Annual Report to Shareholders 1998

Review of Global Operations

Brian McCarthy

Rural Press Limited, boosted by the acquisition of Farm Progress Companies in the United States of America, was able to increase the operating profits after tax and minority interests by 16.3 per cent (ignoring abnormal item).  The full year result represents another record profit for the company, although second half results were less buoyant.

This result places Rural Press as one of only a few listed companies on the Australian Stock Exchange that has increased profits each year for the last seven years. 

We consider the record net profit of $37,449,000 before abnormal item, to be a very pleasing and creditable result. It reflects the creativity and commitment of our staff, and the underlying strength and quality of our mastheads, printing operations and remaining broadcasting licences. 

Rural Press revenues from advertising, newspaper sales and printing rose to $341,338,000, an increase of $41,985,000, or 14 per cent over the previous year. New acquisitions accounted for $53,807,000 of the sales growth, with $5,985,000 of the increase from existing activities. 

Rural Press publications and radio stations maintained their strong links with the communities they serve by becoming involved in many worthwhile projects and events. 

The company continued its staff training and development programme with the focus on sales, editorial and management training. Education and training in Occupational Health and Safety practices was extended. 

Rural Press is fortunate to have a team of motivated and dedicated staff with high standards of performance. The company's greatest asset - its people - succeeded in maintaining Rural Press's position as a leading Australian company, and the major publisher and broadcaster for regional and rural people. We place on record our appreciation to all staff at all levels for the record profit  result. 

Directors have recommended a final dividend of 7.40 cents per share on ordinary shares and 8.14 cents per share on preferred shares to continue the outstanding record of dividend growth. 

The company's dividend policy is to pay approximately 50 per cent of its after-tax profits to its ordinary and preferred shareholders. This proportion may vary from year to year to ensure that if at all possible, the previous level of dividend is maintained. 

The company has also proposed a special dividend, subject to shareholders approving a dividend re-investment plan for special dividends. Details are provided below and in the notice of annual general meeting. 

In October, 1997, Rural Press sold the 34 AM and FM commercial radio licences held in regional Queensland and Western Australia for $88 million. At that time, the Broadcasting Division represented the largest ownership of commercial radio licences in Australia. 

Considerable progress had been achieved with the radio network, including the introduction of state-of-the-art digital satellite technology, FM licence launches, stronger management, and a sales-oriented culture amongst staff. The Broadcasting Division had grown to the point where it was a significant profit earner for the company. 

The sale of our broadcasting interests was, in part, due to the threat, now a reality, of additional licences being issued by the Australian Broadcasting Authority in the larger markets, and funds could be better used in the Farm Progress Companies acquisition in the United States. 

The October, 1997 sale left the company with 50 per cent interests in two radio licences in South Australia at Port Augusta and Berri. Since October, Rural Press has purchased the remaining 50 per cent shareholding in these stations, launched an FM station at Berri under Section 39 of the Broadcasting Services Act, and in July, the South Australian radio licences serving 5CC Port Lincoln and 5CS Port Pirie were acquired. 

In addition, the company signed agreements to purchase 50.1 per cent of the assets of STAR 106.9 FM in Ipswich, Queensland. This will bring to six the number of commercial radio licences in the group. 

Agricultural Publishing Division 

In the Agricultural Publishing Division, the financial year was one of modest recovery for rural Australia, one of tough seasonal and economic conditions in New Zealand, and one of continued prosperity in the United States markets. Overall, the Agricultural Publishing Division achieved increased profits, to record levels. 

In Australia, the declining impact of El Nino, a solid seasonal recovery, the production of a record cereal crop and the ability of rural producers to adapt and embrace the use of technology created confidence in the rural sector. This confidence was impacted by doubts over farm exports to Asian countries and the ongoing issue of native title. The resilience and strength of the rural community was tested once again. 

The Australian Agricultural Publishing operations, increased advertising volumes and market share over the previous year. National advertising volumes grew strongly, as the Division's national sales team created new revenue opportunities with an expanded client base. Local commercial and classified volumes also increased, with further gains in colour and insert revenues. 

In general, paid circulations held up well, given the market challenges facing the publications. In an effort to maintain paid circulations a number of initiatives were implemented. The Land was redesigned and relaunched with additional content and improved graphics to better serve readers. In South Australia, the successful Hills Farmer concept was extended with the launch of Southern Country as an onsert to Stock Journal, delivering new readership and revenue streams. In Queensland, classified advertising was strengthened with the colour Machinery Trader section added to Queensland Country Life. Farm Weekly introduced a new horticultural section and The North Queensland Register extended coverage to a record number of field days. 

The network of free farming newspapers came under some pressure in very competitive markets. However, their overall result was an improvement over last year. Gippsland Farmer made gains with greater use of colour by local advertisers. Queensland Farmer, Queensland Farmer & Grazier and Cattleman were changed to distribution with Queensland Country Life. 

