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Fairfax's NZ annual earnings fall 7.7% as cost cutting focus remains

Wednesday 16th August 2017

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Fairfax Media Group's New Zealand business, which is appealing a rejection of a proposed merger with rival NZME, posted a 7.7 percent fall in annual earnings as print advertising revenue shrank faster than the newspaper and online news publisher could cut costs.

The Sydney-based company's New Zealand division posted earnings before interest, tax, depreciation and amortisation of $55.5 million in the 12 months ended June 30, down from $60.2 million a year earlier, as revenue shrank 7 percent to $325.9 million. The decline in revenue was led by a 9.1 percent fall in advertising revenue, which group chief executive Greg Hywood put down to "weakness in retail, motors and leisure categories", offsetting a 29 percent growth in digital revenue, without providing more detail. 

"Ongoing cost management delivered a 6 percent reduction in operating costs, notwithstanding further investment in digital, underpinning stable margins in the second half," Hywood said. 

Fairfax and NZME are appealing a Commerce Commission decision turning down their merger application over fears a united entity would wield too much soft power and stifle the diversity of voices within the country's media landscape. 

Chairman Nick Falloon said the regulator's decision "failed to grasp the commercial realities of modern media and the opportunity of allowing two local media companies to gain the scale and resources necessary to aggressively compete against market-dominating global search and social giants, now and into the future."

Hywood said throughout the merger process it has had a backup plan "to develop new revenue streams, recognising the ongoing structural challenges of print". 

Fairfax gave up its dominance of New Zealand's online classified market when it sold out of Trade Me, which reported ebitda of $142 million last year, instead using the proceeds to repay what had become an unmanageable level of debt as traditional advertising revenue collapsed.

Still, the New Zealand division adopted a digital-first strategy, writing down the value of its local mastheads to just $175.2 million a year ago from as much as $1.12 billion when the one-time Australian family-owned media group purchased the Kiwi business from Rupert Murdoch's Independent Newspapers Ltd. 

Hywood said Fairfax New Zealand's digital revenue had "strong momentum" with an 11 percent increase in the website's audience to 2.1 million and the Neighbourly website generating a profit in the second half of the financial year. 

The stuff website is key for Fairfax NZ's pipeline of products, providing "a platform to monetise audiences through new products and businesses" such as the Stuff Fibre internet service and KPEX advertising inventory pool set up by local media companies. 

The wider Fairfax group posted a net profit to A$83.9 million on a 4.8 percent decline in revenue to A$1.74 billion, turning around a loss of A$772.6 million when it further slashed the value of mastheads and goodwill across its Australian and New Zealand operations. Operating ebitda declined 4.3 percent to A$271.1 million. 

Fairfax's board declared a final dividend 2 Australian cents per share, taking the annual return to 4 cents. The ASX-listed shares rose 2.2 percent to A$1.0325. 

The Australian media group is pressing ahead with plans to spin out its Domain online real estate business, which it anticipates listing on the ASX before the end of the year. That unit and a depressed share price had attracted potential suitors for Fairfax earlier this year, but both walked away after peeking at the books during due diligence. 


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