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

(The following statement was released by the rating agency)SYDNEY, November 12 (Fitch) Fitch Ratings has today affirmed APN News & Media Limited's (APN) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-'. The Outlook remains Stable.Fitch has affirmed APN's IDR despite a small increase in reported leverage to 2.9x (end-2014: 2.8x) during 1H15, following the partially debt-funded acquisition of Perth radio station, 96FM. This acquisition represented the last major fill-in acquisition for the Australian Radio Network (ARN) business, giving APN access to advertisers looking to campaign across all the major Australian capitals. Post-acquisition APN has remained committed to achieving its guided net debt/EBITDA target (company defined) of 2.5x, with this measure declining to 2.9x at 1H15 from 3.1x immediately following the acquisition.The rating continues to reflect APN's strong radio and publishing brands in Australia and New Zealand, despite the on-going structural challenges confronting its publishing business. In Fitch's view, ARN underpins the group's growth opportunities, with ARN's higher earnings and cash flow visibility likely to help mitigate the structurally weaker publishing businesses.KEY RATING DRIVERSAustralian Radio Network Underpins Growth Opportunities: APN now 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 following the acquisition of 96FM in Perth. APN aims to take advantage of its reach to market national advertising opportunities. While APN has been successful in building programmes with high ratings in each of the major cities, the Australian radio market is becoming increasingly competitive, which represents a risk to APN's strongest business.Leading Positions; Unique Assets: The ratings reflect APN's strong radio and publishing brands in Australia and New Zealand, which should enable the company to maintain its market positions. The ratings also reflect APN's unique asset combination and its ability to offer cross-platform advertising over its publishing, radio, outdoor and digital assets. The higher earnings and cash flow visibility from its radio networks help mitigate the structurally weaker publishing businesses.Resilient Radio Networks: Fitch expects that APN's radio business will remain less vulnerable to the growing popularity of alternative media platforms, such as the internet, and therefore continue to exhibit greater resilience in revenues. APN's rebranding and talent recruitment is showing success in helping to gain audience and revenue market shares. Radio has historically been a more defensive medium than newspapers and other advertising platforms. Further, advertising revenues for commercial radio broadcasters are less subject to fluctuations in global and national advertising budgets, as local advertising sales dominate radio advertising revenue. Structural Challenges for Print: The rating reflects the on-going structural challenges confronting APN's publishing business. APN has a strong position in the New Zealand national newspaper market and Australian regional newspaper market, but Fitch expects APN's publishing business to remain under pressure due to the on-going migration of advertising expenditure to digital platforms and the associated media fragmentation.High Leverage: APN plans to delever over the next four years, with a company-defined net debt/EBITDA target of 2.5x (1H15: 2.9x). Fitch expects FFO-adjusted net leverage to stay at a relatively high level of over 3.5x over the next 24 months (end-2014: 4.4x), with structural challenges in the print media and slowdown of the Australian and New Zealand economies affecting overall advertising spend. Steady Cash Generation: APN's radio and print businesses are cash generative, with low capex requirements. Fitch expects APN to continue to generate steady FCF over the rating horizon with the FCF margin to remain between 5%-10%, despite the challenges in the print business and the expected recommencement of dividends in 2016. Potential Impact of NZ IPO: In the event that an IPO of the New Zealand business were to go ahead, the resulting geographical concentration would be likely to constrain the rating at 'BB-', even if the proceeds were used to pay down debt.Sufficient Liquidity: Fitch expects APN's liquidity to be strong in 2015 and 2016 following the refinancing of its bank facilities,. Short-term debt at end-2014 amounted to AUD1.6m. In October 2015, APN's total committed bank facilities were AUD645m, of which around AUD145m remained undrawn.KEY ASSUMPTIONSFitch's key assumptions within the rating case for APN include:- Total revenue to continue to decline in 2015-2018, with the continued decline in print revenue offsetting growth in Australian radio revenue. Print revenue to continue to decline in the next two years before flattening out;- EBITDA margin to widen moderately in 2015-2018, driven by increased revenues from the higher-margin radio business and cost-saving initiatives implemented in the print business;- Capital expenditure to remain at AUD20m-25m a year until 2018. An additional AUD20m in one-off capital expenditure relating to the New Zealand integration programme in 2015; and- Cash dividends to recommence in 2016. Fitch has included a 30% dividend payout ratio in 2016 in the rating case, increasing to 50% gradually over the remainder of the rating horizon.RATING SENSITIVITIESPositive: Positive rating action is unlikely while APN continues to have exposure to the declining publishing sector in Australia and New Zealand. Future developments that may, individually or collectively, lead to positive rating action include: - Success of the digital transition;- Material diversification of cash generation and growth in EBITDA; or- FFO-adjusted net leverage sustained below 3.0x.Negative: Future developments that may, individually or collectively, lead to negative rating action include:- Significant deterioration in the operating profile amid on-going competitive pressures, changing media consumption patterns and evolving technology platforms;- Large debt-funded acquisitions indicating a significant increase in APN's risk tolerance;- Sustained negative FCF margins; or- FFO-adjusted net leverage sustained above 4.0x.Contact: Primary AnalystKelly AmatoAssociate Director+61 2 8256 0348Fitch Australia Pty Ltd., Level 15, 77 King Street, Sydney NSW 2000Secondary AnalystSteve DuroseManaging Director+61 2 8256 0307Committee ChairpersonMatt JamiesonSenior Director+61 2 8256 0366Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.Additional information is available on www.fitchratings.com.Applicable 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=993959Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993959Endorsement 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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