John Fairfax Holdings Limited
ACN 008 663 161

CHIEF EXECUTIVE OFFICER, FRED HILMER'S ADDRESS
1999 ANNUAL GENERAL MEETING

18 November 1999

Our strong financial performance last year is a credit to the people at Fairfax. Our staff responded well to the twin challenges of improving the way we contain costs while increasing revenues. These efforts are continuing, and will remain a major part of our activities for years to come.

At the same time, we also plan to build out from our mastheads and their underlying content to become a larger, more integrated media company. We intend to increase our activities in print as well as project our content across digital platforms.

Hence, we have defined our priorities as follows:

Strengthening Core Print Business

Our first task in strengthening the core business is improving management of our costs. We began with Project Hercules, launched by my predecessor. This involved an intense examination of all costs at our Darling Park facility. A parallel effort was carried out in Melbourne. Savings were achieved by more careful staffing and rostering, and by pruning expenditures such as for facilities, services, purchased news and transport. As a result, the targeted cost containment of $40m was achieved.

The Hercules project was an important start to maintaining a better balance between costs and revenues. It is however only the beginning. To manage our costs more effectively over the longer term requires us to improve the way we go about our work from writing, printing and delivering papers, to creating and marketing web sites and keeping track of our accounts. To this end, we initiated a business improvement process led by Brad Hooper and chaired by Peter Graham. Our aim is to maintain the momentum on cost management, moving the emphasis from top down to bottom up. There are two streams of activity. First, some of the major processes by which we carry out our businesses such as production of the paper, photography, laying out ads, accounting, purchasing and the configuration of printing are being fundamentally redesigned. Early results have included the closure of the Illawarra printing plant and the printing of the Sunday Age in Sydney and The Sun-Herald in Melbourne, saving both printing and transport costs. We are also realising significant purchasing savings in areas such as waste, film and communications. Second, we are training a large number of our staff in business analysis and improvement. By June 2000 we expect about 400 staff will have attended a specially-designed Fairfax course.

While our initial focus on strengthening the core business was on costs, we are now paying increasing attention to revenues. With the number of papers that we sell broadly steady, to grow our revenues we must increase the value per paper sold. Our starting point is to strive for even better editorial content in every publication. Measures such as training, hiring of about 40 trainees per year and performance management underpin these efforts. As the Chairman mentioned, we are adding value through a number of new sections and inserts including the Today section in The Age, Domain and the Good Weekend Millennium series. We are also adding value both to readers and to advertisers by increasing the percentage of the papers that are produced in colour.

Finally, we are examining market niches such as consumer goods and health care where we believe there are opportunities to increase our papers’ share of the advertising dollar. The recent advertisements for Flora margarine are an example of these opportunities.

To underpin our efforts both in cost management and revenue improvement, we have had to begin to significantly upgrade the infrastructure of our company. One part of our infrastructure is hardware, including printing plants, mailroom equipment and computing. Over the last year we commissioned our new Newcastle printing facility, added significantly to our computing capacity and committed $220m to the Tullamarine plant.

The other side of our infrastructure is software which includes information systems and management processes. This is an area of the company that requires significant upgrading. Almost every aspect of our reporting systems needs to be redesigned so that we have timely, accurate and complete information that allows us to properly manage the business. These changes are being driven by a new management team with new responsibilities. Details are set out on page 5 of the 1999 Annual Report. Major changes include the appointment of Peter Graham as Group Operations Director, Mark Bayliss as Chief Financial Officer, Michael Gill with responsibilities for all our business publications, Alan Revell who has assumed responsibilities for Regionals as well as The Sun-Herald, Robert Whitehead as Group Publications Director and Brad Hooper responsible for performance improvement.

New Growth Platforms

Better management of our cost and revenue base should, subject to the economic cycle and market conditions, deliver continuing profit growth. However the Board and management believe that the assets of the company, in particular its people, brands and content, can provide further growth opportunities. As a result, we are taking steps to reposition the company for growth in a number of areas.

First, we are repositioning our print business from a mature, or as it is sometimes called, a sunset industry, to a sunrise industry. The Chairman outlined a number of facts on circulation, readership and advertising growth which suggest reports of the imminent demise of newspapers are premature. While we recognise that newspapers are being challenged by the internet and other media, newspapers have inherent advantages in terms of reach, portability, flexibility, permanence and the ability of readers to scan and go back and forward. Moreover, newspapers play a significant role in a large number of people’s daily morning routine. The internet and television, on the other hand, vie for scarce evening times. There are no guarantees in any commercial entity. However our emphasis on the quality of journalism and the continuing improvement of our product aim at making the newspapers and magazines a key plank of our growth platform.

Our second growth platform, managed by Nigel Dews in our F2 company, is the internet. Our major shift here is from a defensive posture, seeking to protect classified revenues and newspaper readership by publishing on the net, to an offensive posture where we are seeking to build new businesses. We have defined four priority areas for developing our internet business. The first is classifieds, where in the last year we developed supersites in motoring (drive.com.au), employment (mycareer.com.au), and real estate (domain.com.au). Our position in print, providing us with a flow of constantly refreshed advertising and editorial content, as well as our ability to brand sites in ways that parallel print branding, give us a real competitive edge in these areas. We are moving from being simply media sites in classifieds to becoming part of the transaction stream, both for core products, e.g. cars, and peripheral products, e.g. finance and insurance. Second, we are focussing on building a business from our set of finance sites, including afr.com.au, brw.com.au, tradingroom.com.au, moneymanager.com.au. Early results in generating valuable leads for the sale of investment products are encouraging.

Third, the net is taking us into new areas. SOLD.com.au, our leading auction site, is allowing us to regain revenue from low end classified advertising. City Search and Big Colour Pages are providing us with an entry into online and print directories. We are building new revenue and strengthening the businesses of those who list with us by providing services such as internet sites, transaction capability and internet listing to small and medium-size enterprises.

Finally, we are seeking to move from the internet into broadband. To facilitate these moves we have been arguing our case to the Government and the Productivity Commission to seek to liberalise media laws in light of the realities of digital technology. I note in yesterday’s Financial Review (page 29) an article reporting on a Government study of e-commerce which points out that electronic commerce could add 2.7% to Australia’s GDP over the next decade. For this to occur, and for consumers to have the choices and benefits, the Government needs to create a competitive environment for datacasting in the first instance, and liberalise regulation of the media more generally.

Finally, with regard to developments since the end of the financial year, the company is trading well. Both classifieds and display are ahead of budget and maintaining or improving market share. Barring a major and unexpected slow down in economic growth, we ought continue to trade well through this financial year. We had an excellent response to our employee share ownership plan with a participation rate of over 40% and a first year commitment by employees to purchase 4.4 million dollars worth of shares in the company. We have made our debut on pay television. The AFR-CNBC "Market Wrap" program is broadcast every weekday on pay television throughout Australia and Asia. This is projecting the AFR masthead to the most influential business audience in the region.

Planning for the introduction of the GST is requiring a great deal of effort and will probably entail spending in the order of $5 million. There is however an opportunity, as we make our systems GST-compliant, to accelerate the streamlining and improvement of our infrastructure.

I would like to add my thanks to our staff who are taking the company through major changes. I would also like to thank my Board colleagues for their support and advice as we seek to enable your company to achieve its considerable potential.

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