S&P Rates United News & Media PLC BBB/A-2.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire--

June 11, 1999--Standard & Poor's today assigned its triple-'B' long-term and 'A-2' short-term corporate credit ratings to United News & Media PLC (United). The outlook is stable. In addition, Standard & Poor's assigned its preliminary triple-'B' rating to the company's $1.2 billion million Rule 415 senior unsecured shelf registration, and its triple-'B'-minus rating to the company's existing UK180 million subordinated convertible debt.

Proceeds under the shelf are planned to refinance United's outstanding bank debt.

With 1998 sales from continuing operations of UK2.0 billion, U.K.-based United is a leading international media and information group, with interests in business services, broadcasting and entertainment, and consumer publishing.

Ratings are supported by:

-- United's strong market positions;

-- Its functional and geographical diversity, with leading brand names spread across a diverse range of growing and cash-generative businesses, and about 60% of its operating profits before goodwill amortization generated outside the U.K.;

-- The recession-resistant nature of some its business service operations; and

-- Operating improvements from the successful assimilation of earlier acquisitions.

These factors are tempered by United's moderate vulnerability to a cyclical downturn, with advertising revenues accounting for over 50% of sales, and an active acquisition and divestiture program. Since merging with MAI PLC in 1996, the company has reshaped its portfolio significantly, shifting away from lower-margin segments of consumer publishing and financial services, while adding critical mass to its core business services, publishing, and broadcasting and entertainment divisions.

United's business services division will continue to be its largest earnings contributor, accounting for about 53% of operating profits from continuing businesses in 1998. Through its Miller Freeman unit, United is the world's largest independent trade exhibitions group, holding a 5% share of this fragmented but global and growing industry. Exhibitions are a more recession resilient form of promotion, helping to reduce the group's sensitivity to business cycles. Exhibitions are supplemented by United's leading positions in business magazines, as well as in the high-margin, expanding niche markets of market research (United Information Group) and electronic corporate information (PR Newswire).

In June 1999, United acquired CMP Media Inc. for $920 million. CMP will reinforce Miller Freeman's leading position in its key business-to-business information technology (IT) market, with a complementary portfolio of IT periodicals and Internet sites. While Standard & Poor's views CMP as a good strategic fit with potentially good growth opportunities, CMP will also increase United's exposure to advertising revenues slightly, and has a relatively unproven Internet business. Notably, the IT advertising market, while historically fast growing, experienced a significant slowdown in the latter months of 1998, although there are recent signs of stabilization. In broadcasting, United is one of three major regional franchise holders in ITV, accounting for 24% of ITV's net advertising revenues in 1998. ITV remains the dominant U.K. commercial television broadcaster (accounting for 62% of U.K. television advertising revenues) despite increasing competition. United has investments in other television distribution channels including a 29% stake in Channel 5, which should help to offset potential erosion in ITV earnings. In consumer publishing, United publishes advertising periodicals in the U.S. and the U.K. as well as two U.K. national newspapers, The Express and The Daily Star.

Profitability has improved, aided by scale economies and business mix shifts, with lease-adjusted operating margins before depreciation and amortization rising to about 18% in 1998. Pre-exceptional operating profits from continuing businesses (before amortization of goodwill) grew by 6% for the year ended Dec. 31, 1998. Modest capital spending, estimated at UK50 million per year, coupled with negative working capital requirements in many businesses, contribute to satisfactory cash generation. CMP will have a significant impact on United's financial profile, owing to its low earnings contribution, the significant acquisition price paid, and 100% debt financing. Including other smaller acquisitions announced before CMP, the group operating margin will be dampened slightly, at least until $40 million anticipated cost savings at CMP are achieved. Lease-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to fixed charges is expected to be about 4.5 times (x) in 1999, and funds from operations are expected to be about 19%--weak for the ratings.

OUTLOOK: STABLE

United's ratings are supported by its leading business positions and reasonably steady cash generation from its core operations. Ratings assume a sustained recovery in its key IT advertising market, as well as earnings improvements from the integration of CMP through expected cost and revenue synergies. The ratings would not withstand a major cyclical downturn in its overall advertising markets over the near term, because of United's weakened balance sheet. While the company retains some additional sources of financial flexibility, the capacity for further acquisitions within the current rating category is constrained. Standard & Poor's expects that United will achieve a steadily improving financial profile with leased-adjusted EBITDA-to-fixed charges ratio of at least 5x by the end of 2000. --CreditWire