Daily Mail & General Trust PLC (LON:DMGT), swung to a 2018 profit but warned that it expects newspaper circulation volumes to continue to decline next year as more people get their news online.
The owner of the Daily Mail and Metro newspapers posted a pre-tax profit of £692mln for the year to September 30, compared to a loss of £112mln last year, after pocketing £642mln from the sale of its 29.9% stake in ZPG in May. ZPG, the parent company of Zoopla, PrimeLocation and uSwitch, was sold to California-based tech investor Silver Lake.
Daily Mail also sold real estate data firm EDR to Silver Lake and Battery Ventures for US$205mln in March and its loss-making viral video-sharing website Elite Daily to Bustle Digital Group in April.
The disposals improved its balance sheet with the company moving into net cash of £233mln at the end of September from net debt of £464mln at the start of the year.
On the back of its healthier cash position, the group raised its dividend to 23.3p from 22.7p last year.
Adjusted profit and revenue fall
However, adjusted pre-tax profit fell to £182mln from £226mln last year, reflecting the impact of the reduced portfolio of businesses, a weaker US dollar and difficult conditions in the newspaper market.
Revenue dropped to £1.4bn from £1.7bn last year, led by declines in its property information unit and consumer media businesses of 17% and 4% respectively on a reported basis. On an underlying basis, revenues were flat.
Last year the company placed its struggling US property information business, Xceligent into liquidation, following a strategic review.
READ: Daily Mail and General places struggling, US property information business into Chapter 7 liquidation
In the consumer media unit, underlying growth from MailOnline of 5% was more than offset by a 5% decrease in circulation revenues and a 5% drop in print advertising revenues.
Advertising market conditions expected to remain volatile
For the 2019 financial year, the company expects underlying revenues in the consumer media division to fall by “mid-single” digits as it believes advertising market conditions are likely to remain volatile and sees circulation volumes falling. That will offset an increase in the cover price of the Daily Mail, the firm said.
The business-to-business division will be affected by the decision to streamline the portfolio with underlying revenue growth expected to be in the “low-single” digits.
The insurance risk, property information, EdTech, energy information and events businesses are all expected to deliver underlying revenue growth.
“As we move into FY 2019, our vision for DMGT's future remains unchanged; we seek to deliver profitable growth across a diversified portfolio, driven by our long-term approach to investment and increased focus on innovative technologies,” said chief executive Paul Zwillenber.
“The board remains confident that the group's strategy, supported by our strong balance sheet, will over the medium term, deliver consistent earnings growth to underpin DMGT's long-standing commitment to sustainable annual real dividend growth."
Shares plunged 10.5% to 618p in morning trading.
Liberum maintains 'sell' rating
Liberum maintained a 'sell' rating and target price of 685p, saying it thinks the shares are likely to react badly to the 2019 guidance.
"We expect consensus adjusted operating profit for FY19E to fall from £153mln to £135mln-140mln (Liberum estimate £127mln) although the earnings per share impact may be less because guidance is for £15mln interest costs (Liberum estimate £30mln)," it added.
"However, the focus will be on the weak operational guidance."