Fairfax slashes value of NZ business as Nine merger looms
By Paul McBeth
Aug. 15 (BusinessDesk) - Fairfax Media Group more than halved the value of its Kiwi assets, attaching just A$40 million
to mastheads that were once the core of a billion dollar investment.
Sydney-based Fairfax is pursuing a A$2.2 billion deal with Nine Entertainment Co where the television company will
effectively take over the publisher in Australia's biggest media consolidation since rules were changed allowing the
ownership of print, television and radio assets. That deal didn't place much emphasis on the opportunities provided by
the New Zealand division, Stuff, which again had the value of its intangible assets slashed.
Fairfax cut A$60.5 million from the value of Stuff's licences, mastheads and trade names - including the Sunday
Star-Times, Dominion Post and Press newspapers - to A$39.8 million. Those assets were valued at NZ$1.12 billion in 2003
when the formerly Australian family-owned media group bought the Kiwi business from Rupert Murdoch's Independent
"The New Zealand media business is facing similar structural print revenue declines as Australia," Fairfax said in its
annual report. "Digital revenue is expected to grow, albeit from a smaller base, which doesn't mitigate or offset print
Stuff's earnings before interest, tax, depreciation and amortisation shrank 27 percent to NZ$40.5 million in the year
ended June. Revenue fell 7.5 percent to NZ$301.4 million. Earnings were squeezed by a NZ$3.4 million provision as the
media group reassessed its Holidays Act liabilities and invested NZ$2.6 million in the Stuff Fibre telecommunications
retail service provider.
The New Zealand unit also bore the brunt of restructuring costs in a year when it sold or closed a third of its
unprofitable community and regional publications. It accounted for A$16.2 million of the group's A$36 million of annual
restructuring and redundancy charges.
Stuff's digital revenue climbed 21 percent to NZ$47.8 million, driven largely by Stuff Fibre and Neighbourly. Fairfax
attributed the growth to greater use of those services by its existing 2.1 million online audience. Other revenue gained
14 percent to NZ$17.6 million.
"The pain of restructuring efforts will prove to be worth it as the benefits start to flow in future years and bring
forward the time when increases in digital revenue will outweigh declines in print," chief executive Greg Hywood said in
the annual report.
That will take some time, with Stuff's print advertising revenue sliding 17 percent to NZ$140.8 million. Print
subscriptions were also down 5.9 percent to NZ$95.2 million. At the current rate of decline in print advertising and
subscriptions - about 13 percent - it will be five more years before digital and other revenue surpasses that income
provided the new income streams can maintain a 19 percent growth rate.
Other experiments include the 49 percent stake Stuff has taken in start-up power retailer energyclubnz - which takes
long-term contracts with Vector and delivers electricity to its members 'at cost'.
Fairfax hasn't given up hope the New Zealand Court of Appeal will overturn decisions blocking a planned merger of Stuff
with Kiwi rival, NZME.
Hywood noted the NZ division's strong digital assets put it in the box seat to participate in any domestic media
consolidation. A tie-up with free-to-air TV and radio operator MediaWorks has been mooted as an option if Stuff is
carved out in the Nine deal.
The New Zealand division's performance lagged behind a 1.2 percent increase in group ebitda to A$274.2 million, despite
a 3.1 percent revenue decline to A$1.69 billion. The company reported a net loss of A$53.6 million, due to A$175.9
million of impairments on the Stuff and Australian community divisions. The board declared a final dividend of 1.8
Australian cents per share, payable on Sept. 6.
The ASX-listed shares fell 3.1 percent to 86.25 Australian cents, having gained 14 percent so far this year.