Fairfax reports larger-than-expected fall in NZ earnings

By Pattrick Smellie

Fairfax's New Zealand circulation revenues fell 6 percent, with subscription revenues stable, but casual sales continuing to decline.
Fairfax's New Zealand circulation revenues fell 6 percent, with subscription revenues stable, but casual sales continuing to decline.

Sydney-based publisher Fairfax Media says it expects to hold a minority shareholding in the merged company it is seeking to create with current rival New Zealand publisher, NZME, and the Fairfax New Zealand assets, at least for as long as the integration process takes.

Answering questions from investment analysts following release of the group's annual profit result, managing director Greg Hywood said Fairfax expected to hold a shareholding "in the 40's" (per cent range) and to take a so far unspecified cash sum out of the transaction, which is awaiting approval from New Zealand's competition regulator, the Commerce Commission.

"What we intend to do with that shareholding, we haven't discussed," said Hywood.

The first priorities were to get through regulatory approvals and integration of New Zealand's two largest traditional print and online news media organisations, publishers of the Stuff.co.nz and nzherald.co.nz websites, and a string of metropolitan, regional and suburban newspapers, among other properties.

"We're happy to hold through that process and get benefits of the material synergies coming through that," said Hywood, adding that Fairfax's digital assets in New Zealand were "growing very strongly".

Digital revenues now made up some 12 per cent of Fairfax NZ's total income, and were growing at 30-to-40 per cent a year.

Still, the New Zealand segment of the business suffered a "higher than originally forecast or anticipated" decline in the year to June 26, with underlying earnings before interest and tax of A$43.4 million, compared with A$54.3m the previous year, the company reported.

For the Australasian group as a whole, underlying ebit was A$213.2m, compared with A$224.4m in 2014/15. Revenue slipped to A$1.83 billion from A$1.85b.

After accounting for an A$981.8m write-down in the value of mastheads and other assets across Australia and New Zealand, announced to the market last week, Fairfax's net result for the year was a loss of A$1.03b.

Prior to writedowns, net profit came in at A$132.5m for the group, compared with A$143.6m in the prior year.

Hywood hailed the operating ebit numbers as evidence that a multi-year restructuring had "transformed" the business, with digital revenues now accounting for 42 per cent of the total and rising, compared with 20 per cent in 2013.

Group net cash flow from operating activities was positive at A$127.7m, compared with A$205.7m in the previous year.

The company announced a 2 Australian cents per share dividend, 70 per cent imputed for franking credits available only to Australian-resident shareholders.

In New Zealand, where Fairfax's assets have been packaged for a merger with the operations of NZME (publisher of nzherald.co.nz, The New Zealand Herald and a number of regional papers), total revenue was down 8.8 per cent, with advertising down 11 per cent and ebitda down 14 per cent in New Zealand dollars.

In Australian dollars, New Zealand segment revenue for the year was A$322.6m, compared with A$358.6m.

While digital revenues grew 36 per cent, "this remains a relatively small overall proportion of the revenue base", the company said in notes to the accounts in the annual report.

"Print advertising was impacted by retail, entertainment and employment advertising declines, somewhat offset by strong performance in real estate and House&Home.

"Total New Zealand circulation revenues fell 6 per cent, with subscription revenues stable, but casual sales continuing to decline. Costs fell 8 per cent, reflecting a 10 per cent fall in publishing expenses, offset by ongoing investment in its digital businesses, including the Stuff.co.nz website and the Neighbourly portal. Together, the two sites boast total signed members of 700,000, of whom 330,000 are registered with Neighbourly, which experienced 28 per cent growth in members over the year.

"These changes, along with an increase in the discount rate, have had a significant impact over the three-year projection period as well as on the terminal value, resulting in a terminal value (for the New Zealand assets) of A$95.3m," the company said.

The total value of non-current assets in New Zealand was recorded as A$173.6m at balance date, down from A$242.6m a year earlier.

The New Zealand operation had access to a revolving credit facility of A$40m, of which A$15m was drawn at balance date.

Hywood said the New Zealand merger, which is subject to regulatory approvals, was proceeding "as expected".

The Commerce Commission is currently scheduled to deliver a decision on the proposal on August 22.

- BusinessDesk

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