Like Qantas, Fairfax Media is one of those companies where it would befair to ask just where the share price would be now if it hadn’t been for the takeover deal with Rural Press and the share raid by News Corp last year.
Equally you can wonder if Fairfax would have been such a valuable property if it had botched its digital diversification through Fairfax Digital (as it seemed it had two years or so ago) or missed the acquisition of Trade Me in New Zealand (like it missed Seek and Caresales.com).
Like Qantas you’d be entitled to speculate that the share price would be very much lower than the $5.00 mark it traded around yesterday, kept around that level thanks to that buying by Murdoch above that level and then by the merger deal with Rural Press.
The question comes to mind after the interim result from Fairfax for the first half of the 2007 financial year.
The company earned a net profit of $142.6 million after ‘other items’, up 18 per cent and an underlying profit of $121.4 million, down 2.7 per cent.
The underlying result was more accurate given the poor performances in Australian publishing and the NZ newspapers because earnings before interest, tax, depreciation and amortisation from both areas both fell while earnings on the same basis from the digital businesses reached $37 million, compared to just $12 million a year ago when Trade Me was not in the fold.
Fairfax Media has that still growing digital business to thank for helping prevent a nasty slump in interim profit on the eve of the Rural Press merger.
Without the Fairfax online business in Australia, with its growing revenues and earnings and the recently acquired Trade Me website in NZ, the merger wouldn’t be happening, or if it was it would be on a far less generous set of terms.
Fairfax blames weak advertising markets, especially in NSW and Victoria but they are for newspapers: revenues in Fairfax Digital are still growing rapidly.
The Australian based Fairfax Digital lifted revenues 43.7per cent to $61.2 million (meaning annual revenues will exceed $110 million or more in the full year) and EBITDA rose 41.7 per cent to $17 million ($12 million in the first half of 2006 and just $1.2 million in the first half of 2005).
But the Trade Me result was more impressive: $NZ23.3 million at the EBITDA level. That’s $A20.5 million.
Overall revenues for the company rose 4.1 per cent to $1.017 billion and group EBITDA (which is probably the most accurate measurement of the underlying profitability of a business) edged up 2.5 per cent to $270.6 million. (Without the rising revenues from Trade Me and Fairfax Digital, group revenues would have been lower!).
Seeing how the contribution from Australian publishing was down 2.1 per cent at the EBITDA level to $156.5 million, and the NZ result, was down a surprising 8.6 per cent to $NZ90.3 million ($A79.4) at the EBITDA level, Fairfax shareholders can be thankful of the ‘rivers of gold’ emerging from its online business.
Interim dividend was set at 10c a share, up 25 per cent and a payout ratio of 83 per cent, according to Fairfax.
This is probably the last result from Fairfax before the Rural Press merger and it shows that without the digital business, it was a ‘shot duck’ in terms of investor appeal.
How and if Rural Press can fix the problems in Australian publishing (the NZ slowdown has a lot to do with the volatile nature of the Kiwi economy in the half) remain the big question for after the merger is completed.
The figures released yesterday that a small rise in ad revenues in the half in Australian publishing was chewed up by a rise in costs (newsprint especially). Revenues rose $16.5 million, costs by $20 million in the half.
That’s a continuing problem. There was just $300,000 in gains from circulation revenues. Not nearly enough.
