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Is Singapore Press Holdings’ Media Division in Terminal Decline?

The internet has revolutionised the media industry as more and more people log on to read their daily news online. There is now an explosion of news articles from all manner of sources, and readers are literally spoilt for choice as they navigate search engines in search of news updates on every conceivable topic. This news spells trouble, though, for Singapore Press Holdings (SGX: T39), or SPH, as its media division is struggling to manage the online onslaught.

SPH is a leading media organisation, and its core business is the publishing of newspapers, magazines, and books in both print and digital editions. It also owns other digital products, radio stations, and outdoor media. Its property division owns a 70% stake in a REIT called SPH REIT (SGX: SK6U), which owns stakes in several retail malls in Singapore and Australia as well as a portfolio of purpose-built student accommodation in the UK.

The key question to ponder now is whether SPH’s media division faces terminal decline and if the group should seriously consider further diversification of its business away from its core.

Declining readership numbers

Source: SPH Annual Report FY 2018

The graph above shows the readership trends over the last eight years, from FY 2009 to FY 2017. It is clear that readership numbers started to decline more drastically from FY 2013 onwards, and in the last few years, this decline has accelerated, especially for English and Chinese language papers. As SPH is the only media company in Singapore and publishes a variety of different newspapers, this trend seems to imply that readers are searching for and sticking with alternative sources of news.

Media division revenue

Media division revenue has been falling year on year for the past four fiscal years, and this is in line with the fall in readership numbers. Even though the readership number for FY 2018 was not available, the 9.6% year-on-year fall in revenue shows that readership probably declined by an equivalent factor.

Media segment margin

The last aspect I looked at was the segment margin for the media division. This was calculated by taking the reported segment profit for each fiscal year divided by the segment’s external revenue. Note that there is a very clear trend of the margin being eroded, from a high of 26.1% in FY 2014 to 14% in FY 2018.

For FY 2017, the company recognized impairment charges of S$87.9 million, which depressed the segment result. Even if this was added back, segment profit would have been S$150 million, for a segment margin of 20.7%.

Future looks bleak for the media division

Unless SPH takes drastic corrective action to reverse the decline, it looks like the media division will continue to see year-on-year declines in both readership and revenue. Operating leverage is causing segment margin to fall by alarming levels, and this margin may erode further if the fixed layer of costs within the division is not reduced.

SPH has to work on either reinventing the business model and unique selling proposition for its media division, or start diversifying away from its core business. Management has started to do this by moving into property and also by purchasing Orange Valley, a nursing home in Singapore, for S$164 million in April 2017 in order to gain a foothold in the healthcare sector. However, the contributions from these divisions are not sufficient to offset the declines in the core media division for now.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.