With less than three weeks to go to the September 7 poll, there’s a growing chance some of the Fairfax Media papers The Sydney Morning Herald, The Age, The Australian Financial Review and The Canberra Times might not be around in their current form to report on the next federal poll in late 2016.
The nitty gritty of the Fairfax 2012-13 financial results yesterday reveal some stark truths that will have to be realised by the board, management and staff: the papers are leaking revenue and digital is not making it up, while the Domain property business is being held back by the print side in the papers, and is nowhere near strong enough to start generating the sort of cash flow to sustain the group.
The Fairfax results — along with those from Seven West Media and APN News and Media — illustrate the continuing revenue and earnings pressures analogue print properties are under in Australia. They tell us that the results from News Corp and News Corp Australia will be truly bad for the papers and associated businesses, if we ever get to see the data (theoretically, News Corp has until August 31 to release its June 30 data, or it faces suspension).
Fairfax Media’s detailed presentation to investors yesterday shows the problems hiding at News Corp Australia. Fairfax’s figures show its core metro media businesses in Sydney, Melbourne, Canberra, the various magazines and community papers and websites leaked ad revenues at a rate topping $3 million a week in 2012-13 ($169 million). And nearly $2 million of that occurred in the big metro papers, including The Australian Financial Review. Cost cuts and restructuring couldn’t keep up, trimming just over $2 million a week from the metro businesses. Disclosures in May by News Corp reveal the Australian newspapers had lost close to $300 million (at current exchange rates) in the nine months to March 31 — that means the revenue loss could end up close to $400 million, or more than $7 million a week.
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And the revenue situation is not improving. Fairfax CEO Greg Hywood said the first eight weeks of the new financial year had seen no real improvement, with revenue running 8% under the level in the weak first half of last financial year. That might be a little better when seen against the 10% fall experienced at times in the six months to December, but it’s little consolation. That further fall will be hurting News as well: Kim Williams recognised that when CEO of News, but Jurassic Park prevented him from tackling the black hole.
That’s not to say Fairfax is not without some pluses: it only has $154 million of net debt, down from $919 million at June 30, 2012; it has cash reserves of $553 million — but, worryingly, Hywood was talking about acquisitions yesterday. The words “Fairfax” and “acquisitions” don’t sit easily in the same sentence; the success Fairfax had in buying and then selling Trade Me, the NZ internet auction site, is an exception that proves the rule. Don’t mention Rural Press.
“That is an unsustainable rate of decline and can’t last without serious damage being done to the papers and urgent cuts being forced on management sooner than later.”
The company’s metropolitan media division saw a 21.1% fall in ad revenues to $633.6 million, but a 17.4% rise in circulation revenues to $221 million. Other income rose to $140 million, up 1.4%. The upshot was a 12% fall in total revenues to $996 million. Costs fell 10.7% to $917.6 million and adjusted earnings before interest, tax and depreciation (EBITDA) fell nearly 33% to $48.8 million from $72.6 million.
And if you look at the metro papers and digital, the picture is even more disheartening. While total revenues fell by just 7.6% to $745 million, print ad and classified revenues fell by more than double that — 15.7%. Costs fell 5.8% to $692.5 million and adjusted EBITDA fell 38% to just $35 million.
Fairfax said advertising revenue “decreased 24.9% in Metro Print and increased 3.4% in Metro Digital”. That is an unsustainable rate of decline and can’t last without serious damage being done to the papers and urgent cuts being forced on management sooner than later.
Looking at the recent circulation figures for 2012-13, The Sun-Herald in Sydney and BRW magazine are the most exposed of the publications and would be the easiest to cut, although ending The Sun-Herald would add to costs in Sydney because the printing presses would be even more underutilised. BRW lost 17.4% of its sales, The Sun-Herald 20.4%. Much of that was part of the clean up of the circulations by management getting rid of freebies and other loss-making copies.
In a separate statement to staff yesterday by Hywood there was no talk of cuts. He said Fairfax is concentrating on opportunities from small and medium enterprises in digital and marketing services, events and content marketing: “For each of these, we are looking to take an existing niche presence that sites within Fairfax, to impose more structure around our activities, and to build a substantial business.”
Hywood also pointed to a turnaround in broadcasting — with ratings and market share up — and Domain, with EBITDA up 31%. But that’s a little selective of him. That rise came in Domain’s digital earnings, which were OK at $29.4 million compared with $22.5 million a year ago; the print side saw a 45% drop in EBITDA to just $12.1 million as print property ads plunged 33%. In comparison, REA Group (61% owned by News Corp) had EBITDA of $336.4 million from all sources (all digital, no print) in 2012-13 and is worth $4.5 billion. Using that valuation, Domain could have a value of $400 million, but can’t be sold off or floated because its weighed down by the increasing black hole in print property ads.