Profitable INM eyes takeover targets to future-proof growth
The 9pc tax charged when customers buy newspapers in Ireland should be scrapped to level the playing field with the UK and other European markets, according to the head of Independent News & Media (INM).
INM reported a profit before tax of €18.5m for the six months to the end of June 2016 yesterday.
The company's cash balance at the end of June was €62.4m.
But the results also show falls in print advertising (-7.8pc) and print circulation (-5.4pc) in Ireland, where INM's markets leading titles include the Irish Independent, 'Sunday Independent' and 'independent.ie'.
"Despite a challenging trading environment, the group performed well in the first half of 2016, with profit before tax growth of 22.5pc to €18.5m. However, underlying operating profit growth of 3.1pc better reflects the challenges the industry and INM face," said chief executive officer Robert Pitt.
Directors said they are not proposing to make a dividend payment in 2016.
Instead, the company's growing cash pile is earmarked for investment back into the business, including potentially buying print businesses in Ireland but also larger acquisitions of digital business outside the country that would enhance INM's future growth prospects.
Combining cash on hand and potential borrowings INM has a potential war chest of €119m for deals, Robert Pitt said. Given its current concentration on the island of Ireland INM is "not an aggressive buyer in the Irish market", he said.
Elsewhere, any takeovers are likely to be of significant scale and of businesses that are already up and running.
"We are not looking for small startups. We are not looking at businesses that need management turnarounds," he said.
The UK is the main focus of interest for potential deals - though the June Brexit vote could slow deal activity in the short term, he said.
Deals beyond the UK are also possible, he said.
INM would bring operation excellence as well as finance to any new acquisition, he said.
The cash balance rose even after the impact of the weaker sterling and the use of funds for deals to buy Northern Ireland-based publisher Greer Publications and the 50pc stake in CarsIreland.ie not already owned by the business.
The first-half figures show overall revenues grew by 2.7pc in the period to reach €162m.
Profits were bolstered by growth in digital advertising revenue, which was up 23.4pc at the end of June compared to a year earlier, as well as a €2.2m cut in interest costs following repayment of INM's former debts, and a significant decrease in operating costs. Digital advertising revenue helped offset the decline in print.
Shares in INM closed unchanged yesterday at 14 cents each, after the results.
The increase in profits reflects a drop in borrowing costs and strong growth in both digital advertising and INM's distribution business in particular, the company said.
Operating costs fell significantly in the period, due to the closure of printing operations in Belfast, integration of print and digital newsrooms and the wind-down of GrabOne, a coupon and discounts business.
After a strong first half, the pace of growth in INM's Newspread distribution business is expected to slow in the second half of the year, because the comparison period in 2015 already included new contract signings with clients including 'The Irish Times'.
Speaking after the results, Robert Pitt said VAT on news products should be scrapped, to bring Ireland into line with other markets. "A zero percent VAT rate would level the playing field," he said.
The current regime puts mainly Irish media businesses at a disadvantage to international operators that sell into the market here from larger, lower tax economies - in particular the UK.
Earlier this year, Norway slashed the tax on all news publications to zero, in line with the country's policy of encouraging a diverse and healthy media sector.
The UK, Belgium and Denmark all have zero VAT rates on newspapers; and across Europe rates of 5pc or below are common.
In Ireland the zero rate applies to books but not newspapers and magazines. In Ireland the VAT rate on newspaper was reduced to 9pc in 2011.