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Fairfax results: analysts question $85 mil carve out

Media analysts have queried Fairfax CEO Greg Hywood on his plan to carve out $85 million from the ailing media company’s cost base.

A bullish Hywood, possibly in a good mood following the resolution last night of his company’s drawn out enterprise bargaining negotiations with metro journos on The Age and The SMH (staff voted 419-62 to accept the deal after Fairfax caved on arbitration clauses), came out swinging on his firm’s $273.7 million underlying profit result, down 1.8% on the previous year.

But that number was tarnished by a net loss of $391 million, caused by a massive goodwill-related writedown of $651 million. In 2009-10, Fairfax made $282 million in headline net profit.

In a staff bulletin issued before the market opened this morning, Hywood explained that the writedown was actually a “technical issue arising from the accounting standards that apply to all major Australian media companies”. Behind the writedown, he said, was a “complex set of variables”.

Hywood told an analyst briefing this morning that 2010-11 had “been a year of two halves — in November [2010] we had an interest rate rise, global and domestic influences, consumer sentiment and activity weakened quite a lot.”

Revenue jumped 5 per cent in the first half but dropped by 3 per cent in the second half, after Hywood took over as acting CEO from the axed Brian McCarthy.

We believe that in this environment our performance has been more than creditable… it is clear that our multi-platform strategy is gaining traction,” the ex-AFR editor said.

During the 90-minute webcast, prominent Fairfax sceptic Roger Colman questioned the rationale behind the $85 million in mooted cost reductions over the next two years, 40% of which will be apparently drawn from the company’s plan to share printing presses with News Limited. And Goldman Sachs wanted to know whether year-to-date sales were healthy after the company revealed they had declined 4% since July 1.

The other billboard announcement was the plan to float New Zealand online auctions site Trade Me, which Hywood said accounted for 70% of its New Zealand traffic. Fairfax would retain a controlling stake in the float, with the site’s former CEO David Kirk returning as Chairman.

Hywood laid the foundation for Brett Clegg’s arrival at the head of the Financial Review Group in the next few weeks, admitting that the Australian Financial Review’s high paywall had delivered disappointing results. “It doesn’t work effectively the way it’s structured and we’re changing this,” he said.

The plan to share News Limited’s Chullora printing plant (among other amalgamations) accounted for $30 million of the future savings, however if that didn’t come off, Hywood said he had a number of “internal options available to significantly reduce costs.”

The freshman CEO who has claimed to be committed to “quality journalism” stemming from his editorship of most of the group’s major mastheads, said that he would continue to hire. Many of the financial problems had commenced in the second half of the financial year after he began his tenure as CEO.

We have an unwavering focus and commitment to quality independent journalism. We use journalism and content to create audiences online and print and we sell that audiences. That’s our model and technology is on our side.”

Of the ailing metro business headed by former digital chief Jack Matthews, the company focused on a 16% jump in online advertising yields, despite their huge discrepancy with the dwindling rivers of gold that have traditionally keep the company afloat. The notion that revenues couldn’t be transferred across to the new platform was a fantasy, the company said.

Fairfax shares had jumped almost 8% to $0.84 cents as Crikey’s deadline approached.

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  • 1
    Suzanne Blake
    Posted Friday, 26 August 2011 at 2:04 pm | Permalink

    The Financial Review sales are just 70,000 copies a day and declining fast, as all it is is press release a day later.

    The other papers are suffering due to the quality of journalism and balance.

  • 2
    GocomSys
    Posted Saturday, 27 August 2011 at 12:19 pm | Permalink

    @SUZANNE BLAKE
    You said: “The other papers are suffering due to the quality of journalism and balance”.
    Do you actually mean it? I am flabbergasted! How about the following:

    We can refuse to buy News Corp publications. Writers and other staff can withdraw their services. Advertisers can withdraw custom. Consumers can contact those who advertise in News Corp publications and tell them we will boycott their products or services as long as they do so.

