INL gets the equation right

By David McEwen

Friday 11th October 2002

I don't know whether its been done before, but INL's decision to present its annual report as a 12-page national newspaper, complete with gossipy columns and colourful cartoons, is a stunning idea.

The number of column centimetres given to each article depends on its importance to investors. So, the front-page lead screams out in banner headline: "INL posts 45 per cent lift in net profit to $37.8 million."

The writing style is also lighter than you'd normally find in an annual report, as reflected in this low-brow discussion of strategy: "The equation is simple strong circulations attract advertisers. Get growth in one and you are likely to achieve growth in the other."

On the face of it, both sides of this equation seemed to work fine for INL last year, enabling it to post a 45% higher net profit for the year to June 30 2002, on revenues that were 58.9% up at $873.5m. However, the results were a lot patchier than it seems.

Much of the growth in profit last year was as a result of a turnaround in INL's 66.2% owned Sky Network Television, which cut its losses by $12.1 million from $42.3 million to $30.2 million, on the back of a large increase in subscribers. Sky is now expected to break even by 2003.

The bottom line also benefited to the tune of $20 million from a cut in taxation, thanks to the transfer of Sky TV tax losses on consolidation, which the group could offset against its own tax bill.

This happy event came about after INL acquired an additional 65 million shares in Sky, lifting its stake from 49% to 62.2% and enabling it to consolidate Sky into its own accounts. The Sky shares were funded through the sale of two small Australian newspapers.

The engine room of INL is its publications, spanning nine New Zealand paid dailies, three national weeklies, 61 community newspapers and an Australian regional daily. These produced mixed results ranging from outstandingly good to pretty poor. Overall INL Publishing's operating earnings before interest and tax (EBITDA) rose 0.9% excluding Wellington Newspapers, but including Wellington they fell 1.1% on the previous year to $119.5 million.

During the year INL lost patience with its enduring problems in Wellington and decided to merge its two Wellington newspapers into the Dominion Post. INL does an impressive job selling that merger as the best thing since sliced bread, with the new paper said to be averaging daily sales of more than 100,000 in the first month, and finding strong support from advertisers.

Much of the losses incurred in Wellington were offset by strong performances in community papers, where revenue was up 8.7%, and weeklies, up 3.1%, helping lift total advertising revenue 2.3% or $7.7 million. Total circulation revenues increased 2.3%.

This was a year of "tough decisions" for INL, which launched into a restructuring that involved one-off severance and restructuring costs of $13.8 million.

Going forward, INL seems to have a growth strategy that could work. The company plans to continue its focus on margin improvement by capturing synergies across its publishing business and with Sky, boosting its circulation and advertising yields, and tightly controlling costs.

Just how effective these measures will be will become evident only in the next year or two. But at least INL is focusing on the things that can make a difference.

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