ANALYSIS:Recent expansions seem like relics of another era as INM puts on a unified front for the battles ahead, writes ARTHUR BEESLEY
GAVIN O’REILLY’S tirade against Denis O’Brien last year was but a memory as the incoming Independent News & Media (IN&M) chief unveiled the company’s results for 2008.
Present as he delivered the bad news was O’Brien’s lieutenant Paul Connolly, a clear mark of the rapprochement between the bitter rivals.
If the end of public hostilities between Sir Anthony O’Reilly and O’Brien frees INM’s hand to deal with the issues confronting the business, their decision to work together in the firm’s best interests bears witness to the scale of the existential difficulties confronting the business.
In the jaws of unforgiving recession in its main markets and a €200 million bond repayment it cannot make in less than three weeks’ time, IN&M is in battle mode. Having left publication of its results until the very last day allowed under EU transparency rules, the company warned there was a strong likelihood that it will breach its banking covenants.
After 36 years at the helm of the company, it’s not quite the scenario Sir Anthony might have imagined as he prepares for his retirement. But then, as the knight said in his final statement as chief executive in an INM annual report: “The first half of the year is captured in our half-year accounts; the next two months continue that trend – a trend of uninterrupted progress and growth over three decades. In September, and from then on, the world changed dramatically.”
Vincent Crowley, head of IN&M’s Irish unit, said there was no evidence of any green shoots in the advertising market. The remorseless slide is reflected in INM’s share price, down 86 per cent in 12 months.
The stock closed up one cent at 26 cent last night. Exactly 25 months ago, it reached €3.87. The crash has been painful for Sir Anthony on many levels, as IN&M’s expansion stands as the great success in his storied career.
No less so for O’Brien. His build-up of a 26 per cent stake has backfired spectacularly. O’Brien’s people – Connolly among them – now occupy a powerful presence on IN&M’s board, but the investment has obliterated hundreds of millions of euro.
As Gavin O’Reilly and O’Brien traded punches one year ago, IN&M continued down its expansionary path with acquisitions in Ireland, South Africa and Indonesia. The acquisition of the Sligo Champion and other deals smack now as relics from another era.
Although no media organisation can be immune from the recession, IN&M is vulnerable given its high debts. It has known for a long time a €200 million bond was falling due this month.
Although Gavin O’Reilly insisted yesterday that the battles with O’Brien had not distracted INM’s board, he took care to point out that the firm was able as late as December last year to raise a €105 million bank facility to fund the redemption of €112.6 million outstanding on a €125 million bond.
That was then. While IN&M’s prime concern for the moment is to fix the problem presented by the €200 million that falls due on May 18th, that’s only for starters.
Another €50 million is due next September, as well as a further €340 million and another €200 million a year later. In August 2012, €105 million is due. Come December 2012, another €486 million will be due.
Scant surprise, then, that the new O’Brien-O’Reilly alliance is seeking to restructure its bond and bank liabilities. Although O’Brien said a week ago that there was but a 50-50 prospect of success, INM itself said yesterday that its directors “remain confident” of an agreement. Even so, there is no doubt that O’Brien and Sir Anthony will have to provide further funds if they are to maintain their pre-eminent equity position. The two are reportedly prepared to personally invest at least €30 million at this point. That’s but the beginning.
For sale are the South African advertising business IN&M Outdoor and IN&M’s minority shareholdings in casino software firm Cashcade and price comparison firm Verivox. IN&M expects to realise up to €150 million from these companies, but not before the third-quarter of the year.
IN&M won’t comment on the prospects of a sale of its 20.8 per cent stake in Indian newspaper publisher Jagran Prakashan.
Time now seems to be running out for the loss-incurring London Independent titles, which took big impairments last year. O’Brien’s statement that “management needs to remain focused on eliminating loss-making businesses” implies as much. In that context too, the position of the Sunday Tribune seems unsafe.
Sir Anthony spent half a lifetime building the IN&M empire.
Now it is a survival play.
INM: bonuses scrapped
INDEPENDENT NEWS Media scrapped bonus payments to top managers last year in light of rising pressure on profits as the economic conditions worsened in each of its main markets.
The decision led to a big drop in top-level remuneration within the organisation, the overall level of which fell to €6.23 million from €10.03 million in 2007.
The elimination of bonuses came as INM's Australasian unit saw operating profit before exceptionals drop to €155.5 million from €192.7 million. After exceptionals, operating profit in the unit dropped to €41.2 million. The Irish unit saw operating profit before exceptionals drop to €75.8 million from €98.3 million, while operating profit after exceptionals dropped to €50.8 million from €66.2 million. The British unit, including the Belfast Telegraph, saw operating profit before exceptionals drop to €200,000 from €15.5 million, while the operating loss after exceptionals was €205.4 million.
The South African unit operating profit before exceptionals rise to €72.2 million from €59.1 million. After exceptionals, the unit's profit rose to €69.1 million from €57.9 million.
Chief executive Sir Anthony O'Reilly, who stands down next week, received a pay package worthy €1.49 million for 2008, down from €2.2 million a year earlier. The value of his own 29 per cent interest in INM has plummeted in the past year.
Sir Anthony's son Gavin, chief operating officer and his successor as chief executive, received €978,000 for 2008, down from €1.53 million in 2007. Vincent Crowley, head of INM's Irish unit, received a total of €982,000, down from €1.43 million. Ivan Fallon, head of INM's UK unit, received €800,000, down from €1.66 million.
