John Fairfax Holdings Limited
ACN 008 663 161

• Our profit after tax was up 61.3% to $180 million
• When abnormal gains are taken out of the result, our profits were up 21% to $134.5 million
• Our earnings per share before abnormal gains, which is the best measure of a company’s performance, were up over 24% to 17.3c per share. This compares exceptionally favourably with the performance of the other 4 major Australian media companies – PBL, Seven, Ten and News Limited.

Last year I described our two pronged strategy to reinforce Fairfax’s position as Australia’s premier information provider. We committed the company to an approach of continuously enhancing and updating our core print products while aggressively building our on-line business, coupled with a rigorous focus on costs.

Our core print products, the Age, the Sydney Morning Herald, the Australian Financial Review and The Sun Herald, as well as most of our other business, regional and community titles, all produced strong financial results and, equally importantly, reinforced their position as Australia’s papers of record, winning countless awards for excellence in journalism, including 12 Walkleys. As an investment in ensuring a continuation of our excellence in journalism, we strengthened our editorial training program and initiated a new trainee program, which will take in 40 new recruits a year.

I should pause here to take the opportunity, while we are meeting in Melbourne, to say a few words about The Age. The Age has undoubtedly been one of the world’s great newspapers for nearly 150 years. Like any product that is produced afresh each day by a group of creative individuals, the success of newspapers is highly dependent on the performance of those individuals. Not only must they produce journalism of the highest calibre, but they must also be responsive to the changing needs of readers and advertisers alike. Consequently, even great newspapers can go through a flat period from time to time. Being candid, I think that The Age was, as a product, a bit flat 2 or 3 years ago. A new publisher, Steve Harris, and a new editor, Michael Gawenda, were brought in and we could not be more pleased with the results.

The Age has won over 60 editorial awards in 1999 alone, re-enforcing its position as the quality, independent voice in Victoria. The new look Sunday Age, and the launch of Today, are both strong successes and our readers now enjoy a range of new magazines. The Age has just started home delivery in Adelaide – bringing competition to a monopoly newspaper town as well as to major regional centres in Victoria. Throughout the year, the Age held a series of Vision 21 lectures on key issues facing us in the new century. Over 5000 Victorians attended.

I want to assure you that Fairfax as a company is committed to ensuring that The Age has the resources to compete aggressively in the years ahead. To this end, we have approved the construction of a state-of-the-art printing plant in Melbourne, which will come on line in 2002, to print The Age, the Sunday Age, and the Australian Financial Review. This will improve the look of the papers, give them a greater colour capacity to meet our advertisers’ demands and reduce our production costs. With the new plant and an ongoing focus on excellence in journalism, we have every confidence The Age will continue as one of the world’s great newspapers.

Turning back to the broader picture, I am pleased to report that we were able to accomplish our goals on the product side while holding our costs constant in our core business, notwithstanding increases in paper prices in 1998/99 of $14 million and award increases amounting to some $4 million.

We also continued the aggressive development of our interactive business last year. We have strong early success with our auction site, SOLD.com.au, which already has more than 50,000 registered users.

Two of our new sites, Drive and MyCareer, are world class interactive products and already leaders in their markets.

Our interactive sites enjoy over 1.4million page views per day, more than any other content – based family of sites in Australia. Finally, we are the leader in banner advertising sales.

As you know, we looked at whether we should float our interactive business as a separate entity. After a thorough examination, we concluded that we would be in a stronger position to build our interactive business over the next period as a wholly owned, albeit separate, subsidiary called F2. We believe that this will increase shareholder value over time. We concluded this notwithstanding the advice we received that our on-line business would be accorded a value roughly equivalent to that of E-Corp, the most valuable internet stock in Australia.

We will continue our aggressive growth of F2. We should all be aware, however, that we are involved in perhaps the most dynamic industry the world has ever seen. This means that we will constantly have to adapt our strategy as well as our products as the markets evolve. Similarly, we must all be prepared to experience operating losses as we start and grow our interactive initiatives. This is the nature of interactive businesses the world over. Your board and management strongly support this investment, which is expected to total some $100 - $150 million over the next several years.