    And we can tell our MPs we will not vote for parties which in government or opposition advertise in Murdoch outlets. The current federal Government has strong grounds to do just this, but needs a nudge.

    This is a campaign well worth joining by those who recall democracy and free enterprise as it once was. We might even win.

    Suzie, have a look at this: http://eurekastreet.com.au/article.aspx?aeid=27274

    What do you think?

  • 3
    GocomSys
    Posted Saturday, 27 August 2011 at 5:53 pm | Permalink

    @SUZANNE BLAKE
    You might have a look at this one too:

    http://onlineopinion.com.au/view.asp?article=12286

    RSVP

  • 4
    Harvey Tarvydas
    Posted Saturday, 27 August 2011 at 6:55 pm | Permalink

    Dr Harvey M Tarvydas

    @SUZANNE BLAKE — Posted Friday, 26 August 2011 at 2:04 pm
    I think you are right.

    @GOCOMSYS — Posted Saturday, 27 August 2011 at 12:19 pm
    I read it, absolutely brilliant!

  • 5
    Suzanne Blake
    Posted Saturday, 27 August 2011 at 7:00 pm | Permalink

    @ GoComSys

    I don’t buy papers, read online or read in a cafe.

  • 6
    GocomSys
    Posted Saturday, 27 August 2011 at 10:37 pm | Permalink

    @SUZANNE BLAKE - posted Saturday, 27 August 2011 at 7:00 pm

    I am glad to hear that you agree with the following statement:

    Essential to free enterprise and democracy is access to information free of distortion. Newspapers are free to say what they will in editorials and opinion pieces, of course. But news data must be untainted”.

    You said: “I don’t buy papers, read online or read in a café”.
    You probably are selective about “what” you read I take it?

  • 7
    Suzanne Blake
    Posted Sunday, 28 August 2011 at 8:03 am | Permalink

    @ GeocomSys

    I scan / read 4 newspapers a weekday and Saturday online and two on Sundays.
    Apart from that just Crikey.

  • 8
    GocomSys
    Posted Sunday, 28 August 2011 at 2:42 pm | Permalink

    SUZANNE BLAKE - posted Sunday, 28 August 2011 at 8:03 am

    I scan / read 4 newspapers a weekday and Saturday online and two on Sundays”.
    It would be interesting to know which one’s, could you be more specific? Thanks!

  • 9
    Joceyln Tan
    Posted Sunday, 28 August 2011 at 3:56 pm | Permalink

    SUZANNE BLAKE - why do you read them? Or are you merely saying that you won’t pay for anything?

    My point being that it’s hardly surprising that newspaper finances are failing when the product is free in another, quite convenient place. And while Mr Hywood would appear to think that there is some future in the web site business, his own data (have a look at the investor presentation) shows fairly plainly that the growth he’s talking about is not at all in the SMH and Age web sites, but in various sites (mainly TradeMe) that Fairfax paid very big bucks for. It must be getting very hot in there, since Fairfax has decided to sell down its ownership of its best growth asset (TradeMe) and the only reason given is that Fairfax’s $600m cash flow isn’t enough to meet TradeMe’s growth needs????

  • 10
    Suzanne Blake
    Posted Sunday, 28 August 2011 at 5:43 pm | Permalink

    @ GoComSys

    I scan and read the Newcastle News, Wyong/Gosford Advocate, SMH, Australian on weekdays and SMH and Tele on Sundays.

    I think a lot of people read papers for free in cafe’s and other establishments these days. I see people in the mornings buying the $4 coffee with a glass of water and reading / skimming the stack of papers available. Also with content on ABC News 24 etc, you can get a news fix at lot easier than in the past.

    @ Joceyln Tan

    I suspect Fairfax and News will put up a paywall soon. The SMH iPad app (which is very good) is free now, but I expect not for long. I don’t know TradeMe so cannot comment.

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