Independent financial adviser in favour of SPH's media restructuring
Claudia Tan HS
THE financial adviser to Singapore Press Holdings' (SPH) independent directors has recommended that shareholders vote in favour of the proposed hiving off of its media business.
In a letter to the SPH board, Evercore Asia (Singapore) said that "from a financial point of view", directors should recommend to shareholders that they vote in favour of the restructuring as it will prevent the company and its shareholders from incurring potentially significant and recurring losses from its media arm.
The exercise will allow SPH T39 to "set a clear strategic direction" with a focus on the real estate sector and related segments of student accommodation and aged care while eliminating the risks and uncertainties associated with the media business.
In addition, with the lifting of the Newspaper and Printing Presses Act (NPPA) once the media business is hived off, there will be opportunities for shareholders or investors to own more than 5 per cent of shares in the company, which will expand its strategic options.
Under the NPPA, no person shall, without the approval of the Ministry of Communications and Information, become a substantial shareholder of SPH, nor enter any agreement or arrangement to act with any other person with respect to the acquisition, holding or the exercise of rights in relation to more than 5 per cent of the company's shares.
Having reviewed the proposed restructuring and taking into account Evercore's opinion, SPH directors are recommending shareholders vote in favour of the resolution relating to the restructuring.
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SPH, which publishes The Business Times, had announced in May that it will be transferring its entire media-related business to a company limited by guarantee, or CLG - a move that comes as part of a strategic review announced in March.
The CLG has been incorporated with the Great Eastern Life Assurance Company, OCBC, NTUC Income Insurance Co-Operative, Singtel, DBS, UOB, the National University of Singapore, Fullerton (Private) Limited and Nanyang Technological University as its members. The liability of each member in the event the CLG is wound up is limited to S$1.
The move comes as structural changes in the media and advertising industries amid a digital era have severely disrupted the traditional business model that relied on print advertising revenue.
"Whilst the company has succeeded in increasing digital circulation, monetisation is increasingly challenging as competition for digital revenue has intensified and the company's media business now competes with much larger players," said Evercore, adding that digital subscription and digital advertising have not been able to make up for declines in print.
SPH's media segment's operating revenue fell 50.7 per cent between FY2015 and FY2020, largely due to decline in print advertising and print subscription revenue.
Over the same period of time, earnings before interest, taxes, depreciation, and amortisation (Ebitda) of the media segment declined 91.8 per cent or at a compounded annual rate of 39.4 per cent, from S$299.1 million to S$24.5 million, which is inclusive of S$28.1 million from the Jobs Support Scheme grant.
With the media business weighing on the company's overall performance, recurring earnings fell 77.7 per cent from S$316.2 million to S$70.7 million from FY2015 to FY2020.
The decline in the media segment's profitability has also directly impacted the company's ability to pay dividends, and in turn negatively affected the company's share price, said Evercore. SPH's share price had dropped 56.1 per cent from Aug 31, 2015 to Aug 11, 2021.
Based on historical financial data and estimates, Evercore is projecting SPH's FY2024 operating loss to range between S$85.6 million and S$109.8 million. The corresponding simulated FY2024 losses at the Ebitda level would range between S$59.4 million and S$83.6 million.
Funding the media business through internally-generated cash flows is also not a viable option given that this will deplete resources for investments into areas of growth and eat into shareholders' dividends, according to Evercore.
SPH will hold a virtual extraordinary general meeting at 2:30pm on Sept 10 to seek shareholders' approval on its proposed restructuring and formation of a new constitution.
Shares of SPH ended Tuesday flat at S$1.89.
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