The agricultural publishing market in Victoria continued to be competitive, with Stock & Land maintaining its position as the major livestock publication. Stock & Land secured a number of livestock-related sponsorships, including the 'Commercial Flock of the Year' competition at the Royal Melbourne Show. 

The specialist magazines of the Agricultural Publishing Division returned a pleasing result. The Australian Farm Journal's combination with the targeted industry magazines Wool, Beef and Crops gained new subscribers and revenues. 

Australian Dairyfarmer maintained its leading industry position, with Australian Horticulture, Good Fruit and Vegetables and Turfcraft recording gains in advertising and circulation. Recent launches, Australasian Flowers, Australian Landcare, Grapegrowers and Australian Cotton Outlook, further cemented their market positions. 

A key initiative during the year was the development of the agricultural database. This will allow for new direct marketing revenue opportunities. 

Rural acceptance and usage of the Internet accelerated significantly over the year. The increasing demand for information saw the average number of weekly hits on the Rural Press Internet Service, F@RMING OnLine, grow steadily. A comprehensive rural property guide was added to the site and electronic commerce was included with a secure credit card transaction facility for book purchases. 

Ag-Quip, celebrating its 25th Anniversary as a field day serving rural Australia, produced an outstanding result with a record number of visitors and trade exhibits at last year's event. We further expanded our involvement in events with the successful launch of a Fruit and Grape Expo in Mildura, and the annual regional Motor Show in Tamworth. 

In New Zealand, the Rural Press agricultural publications found conditions difficult with a continued downward trend in the economy, the impact of poor seasonal conditions and low commodity prices. Due to the unfavourable conditions, the Group's publications lost some market share, however they are well positioned to take advantage of any improvement in market conditions. 

In the United States, management focus has been on merging our existing Rural Press USA operations based at Raleigh, North Carolina, with the acquired Farm Progress operations, based in Chicago, Illinois. The combined group now publishes 36 superior quality State farm magazines, providing comprehensive coverage of 48 farming States in the USA. 

The process of merging this very significant purchase has been successful, with the retention of all the key Farm Progress executives being a crucial factor. The Farm Progress acquisition broadened our US agricultural publishing base and significantly enhanced our revenue opportunities. The Farm Progress Group achieved and exceeded our pre-acquisition objectives in its first year of operation under Rural Press. A solid platform has now been established for sound growth in the years ahead. 

In addition to our efforts with the State magazines, initiatives have been put in place to strengthen the national publication, Farm Futures, our custom publishing efforts, and expand the number of farm trade shows. 

 Regional Publishing Division 

In the Regional Publishing Division, the market was characterised by a lack of retail confidence over most of regional Australia. In this context the growth in trading achieved in the division was pleasing. 

This growth was achieved through cost savings and greater efficiency in the production processes, rather than through any underlying recovery in advertising or circulation revenues. Pre-press and press facilities have been significantly upgraded. This has helped lower production costs and lift product quality. 

The result also reflected the work done in the preceding two financial years to fully resource, change and modernise a number of aspects of the business units in the Regional Publishing Division, including rationalising of a number of titles. 

Advertising volumes in the division were static after a number of years of small decline. National advertising centimetres were at pleasing levels, helped significantly by the float of Telstra and a major campaign by Australia Post. National chain, or supermarket advertising, was slightly down on the previous year with some of the bigger customers trialling glossy catalogues. 

A key indicator of an improvement in advertising volumes was that for the first time in some years, local display and feature and classifieds advertising centimetres all exceeded those of the previous year. 

In addition, there was a significant increase in revenue from colour advertising, emphasising the need for the ongoing upgrading of the colour capacity of our printing presses. This demand for colour was a major factor in the decision to close the printing press in Orange and relocate the printing work from that site to Dubbo and, to a lesser degree, the North Richmond printing site. 

The capital investment required to justify modernising printing equipment to handle four colour effectively requires a high volume throughput and this has prompted the move to centralised press operations. Major upgrades of the printing presses in Nowra and Dubbo were completed in this financial year. 

Circulation revenue also grew through the year on the back of cover price increases in a number of publications. Total paid sales of our newspapers were slightly down and a number of initiatives have been introduced to try and turn around paid circulation. The first initiative was the addition of extra paging in most of our paid newspapers to create "Community News" sections - where space has been created to run more detailed local "micro" news. 

The second initiative was the launch of the "JobGuide" sections in our paid newspapers - with all the positions vacant/employment advertising in the newspapers in a region being combined to produce a special section. This JobGuide initiative will add 15,000 pages to the division's publications in a full year and provide a major boost to readership of the paid newspapers. It is also providing a valuable community service by providing a comprehensive listing of employment available in a region following the phasing out of the Commonwealth Employment Service. Early indications are that JobGuide and Community News sections are having a positive effect on circulation trends.

Significant progress was made in developing the Regional Publishing Division's electronic publishing. Internet sites covering the Launceston and Ballarat markets were developed and work has commenced on creating similar sites in the larger regional markets serviced by our newspapers. These Internet sites include full listing of all the real estate available in the region through our "PropertyGuide", and comprehensive electronic access to sections of the newspaper. 

