RJR’s $106M 4th quarter loss

Things are not good for the media houses these days as economic pressure and the withdrawal of Claro mobile operations from the Jamaican market coupled with a soft economy has cut revenues for this sector. In a tough economy, RJR group suffered a pretax loss of $106 million in the quarter ending in March after writing off $35 million for impairment of the investment in Reggae TV and JNN. This result is a major swing from the similar quarter of 2012 when a profit of $15.6 million was made. Result after tax for the period came out at a loss of $51 million versus a profit of $5.6 million in 2012.

A 5 percent fall in revenue to $446 million from $470 million in the 2012 quarter was one of the major contributors to that big loss in the quarter.

Annual Loss | For the year to March, the loss before taxation came out at $79.5 million and $36.4 after tax, compared to a pretax profit of $146.5 million in 2012 and a net of $87.4 million after taxation of $59 million. The company reported revenues of $1.866 billion for the year, in 2012 revenues were $1.937 billion a decline of 3.7 percent.

RJR_Newslogo150x150Bad debt provision increased from $10.7 million to $30.5 million and special events cost amounted to $186.8 million compared to $90.3 million in the prior year.

While amounts in receivables were kept relatively constant with the previous year’s figures, payables at the end of March climbed to $124 million versus $44 million and the company borrowed $201.5 million. Fixed and intangible assets were purchased amounting to $192 million of which FIFA world cup rights accounts for a large portion.

Decline | The company has suffered a series of set backs over the years. One that is most noticeable is the fall in return on equity from 21 percent in 2000 and 19.7 percent in 2010 to 10.3 percent in 2011, 6.4 percent in 2012 and now a negative return in 2013. Even adjusting for the one-off cost items that are in the 2013 fiscal year, profit would still be inadequate to beat the return on equity of 2012.

RJR recovered from a stunning loss of $129 million in 2009 to record a profit of $222 million in 2010, so it could recover again. However, there are some differences. In 2010, revenues rose by nearly 21 percent on top of a 7 percent in the two previous years. This time around revenues are down in a soft market for advertising as revenues were flat in 2011, declined in 2012 and again in 2013. This is not a market where revenues can be easily raised to dramatically turn around profits. On the positive side, there are some costs in 2013 that should not recur in 2014. Depreciation charge is $109 million, which is not a cash item, so even if it were to continue to make a small loss it can continue to operate for a long time until it recovers as cash flow can be positive.

FIFA rights | The company paid $83.55 million for the exclusive right to transmit FIFA football matches in Jamaica between 2015 to 2022 which means that it will be some time before this investment pays off.

The company’s stock trades at $1.37 and it is difficult to see how this stock will be able to justify a higher price with these results, but more importantly, how will the company grow revenues or cut cost to restore reasonable profitability.

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