APN, Fairfax warn of lower profits

APN, Fairfax, NZ's two major newspaper publishers, warn of lower profits

May 3 (BusinessDesk) - New Zealand's two major newspaper publishers are warning of lower profits, partly due to the impact of Christchurch's earthquakes on the already weak New Zealand economy.

Both APN News & Media Ltd. and Fairfax Media Ltd., which are both headquartered in Australia, say the strength of the Australian dollar will also hurt their reported earnings from their New Zealand operations.

APN, which owns The New Zealand Herald, said its earnings before interest and tax (EBIT) for the six months ended June will be between A$15 million and A$20 million lower than the previous first-half.

APN's first-half EBIT last year was A$87.1 million.

APN also owns other newspapers and magazines in New Zealand including The Listener and The Radio Network, which claims 46% of New Zealand's radio market.

APN also has operations in Queensland and chairman Gavin O'Reilly told the annual shareholders' meeting the company is still feeling the repercussions, although there has been some improvement in Queensland.

In response to the expected lower earnings, “APN has commenced a round of restructuring initiatives in our publishing operations,” O'Reilly said. The outdoor advertising and radio operations are trading ahead of last year, he said.

“Notwithstanding such a difficult start to 2011, APN's trading is anticipated to improve in the second half, although it is not expected that the full year result will match APN's 2010 earnings.”

Still, O'Reilly said he expected the return to positive earnings momentum “will ensure the continuity of dividends and, most importantly, enable the pursuit of growth-oriented initiatives.”

APN is 32%-owned by Dublin-based Independent News & Media which is 30%-owned by O'Reilly's family,

Fairfax, which owns The Dominion Post, The Press and other newspapers as well as online trading site Trade Me, said it expects its earnings before interest, tax, depreciation and amortisation (EBITDA) for the year ending June will be about A$600 million. Fairfax's EBITDA for the previous year was A$639.1 million.

Managing director Greg Hywood said revenues, measured on an as reported basis, for the second half to date are currently 4.5% lower than last year.

Hywood said second-half costs are tracking 1% higher than last year, including the cost of developing new iPad news applications due to be launched shortly, the launch of the group buying website Treat Me in New Zealand and costs associated with the recent acquisitions of TenderLink and Occupancy.

“While the rate of decline in advertising levels has abated slightly over the past month, the company does not anticipate market conditions over the remainder of the current financial year improving sufficiently to offset the declines experienced to date,” Hywood said.

Fairfax will book about a $25 million one-off redundancy cost in its 2012 financial year as a result of implementing its strategic review, he said. The review will reduce net annual costs by about $15 million from the 2012 financial year.

Hywood said the review will position Fairfax well to take advantage of any economic recovery.

Despite the cost cutting, “Fairfax will be investing in more high calibre reporters and writers, an expanded trainee program and multi-media training and equipment,” he said.

“Quality journalism and content will be key to maintaining and developing new markets and audiences.”

Fairfax shares, which are only traded on ASX, fell as much as 12 Australian cents to A$1.19 after its announcement, just above their A$1.17 low in March and well down from their year's high at A$1.76.

On the NZX, APN shares fell 11 cents to $2.08, above their $2 low in March but well down from their $3.11 year's high.

(BusinessDesk)

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