Oct 2010 Financial News

RJR's future profitability looks shaky

Oct 20, 2010

RJR Group's profitability will remain fragile due to rising expenses, proposed government fees and regulation, according to management.

At the same time, RJR disclosed its $12-million investment in a Trinidad-based media outlet.

"The impact of the increased transportation, energy, electricity, insurance, training, and staff costs is a threat the company currently faces," stated RJR Group managing director Gary Allen in his statement accompanying the annual report posted this month to the Jamaica Stock Exchange. "So while we have seen a return to profitability for our radio and multimedia services, the position is fragile and must be supported by continuous management review and changes, especially in our cable division where there are additional challenges. Our medium-term plan is, therefore, not only based on what happens in Jamaica, but also globally."

But Allen stated that government proposed introduction of fees to traditional media houses could affect the group's profitability.

"Additionally, with the government moving towards regulatory fees, licensing charges, spectrum usage fees and other charges on media, the company must prepare for a more hostile operating environment," he said.

Lester Spaulding, RJR Group's chairman, additionally warned that the recent increases in the time allowed for government programming would effectively remove the potential advertising revenue.

"The electronic media industry appears to be headed for regulatory turbulence, as Government has stated its intention to impact fundamental formats of most current commercial licencees, by mandating changes in its use of airtime allotments. This must be resisted as commercial viability could be at stake," stated Spaulding in his accompanying statement in the annual report.

RJR stated that it holds 48,254 shares in One Caribbean Media Limited (OCM) with fair value of $11.8 million at March. OCM is a multimedia company which operates in Trinidad & Tobago and Barbados. Shares of the OCM are listed on the Trinidad & Tobago Stock Exchange.

The Jamaica Government via the Broadcast Commission is proposing that it will impose a licence fee for radio and TV conglomerates equivalent to five per cent of revenue. RJR recorded $1.99 billion in revenues for its year end March 2010 and the licence fee proposal would amount to just under half of the $221.6 million it earned as after-tax profit over the review period. RJR made a $139-million loss in the prior year due in part to restructuring costs and reduced advertising revenues.

Currently, TV and radio stations do not pay a revenue licence fee to its regulator, the BCJ. However, subscriber television or cable providers, pay this fee according to a BCJ compliance report. Thus, the proposal is aimed at implementing this fee across the entire industry. The matter was discussed at a Forum on Policy and Regulation in the Electronic Media Sector at the Pegasus Hotel in Jamaica in August. The forum was hosted by the BCJ. At the forum, Allen questioned whether a tax on traditional media entities would contradict its intent in achieving equity but rather compromise the viability of big media.

The BCJ has employed the services of Canadian consultants, Nordicity, to examine this proposal, which would finance the BCJ's budget. However, a portion could go into a fund to support local programming.

Incidentally, Marcia Forbes, representing Phase 3 Productions and former permanent secretary in the Energy ministry, sided with the BCJ's proposal stating that it would benefit the industry.


Source:
Jamaica Observer
Wednesday October 20, 2010

http://www.jamaicaobserver.com/business/RJR-s-future-profitability-looks-shaky_8071250