Fairfax Media’s Second Half Hammering

By Glenn Dyer | More Articles by Glenn Dyer

Who would have thought that Australia’s leading media group, Fairfax Media, would experience a near life threatening 25% plunge in second half revenues in the 2009 financial year?

It did, just over $400 million, or around $15 million a week vanished forever, sending the company to a big loss.

The 2009 result wasn’t about the 12 months to June, it was all about the damage from the slump in revenue in the June half.

It captured the entire year in that period; ad revenues collapsed as real estate, jobs and car ads dried up. Not even the strong internet position of Fairfax in cars, jobs and property, could stop the slump.

No wonder Fairfax cut, then suspended dividends to shareholders, cut staff and costs where and raised more than $660 million in new capital earlier in the year:

The company must have been very, close to collapse if that money hadn’t been raised and its debt cut. 

More than many Australian media companies, Fairfax’s second half slump in revenues came close to matching the revenue drops for US newspaper groups which have seen revenues collapse by 25% and more in the six months to June.

In the report and release the company talked a lot about the bad second half of the year, suggested much had changed at the company to condition it to the new way of life, but it was reluctant to look further than the current quarter where it sees a ‘bottoming’ in the slump in revenue, but no signs of a ‘material’ improvement in advertising.

The net loss was already on the cards after the asset impairment charges at the time of the interim report in February; it was only the quantum and the impact of an expected slide in revenue in the second half on operating profits that were the unknowns.

The big revenue loss wreaked havoc on what were once bastions of earnings at Fairfax.

The Sydney Morning Herald and Melbourne Age saw revenues fall $93 million or 25% in the second half to $300 million from $393 million a year earlier.

The company’s regional and rural papers were better: revenue fell by around 13% to $307 million in the second half, from $355 million.

In terms of operating earnings, the Sydney Morning Herald and the Age earned just $29.9 million in the second half (and $97.9 million in the full year) after earning $88 million in the second half of 2008 and $179 million for all of the 2007-08 year.

Costs were cut 4.3% over the full year (and revenue was down 10.6%), around 13% in the second half, but that wasn’t enough to match the black hole developing on the revenue side in the six months to June.

Given that revenue was up half a per cent for the first six months, and that the fall in ad revenues has ‘bottomed’ in this quarter, but not yet improved, Fairfax is now looking at a tough six months to December, 2009.

Overall, Fairfax had 2008 December half revenues of $1.446 billion and full year revenues of $2.609 billion for the 2009 June year.

That left second half revenues of $1.163 billion. But in 2007-08 the company had revenues of $2.903 billion and second half revenues (for the June 2008 period ) of $1.564 billion. 

The difference between the two second halves was $401 million, a terrible loss of revenues.

The company did describe the business environment as "unprecedented in its long history" with total revenue down 10.6% to $2.60 billion, total costs of $2.0 billion down 4.3%, EBITDA of $605.0 million down 27.2%. And net profit after tax of $226.7 million down 40.0%.

This was all before the impairment charges of more than $660 million before tax, which left the net loss after impairments, significant items and tax of $380.0 million, compared to a profit of $386.9 million in 2008.

After the 2 cent interim, no final payout to shareholders will be made, and no sign of any timing for the resumption of payments.

It had total staff costs for the year of $939.35 million ($951.9 million in 2008) and redundancy costs of $79.7 million (11.4 million).

The best performing part of the business was its online operations.

That had revenue for the year of $262.7 million, up from $246.9 million in 2008. Second half earnings rose to $135.1 million from $118 million.

But profit for the year (operating level) fell to $108 million from $109 million, and in the second half, it dropped around 12% to $52 million from $60.2 million previously.

That modest 12% fall was a far better outcome than the 37% drop in second half earnings at the specialist publications group, and far better than the 66% slump at the Sydney and Melbourne papers.

As well the regional papers were a bit more resilient than the city titles and operations, but they also saw a second half fall of around the same size as the drop in online earnings.

Fairfax said "trading results for the first seven weeks of the new financial year indicate that the decline in advertising revenues appears to have bottomed but a material recovery in advertising demand has not yet commenced.

"Influential factors on performance in the year ahead will be lower interest charges, a lower cost base, a team approach to entrenching Fairfax brands, and online businesses that will improve further as business conditions recover.

"In addition, the Company will continue to examine strategies that enhance our existing operations and provide growth prospects for the Group."

Fairfax shares rose 5 cents to $1.46 yesterday, up 3.5%.

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About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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