No growth in first half earnings for APN News & Media, the Australian and New Zealand newspaper, radio and outdoor advertising group.
The company yesterday told the ASX in a "pre-close period" update that it expects its net profit for the half year to June 2008 to be in line with last year’s result, but that operating earnings would be lower.
"Net profit after tax will be broadly in line with the same period last year," but the increased investment in new projects would cut operating earnings to where they were lower than those for the first half of 2007.
APN chief executive Brendan Hopkins said in the statement that the performance of its Australian business had improved slightly. Much of the company’s radio business is metro but its huge newspaper business is strongly centred on regional Queensland, which is booming, especially in the Sunshine Coast area, north of Brisbane, to the coalfields area from Gladstone north to Mackay and inland.
"Within the result revenues for Outdoor and Australian Publishing businesses remain comfortably ahead of the prior year, whilst our New Zealand businesses are marginally behind," he said.
"Our Online business whilst in investment mode, continues to record strong revenue growth."
He said forward bookings remain in line with expectations.
"Assuming no further deterioration in market conditions, APN expects to deliver another satisfactory year of achievement."
APN said revenue for the six months to June 30, on a constant currency basis, would be about 2% ahead of the prior year, despite generally tighter trading conditions.
The company didn’t issue any guidance for the 2008 year at its 2007 annual results in February but at the AGM in May it issued a cautious outlook:
"The Board noted that for the year to date, revenues and profit were ahead of the prior year in challenging market conditions. Assuming such conditions do not deteriorate, the Board expects that APN’s broad range of high quality media assets to again perform satisfactorily in 2008."
Clearly the ‘challenging conditions’ are continuing, although the intense turmoil we saw in February has eased somewhat. But it has been replaced by slowing economic activity in New Zealand, where the economy is poised on the edge of recession, and Australia. The strong regional economy in this country though is helping the group ride out the slowdown.
APN earned a net profit of $169.4 million in the 2007 year (before one off items). That was up 8% on 2006. The company last year rejected a buyout from the major shareholder, Independent News and Media of Ireland and a private equity group.
APN is the largest media company in New Zealand, where it owns The New Zealand Herald, the country’s largest newspaper. Its major competitor there is Fairfax Media, as it is now in Australia in regional areas after the merger of Fairfax and Rural Press.
APN shares rose yesterday after touching a low of $2.91 in the morning. They dropped 3c at the close to end at $2.98. That $2.91 level was the lowest the shares have been in the past year.
The statement from APN confirms that another leading media company is doing it a bit tough, but not as tough as the Ten Network, which is looking at a 10% drop in 2008 earnings because of the impact of the Olympics on rival Seven, and a slowdown in its segments of the ad market.
The APN update also shows that it has not done as badly as some leading broking media analysts have forecast for the sector.
JP Morgan said yesterday that: "Given the historical correlation of advertising spend with GDP growth and private consumption, there is no doubt a slowdown in the macroeconomic environment will weigh on the level of total advertising spend in Australia.
“We have considered the sensitivity of revenue and earnings across the media sector to a downside scenario assuming a significant contraction in ad growth across the main media markets in line with historical declines.
"While revenue and earnings of media stocks are highly sensitive to a contraction in ad spend, our analysis suggests that at current share price levels, a significant contraction is in most cases already fully priced in."
Based on what JP Morgan says the slowdown in ad revenues is ‘in’ the current APN share price.