During the year, the division acquired a number of publications to strengthen our market position. In Western Australia, the free Northam Independent was acquired and is published in conjunction with the existing paid Avon Valley Advocate. On the New South Wales South Coast, a 60 per cent interest was acquired in the Milton Ulladulla Times and a tourist publication, Colourworld. 

On the New South Wales North Coast, a 75 per cent interest in the Macleay Valley Happynings boosted our presence in the Kempsey market. In addition, the division acquired a 50 per cent interest in the Melbourne-based free publication, Inpress Magazine, through the Columbia Press Pty. Limited investment. 

There were a number of well performed publications in the Regional Publishing Division. Our two newspapers in the Hawkesbury, the Gazette and the Courier, both grew revenues, as did the nearby Blue Mountains Gazette. 

A strong result was posted by our newspapers in the Southern Highlands region of New South Wales, with growth in the Goulburn Post and the Bowral-based publications, Highlands Post and Southern Highland News. In the Shoalhaven region of New South Wales, the South Coast Register and the Shoalhaven & Nowra News benefitted from restructuring and new production technology. Our newspapers in Moruya and Batemans Bay were relaunched to improve the editorial standard. 

Many other publications in New South Wales improved performances, including the Western Advocate and Western Times in Bathurst, the Cootamundra Herald, and newspapers in the central New South Wales, North Coast and Hunter Valley groups. 

In Queensland, the Bayside Bulletin and Redland Times managed growth despite the distraction of a major pre-press upgrade during the year. The daily Gympie Times had a strong year with paid circulation growth. 

The publications in South Australia again performed well and held margins. The highlight of the year in South Australia was the centenary celebrations with the Port Pirie Recorder. In the Barossa, the Barossa & Light Herald was converted from a paid to a free publication to better position it in a competitive market. 

Our newspapers in Tasmania, of which we have a majority interest, performed soundly in a difficult trading environment. The Sunday Examiner achieved further circulation growth. 

In Western Australia, the regional publications produced pleasing results, particularly in the highly competitive markets in Mandurah and Bunbury growth markets. 

Results in Victoria were affected by the slowdown of local economies, particularly in Ararat, Stawell and the Gippsland region. The Ballarat Courier produced a sound result. 

Printing Division 

The Australian web-fed printing division continued its growth, with an increase in business in a flat market characterised by increased competition. Overall, the Division achieved revenues on par with last year, with effective cost control and some relief from lower newsprint prices. 

The aggressive pricing strategies of our competitors placed some pressure on margins. Despite this, the customer base continued to grow with new customers utilising the services of our print centres in all states of Australia and the Australian Capital Territory. 

The upgrading of plant and equipment at printing sites has continued, with additional press capacity installed at Gympie, Tamworth, Nowra and Dubbo sites. The demand for full colour reproduction in newspapers is growing, and further upgrades are planned to meet the needs of the publishing market. 

Rationalisation of the New South Wales printing sites continued, with the Orange plant phased out, and the work transferred to the Dubbo and North Richmond printing operations. The emphasis on Occupational Health and Safety and environmental issues continued, with procedures and checking systems in place to monitor adherence to company policy. 

During the year plans were finalised and orders placed to re-establish a state-of-the-art printing operation at our North Richmond site. This investment will provide a competitive advantage to the company in the external printing market and will be of considerable benefit to our internal publications. 

Dividend Reinvestment Plan 

For some time the company has been considering the most effective way of releasing the significant balance of franking credits to shareholders. The Board has determined that, subject to shareholder approval of a dividend reinvestment plan, the company would declare a special franked dividend of 30 cents per ordinary share and 33 cents per preferred share, both fully franked to 36 per cent. 

The proposed terms of the dividend reinvestment plan include the ability for shareholders to reinvest all or part of the proposed special dividend at a 2.5 per cent discount to market value. The plan will not be underwritten, with shares to be issued in the class of share currently held. 

Full details of the dividend reinvestment plan were contained in the notice of annual general meeting sent to shareholders on September 11, 1998. 

Employee Share Ownership 

It is with great pride that we submit the proposal to shareholders for approval of the new share plans that are envisaged for our staff, details of which are contained in the notice of the annual general meeting. 

The company's acheivements since its listing on the Australian Stock Exchange in 1989 are due in no small part to the loyalty and determination of the company's staff. It is pleasing to know that the Rural Press Limited Employee Share Scheme, which shareholders approved in 1990, enabled staff who participated, to share in the rewards that all shareholders have enjoyed over that period. Though unable to be measured, it can be seriously argued that their participation provided the incentive to "go the extra mile" and produced the results that the company and shareholders have enjoyed. 

It is with this in mind that the company seeks approval for the new plans as outlined, because they would further enhance the value of employee share ownership to the company and its shareholders by providing greater incentive across a broader range of employees than is currently being achieved. If approved, the current scheme would be phased out when the new plans are operational.

We commend the plans to shareholders for their approval.