Sky, INL profits lower than forecast but analysts unfazed

By NZPA

Thursday 15th August 2002

Annual results from media company Independent Newspapers Ltd (INL) and its 66 percent-owned Sky TV subsidiary came in below market expectations today, but analysts were unperturbed.

One said that while the profits were below those anticipated, underlying earnings were sound and the company was expected to make good progress going forward.

"The ebitda (earnings before interest, tax, depreciation and amortisation) or cashflow level -- they're both pretty much in line, in fact a touch better than our numbers," Richard Leggat of UBS Warburg noted.

The market forecast a $46 million net profit from INL, but got $37.8 million. The result included Sky TV's result, a loss of $30.2 million which was higher than the $27 million forecast.

Sky's loss, while below the forecast, was offset by higher revenues per unit and a substantial rise in subscribers -- a 17 percent increase or 73,000 customers, instead of the normal 40,000 to 45,000.

Chief executive John Fellet was not making earnings forecasts for next year but he was positive about the year going forward.

"We've been in business for about 11 years and we're 36 percent penetrated so we try to get 2-3 percent a year in growth. This year would have been our biggest net gain and that included some of the TelstraSaturn customers, but I would imagine somewhere around 40,000-45,000 net gain a year customers we'll be pleased with."

Even though the company was trading at a loss for the fourth year running as it reached out for more subscribers, Mr Fellet said "at least we're moving in the right direction".

Sky's result was a $12.1 million improvement on the previous year's $42.3 million deficit, and its ebitda rose 43 percent to $108 million.

Revenues were up 15 percent to $344.6 million and the company hopes to break even by the second half of next year.

INL's net profit of $37.8 million was a 45 percent increase on the previous year's $26.1 million, boosted by increased advertising and circulation revenue but dogged by a declining performance by Wellington Newspapers.

As a result the company spent $8.4 million merging the city's two papers, and $1.3 million in restructuring the Christchurch Press.

The profit was also weighed down by increased newsprint and circulation costs of $7.8 million and other severance costs of $4.1 million.

Non-cash abnormals were $2.7 million for goodwill and written off asset values following the sale of buildings in Australia and minor publications in New Zealand.

INL's internet news site, Stuff.co.nz, halved its losses.

Revenue was up 1.5 percent to $527.7 million but after expenses, INL Publishing ebitda was down 1.1 percent to $119.5 million, and margins dropped slightly from 23.3 percent to 22.6 percent.

Including Sky, however, the ebitda actually rose 75 percent to $218.6 million. Sky's tax losses were written off against INL's tax expenses.

INL executive chairman Ken Cowley said the strategy going forward would remain focused on margin improvement.

"We will achieve this by continuing to capture synergies across the publishing business and with Sky, by targeting growing circulation, improving advertising yields and maintaining a tight control on expenses."

Mr Leggat felt INL had done a good job with the Dominion Post merger and that the Sky TV stake was undervalued. He put Sky TV's share price at $4.75 and INL's at $4.

Sky shares closed unchanged at $3.80 and INL fell 10c to $3.35.

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