SPH reports 4.7% slip in Q1 net profit

Singapore Press Holdings (SPH) on Tuesday posted a 4.7 per cent drop in net profit to $97.5 million for the first quarter ended November 30, 2011 compared to the same period a year ago.

Group recurring earnings for the first quarter was up 4.2 per cent to $121 million. Investment income tumbled 90.3 per cent over the year to $600,000 due to unrealised foreign exchange losses on investments as a result of volatility in the financial markets.

Revenue for the group’s newspaper and magazine business fell 1.2 per cent to $262 million over the year.

Print advertising revenue dipped 1.2 per cent to $204 million, while circulation revenue inched down 1.8 per cent to $50.3 million.

Rental income for group was up 27.2 per cent to $46.9 million, with Clementi Mall recording rental income of $9 million in the quarter.

Newsprint costs rose 4.2 per cent, while staff costs were up 1.5 per cent.

Other operating expenses grew 16.1 per cent due to the start of Clementi Mall’s operations, and higher overheads from increased business activities and inflationary pressures.

‘The outlook for the global economy remains fraught with uncertainties,’ said Alan Chan, chief executive officer of SPH.

‘The group will strive for a sustained performance in the core newspaper business whilst pursing growth in business adjacencies.’

Shares of SPH closed three cents higher at $3.70 a piece.

Yahoo! countersues SPH, denies copyright allegations

Yahoo! Southeast Asia has countersued Singapore Press Holdings (SPH) in a landmark copyright infringement dispute, alleging that the newspaper group used three Yahoo! works without permission.

In filings with the Singapore High Court yesterday, the Internet portal also denied SPH’s claims that Yahoo! had systematically reproduced works owned by SPH.

Invoking the ‘fair dealing’ defence, Yahoo! said any use of those works on its website was allowed because they were reporting factual current events; their use did not have significant impact on SPH’s business; and attempts to license the work had been terminated by SPH.

‘The company denies all allegations of wrongful copyright infringement by SPH,’ Yahoo! said in a statement.

‘Amongst other things, Yahoo! Southeast Asia highlighted the fundamental principle that copyright law does not protect facts and information. In addition, there is an important public interest issue in respect of the right of the public to be informed of news and current events in Singapore.’

SPH, which owns The Business Times, has not responded to the new filings, and has until Dec 28 to do so.

Yahoo! said in its counterclaim that in October 2010 and 2011, the SPH-run citizen journalism website Stomp used two articles and a photograph which were copyrighted and owned by Yahoo! even though Stomp was not licensed to do so.

SPH on Nov 18 sued Yahoo! for copyright infringement, setting up an unprecedented clash of traditional and new media titans in the Singapore courts.

SPH said in its claim that Yahoo! has knowingly reproduced substantial portions of SPH content on Yahoo! news websites without permission to ‘derive a commercial benefit’. SPH cited as examples 23 alleged articles that had been reproduced on Yahoo! websites over the course of one year.

SPH wants the court to stop Yahoo! from further unlicensed use of SPH content and to pay damages.

In yesterday’s filings, Yahoo! said that the SPH-owned works in dispute are not copyrightable because they comprise facts and information, and disseminating such current events outside of SPH’s paywall is in the public interest.

Yahoo! had tried to license the content from The Straits Times, SPH’s flagship publication, in 2009 and 2010, the Internet giant said.

But while Yahoo! wanted to license entire articles, The Straits Times was willing to license out only shortened summaries. The newspaper terminated negotiations in 2010, Yahoo! alleged.

The business impact of those 23 articles is also insignificant, Yahoo! said.

Yahoo! added that SPH did not raise any issues about the alleged infringements for about a year, leading Yahoo! to believe that SPH did not have any complaints about any use of SPH works on the Internet portal.

And SPH did not initially provide copies of the allegedly infringing articles which it cited when Yahoo! asked, Yahoo! said in the filings.

Yahoo! is represented by ATMD Bird & Bird, while SPH has engaged Wong Partnership.

Boon Yang to balance both chairman posts

NEWLY appointed Singapore Press Holdings (SPH) chairman Lee Boon Yang has assured shareholders he will devote sufficient time and attention to steer the media group through the challenging times ahead.

He was addressing the concern raised by a shareholder at the annual general meeting yesterday on how he would balance his time as chairman of both SPH and Keppel Corp.

Dr Lee, who was minister for information, communications and the arts before he retired from politics in March 2009, was appointed an SPH director in October. He said he had given deep thought to the invitation to join the SPH board before accepting it.

‘I believe that I will be able to manage my time so that I can provide SPH with sufficient time and attention in order to see SPH continue to do well in this very competitive and challenging period,’ he added.

‘If I had not come to the conclusion that I would be able to manage my time to do a decent and good job for SPH, I would not have accepted the invitation.’

His assurance was met with strong support from shareholders, with 99.85 per cent of those who voted at the AGM voting in favour of his re-election as a director of SPH.

SPH conducted poll voting in its AGM for the first time yesterday and all other resolutions were duly passed. Former chief justice Yong Pung How did not stand for re-election and stepped down from the board.

Most shareholders told BT that they have no issues with Dr Lee being chairman of two large listed companies. One 30-year-old shareholder, who gave his name as Mr Tiah, was more ambivalent. ‘I guess he would be professional enough to consider that he needs to split his time between two large companies in Singapore,’ he said.

