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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Welcome to Independent News & Media's Full Year Results Presentation conference call. For your information this call is being recorded. Today's presentation is being hosted by Independent News & Media COO, Mr. Gavin O'Reilly, and CFO, Mr. Donal Buggy. I will now connect the call to the live presentation.
DONAL BUGGY, CFO, INDEPENDENT NEWS & MEDIA PLC: Good morning, everybody, and thank you for joining us today. We're delighted to present to you Independent News and Media PLC's 2006 full year results. And we'd also like to welcome those dialing in from abroad. My name is Donal Buggy; I'm CFO of the Group. And this morning I'm joined by my colleagues, Gavin O'Reilly, who is COO of the Group, Vincent Crowley, CEO of our Irish Operations and Ivan Fallon, CEO of our U.K. operations.
I shall start with a brief Group overview and then take you through the 2006 full year results. And Gavin will then review the Group's operational performance in more detail and conclude with our outlook for 2007 and beyond. Following that we shall be happy, as usual, to take any questions from you at the end of the presentation.
INM is a unique media company in today's world through its consistent delivery of sustainable growth. This has not come about by accident, but as a result of our focus on certain key drivers. Our policy of geographic diversity, our proven strategy of targeting growth markets and looking beyond the English language for our future growth, while at the same time building a multi-platform business across print, online, radio and outdoor, means that we're a thriving international media group. And it's not just the asset portfolio that we have but our operational focus that sets us apart.
With our pricing power, we deliberately set out to be price leaders in every market in which we operate. But this strategy means that we have to constantly improve our products in terms of formats and offerings, so that our consumers are always receiving added value.
Overriding all of this is our focus on putting our products together as efficiently as possible in our drive to be the low-cost operator. To this end we are continuously finding further efficiencies across every level of our business. These, we believe, are the ingredients that underpin our ability to deliver superior and sustainable revenue and earnings growth.
Before looking at the 2006 results in detail, I would like to briefly outline the size, breadth and shape of our Group. Today INM publishes over 180 newspaper and magazine titles. Publishing is still very much at the heart of what we do, representing over 80% of our total revenues. And that is combined with our 100-plus complementary websites, our outdoor panels which exceed 75,000, and our 130-plus radio stations. You can see that we are a truly global multimedia company spanning 21 countries and in 10 individual markets.
In total, our range of products reach an ever-increasing weekly audience of over 100m consumers, which forms the basis of our circulation and advertising growth. That platform diversity and our current portfolio of market-leading assets [leaves those] operations some of the fastest-growing media markets in the world today. As a result we are a multimedia company that is growing strongly, which distinguishes INM from its competitor set anywhere in the world.
Turning now to our 2006 results, which were announced this morning. And it's always pleasing when you can announce a set of results which exceed market expectations, and I'm pleased to say our 2006 results have done just that.
Adjusted EPS, at EUR0.1743, was up 11.6% on 2005 as a result of strong performances across each of the publishing and online, radio and outdoor divisions.
Group revenue was up 3.1% in constant currencies, with all our markets ahead year on year.
Costs were well controlled in 2006, with cost increases of just 1.9% in constant currencies. And that was despite significant revenue driven and newsprint cost increases across some of our markets.
This combination of good revenue growth and strong cost control resulted in Group operating profit increasing by 8% in constant currencies and the operating margin expanding to 20.1%, which achieves our 20% target.
During 2006 we continued to develop and strengthen our asset base, including the acquisitions of PropertyNews.com and WNS in Northern Ireland. In addition we continued to develop and strengthen our asset base -- sorry, in addition we continued to enhance our production facilities with new and upgraded plants in Australasia and the commencement of a new print plant in Northern Ireland. And in addition to PropertyNews.com we further expanded our online offering with a number of strategic investments in rapidly growing businesses that are complementary to our publishing business, and Gavin will outline these in more detail for you shortly.
Our Indian associate, JPL, continues to thrive, delivering impressive results for 2006 following its successful IPO in February of last year.
Reflecting this good underlying operating performance, a robust balance sheet and strong prospects for the Group's future, the Board recommended today an increase of 18.6% in the final dividend to EUR0.083 per share.
And looking at that income statement in a little bit more detail for 2006, Group revenue, at nearly EUR1.64b, is up 1.5% on last year. This increase was reduced by adverse foreign currency movements, the loss of some low-margin distribution contracts in Ireland and the disposal of the Security Print business in New -- in Australasia. Within the revenue increase all the Group's main geographic markets achieved revenue growth in constant currencies, and within the publishing division both circulation and advertising revenues were up over 5%.
Operating profit, at just under EUR330m, is up 5.7% with the operating margin improving by 80 basis points to 20.1%. Our key operating divisions of publishing and online, radio and outdoor achieved year-on-year operating profit growth in constant currency terms. And our South African business was particularly impressive, surpassing all expectations in reporting operating profit growth of 32.1%. This strong operating performance, coupled with a reduced interest charge, resulted in profit before tax and exceptionals increasing by 10.4% to EUR265.7m.
Our effective tax rate, excluding exceptionals, increased to 20.7%, mainly as a result of the strong trading performance in South Africa, coupled with lower interest rate deductions. Despite this, net profit excluding exceptionals, at EUR132.8m, was still up an impressive 12.8%.
Turning to the Group cash flow statement, you'll see that the operating cash flow in 2006 was a very healthy EUR354m. And this resulted from strong operation -- the strong operational performance discussed earlier coupled with good working capital management.
