IN&M subsidiary warns of fall in profit

APN, the Sydney-listed subsidiary of Sir Anthony O'Reilly's Independent News Media (INM), has warned that profit in the current year will drop 12 per cent as a result of a downturn in advertising sales due to slower economic growth in Australia and recession in New Zealand.

The warning comes as INM contemplates a sale of its 39.1 per cent stake in APN, possibly eroding the value it will realise.

APN shares, down 38.26 per cent in the past 12 months, closed down 1 per cent yesterday at Aus$2.89. Such a price implies a market capitalisation of A$1.42 billion on APN and a value of A$555.22 million in INM's stake.

INM wants to use the proceeds from a sale to reduce the net debt on its books to less than €600 million from €1.4 billion. The company has said such a transaction would be "earnings neutral" next year as the consequent reduction in its interest bill, which exceeded €93 million last year, would offset the loss of profits from APN.

However, APN warned yesterday that its net profit after tax and before once-off items was likely to drop to A$148 million this year from A$169.4 million.

APN, which has hired ABN Amro for advice on INM's likely sale of its stake, said its board views the economic climate with caution.

"It believes that conditions for the foreseeable future will remain challenging and advertising bookings remain very short-term."

The APN board, chaired by INM chief operating officer Gavin O'Reilly, is understood to have established a sub-committee to act purely in the interest of shareholders as it deals with INM's review of its stake in the business. Reports in the Australian media suggest the sub-committee is chaired by APN deputy chairman Ted Harris.

On October 23rd, just over a week before INM told the market that it had received "a number of expressions of interest" in its APN stake, APN said it had extended the contract of chief executive Brendan Hopkins for three years from next April, when his contract is due to expire.

Mr Hopkins resigned from the INM board with effect from October 31st, the day INM told the market that it was reviewing its APN stake. In a statement that day, INM said: "Pending the outcome of this review, Mr Hopkins said he was mindful that APN and its shareholders would require his singular focus at this critical juncture and that his resignation from the board of INM is appropriate in these circumstances."