In the first new earnings downgrade for Australia’s struggling media sector, APN News & Media, one of the country’s two major regional newspaper publishers, has knocked another $20 million from this year’s forecast profit.
It was the second cut in three months. The news saw the shares weaken slightly, easing 1.5c to close at $1.41.
APN is the Australian arm of London-based Independent News & Media, APN News and Media, itself a struggler as it tries to reach agreement on a 200 million euro loan that falls due later this month. No progress has been reported for over a week now.
APN’s AGM was told yesterday by new chairman, Gavin O’Reilly (son of founder, Sir Tony O’Reilly who is planning to step down from INM later in the year) that the new profit range would be $100 to $110 million, compared with the 2008 result of $140 million.
"When releasing the 2008 full year results in February, the Board indicated that Net Profit After Tax (pre-Non Recurring Items) for 2009 was expected to be around $20m lower than the 2008 result of $140m, with the majority of the shortfall occurring in the first half,” Mr O’Reilly told the AGM.
"Whilst it is difficult to forecast with confidence due to the current market conditions, Directors now expect that, assuming advertising and credit markets do not deteriorate further, the full year NPAT (pre-NRI) to be in the range of $100 million to $110 million.
“Consistent with previous comments, the majority of the shortfall will occur in the first half of 2009 when results are being compared with a near record 2008 performance, with NPAT (pre-NRI) expected to be around $40 million.
"In terms of the second half, it is important to remember that profit for the second half of 2008, unlike the first, was severely impacted by the Global Financial Crisis and was well down on 2007. As a result, we do not expect to see similar year-on-year declines in our H2 results."
In 2008, APN reduced its full year dividend payout by 29% to 22.5c, which means lower income for INM for its 39.1% stake.
Every buck helps, and even though INM tried to sell its APN stake last year (and got no real bites), Mr O’Reilly expressed continuing support for APN.
The earnings downgrade is important because for quite a while some analysts believed that regional media were better placed than metro media.
APN is very strong in Queensland where the resources boom (especially coal mining and base metals) have been hit by production cuts, mine closures and rising job losses.
The news is bound to make analysts take another look at regional TV operators like Macquarie Media (Ten) and Prime (Seven), plus Fairfax, which controls Rural Press, the other major regional publisher in Australasia.
APN also owns newspaper assets in New Zealand.
Mr O’Reilly said 2009 would be a "challenging and workmanlike year" for APN.
"As we look forward, it is important to remember that it is our markets that are challenged," he said on Tuesday.
"Whereas our products and franchises remain strong and are generally holding their market share, with costs well down on the prior year.
"Whilst directors are optimistic that government stimulus packages will ultimately result in an easing of the current conditions, in the short term markets will continue to be difficult."
APN made a bottom line net loss after one-offs of $23.97 million in calendar 2008, compared to a net profit of $167.44 million in 2007, as revenue fell 6.5% to $1.26 billion.
A result of around $100 to $110 million for 2009 would mean the company’s earnings have dropped by around 40% over two years.
Mr O’Reilly said reducing costs continued to be a key focus with year-to-date costs down 10%.
"Our capital expenditure requirements over the medium term will be extremely modest at around $25 million per annum for 2009 and at that level for the next couple of years, down from $80 million in 2008," he said.
"Happily in these still-turbulent credit markets, APN continues to receive good support from our funding partners."
He said APN had recently accepted an offer for a new five-year $50 million asset finance facility with the Commonwealth Bank of Australia.
"This will provide greater flexibility in relation to any upcoming maturities," Mr O’Reilly said.
"APN has strong cash flows, reduced capex, good banking relationships and, with a conservative approach to dividends, expects to reduce debt in 2009 and 2010."
As at the end of April, and with the inclusion of the new bank facility, APN had in excess of $120 million in cash and undrawn facilities.
