Ann: SWM: SWM and PRT Extend Affiliation Agreement, page-12

PRT's most recent trading guidance suggests they'll do $10-11m core NPAT in 2H18, i.e. ignoring seasonality they're running at about $22m NPAT today under the existing (more favorable) affiliation agreement.

How do they maintain that level of profitability if, as you suggest, their gross margin is about to be crunched by 5% (as the affiliation agreement goes from 40% to 45%, and the vast majority of their COGS is the affiliation agreement payments)? If i assume that 75% of their COGS line is affiliation payments to C7 (and the remaining 25% is in-house news production etc.), and the affiliation agreement steps up 5%, then i'd expect PRT's gross margin to be about 4% worse (5% * 75%) in FY19 onwards. A 4% gross margin hit on their current revenue run-rate of ~$220m p.a. is about $9m EBITDA hit per year (given the rest of their cost base is fixed), or ~$6m NPAT.

I assume they'll come out with guidance as part of their FY18 results announcement, but i'd be somewhat surprised if the new affiliation agreement allows them to maintain FY18 levels of profitability.