Non-print set to deliver majority of Fairfax’s earnings

Non-print set to deliver majority of Fairfax’s earnings

Up to 60 per cent of Fairfax Media’s earnings will be generated by digital and non-print means by next financial year, the company has predicted.

At its annual results presentation this week, Fairfax announced non-print and digital generated 42 per cent of the company’s EBITDA in FY16, up from 20 per cent in FY13.

However chief executive Greg Hywood put a dampener on speculation that Fairfax is on the precipice of moving to a digital-only publishing model.

“In terms of digital-only publishing, we’ve been pretty clear that we’ll do it when its beneficial for the business and when it meets consumer demands,” Mr Hywood said.

“I think if you look at these results we’re not at that stage yet. Inevitability we will be but we’re not there yet.”

“Our view is to maximize the cash that we get out of our current operation until we move to the new one. Having said that, we’re spending time, energy, focus in building out this model. It’s not something you can just flick a switch and go to. That’s what we’re doing at the moment.”

Fairfax posted a post-tax net loss of $893.5 million in 2016, down from the $83.2 million profit the company posted in 2015.

A recent publishing asset write-down of almost a billion dollars significantly contributed the 2016 results

When significant items are excluded, Fairfax posted modest drops in revenue, down 0.6 per cent to $1.83 billion; EBITDA, down 1.4 per cent to $283.3 million; and a 7.6 per cent drop in net profit after tax to $132.5 million.

Mr Hywood said the 2016 annual results are “proof the transformation of Fairfax Media over recent years has succeeded”.

Hywod-quote“The stable top-line revenue and EBITDA make it clear that we have reshaped this company into a high-value, broadly-based, digital rich business,” he said.

“This result is not a one off – our transformation strategy has worked; our company is performing; and we continue to drive the business in line with market realities and to meet the modern needs of consumers.

“We are stretching the conventional notion of what a media company is by creating additional revenue streams – on top of advertising and subscriptions – and building new businesses that leverage our inventory and large audiences.”

Domain and digital strong performers

Fairfax’s three strategic priorities are transforming publishing, creating new revenue streams and growing real estate division Domain.

Domain once again delivered strong results for Fairfax. The division posted a 33 per cent growth in revenue and a 40 per cent increase in EBITDA.

Domain’s advertising revenue continues to grow with print up 46 per cent and digital up 27 per cent year on year.

Fairfax’s Digital Ventures portfolio also performed well with revenue up 21 per cent and EBITDA up 55 per cent.

Mr Hywood said video on demand service Stan is “on a clear path to profitability” and expects to reach cash flow breakeven during FY18.

Stan has more than 500,000 active subscribers.

Australian Metro Media

Metro publishing advertising declined by 15 per cent for Australian Metro Media, despite strong growth in ad dollars from Digital Ventures.

Metro, which includes flagship mastheads The Sydney Morning Herald, The Age and The Australian Financial Review, lodged a 5.4 per cent decline in revenue and a 45 per cent decline in EBITDA.

Mr Hywood said Fairfax has substantially reduced risks associated with Metro by removing $400 million of annualised structural costs over the past four years.

Declines in print circulation revenue were offset by a 17 per cent growth in digital subscription revenue.

Fairfax’s three flagship mastheads together secured 209,000 paid digital subscribers.

In light of the growth in digital subscriptions, Fairfax announced it would no longer report audited digital sales to the Audited Media Association of Australia.

“Our digital subscriber growth is the result of new products, including our site licenses, which are currently unable to be counted in the AMAA numbers,” Mr Hywood said.

“Growth through new digital products which cannot be counted, and the ongoing structural decline in legacy print subscribers who have digital access included in their subscription, makes it appear that our paid digital subscriber numbers are declining, when in fact they are growing across all three of our mastheads.”

Fairfax continued transformative and cost cutting efforts in Australian Community Media, which includes The Canberra Times and Newcastle Herald.

ACM achieved a $60 million annualised cost reduction in financial year 2016, resulting in a 12 per cent cost improvement.

ACM’s revenue dropped 11.4 per and EBITDA dropped 10.4 per cent.

No majority stake in NZ tie-up

Digital revenue from Fairfax’s New Zealand assets grew by a third although its revenue was down 8.7 per cent.

Fairfax has plans to merge its New Zealand operations, which include Stuff.co.nz, The Dominion Post and The Press, with rival publisher NZME.

The proposed merger is currently awaiting approval by the Commerce Commission.

Fairfax said whilst it expects to have a controlling interest in the merged business, it is likely to be less than 50 per cent.

Mr Hywood said whilst Fairfax supported media law reform, it was “not an immediate concern” for the company.

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