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Transcript of Interview With Fred Hilmer, Chief Executive Officer, Fairfax, on Sunday Sunrise, September 9, 2001 David Koch, Sunday Sunrise, Seven Network: Fairfax CEO Mr Fred Hilmer is with me this morning. Good morning to you. Fred Hilmer: Good morning, David. David Koch: Just how tough is the ad market at the moment. It just seems a disaster? Fred Hilmer: Well, the ad market is at about a ten-year low. If you go back, we had a very bad ad market in '83. We then had a very bad ad market in '91. We had a bit of a dip mid-90s. But this dip now is a dip in the '83, '91 proportion. David Koch: Now what’s caused it, do you think? Because we’re getting all these pretty good economic figures coming through, saying the economy is doing pretty well, overseas not so well. What’s the major reason? Has it been just classifieds, has it been display? Fred Hilmer: No. It’s very interesting. It’s parts of the market, it’s not the whole lot of the market. If you look at automobiles, we had a very bad advertising market before the GST when buyers effectively stopped buying cars. After the GST, autos has come back well. We’ve got quite a lot of strength in real estate and the interest rate cuts are going to continue to fuel that market. The problem in real estate is supply, people listing their homes rather than demand. The big drop in the ad market has been national, which is the large branded advertisers, and that's why you see TV affected as much as you see the front sections of the newspaper, the display sections. Also in classifieds, you see employment affected, because people have stopped hiring. I mean, in that environment, we’ve stopped hiring. We stopped hiring last year already, in October, November. When people stop hiring, then there are fewer ads for positions and that part of the market is important to us. David Koch: Do you see a pick-up? Fred Hilmer: I don't see the pick-up yet. I think that’s something, though, that we only have a fairly short telescope in order to look forward in. Because our business is very much a short-term business. Again, unlike television or other media, people don't take a yearly schedule. They come into the newspapers on relatively short notice. Even in our magazine businesses, a couple of months. If we look a couple of months out, we still don't see a pick-up, which was why I felt it was proper to convey that to our investors, to the market, and say, “Without a pick-up, our profits could be well below what they are this year.” David Koch: So what do you do? It sort of highlights the fact that media groups like Fairfax are virtually hostage to the ad market and that, to investors, probably increases the risk. What do you do as a corporation to try and, if you like, ease that dependence on the ad market? Fred Hilmer: Well, there are two messages in this result. One is it’s a tough market, but the second is that we aren't just sitting around. David Koch: Yep. Fred Hilmer: The first and the most important thing you do is you bring your cost structure down in line with the market that you have. And we made very good progress on costs. Our costs this half versus the first half of the year, which was still buoyant, are down some $33m. If you go back even a year ago, our costs are down some $26m. The first thing that you do is that you take a hard look at costs and you control your costs. David Koch: Yep. Fred Hilmer: The next thing you do is you take a very hard look at the areas of the business where in buoyant times, discretionary ad dollars might support them, but in less buoyant times, they might not. We made a decision about our commuter paper. We said, “This is not the market in which you move forward.” David Koch: This is Melbourne Express. Fred Hilmer: The Melbourne Express. We made decisions with respect to the Internet. And I think, actually made very good decisions. We decided this is not the market in which you become an online broker. That’s a blood bath. This is not the market in which you have online shopping. In fact, we said this is not the market for us in auctions but we got out of that with an $18m profit. So, you tend to control the business and you take a very hard view of the pieces of the business that aren't performing. David Koch: Okay, they’re past cost-cutting programs. What about the future ones? How much further are you going to go? Fred Hilmer: Firstly, the challenge to get our cost base as lean as it can be is never ending. And there are more things you can do. I announced a few weeks ago other programs that were in place that would lead to the reduction of about another 200 positions. Now, some of those have to do with technology. We’re putting in new printing plants and upgrading printing capacity. We’re doing a lot with our computer systems, our platforms. You know, when you see our paper, the reporting the stories you see, are in effect the tip of the cost iceberg, the amount of work that it takes to put those together, to print them, to deliver them. David Koch: Yep. Fred Hilmer: It takes a lot of cost and those costs also always amenable to improvement, better ways of working. David Koch: Mm-hm. Does it mean, though, that