Shareholders in regional newspaper, radio and outdoor advertising company APN News and Media Limited (ASX: APN) had a rough day yesterday, with shares down as much as 4%, following the release of its 2014 interim results. Here are some highlights from the report:
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Statutory net profit up a whopping 77% from the first half of 2013
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Revenue from continuing operations up only 3% from the last period and if we take into consideration currency influences, revenue was down 4%
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Earnings before interest tax and depreciation were up only 1% from last period
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$630 million worth of new debt facilities and refinancing measures until 2018
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No interim dividends were announced
So what?
The boost in net profit is primarily explained by APN's acquisition of the remaining 50% of Australian Radio Network and The Radio Network in New Zealand, giving it an earnings booster.
However, flatter sales also shows relatively weak demand for some of APN's products, particularly its volatile advertising businesses in New Zealand which continues to weigh down on quality growth provided by its outdoor divisions. Successful areas such as its outdoor division grew revenues by as much as 12%.
Furthermore, APN's lack of ability to pay off its massive debt position has also created some added uncertainty regarding future performance. APN sits on a relatively high net debt position. The debt increased $45.7 million to $482.6 million from December last year, this has certainly weighed down its balance sheet strength.
Overall, investors haven't been fooled by the massive jump in net profit after tax and have looked further to understand some of the flaws surrounding APN.
Now what?
In its latest results presentation, APN inferred that its advertising market continues to be unstable, in addition to softer agency revenues. APN's management has therefore tried to restructure its business functions in order to offset these weaker performing sectors.
These restructurings have resulted in a stream of cost-cutting activities and APN has indicated that it's on track to deliver over $20 million worth of publication cost savings through efficiency improvements.
Unfortunately, its relatively weak cash position and cost-cutting endeavours means that future dividends must be sacrificed and APN's first priority must be to revive sales and run down its debt levels. Investors looking for solid dividend yields should therefore not consider APN as an option.
Despite being in a lagging industry, APN continues to perform relatively well and I would expect to see its recent acquisition boost profits even further for the years to come. However, even after its investor presentation, I don't see any major long-term tailwinds that can substantially drive its earnings growth. I'll be keeping a close eye on APN for future updates, but in the meanwhile it's a solid hold.
