Legal costs of INM inquiry and review top €1m
One-off costs account for almost half fall in profits at the media group
Legal costs relating to an inquiry by the Office of the Director of Corporate Enforcement (ODCE) and an independent corporate governance review at Independent News & Media (INM) have already exceeded €1m, it is understood.
This and other one-off items, including higher than expected libel costs, account for close to half the reduction in profit at INM which was flagged to the market in a trading update last week. According to analysts, profits at the company will now be around €30m for the current year, rather than around €38m which had been forecast.
A note from analysts at Davy said that its underlying earnings forecast for the company was being reduced by 10pc to around €34m from €38.3m but that "additional one-off items are likely to bring this down to circa €29m".
A difficult advertising market and challenging circulation accounts for over half the reduction, according to a number of sources.
The ODCE's inquiry was prompted by a disclosure understood to have been made by INM chief executive Robert Pitt under new whistle-blower legislation. The company has been required to produce records in relation to a possible acquisition by the company of radio station Newstalk last year. Pitt and INM chairman Leslie Buckley are understood to have disagreed over the price of the station.
INM, which publishes this newspaper and several other titles, said earlier this year that it had established a formal independent review prior to the ODCE's involvement to examine and inquire into matters concerning the possible acquisition of Newstalk.
Said the trading update last week: "Profitability has been directly impacted by costs associated with the independent review and meeting the requirements of the Office of the Director of Corporate Enforcement and ongoing costs of the group's cyber security and General Data Protection Regulation projects."
The provisioning for libels has been a significant cost and is estimated to account for around €3m.
"The significance of a long tail of legacy libel cases and the unpredictability of the level of recent awards has materially impacted this year's performance and management are reviewing the provisioning of outstanding cases to adequately protect against any risk," said the company.
At a town hall meeting for INM staff on Friday, Pitt declined to provide a breakdown of the reduction in profits when asked the question from the floor.
In last week's statement the company said advertising revenues would be lower than expected. "As a result of the continued publishing advertising decline and lower than expected growth in digital revenues, total advertising is forecast to decline by circa 7pc year on year. Whilst INM has market leading titles, circulation continues to decline at circa 7pc year-on-year". It is understood Pitt has told senior executives that 2017 would still deliver strong profit and revenue numbers.
The note from Davy forecast a 2018 earnings figure of between €28m and €30m which would "leave the group generating free cash of circa €13m to €14m in both 2017 and 2018."
Meanwhile, it was announced on Friday that INM has agreed to put an additional €50m into a pension pot for employees in a deal to resolve a dispute that first erupted last year.
INM and the trustees of two defined benefit pension schemes affected have confirmed that they have reached an agreement to commence the wind-up of the schemes, after the company committed to make phased contributions amounting to over €50m, between now and 2023. The funds will be paid into defined contribution pensions for those affected.
While the defined benefit schemes will be wound up, the extra funding will support the retirement incomes of those affected.
The move to wind up the schemes does not affect those already receiving a pension.
Without the additional cash now committed the original plan to wind up the schemes would have seen future pensioners lose as much as 30pc of their expected retirement income.
That was in addition to a 40pc reduction agreed five years ago.
Sunday Indo Business