially is developed for another platform, and we use radio to amplify that content. I think, a recent example of that would be The Failed Footballer podcast with Olan Tekkers that we stood up for the World Cup. It's a video podcast distributed across all video platforms.
We use our radio network to promote Olan as a talent and the content via updates and driving our audiences back to experience that content on YouTube or any other digital platform, including now iHeart. That, I think, is very exciting for us.
Alexis, did you have anything to add to that?
Yeah. I'd just like to go back to the normalization of—
Yeah.
—our working capital. In the balance to go, we will have a quite public settlement that will start to pay out. When I said normalize, it was more about our DPO and DSO excluding settlements.
Excellent. That brings us to the end of our presentation. There are no more questions, Stepho.
Thanks, Fi. Thank you to everybody. This is the end of our first half FY 2026 results presentation. I thank you very much for your time this morning, and I look forward to seeing you all at our full year results early next year. Thanks a lot.