The cost/falling revenues pressures are moving closer to crunching Fairfax Media’s (FXJ) core newspaper business – the Sydney Morning Herald, the Melbourne Age and the Australian Financial Review.
Six weeks after committing to remaining in print, Fairfax management yesterday revealed plans to try and make that survival a reality. It won’t be easy.
Fairfax management wants to cut the operating cost base of its metro media publishing business by $30 million in a full year with most of the savings appearing in the 2017-18 financial year.
That could see between 25% and a third of the combined newsroom strengths of the three papers, plus online sites in Brisbane and Perth made redundant.
The market ignored the announcement – Fairfax shares rose 0.4% to $1.05.
Investors are more interested in whether TPG or someone else appears to try and grab Domain out of Fairfax.
That story has dropped out of the public eye, with TPG and its advisers no longer briefing the media and brokers.
But TPG hasn’t gone away, its lurking, waiting for the share price to dip further under $1 a share, which will see existing Fairfax shareholders become more vocal about selling off Domain.
Yesterday’s cuts announcement and the absence of any comment on trading conditions, will merely increase pressure on Fairfax to deal with TPG and anyone else who wants Domain.
The half year report to the end of December, released on February 22 shows the metro business saw a 16.6% slum in ad revenues, static circulation income because the 22% jump in digital subscriptions was ‘largely offset’ (the company’s words) by lower print sales. The company’s events business saw a weak 2.5% rise in revenue for the half year.
That produced an 8.2% slide in revenue for the business to just over $279 million and a much larger 12.2% slump in earnings before interest, tax, depreciation and amortisation to $27.7 million for the six months.
The $30 million cost cut announced yesterday is aimed at stopping that figure from becoming a loss in early 2017-18. The division had costs of around $251 million in the half year – or around half a billion for the full year.
In the February 22 financial statement (and Domain float announcement), Fairfax CEO, Greg Hywood gave us the reasons for this latest round of cuts – not to rightsize the metro business for a life after Domain as yesterday’s announcement attempts to suggest.
But its really that the company is still seeing a slide in revenue as Hywood said on February 22
"Trading in the first two weeks of February saw revenues around 6% below last year. Trading in January saw revenues around 10% below last year in a slower than usual start across the media industry.”
If revenues keep falling by 6% to 10% over the rest of the financial ear to June, it could quite easily cut gross profit even further and certainly suggest that without further cost cuts, that a loss will appear on the metro division’s bottom line sometime in 2018.
In other words, Fairfax is still reacting to what is happening to the revenue line, not setting up the division (and will the community papers business be the next to take another round of cuts?) to be able to survive without Domain.
There could be good news from NZ where the merger proposal with APN’s NZME might have a better chance of succeeding with conditions than sere the separate story.
That will deliver around $A53 million to Fairfax if the merger happens, and 41% of the merged company.
