Bangkok--15 Nov--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Nation Multimedia Group PLC (NATION) and the ratings of NATION’s senior debentures (NMG072A, NMG092A) at “BBB” with “stable” outlook. The ratings reflect the sustained strong market positions of NATION’s newspapers, Krungthep Turakit and The Nation and its ability to be a content provider for various media. The ratings also take into account the competence of its management team. However, these strengths are partially offset by the company’s high financial leverage and the challenging operating environment of the newspaper business, including a slowdown in advertising for the newspaper segment and higher newsprint prices.
NATION’s “stable” outlook reflects TRIS Rating’s expectation that the company will maintain its strong position in the daily newspaper publisher business and that advertising spending should recover in the medium term. TRIS Rating expects that management will continue to pursue cost saving programs and adjusted debt will continue to gradually decline. However, NATION’s ratings or outlook will be revised if the company’s financial profile does not improve from its current weak level.
TRIS Rating reported that NATION is the leading multimedia company in Thailand involved in publishing, broadcasting, and the Internet. Publishing remains NATION’s key business, contributing over 90% of total sales and service revenue and almost 100% of operating profit. NATION’s Thai-language daily newspaper, Krungthep Turakit, which offers in-depth business coverage, has been able to maintain its strong position and circulation despite growing competition from Post Today and Manager. The Nation continues to hold second position, behind Bangkok Post, in the daily English newspaper market. NATION launched its first mass circulation newspaper, Kom Chad Luek in October 2001, and this publication has become the major contributor to NATION in terms of both advertising and circulation revenues since 2002. With heavy sales promotion through numerous distribution channels, Kom Chad Luek rapidly gained readership and has claimed a spot among the top three mass circulation dailies.
TRIS Rating said, NATION’s advertising revenue from the publishing business fell sharply from Bt1,974 million in 2004 to Bt1,709 million in 2005 (-13.4% growth). Advertising revenue fell further to Bt813 million for the first six months of 2006, a 2.4% decline less than Bt833 million during the same period in 2005. In addition, NATION’s broadcasting revenue also fell sharply from Bt236 million in 2004 to Bt181 million in 2005, or a drop of 23.1%, as contracts with major advertisers expired. Broadcasting revenue rose slightly from Bt89 million for the first six months of 2005 to Bt93 million for the same period in 2006, due to increased revenue from its regular television programs. NATION’s total advertising revenue decreased by 14.5% in 2005 and 1.7% during the first six months of 2006. The fall was a result of a slowdown in advertising spending in the newspaper segment, and increased competition in the newspaper industry.
Advertising has been the largest source of revenue for NATION’s publishing business. Normally, advertising spending for all media will track economic trends; however, newspaper advertising tends to be more volatile than other media spending. Advertising spending for all media grew by 5.7% in 2005 and by 5.6% for the first six months of 2006, while newspaper advertising increased only 0.7% in 2005 and dropped by 0.7% for the first six months of 2006. NATION’s share of the total newspaper advertising market declined from 10.9% in 2004 to 9.4% in 2005 but increased to 10.5% for the first six months of 2006. Although, NATION’s current share of the total newspaper advertising market is still below its past five-year (2001-2005) average share of 11.9%, TRIS Rating expects that the company will be able to maintain share due to the strong positions of its major newspapers, Krungthep Turakit, The Nation, and Kom Chad Luek. The major contributing factor to the success of NATION is its capable and experienced management team. NATION’s management is widely recognized for its professionalism, and its strategy to be a content provider in various media has proved successful.
TRIS Rating said that NATION’s leverage remained high after inclusion of its operating lease transactions. Although the company’s adjusted debt (including operating leases) slightly declined, its adjusted debt to capitalization ratio, including operating leases, at the end of June 2006 was 70.6%, the same level as the end of 2005 because of reported net losses during the fist half of 2006.
Although world newsprint cost in 2006 was higher than 2005’s cost, NATION’s gross profit margin increased from 37.1% for the first six months of 2005 to 38.7% for the first six months of 2006. This was due to the benefit from the company’s cost saving scheme which helped reduce newsprint usage from 12,000 tonnes for the first six months of 2005 to 11,000 tonnes for the same period in 2006, said TRIS Rating.