SPH moves into other sectors as media revenue continues to decline

Singapore Press Holdings (SPH) released its 3Q 2018 financial results on Wednesday (11 July).

Despite its digital circulation rising by almost 44% from 278,000 readers a year ago to 399,000 readers today, the total revenue from its core media business declined by 8% to $167.94 million. After taking into consideration increases in investment and property income, its total revenue saw a net drop by 3.8% to $250.07 million.

Staff costs had fallen by $5.8 million as SPH embarked on a retrenchment and wage freeze exercise last October where 230 jobs were cut. Concurrently, materials and production costs dropped by 7.5% to $34.9 million while depreciation also fell by 6% to $8.2 million.

As a whole, SPH saw an increase in operating profit of 29.6% to $44.41 million due to a fall in impairment charges. In a hypothetical scenario where one were to exclude the impairment charges from both year, the year-on-year operating revenue would have fallen by almost 7%.

Overall, the nett profit for Q3 rose by 15.6% as a result of an increase in investment income by almost 87.4% to $21.89 million. Concurrently, the share of results from associates and joint ventures earned SPH $2.16 million, compared to a $560,000 loss the same period last year.

Ng Yat Chung: SPH is moving into other sectors with $1 billion investment fund

When the current Chief Executive Officer, Ng Yat Chung first joined SPH, he was quoted as saying that the "media landscape is rapidly evolving with technological convergence in the digital age. There are vast opportunities that can be reaped despite these challenges facing us. We should look at those that are relevant to us and be able to pursue them to support the growth of SPH."

While the media revenue continues to decline with him at the helm, Ng has now switched his focus. In a media release, he said that: "Our new strategy is to focus on the acquisition of cash-yielding real estate assets overseas. We are also preparing the aged care business for overseas expansion."

To achieve the "new strategy" set out by Ng, SPH had set up Straits Capitol in the UK to “actively review a strong pipeline of deals". In the local market, SPH is jointly developing the Woodleigh Residences while it has already entered nursing home operations by purchasing nursing home provider Orange Valley for $164 million last year.

Given Ng's earlier comments, how far do you think property and nursing homes are relevant to the media business?

According to the SPH Press Release, the mainboard listed company had a "Strong Balance Sheet” with $1 billion as at 31st May 2018. This mainly compromised of equities, investment, bonds, cash and deposits. It also said that this enabled it to “fund new growth sectors”.

In other words, Ng did was not parachuted into a declining company but a cash rich company with a declining core business. What he is seemingly doing at the moment is 'merely' to use the company's vast and existing resources to expand into sectors which he deems to have the potential for growth and accretive revenues.

In any case, his past experience as the CEO of Neptune Orient Lines (NOL) has shown that he was not successful in this regard. Since taking over as CEO of NOL in 2011, the shipping company was kicked out of the STI index and saw years of consecutive losses before being sold to French Group CMA. The latter turned NOL into profits barely a year after acquisition.

What do you think?