The restructuring payments of EUR34.1m, they relate to the reduction in permanent headcount of over 400 staff which occurred mainly in Australasia, Northern Ireland and the Republic of Ireland during 2006.
In line with our policy to invest in the future, capital expenditure totaled EUR62.9m and investments totaled EUR36.7m. And Gavin will review both the CapEx and investments in more detail in a short while.
Having made these investments for the future in 2006, and before the APN share buyback, the net cash generated by the Group after dividends was just EUR20m. The APN share buyback, which cost EUR83.7m, meant that after that the total net debt increased by EUR64.1m during 2006.
And looking on the next slide at that net debt, you'll see that the total net debt of just over EUR1b, some EUR640m was recourse to Independent and the other EUR400m, which is the APN net debt, is non-recourse to INM. Our strong gearing ratios, with net debt to EBITDA now at 2.8 times and interest cover at 6 times, means that we are well positioned to make further investments in our products while at the same time ensuring an increase in shareholder return.
The net debt figure is obviously an important part of our Group balance sheet and this slide outlines the other key categories, the main one being our intangible assets, which are independently valued at over EUR2.8b and are mainly represented by our valuable mastheads. The decrease in this category on 2005 was mainly due to adverse currency movements.
Compound financial instruments, at EUR208.7m, they comprise mainly of -- they comprise purely of two instruments, our New Zealand exchangeable preference shares which mature this November and they'll most likely convert into INM shares at that stage, and APN's convertible notes which APN are currently in the process of converting. As a result, both these instruments should really be considered as equity rather than debt going forward.
The other category of note is the retirement benefit obligations, which at EUR126.9m are EUR40.4m less than last year. The details of this movement are outlined on the next slide, where you'll see that the EUR40.4m improvement is due to a combination of improved investment performance and increasing bond yields. And that improved performance is reflected in a slightly lower income statement charge in 2006.
In addition to that, the Group has proactively addressed its pension deficit by agreeing with employees a new funding plan, which involves increased contributions from both employees and the Group. And, in line with these agreements, you'll see that the Group's cash funding of its pension schemes during 2006 increased by EUR6.6m. Given that a significant number of our Group employees are in the defined contribution schemes, the Group's deficit as a percentage of market cap is now below 5% and improving, as you'll see in the graph at the bottom of the slide.
Turning now to the all-important shareholder statistics, you'll see that adjusted EPS of EUR0.1743 was up 11.6% on 2005 and slightly ahead of consensus market expectations. This adjusted EPS figure excludes the impact of once-off exceptionals and highlights the good underlying performance of our operations. And reflecting this good performance in 2006 and our robust balance sheet, the Board's confidence in the Group's structure -- in the Group's future, a final dividend of EUR0.083 per share, up 18.6% on last year, has been proposed. And this results in a full year dividend of EUR0.1245 per share, giving shareholders an increase of 15.8% in their annual income.
On the next slide we'll look at total shareholder return. And we've made a point throughout this presentation of highlighting why we believe we are different when compared to our peer group and I think this slide clearly captures that point, when you look at our total shareholder return over the last few years. Over the last 12 months INM has produced total shareholder returns of 31.7%, which compares extremely favorably to U.S. newspapers which are actually down 2.6% in that period. And even global newspapers, excluding those in the U.S., were only up 14.8%. And, as you'll see from this chart, any period over the last three years shows a consistent trend, which highlights why INM stands out from its peer group.
And on the next slide the strength of our brand was further demonstrated, and this is at a time when the market has been rather bearish in media stocks and particularly newspaper stocks. You'll see the period from 2002 to 2006 shows progress against every financial metric, with top line -- with both top line and earnings growth and, importantly, enhanced returns to shareholders.
And ending on that positive point, I'll now hand you over to Gavin, who'll take you through the remainder of the presentation.
GAVIN O'REILLY, COO, INDEPENDENT NEWS & MEDIA PLC: Hello, ladies and gentlemen. Thank you, Donal. As Donal's just said to you, I think Independent is unique in the annals of media companies. And one of its real points of differentiation comes from the Group's multi-market and multi-platform strategy.
The slide that you see here on the screen splits the results by our main geographic regions. If you want to look at the segments in local currency, which I believe is the best way to gauge our underlying performance, you can see that all markets showed growth in revenues. Ireland was up just under 1%, reflecting strong gains in advertising and circulation offset by revenue loss in its low-margin distribution business, Newspread. But, as you can see, profits advanced by 4.2% to EUR94.4m.
The U.K. division saw revenues increase by 8.1% but most of this related to two acquisitions, one the online property portal PropertyNews.com and secondly, and more significantly, the acquisition of the wholesale distributor in Northern Ireland, WNS. Profits were marginally down in the U.K. by EUR800,000 to EUR14.3m, reflecting the weak advertising market that we saw in Northern Ireland that we reported to you at the half year, which prevailed, I'm happy to say, only to the end of quarter three. And we'll give you some guidance on that going forward. And, indeed, the continuing investment in supporting the Group's products and brands at a time of significant change in the U.K. national marketplace.
South Africa, as many of you will have seen from the release, was again the star performer. Underlying revenues grew by 11.4%, with strong gains in advertising and circulation lifting profits to EUR55.2m, up some 24.5%.
Finally, revenues at APN grew by 0.6% despite the sale of its Security Print division and weakness in certain advertising markets. Again, I'll come back to these points. The...
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