Fairfax has to look at broadening its business base? Do you need to look at acquisitions in other businesses that aren’t as dependent on the ad market? Are you going to look elsewhere? Fred Hilmer: I’m not worried about cyclicality. I think an investor looks at our stock and says, “They’re cyclical.” The issue for us is can we manage the cycle well. Because if I’m an investor or you’re an investor and I’m worried about cyclicality, then for every Fairfax share, I ought to have a share in something counter-cyclical, like a share in Fosters or a share in Woolies. Now, I could do that for the investor by merging with Fosters but nobody would say that's a good thing to do. I think both businesses would be less well run if they were run in one corporate structure. I don't believe as a management I should try to do things that investors can do and investors can diversify cyclical risk. Cyclicality to me is not the problem. The issue for us is managing our way through the cycle as well or better than our competitors. David Koch: You talk about F2 and you’ve made good progress in the cost cutting there. You are also saying there’s going to be a lot more - it’s going to be a much better result in the next six months. How are you going to make it work? What are the benefits coming through? Fred Hilmer: We’ve trimmed our F2 business down to two sectors. We’re in news and classifieds and we’re in directories. All of the other parts of F2 have now been basically sold or closed down. If you look at news and classifieds, it’s working. We are the Internet site of record for news on the web. Our traffic to our news site is three times the next site. In media, you’ve got to build traffic first and then you can get paid for having the traffic. No one is going to pay you for traffic until you build it. In news on the web and in classifieds on the web, I believe we have the beginnings of traffic. Now, it takes years. How much money is pay TV making and yet it’s building audience, but you’ve got to be patient in media and what I’m saying is we are making good progress. Our loss in that part was down $5m from a year ago and I’m saying to the market it will be down significantly again. Directories is a - what I think is an interesting and good bet, because the directory market is a very big and very lucrative market. Through our online and print content, I think we’ve got a very interesting play in CitySearch. The CitySearch franchise is far better recognised now than it was a year ago. David Koch: Sure. You come from an illustrious career in consulting with McKenzie, also running the Australian Graduate School of Management, if you like, Fairfax is almost your first operational job. Some would unkindly say real job, if you like, sort of at the coal front. How have you made the change? Has it been a lot tougher actually running a business than advising one? Fred Hilmer: No, it’s quite different. It’s different in terms of the demand on my time and the need to operate really almost in constant processing mode, if you know what I mean. When you’re consulting, you tend to work on a few big things and you really burrow in and you work in detail. When you’re managing, you need to be across of lot of issues and you need to make a lot of judgments very quickly and you need to approximate. I found it fun, I found it very stimulating and I found that the team I have around me now works very well with me in that way. David Koch: Grade yourself. Give yourself a mark, if you like. You used to do it at the Graduate School of Management. How well have you done? What have been your strong points and your weak points? Fred Hilmer: I think I have brought a lot of professionalism and control to the company. I think we were a company that really had poor infrastructure and it was unclear that we were managing ourselves in the sense that last time, in the last downturn, it took us four halves to get the costs into line. This time we got the costs in line in one half, almost immediately. I think I’ve brought a lot of professionalism to the company, but I think we still have a way to go. In terms of my own grading scale, I'd say not a bad performance but could be a lot better and I'm looking forward to doing that. David Koch: Okay. Fred Hilmer, thanks for joining us this morning. Fred Hilmer: Thank you, David. --
ENDS -- Note
to editors: John
Fairfax Holdings [ASX:FXJ] is Australia’s leading publishing group.
Its mastheads include The Sydney Morning Herald, The Australian Financial Review, The Age, The
Sun-Herald, and BRW.
In addition, the Company publishes financial and consumer
magazines, regional and community newspapers, including The
Newcastle Herald and The
Illawarra Mercury, and provides online and interactive services.
In 2000, the Company had revenues of over $1.3 billion.
Fairfax, through f2, its
wholly owned subsidiary for its online and interactive businesses, is
building a strong position in directories, financial services, classified
supersites, and news and information. |
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Fairfax > Corporate Affairs & Media Releases > Announcements > SUNDAY SUNRISE
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