While combining a strong existing business and a substantial start-up business in the same company can present some valuation challenges for investors, I believe investors will come to understand that the correct way to value our company is to look at the two components separately and that our stock price will reflect not only the valuation of our existing business but also the future value being created by our investment in the interactive area.

Before turning over to Mr Hilmer, I would like to respond to various pundits who have postulated that newspapers are in the midst of a long downward slide resulting from the ever increasing competition for people’s time from free to air television, pay television, longer work weeks and, over the past several years, the internet.

While there can be no denying that we do face intense competition for people’s attention, it is instructive to look at what has actually happened to newspapers over the past decade. An examination of the performance of our four main mastheads, the Age, The Sydney Morning Herald, the Australian Financial Review and The Sun Herald is very instructive:

• In the case of the Age and The Sydney Morning Herald, Monday – Saturday circulation is roughly the same as it was a decade ago. Monday – Friday circulation is down slightly and Saturday circulation is up. Looking at readership, we see a very similar story – readership is down slightly Monday – Friday, but up materially, some 13-14%, on Saturday. Our competitors at News Limited have experienced similar solid performance in Melbourne and Sydney, although I’m happy to say our’s has been somewhat better.
• The Australian Financial Review’s performance over the last decade has been even stronger – it has grown its Monday – Friday circulation some 20% and its readership over 10%. Additionally, its launch of the Weekend AFR two years ago has been an unqualified success.
• Overall, on Monday – Friday we sell about the same number of papers – and have the same number of readers - as we did a decade ago. On Saturdays and Sundays, we sell substantially more papers – and have substantially more readers - than we did a decade ago.
• While you always like to see even more dynamic growth, this is an impressive performance. Our staff has worked hard to achieve it in light of the intensifying competition described earlier.

As alluded to earlier, we have dramatically changed and expanded the newspapers over the past decade to respond to our readers’ demands. We are giving our readers substantially "more" than we did a decade ago. Fortunately, they have recognised the added value and we have been able to almost double our circulation revenue over that period. I have no doubt that if we maintain our standards and continue to produce well researched, well written and well edited content, which we will, there will continue to be a robust demand for our products and, if anything, our products will be even more highly valued in the future as we are all constantly bombarded with more and more "raw" information from an increasing number of sources.

Turning briefly to the advertising side of the equation, you see a similar picture. As we move further into the current economic expansion, our advertising volumes continue to grow toward levels of prior cycles. More importantly, our advertising revenues have grown dramatically and are materially higher than at any time during past cycles.

To date we have seen very little, if any, impact on our advertising revenues from the internet.

Looking ahead, we are committed to continuing to be the pre-eminent player in the classified area, both print and interactive, and believe we are very well positioned to do so. It is my belief that many of the online classified sites launched over the past several years will disappear before long. I do not believe it is possible to build a viable online classified business without a substantial existing print base.

Turning to the regulatory side, we have, in the context of digital technology and convergence, advocated changes to the regulatory environment that restrict our ability to compete in new areas – and therefore limit our ability to grow. Similarly, we have advocated the removal of restrictions on access to our shares, because we believe such restrictions unnecessarily depress shareholder value.

Turning to the current year, I am pleased to say we have had an strong start to the financial year. Our core print business is performing exceptionally well, with both advertising volumes and yields up across the group, producing double digit revenue growth year to date. We remain vigilant on costs, although higher advertising volumes of course result in somewhat higher costs. We have continued our aggressive building of F2. We are continuing to make good progress on developing our products and we are seeing advertising sales continue to grow substantially, albeit from a modest base.

I want to extend, on behalf of the Board, my thanks and appreciation to our staff and employees – nearly half of whom are now shareholders. The disciplines we have adopted as part of strengthening our core businesses are important and their implementation required sacrifice and hard work. Our staff have met this challenge well.

I will now ask our Chief Executive, Fred Hilmer, to say a few words.

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