"The economic environment in 2006 was very good for the publishing business," says Nancy Valiente, Managing Director of South China Morning Post Publishers Limited. "Economic growth, a record year for Mainland listings and rising ad spend were all contributors. The best news is we performed well in a year filled with challenges for the Hong Kong media industry."
Revenue rose 8% to $1.2 billion, compared to $1.1 billion in 2005. Net profit attributable to shareholders reached $338.6 million, compared with $246.4 million in 2005. Operating costs and expenses before depreciation and amortization were up 2% compared to the previous year with increases in staff, production, and rental and utilities costs offset by savings in other operating expenses. The Group declared a final dividend of HK13 cents per share for a full year dividend of HK19 cents per share.
Publishing Business Results
The SCMP continued to focus on its core publishing business in 2006. "Our results, the best in six years, were due mainly to two factors – a significant growth in notices advertising from IPOs and results announcements, and solid growth in display advertising which outperformed the market," notes Valiente. "The foundation of this business remains an affluent and influential readership that supports the SCMP."
Publishing revenues grew 9% and accounted for 97% of revenue. Newspaper display advertising rose 10%. Classified revenue expanded 13%, as notices rose 42%. Recruitment revenue increased 1% despite a much larger drop in positions advertised in all recruitment publications. Circulation was stable in the first half and dropped 2% in the second half owing to an industry-wide decline in newsstand sales.
Production costs rose 5% due to higher newsprint cost which averaged US$613 per ton, up 9% from US$563 per ton in 2005. Newsprint consumption dropped 2%, attributable to new printing presses and tight ad ratio monitoring.
The Magazine Division posted an 83% net profit rise due to strong performance at Cosmopolitan and Harper’s Bazaar and cost cutting measures at other titles.
Outlook
In 2007, SCMP expects the Hong Kong economy to grow, but at a more moderate pace than last year. The government forecasts GDP growth at 4.5% to 5%. This favorable economic environment should benefit the publishing business which derives revenues primarily from advertising.
Circulation is expected to be stable, although it is declining for the industry as a whole. Display advertising should outperform the market due to the attractiveness of the readership profile of SCMP’s titles. Editorial coverage will be strengthened with a focus on China and business coverage. The launch of websites and new digital products will enhance revenue.
"There are significant risks to ongoing business growth," points out Valiente. "When the exchange eliminates the requirement for listed companies to publish announcements in newspapers in 2007, we expect a loss of notices revenue. The volatile nature of revenue from IPOs is outside the control of management. The online trend in recruitment advertising will continue to have an effect on print recruitment advertising."
Valiente states that the SCMP focus in 2007 and beyond is to continue to strengthen the core publishing business to generate reliable profits and cash flow. The development of new multimedia products and business models are future growth drivers for the Group.
"This year will see many improvements," concludes Valiente. "Expanded China coverage will be the focus of the editorial team, classifiedpost.com will be revamped with user-friendly features and the recently unveiled new look of the paper are all steps we are taking to make sure SCMP stays relevant and appealing to our readers."
About SCMP Group Limited
SCMP Group Limited (SEHK: 583) is a leading newspaper and magazine publisher in Asia. Its flagship publication, South China Morning Post, is the leading English language newspaper in Hong Kong and has the city’s most affluent and influential readership. Other publication titles of the group include the Sunday Morning Post, the Chinese editions of Cosmopolitan, Harper’s Bazaar, CosmoGirl! Maxim and Automobile magazines.
To learn more about the SCMP Group, go to scmpgroup.com.
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