Fairfax Media Ltd. (FXJ.AU) Monday scrapped its final dividend
and reported a A$380.1 million full-year loss after it wrote down
the value of its newspapers and cut 1,000 staff, pushing up
redundancy costs.
Underlying earnings, excluding the writedowns, tumbled 40% as a
slump in advertising markets sapped revenue from the Sydney-based
company's metropolitan and regional mastheads.
The publisher of the Sydney Morning Herald, Melbourne's The Age
and the Australian Financial Review said advertising markets may
have bottomed in May and have been tracking sideways since, with no
signs yet of a recovery.
Fairfax's woes reflect a wider industry malaise as global
newspaper publishers struggle with a cyclical fall in advertising
demand and the structural migration of classified advertising
online.
News Corp., which publishes this news wire, this month reported
a 41% slide in annual operating income from its newspapers and
information services division, incorporating Australia and the
harder hit markets of the U.S. and U.K.
Fairfax Chief Executive Brian McCarthy flagged a wide-ranging
strategy review of the business and said Fairfax would consider
teaming up with News Corp. to charge for online content on a shared
platform.
"That opportunity to perhaps integrate our content would be one
of a whole range of things that we're looking at," McCarthy told
reporters on a conference call.
Fairfax's A$380.1 million net loss for the 12 months to June 30
compared with a A$386.9 million profit a year earlier. It included
one-time impairment and significant items of A$664.3 million, with
A$513 million of that relating to a reduction in the carrying value
of mastheads.
The magnitude of the writedowns wasn't surprising, since Fairfax
booked a non-cash impairment on its mastheads of A$447.5 million in
its first half results, along with some restructuring and plant
impairment charges.
Chief Financial Officer Brian Cassell said it's difficult to
predict whether there will be more impairments in the 2010
financial year. "If conditions continue as they are, if interest
rates stay as they are, it is most unlikely," he told
reporters.
Underlying net profit, including a preference share dividend,
fell 40% to A$226.7 million. Analysts polled by Dow Jones Newswires
were expecting A$210.0 million-A$220.8 million.
The group's earnings before interest, tax, depreciation and
amortization were A$605.0 million, down from A$831.2 million, but
just ahead of company guidance for A$600 million.
JPMorgan analyst Laurent Horrut said there were some positive
developments evident in Fairfax's results.
"It's still early days in terms of an ad spend recovery, but
revenues have bottomed out and that's reasonably positive," Horrut
said. "Also, I think they're doing a good job on the cost side and
their guidance for a lower cost base next year is good."
Horrut said it's "a bit disappointing that Fairfax didn't pay a
final dividend" although "people will be happy to see them repaying
debt than paying out at this point."
Fairfax's Cassell told analysts that it's likely Fairfax will
stick to a dividend payout ratio of 20% of earnings this financial
year.
Group revenue fell 10.8% to A$2.61 billion from A$2.91 billion
as advertising revenue at the company's Sydney and Melbourne
metropolitan newspapers and magazine fell 18.7%. Classified
volumes, once known in Australia as "the rivers of gold", slumped
29%.
The numbers were a little better in the regional and community
publications business, where advertising revenue fell 10.5%.
Strategy Review
McCarthy told analysts that Fairfax will hold an internal
strategy meeting Sept. 7-8. "We have a business model that probably
needs to adapt," he said, while declining to give details of what
might be considered other than "the monetization of online."
Fairfax currently charges for the online edition of the
Australian Financial Review and News Corp. charges for the online
edition of The Wall Street Journal.
Without citing sources, the Los Angeles Times reported Friday
that News Corp. executives recently met rival U.S. publishers
including New York Times Co. and Washington Post Co. about forming
a consortium to charge for online content.
Fairfax's McCarthy said he hasn't had any such discussions with
News Corp. to date.
"...we need to go through the detail of that and it's certainly
not the only strategy we have," he said.
CCZ media analyst Roger Coleman said a possible integrated
platform that charges customers would likely resemble a news agent
with an online shop window.
Coleman said any such venture would unlikely meet resistance
from Australia's competition watchdog if it's set up right.
"All they're doing is making sure there's a billing system, an
easy shop, an easy entry and you can buy all you want to buy
online," Coleman said.
"It's a question of how they get people to pay and how the
online copyright pursuit is going to go."
-By Ross Kelly, Dow Jones Newswires; 61-3-9292-2093;
ross.kelly@dowjones.com
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