Fairfax has an unfortunate way with words for a company deeply involved in their use every day.

Remember how the discredited former CEO Fred Hilmer described journalists as “content producers”? Well the current managers are just as unsmart as the unlamented Fred was with words.

This morning, Fairfax revealed write-downs in goodwill and intangible assets of $447.5 million. They helped push the company to a bottom line of just over $365 million.

In a presentation to analysts, the assets being written down were described as “Cash Generating Units” or CGU.

The write-downs were “based on recoverable amount of each Cash Generating Unit (CGU)”.

That’s a bit similar to the way retailers classify their stock in Stock Keeping Units: it’s a process-driven way of keeping control used by accountants, not media managers.

Note these are not profit generating units, just cash.

In using it, Fairfax once again betrays the remoteness of its management from the lifeblood of the company — the quality of its written words and the ideas they carry. In other words, good journalism is now classed as a CGU, like a printing press or a radio station, when in fact it is the reason for the company’s existence and continuing success.

There are plenty of media companies producing dross and suffering the same fate as Fairfax: being cheap doesn’t give any protection in these sorts of markets.

In that case, how does Fairfax value non-cash generating units such as the board? On present indications, chairman Ron Walker is a cost saving waiting to be made.

The presentation also reveals the company thinks there’s little chance of any improvement in the next six months and in the 2010 year, with limited growth in revenues from 2011 onwards.

Fairfax said interim underlying net profit was $157.61 million, down 23% from $204.61 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) was $370 million, down 11.6%.

Every business, bar the online operations, reported lower contributions (radio is not included in that assessment as the contribution the previous year was not meaningful). Revenues fell in Australia and NZ newspapers and other print publications, but rose strongly in the digital businesses.

Fairfax said restructuring and redundancy charges amounted to $62.4 million (that’s the 550 job cuts announced last August in Australia and New Zealand).

It also had an impairment charge of $1.4 million for plant, equipment and software and another of $30.1 million related to goodwill on the sale of the Southern Star television production and distribution businesses. (That was already signalled when it completed the sale of the unwanted bits of Southern Star last month).

And it had a non-cash impairment charge of $447.5 million against the value of mastheads, licences and goodwill across all publishing and broadcast media properties.

The reduced dividend of 2 cents a share is being paid (Unlike the New York Times Company which late last week abandoned its reduced payout completely for the foreseeable future).

And Fairfax warned that:

Trading conditions in January were weaker and this has continued into February. While we anticipate some improvement in display advertising in March, classified advertising is generally expected to remain weak for at least the remainder of this financial year in both Australia and New Zealand. Our online businesses continue to generate growth, with trading in those sectors relatively steady. Further cost benefits from efficiency initiatives will flow through in the second half, and will provide some buffer to the weak market conditions.

The presentation revealed that at June 30 2008, Fairfax was confident about not needing a cash issue. It said it was still well clear of its loan covenants regarding debt and interest payments.

It said its cash position would improve this half, allowing more debt to be retired.

The Southern Star sale proceeds will be received, lower interest rates and the money saved from the dividend cut will finance a cut in its debt that stood at $2.544 billion at December 31.

Peter Fray

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