Kenya: Nation Media Group profits down 24% on rising costs – local TV production costs partly to blame

Investment

Kenya's Nation Media Group posted a 23.9 percent drop in pretax profit for the first half of 2009 and expects the remainder of the year to be tough, chief executive Linus Gitahi said on Wednesday.Expensive newsprint, a depreciating local currency and the cost of making local programmes significantly ate into the east African media house's pretax profit, which fell to 588.2 million shillings ($7.7 million).

"It is going to be a tough year. We are under no illusions about that," Gitahi said of the region's biggest media house with operations in Kenya, Tanzania and Uganda. Its shares traded at 124.00 shillings at 1115 GMT, a 4.6 percent drop from the previous day's close.

During the period under review, turnover was up 1.3 percent to 3.809 billion from 3.761 billion.

Nation was forced to close down one of its dailies in April, which Gitahi said was making losses.

"This is a reflection of the how badly the economy is doing," said Fred Mueni, managing director at Tsavo Securities. "Most companies are affected by the recession and are cutting on costs. Advertising is one of the first things to go."

Newsprint prices rose to an average $950 per tonne in the first half of 2009 compared with $650 over the same period last year, Gitahi said."The dollar that we are using to purchase, when you compare year on year, has moved from an average of 64 (shillings) this time last year, to about 76 to 79," he told investors.He added that 50 percent of the content on the group's free to air television channel, NTV, was produced locally.

Although local programmes are more expensive than finished foreign content, a majority of Kenyan viewers have flocked to channels with local programming like NTV'S rival, Citizen TV, causing advertisers to follow them.

Nation has expanded television broadcasts to cover all of Uganda, the Chief Executive said.

"We are balancing between exploiting low hanging fruits, which are quite a few across east Africa, and then moving into Rwanda, Burundi and southern Sudan," Gitahi said.

http://www.reuters.com/article/rbssMediaDiversified/idUSLQ68473420090826