Independent's SA group to feel pinch

Independent Newspapers' South African subsidiary has reported increased profits for the six months to the end of June but the fall in the value of the rand is expected to affect the group's year end results.

The results for the first half are up 15 per cent in pound terms but with the weakening of the rand the company does not expect growth in full year profits in pound terms.

Independent Newspapers Holdings Ltd (INHL), Independent Newspapers' 73 per cent owned subsidiary, made pre-tax profits of 72 million rands in the six months to June 30th, up from 62 million rands in the same period in 1997. Converted at an average rate of £1 to rand 7.085, the profits for the first six months of 1998 are £10.17 million. The corresponding figure for 1997 was £8.84 million.

The company's performance was "most satisfactory" given the marked slowdown in the general South African economy in the second quarter, the group said in a statement.

Mr James Parkinson, group finance director and a director of the South African subsidiary, said the company would be "very disappointed" if it did not end the year with increased profits in rand terms.

"We have a 14 per cent increase in the first half and we would be very disappointed if we gave that away in the second half," he said.

Given the slowdown in the South African economy, an increase in profits in rand terms would be "a good result". However, if the average for the currency for 1998 is eight rands to £1, then the chances of showing increased profits in pound terms for the year "would be low".

Mr Parkinson said he believes the "fundamentals" are sound in South Africa and that as an emerging economy its relatively low inflation rate is an "amazing achievement". The recent significant drop in the value of the currency came in part because it was being linked with the South-East Asian economies, despite the relative health of its economy. He believes the currency is oversold at the moment.

The company objective is for double digit increases in profits in the local currency and if the value of the rand devalues at an expected 5 per cent per annum, "I see a good long-term future".

Advertising revenue was up 13 per cent in the six months to June, and circulation revenue up 11.4 per cent. The growth in advertising revenue despite the weakness of the economy was due to new products being put on the market and the relative immaturity of the market compared to Western Europe. "There is a lot more scope for growth", Mr Parkinson said.

The group's press statement said the recent weakening of the rand exchange rate and resultant increase in interest rates has had a dampening effect on consumer spending and has created more challenging trading conditions for the second half of 1998.

"The effect this will have on the group's revenue streams is difficult to assess. Steps are being taken to minimise the impact of any downturn and the results for the group for the full year are expected to show improvement over 1997," the statement said.