Independent News and Media plc has reported profit before tax (PBT) growth of almost 12pc to €41.8m.
Releasing its full year results for 2016 this morning, INM, which publishes independent.ie and the country's leading newspapers including the ‘Irish Independent’ and 'Sunday Independent', also reported total revenue of €323.4m, up 0.7pc on the previous year.
In a significant statement accompanying its results, INM also said it is complying with a requirement from the Office of the Director of Corporate Enforcement (ODCE) to produce records in relation to the possible acquisition by the company of Newstalk and related matters that were the subject of an announcement from the company on 28 November 2016.
Last November INM confirmed that an issue had arisen between INM chief executive Robert Pitt and the chairman of the board, Leslie Buckley, "in relation to the terms of a possible acquisition by the company” widely reported at that time to be Newstalk.
Businessman Denis O'Brien is the largest single shareholder in INM and is the owner of the Communicorp Group, whose assets include Newstalk.
On Tuesday morning INM said that the company is taking “all necessary steps” to meet the ODCE’s request, adding that a requirement from the ODCE to produce books and records is “a procedural matter that does not involve any conclusion that there has been a breach of law by the company or its officers”.
“The company established in December 2016, before being contacted by the ODCE, a formal independent review to examine and inquire into matters concerning the possible acquisition of Newstalk and related matters,” INM said in its full year announcement.
“Discussions on the possible acquisition ended at a preliminary stage and the acquisition was never considered by the Board. The confidential, independent review is being carried out on behalf of the Board by senior counsel and a senior independent governance expert who have been mandated to report to the Board.
“The Company takes its corporate governance responsibilities very seriously, and seeks to comply at all times with all relevant laws and regulations. The Company does not intend to comment further regarding the ODCE’s request and the independent review.
“There were no further events since the year end that would require disclosure or adjustment in the financial statements”.
INM’s proposed acquisition of local newspaper group Celtic Media Group is currently the subject of a phase two review by the Broadcasting Authority of Ireland following a referral to the statutory body last January by Minister for Communications Denis Naughten.
In 2016, the acquisitions of both the remaining 50pc shareholding in CarsIreland.ie and Greer Publications were successfully completed.
The media group reported a “significant decrease” in operating expenses of approximately 9pc owing to the closure of its printing operation in Belfast, the continued integration of its operations, the wind up of GrabOne and other operational savings.
INM also saw its cash balance rise to €84.8m, up €25.1m year-on-year.
Total advertising revenue declined by 4.7pc, driven, INM said, by a publishing advertising revenue decrease of 9.2pc.Circulation revenue declined by 5.2pc.
However digital revenues including CarsIreland.ie continued to grow, increasing 20.4pc throughout the period, said the company.
Independent.ie, the group’s major publishing portal, saw its year on year traffic grow by 25pc.
Net assets currently stand at €62.3m compared to net assets of €44.5m as at December 31st, 2015 and the group’s operating margin, pre-exceptionals, is up 0.6pc to 12.4pc.
The directors are not, however, proposing a dividend for 2016.
INM CEO Robert Pitt said the full year results for 2016 represent “a strong profit performance given the negative industry conditions,” adding that the industry is also challenged by uncertainty relating to Brexit and other international events."
“The Group has recorded a PBT growth year-on-year of 11.8pc to €41.8m,”said Mr Pitt.
“This has been driven by a combination of revenue growth in both the digital and distribution businesses and cost containment measures across the entire Group.
“The Group has continued to strengthen its net asset position and has increased cash reserves at year-end, positioning it well for future acquisition opportunities. I give credit and thanks to all the staff in INM for their efforts in securing the 2016 results”.
INM is engaged in continued discussions with trustees following last November’s decision by the company to cease contributions to its two defined benefit pension schemes, leading to their effective closure.
Mr Pitt, citing the need for INM to address the structure of its pension obligations in light of “very challenging” industry conditions, insisted the company “is intent on achieving a satisfactory outcome for all concerned, including pension members, employees and shareholders.”
INM chairman Leslie Buckley said that the key drivers of the company’s increase in revenue were growth in digital advertising and in its distribution business.
“Profit has been enhanced by a significant decrease in pre-distribution operating costs,” said Mr Buckley.
“INM’s focus has been on strengthening the overall financial performance of the Group and the creation of shareholder value.
"We have worked to deliver on the company’s strategy of maintaining our leading position in the print publishing market, growing our existing digital business and seeking acquisitions for further growth and diversification. Looking at suitable acquisitions for the business is essential against the backdrop of the consistent, continued decline in the news publishing sector”.
Last December shareholders voted overwhelmingly to approve a capital reduction at an EGM. The capital reduction requires the approval of the High Court, however INM says it has not yet made an application to the High Court.
Speaking to analysts this morning, Mr Pitt said that the company continues to hunt for acquisition opportunities. However, he said that the appetite to borrow to fund acquisitions might now be “slightly less” than previously.
“Primarily we’ll be looking to fund acquisitions from existing cash and free cash flow,” he said. “To borrow to buy, we’d have to have a very high degree of confidence that the cash would be returned extremely quickly. That’s going to make the targets even more identify because obviously targets like that would be extremely popular and have a very high price tag.”
He said that INM would look for smaller businesses to bolt-on to existing operations.
“We do need to acquire,” he added. “We need to grow this business again.”
But he conceded that it is more challenging to acquire digital businesses that the group would have expected.
“The difficulty is finding a digital business where, first of all, the proposition is proven, and secondly, where INM’s reach adds value to that so we can make that business grow faster,” said the chief executive.
“There are opportunities in Ireland, but it’s finding the opportunities of a certain scale, and that’s why we’ve looked abroad quite a lot, particularly the UK,” he added. “But when we go the UK, we have to be careful that we don’t lose a lot of the competitive advantages that we have. So we are being careful on that.”
Mr Pitt said that INM is also interested in the business-to-business media space.
He admitted that there might be “smaller scope” for INM and other media companies to make acquisitions in Ireland due to the regulatory environment, but insisted that consolidation in the sector here is necessary.
“We believe in consolidation,” he said. “We would like to consolidate further in Ireland, but we have to be mindful of the environment in which we operate. For that environment to change, it involves engaging with a lot of people and a lot of stakeholders, so we have to be respectful of what’s possible at the moment.”
He said that INM also hopes to complete the acquisition of the Celtic Media Group by the end of June. Celtic Media publishes six titles including the Westmeath Independent and the Anglo Celt. The takeover has been approved by the Competition and Consumer Protection Commission, but is currently being reviewed by the Broadcasting Authority of Ireland under a Ministerial direction.