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ANNUAL REPORT 2012 AM 9: 12 96fm Perth PM 1: 28 AM 5: 46 4BH Brisbane www.penrithstar.com.au AM 6: 23 PM 2: 42 www.brw.com.au AM 10: 31 The Australian Financial Review www.weatherzone.com.au AM 11: 57 PM 3: 31 www.stayz.com.au The Sydney Morning Herald AM 7: 18 The Sun Herald PM 12: 09 AM 8: 37 PM 4: 47 www.examiner.com.au 2UE Sydney The Age – iphone AM 1: 52 PM 9: 39 www.brisbanetimes.com.au www.tradingroom.com.au PM 5: 28 www.trademe.co.nz AM 2: 31 www.drive.com.au PM 10: 28 www.rentahome.com.au PM 6: 12 The Age Today, information and content is in demand 24/7. People want what they want, when they want it – and its transforming the media business. Fairfax Media meets that demand like no-one else. Our audience reach across digital, print and radio – and our commitment to quality – makes us second to none. AM 3: 27 PM 11: 35 www.cio-asia.com www.essentialbaby.com.au 4: 09 AM 12: 09 AM PM 7: 25 SMH Good Food Guide www.afr.com RSVP Dating 8: 03 FAIRFAX MEDIA LIMITED ANNUAL REPORT 2012 1 PM www.domain.com.au CHAIRMAn’s REPORT It has been an interesting and challenging year for your company. I am pleased to report that we have made very good progress with our strategic initiatives to reduce our cost base significantly and to transform our business to take advantage of the digital developments that allow us to compete more and more effectively in real time and multiple media. In June we announced the acceleration of our Fairfax of the Future program and further major changes to the company and the way we do business. Your Board and management recognise our company’s very considerable strengths in areas like our journalism and digital businesses – but also acknowledge the changes sweeping through the media sector around the world which require continuing flexibility and adaptability. We are determining our company’s future by making important decisions that will see us focusing on the areas of the business that have good potential for long-term results for shareholders. I would like to recognise the hard work and enormous skill of the people in your company. Our metro business made EBITDA of $102.5 million even in some of the worst advertising markets in a very long time along with worldwide structural changes in the newspaper industry. Our regional media business is showing great resilience in its financial performance through the economic cycle. At the same time we have grown a digital-only business across news, classifieds and transactions that this year generated a quarter of a billion dollars of revenue for the first time, and is growing strongly. Our radio business has new management that is vigorously engaged in growing the business. Our balanced portfolio of businesses and our strategy aims to ensure that Fairfax Media remains one of the leading media voices in our markets and has a long and strong future. I would like to take you through some of the big changes we are making. • The Sydney Morning Herald and The Age will be moving to the much more user-friendly compact format in the new year. This format is the same as The Australian Financial Review. While the size is changing, there will be no change to our commitment to high-quality independent journalism. Many of you will know that a number of quality mastheads around the world have already moved to a compact format – The Times, The Independent and the Boston Herald to name a few. • This new format is facilitating another of our major changes: the closing of our Chullora and Tullamarine print plants by the middle of 2014. This move alone will see us make cost savings of $44 million annually because we will be more efficiently utilising our network of smaller, more flexible modern plants. • We are also making changes in our metro newsrooms to meet the changing needs of readers and advertisers. These changes achieve more nimble multimedia newsrooms with integration across print, digital and mobile platforms and better utilisation of our skills across our mastheads here and in New Zealand. • Fairfax Media has one of the largest digital news audiences in Australia. We are increasingly able to monetise that strength. From the first quarter of 2013 we are introducing digital subscriptions to our Metro mastheads. eW are doing this very thoughtfully and will be introducing a “metered” model with a base level of free access. The Australian Financial Review last year introduced its acclaimed iPad app which won the PANPA national app of the year award for 2012. Unfortunately cost saving imperatives meant we needed to announce redundancies. Including those already announced in Fairfax of the Future and the changes outlined here, 1900 people will be leaving the company over the next three years. Every job matters and your Board and management wish these redundancies were avoidable. They are not. 2 $2,732.4M REVENUE FROM OperatiONS $2,310.9M Down 6.2% from last year UNDERLYING STATUTORY TOtal NET PROFIT NET LOSS DIVIDENDS AFTER TAX AFTER TAX $205.4M $2,732.4M 3.0 CENTS Down 25% FULLY FRANKED from last year These changes to the company are allowing us to achieve In closing, I would like to acknowledge the significant contribution the $170 million in annual savings that we have previously of my fellow Board members. Each and every one of them has announced in two years, not three. With the introduction of skills and experience that have been of immense benefit to the additional cost saving initiatives that we have now identified, company in this challenging environment. the target for cost savings has been revised up. We will achieve First I would like to acknowledge the very important contribution annual cost savings of $235 million by June 2015. made by Bob Savage who retired from the Board at the end So we are working smarter and making sure the cost base of of June this year. Bob’s deep skills in the IT industry, retail and the business better suits the global media environment, an the finance industry were much appreciated during his time environment that is requiring all media companies, including on the Board. Fairfax Media, to review the value of their assets. At the 2012 Annual General Meeting we will have four serving At our annual results in August we announced our decision to Directors standing for election or re-election. These are Michael write-down the carrying value of our mastheads by more than Anderson, Sam Morgan, James Millar and Jack Cowin. Michael $2 billion. This is a non-cash decision and does not affect the Anderson is a recognised leader in radio. Sam Morgan is a highly company on a day-to-day basis. successful digital entrepreneur and the founder of TradeMe and has provided enormous insight into our digital thinking. Jack Your Board has a statutory obligation to assess the carrying value Cowin was appointed to the Board in July. Jack is well known as a of our intangible assets – mastheads, goodwill and customer successful media investor and entrepreneur and we value his years relationships – based on the three-year outlook for each of our of media experience. James Millar, also appointed to the Board in businesses. We, like the rest of the world, saw the three-year July, brings expert financial and business restructuring skills to the outlook worsen considerably over the course of the second half of Board as well as local and international management experience. the year as the cyclical downturn became more pronounced, and our confidence in a sustained improvement in market conditions The Board also benefits from the contribution of our chief in the near future reduced. I have no doubt we have made the executive Greg Hywood, one of the most experienced media right decision at the right time. executives in the country having had commercial and editorial experience over a number of decades. These skills, in Your company is focused on the future and we are clear about combination with the skills of our other Directors, we believe what we have to do. We are making significant progress, make up a Board very well suited to address the opportunities achieving changes in the midst of unparalleled structural change ahead and deliver long-term stakeholder value. and a prolonged cyclical downturn. The entire Board is committed to ensuring Fairfax Media is run While we are focused on ensuring the stability and ongoing in the best interests of all shareholders. We have a strategy. profitability of our print business, we know that our digital We are implementing it. businesses are going to become increasingly more significant in terms of the overall revenue mix. Roger Corbett, AO Chairman Our news websites, digital transaction websites and apps are amongst the most successful in Australia and while the pace of change is breath-taking for many, we are at the front of the pack and the take-up amongst our more than nine million and growing audiences (according to Roy Morgan research) is very gratifying. As ways of digital interaction increase – so do our opportunities to derive value for our shareholders. We believe we have very good reason to be confident about this fast growing part of our business. FAIRFAX MEDIA LIMITED ANNUAL REPORT 2012 3 CHIEF EXECUTIVE OFFICER’S REPORT Fairfax Media is being restructured to ensure its strong future in a massively changed media environment.