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Results for the six months ended 31 December 2000 EPS pre-abnormal items down 12.4% from last year’s record. One-off effects of Olympics and industrial action, combined with softer advertising market, affect first half resultsStatement
by Mr Fred Hilmer, Chief Executive Officer Overview John
Fairfax Holdings Limited [ASX:FXJ]
today announced a profit after tax for the six months ended
31 December 2000 of $77.4 million.
Excluding the share of profits from associates, after-tax profit
pre-abnormal items was $72.1 million, down 18.1% on the previous corresponding
period of $88.0 million. Earnings
per share were 10.6 cents, down 12.4% on pre-abnormal earnings per
share of 12.1 cents last year. This
12.4% decline in earnings per share pre-abnormal items comes after
two years of record profits during which our earnings per share grew
by some 65%. It reflects
several one-off items, including the Olympics and industrial action,
and the softening of the advertising market in a slowing economy.
As reported at the Annual General Meeting in November, the
Olympics and industrial action at The
Age reduced earnings before interest, taxes, depreciation and
amortisation (EBITDA) by approximately $25 million.
Excluding these two events, profit after tax would have been
broadly in line with the previous corresponding period. Publishing
EBIT was down 13.6%, while f2’s loss at the EBIT line increased by
24.1% to $24.7 million, in the middle of the range indicated last
year, partly as a result of increased depreciation and amortisation
charges. The
interim dividend of 4.5 cents per share, fully franked, is the same
as paid last year. Our
commitment to quality journalism was demonstrated during the period
by our outstanding, group-wide coverage of the Olympics, when we were
able to demonstrate our capabilities to a world-wide audience.
Our publications also continue to receive industry honours,
winning 8 prestigious Walkleys, in print and online. Revenues Overall
revenues increased 2.1% to $673.4 million.
On a like-for-like basis, excluding the effects of acquisitions
and profits from associates, publishing revenues were up 0.8% over
the corresponding period to $637.3 million.
Both circulation and advertising revenues for publishing showed
gains (of 1.0% and 0.3% respectively).
Classified and display advertising volumes were affected significantly
by the Olympics, the strike at The
Age and slower trading conditions.
Gains were registered, however, in yields, with classifieds
up 2.0% and display yield up 5.0%.
Magazines performed well, with revenues up 5.3%. ·
Advertising
revenue:
Advertising revenue increased by 5.7% for Fairfax Business
Media and by 15.8% at The Sun-Herald.
At The Sydney Morning Herald
revenues declined 2.8%, reflecting the Olympic impact.
At The Age, which
was also affected by industrial action, advertising revenues declined
by 3.7%. ·
Circulation:
Circulation revenues continue to increase. Overall circulation
for The Age and The
Sydney Morning Herald is down slightly, in line with industry
trends. Readership figures are steady across all mastheads.
Circulation and readership levels for The
Australian Financial Review and its Weekend Edition are strong.
BRW, Shares
and Personal Investor magazines performed well, reflecting the growing
interest in comprehensive business and personal investment topics. Cost
Management While
overall costs increased 9.4% to $506.8 million, on a like-for-like
basis publishing costs increased by $30.5m over the period, or by
7.3%. Over half of this
increase was due to the coverage of the Olympics and the additional
costs of industrial action and new publications (e.g. BOSS,
Melbourne Property Guide,
Asset).
After adjusting for these factors the underlying cost change
over the period was below 3.0%. Our
cost base for the first four months was largely fixed given our commitments
for coverage of the Games. Following the Olympics, and in response
to a deterioration in the economy, further cost measures were put
in place, including tight controls on staff hiring, pagination and
discretionary spending. These measures did not have a significant
effect on costs in the first half.
Their impact is now evident and, excluding any additional new
business initiatives, the cost base in the current period will be
lower than that of the second half of last year. Over
the half we made solid progress in reducing future cost increases
specific to our business. New
arrangements were put in place for journalists and our printing staff
in Melbourne. In addition,
the new newsprint supply contract will produce more stable newsprint
prices over the next several years. However,
even with these new arrangements, cost pressures remain.
Therefore, longer term initiatives for improving cost efficiency
are continuing. At the
same time, we continue to invest in the business to ensure our long-term
growth. f2
Limited We
continued our investment in our f2 business, notwithstanding the major
shift in sentiment by many investors in this area.
The sector continues to be very dynamic, requiring participants
to constantly monitor both their strategies and their implementation.
