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1 Surprising Thing About Singapore Press Holding Limited’s Latest Earnings That Investors May Have Missed

Last Friday, Singapore Press Holdings Limited (SGX: T39) reported a near-44% decline in profit in the first quarter of its fiscal year ending 31 August 2017 (FY2017).

The massive profit decline was due to the review of its media business and an impairment charge taken for an associate. The former is a cause for concern as SPH is facing disruption in its traditional media business. For instance, from FY2015 to FY2016, print subscriptions for The Straits Times (a major SPH newspaper) had fallen by 9%.

A sunset industry?

Back in December last year, my colleague Stanley Lim opined that it may be premature to say that SPH is in a sunset industry. He argued that the company is not in the business of printing newspapers, but in the business of producing news content.

Interestingly, the latest SPH earnings report from last Friday has one surprising data point to support his view.

SPH’s circulation revenue rose 1.8% year-on-year for the first quarter. This turnaround in sales came after the media giant reported a 3% decline in circulation revenue for FY2016. Notably, the rise in digital subscriptions might be starting to offset the decline in print subscriptions. This is summarized in the slide below:

2017-01-13 SPH Subscriptions
Source: SPH’s earnings presentation

In short, the rise in circulation revenue suggests that subscribers still value SPH’s content. This would support Stanley’s point. Unfortunately, SPH’s advertisment revenue is not doing as well.

Not so fast

Although SPH’s circulation revenue had increased slightly, the same cannot be said about its advertisement revenue. In the latest quarter, ad sales fell by 13.5%. This decline follows the 9.2% fall in ad sales suffered in FY2016. As a whole, SPH’s Media segment revenue for the first quarter declined 9.5% year-on-year.

The differing fortunes of the company’s circulation and advertisement revenues highlights two points.

SPH’s content, as Stanley notes, is valuable and could drive growth in circulation. But, the fall in advertisement revenue suggest that SPH is currently not able to turn its readership into revenue.

Thing is, a big part of SPH’s business still relies on advertising (advertisement activity accounted for 52.2% of SPH’s total operating revenue in the latest quarter). If SPH is not able to figure out how it can turn its advertisement revenue around, we could continue to see its revenue declining.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.