A couple of queries on dividend payouts were also raised at the AGM. Stephen Chen, an investment manager at Chen Holdings, asked if the current dividend payout ratio was sustainable. SPH acting chairman Cham Tao Soon explained that while the current dividend payout is almost 95 per cent of recurring earnings, future payouts will depend on how SPH fares and the state of the economy.

Addressing a query on an $11 million share of net loss from jointly controlled entities in fiscal 2011, SPH chief financial officer Tony Mallek said these entities are mainly overseas online ventures in Malaysia, the Philippines, Australia and Indonesia. They are loss-making because they are at start-up stage, with different timelines to profitability, he explained.

Dr Lee stressed that the group would take a long- term view and harness its cash reserves carefully in the face of greater competition in the media sector, and tap new opportunities to generate revenue.

‘The road ahead for SPH will not be easy,’ Dr Lee said in his first speech as SPH chairman. ‘New technology has changed media consumption patterns and opened up competitive distribution channels.’

But he added that SPH has strengths in human capital and financial resources, and would leverage on its experience in adjacent businesses to create new revenue streams.

SPH turned in a ‘commendable performance’ for the last financial year despite an uncertain economic climate, said Mr Cham.

Group revenue crossed the $1 billion mark for the seventh consecutive time at $1.25 billion, thanks to higher advertisement revenues, growth in rental income and continued progress in its exhibitions and online businesses.

Net profit attributable to SPH shareholders for the fiscal year ended Aug 31 was $389 million – a 22 per cent decline from the preceding fiscal year, which had benefited from a $154 million profit from the Sky@eleven condominium project.

Interesting insights

Event

• We hosted a post‐results luncheon for Singapore Press Holdings (SPH) last week. In a lively exchange with fund managers, CEO Alan Chan, CFO Tony Mallek and Senior VP of Finance, Ms Babsy Young, offered interesting insights into the workings of the group.

Key Takeaways

• To questions about SPH’s monopoly in print advertising and the impact of declining readership on ad rates, Mr Chan was quick to defend that the ad rates for the group’s selected newspapers have gone up every year between 2004 and 2008 and were not cut even during the global financial crisis. The last increase was in March this year, he said. To counter online media rivalry – Yahoo! News is posing the strongest challenge in terms of readership – the group recently launched its iPad and iPhone apps to sell news subscription. It charges an additional $2 on top of the normal newspaper subscription from the current quarter.

• SPH’s equities investments are in Singapore and mainly in M1 and StarHub in which it holds 13.9% and 0.8% of the shares, respectively. It has less than 10% of the equities investments in industrial REITs and Suntec REIT. The target benchmark return is 4%.

• A dedicated property investment team will spearhead the growth of SPH’s property asset base. However, no target size has been set yet. A spin‐off of assets into a REIT is possible over the long term when the assets grow in numbers. In fact, its total investment portfolio value of $2.7b is now bigger than Frasers Centrepoint Trust’s $1.5b. Management is still keeping an eye out for sales of GLS sites and possibly TripleOne (said to come with a $1.2b price tag) and 313@Somerset.

• Worries over a dividend cut in the absence of a formal dividend policy were assuaged on management’s assurance that the group’s impeccable track record of 100% payout will not be broken as long as the current CEO is at the helm.

Action & Recommendation

We reiterate our BUY recommendation on SPH with a target price of $4.17, based on a total return of 16.7% (FY Aug12F yield: 6.4%).

Interesting insights

Event

• We hosted a post‐results luncheon for Singapore Press Holdings (SPH) last week. In a lively exchange with fund managers, CEO Alan Chan, CFO Tony Mallek and Senior VP of Finance, Ms Babsy Young, offered interesting insights into the workings of the group.

Key Takeaways

• To questions about SPH’s monopoly in print advertising and the impact of declining readership on ad rates, Mr Chan was quick to defend that the ad rates for the group’s selected newspapers have gone up every year between 2004 and 2008 and were not cut even during the global financial crisis. The last increase was in March this year, he said. To counter online media rivalry – Yahoo! News is posing the strongest challenge in terms of readership – the group recently launched its iPad and iPhone apps to sell news subscription. It charges an additional $2 on top of the normal newspaper subscription from the current quarter.

• SPH’s equities investments are in Singapore and mainly in M1 and StarHub in which it holds 13.9% and 0.8% of the shares, respectively. It has less than 10% of the equities investments in industrial REITs and Suntec REIT. The target benchmark return is 4%.

• A dedicated property investment team will spearhead the growth of SPH’s property asset base. However, no target size has been set yet. A spin‐off of assets into a REIT is possible over the long term when the assets grow in numbers. In fact, its total investment portfolio value of $2.7b is now bigger than Frasers Centrepoint Trust’s $1.5b. Management is still keeping an eye out for sales of GLS sites and possibly TripleOne (said to come with a $1.2b price tag) and 313@Somerset.

• Worries over a dividend cut in the absence of a formal dividend policy were assuaged on management’s assurance that the group’s impeccable track record of 100% payout will not be broken as long as the current CEO is at the helm.

Action & Recommendation

We reiterate our BUY recommendation on SPH with a target price of $4.17, based on a total return of 16.7% (FY Aug12F yield: 6.4%).