However, we believe that it is an area that intersects with
our core business in many ways, both mandating our active participation
and positioning us well to create value. Our
experience with SOLD.com.au, the online auction site, is instructive.
We created SOLD both to build it into a profitable business
in its own right and to help drive users to our other sites.
When it became apparent that the local online auction industry
needed to consolidate to be viable, and that there was added value
by having overseas listings and buyers on the site, we explored the
opportunity of either merging or selling the business.
This culminated in our sale of the business to Yahoo, the leading
global internet company, and the use of the sale as a catalyst to
craft a broader relationship with Yahoo. The financial impact of these transactions will result in a
gain of approximately $19 million in the current financial year.
The economic value of the deal to Fairfax is in the order of
$30 million, of which about 80% will be paid in cash. Importantly,
the agreement with Yahoo contains provisions which we believe will
further increase users of our f2 sites, in particular CitySearch and
Domain, and pays us for directing traffic to SOLD. Our
focus now is on creating value in our online directory, financial
services, classified supersites, and news businesses.
Over the period, our major initiative was to completely restructure
and re-brand CitySearch directories.
This unit, the largest in f2, is now positioned for growth.
As
a result of the restructuring, revenues in directories decreased by
$5.1 million, and losses before interest, tax, depreciation and amortisation
(EBITDA) increased by $5.8 million, or 114%. Other
online revenues increased by $1.9 million, or 34%, to $7.5 million.
Banner advertising and sponsorships across the f2 network are
up 43% over the corresponding period, and classifieds online revenues
up 89% over the corresponding period.
Growth in these revenue streams in calendar year 2000 was up
100% over calendar year 1999. Losses
from these other businesses declined by $2.6 million, or 19%, to $11.0
million. In
financial services, f2’s Tradingroom joint venture with Macquarie
Bank to provide a wide range of transaction-based investment products
and services, is on track to begin business early in the second quarter
of this calendar year. This
will build on the tradingroom.com.au brand, which is currently generating
in excess of over 200,000 site visits per week, and has 170,000 members. Overall,
revenues in f2 decreased 11.6% to $24.3 million. Costs remained flat at $46.2 million, and online costs
were reduced by $0.7 million, or 4%.
CitySearch Directories costs rose by a corresponding amount,
reflecting the investment in its restructuring. The
total result over the period for f2 of the EBITDA loss of $21.9 million
is in the middle of the range indicated last year. Events
Subsequent to the Half Year End We
are continuing with our strategy of building for the future while
carefully managing our costs. In
early January Greg Hywood was appointed Publisher and Editor-in-Chief
of The Age, and Alan Revell
assumed the same position at Herald publications, which include The Sydney Morning Herald and The
Sun-Herald. John
Allan, who has served most recently as Associate Publisher of The Age, has been appointed Publisher, Group General Magazines and
Director, Group Metropolitan Advertising Sales. He will further develop the magazines’ strengths and position
in their markets and will help develop our group sales strategy to
strengthen our metropolitan mastheads. On
5 February 2001 Fairfax launched Melbourne
Express, a new, free daily tabloid newspaper designed for commuters
in Melbourne during the morning peak period.
The financial impact of this initiative is not expected to
have a significant effect upon the overall results of the company. On
6 February 2001 The Sydney Morning
Herald began joint publication and distribution with Italy’s Corriere Della Sera (CsD), with copies of CsD
packaged with the Herald and sold five days per week in selected neighbourhoods and
on subscription. This has potential to strengthen the Herald’s circulation base. The
arrangement referred to earlier regarding SOLD.com.au was entered
into on 15 February 2001. The
Outlook for the Full Financial Year The
weak trading conditions experienced in the run-up to Christmas have
continued in the early part of 2001.
While the Reserve Bank recently announced interest rate cuts,
the future course of the overall economy is of concern.
Going forward, we expect continued volatility in trading conditions,
making it difficult to forecast earnings with any degree of confidence.
However, with no repeat of the effects in the first half of
the Olympics and the industrial issues in Melbourne, and with moderate
growth in the economy, we expect the second half results to be stronger
than the first half, with profit for the full year (excluding gains
from associates and asset sales) below that of last year. *
* *
The
Board is pleased to announce an interim dividend of 4.5 cents per
share, fully franked, in line with last year, and payable on 16 March
2001. 16
February 2001 * * * Statement
by Mr Fred Hilmer, Chief Executive Officer:
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Fairfax > Corporate Affairs & Media Releases > Announcements > RESULTS
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