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Aug 26, 2011

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.

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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.

Andrew Crook —

Andrew Crook

Former Crikey Senior Journalist

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