Fitch Affirms APN at 'BB-'; Withdraws Rating <Origin Href="QuoteRef">APN.AX</Origin>

(The following statement was released by the rating agency)SYDNEY, June 16 (Fitch) Fitch Ratings has affirmed APN News & Media Limited's (APN) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-'. The Outlook is Stable. At the same time, Fitch has withdrawn the rating of APN for commercial reasons. Following the company's equity raising and approval of the group's demerger, APN does not need to maintain a credit rating. The rating is not a key input into other ratings.The affirmation follows the approval to demerge the company's New Zealand businesses and the successful equity-raising of AUD180m in June 2016, which will be used to reduce leverage. On a pro-forma basis, APN-calculated net-debt/EBITDA at 31 December 2015 would have been 1.8x, within the range of its target capital structure for the demerged business of 2.0x or lower. On a pro-forma basis, APN's FFO-adjusted net leverage would have been 3.2x, compared with the reported results of 4.8x (2014: 4.4x).KEY RATING DRIVERSGeographical Concentration Constrains Rating: The demerger of the New Zealand businesses diminishes APN's geographical diversification, with its core markets now Australia and, to a lesser extent, Hong Kong. Despite its strong radio network in Australia, the relative lack of diversification constrains APN's IDR at 'BB-'.Improving Leverage: APN improved its FFO-adjusted net leverage to 3.2x on a pro-forma basis by end-2015 by using the proceeds from its AUD180m equity issue to pay down debt. This compares with the reported result of 4.8x. APN met its internal net-debt/EBITDA target of 2.0x or lower for the demerged business at 1.8x on a pro-forma basis at end-2015. Fitch expects FFO-adjusted net leverage to improve until 2019, as capex requirements and interest expenses decline and Adshel's, APN's digital outdoor advertising and out-of-home media company, financial performance improves. This is despite a higher tax expense from 2016 and the recommencement of dividend payments in 2017.Australian Radio Network Underpins Growth Opportunities: APN has the maximum two radio licences allowed in each of the five Australian-mainland capital cities and is the second-largest commercial radio operator in Australia by overall market share. The company aims to take advantage of its reach to promote national advertising opportunities. While APN has successfully built high-rating programmes in each major city, the Australian radio market is becoming increasingly competitive, representing a risk to the company's strongest business.Leading Position; Unique Assets: The rating reflects APN's strong radio and publishing brands in Australia, which should enable the company to maintain its market position. The rating also reflects APN's unique asset combination and its ability to offer cross-platform advertising over its publishing, radio, outdoor and digital assets. Higher earnings and cash flow visibility from its radio network helps mitigate the structurally weaker publishing businesses.Resilient Radio Networks: Fitch expects APN's radio business to remain less vulnerable to the growing popularity of alternative media platforms, such as the internet, and therefore continue to exhibit greater resilience in revenues. The company's rebranding and talent recruitment has successfully gained audience and revenue market share. Radio has historically been a more defensive medium than newspapers and other advertising platforms. Further, advertising revenue for commercial radio broadcasters is more resilient to fluctuations in global and national advertising budgets, as local advertising sales dominate radio advertising revenue.Print Faces Structural Challenges: The rating reflects ongoing structural challenges confronting APN's publishing business. The company has a strong position in the Australian regional newspaper market, but Fitch expects its publishing business to remain under pressure due to continued migration of advertising expenditure to digital platforms and the associated media fragmentation.Steady Cash Generation: APN's radio and print businesses are cash generative with low capex requirements. Fitch expects the company to continue generating steady FCF from 2016 to 2019, with an FCF margin above 6%, despite the challenges in its print business and the expected recommencement of dividend payments in 2017.Potential of Sale of Australian Regional Media: APN flagged the potential sale of its Australian print business in 2016. Despite the business's structural challenges, the resulting concentration of APN's business in Australian radio would likely constrain its rating at 'BB-', even if the proceeds were used to pay down debt.Sufficient Liquidity: Fitch expects APN to have strong liquidity in 2016 and 2017, following the pay-down of debt using proceeds from the equity issue. APN intends to lower its committed bank facility limits to AUD360m after the demerger is completed, of which AUD152.3m would have remained undrawn at end-2015 on a pro-forma basis.KEY ASSUMPTIONSFitch's key assumptions within the rating case for APN include:- total revenue to be affected by Australia's declining publishing sector and the transition of the outdoor business, offset by radio revenue growth, as APN consolidates the benefits of its national network. Print revenues to experience pressure from 2016 to 2019, particularly over the next two years- EBITDA margin to increase in 2016-2019, driven by rising revenue from the higher-margin radio business, increasing profits from Adshel and cost saving initiatives being implemented in the Australian print business- capex to remain at around AUD10m per year from 2016-2019- cash dividends to recommence in 2016, with the first payment expected in 2017. Fitch has assumed a 20% payout ratio in 2016, increasing to 60% until 2019.RATING SENSITIVITIESRating Sensitivities are not applicable as the rating has been withdrawn.Contact: Primary AnalystKelly Amato, CFAAssociate Director+61 2 8256 0348Fitch Australia Pty LtdLevel 15, 77 King Street Sydney NSW 2000Secondary AnalystSteve DuroseManaging Director+61 2 8256 0307Committee ChairpersonMatt JamiesonSenior Director+61 2 8256 0366Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1006211Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006211Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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