No company has been damaged by the slowness in the economy and the change in consumer spending as much as Fairfax Media. And there was more bad news for investors this morning with a 44% slide in first-half profit to $96.7 million, from $172.3 million earned in the year-earlier half.
The company reported a 14.6% fall in underlying earnings before interest, tax, depreciation and amortisation for the half, with a 5.2% drop in sales in the half-year to $1.232 billion. Advertising revenue fell by 3% in the September quarter and by 8% in the December quarter. Conditions remained tough into January, when revenues were 7.5% lower than a year earlier.
And it’s getting worse, with sales in January 7.5% lower than a year earlier, as conditions remained difficult in the finance, real estate and retail industries — all major advertisers.
Fairfax revealed a 33% rise in interim dividend to 2 cents a share (or half a cent a share). That’s derisory.
But they were not alone, with 48 hours of shocking results for media companies. Regional newspaper and outdoor advertising group APN News and Media was another to fall, this time in the 12 months to December 31. The company revealed a loss of $45.1 million for the year, down from $93.7 million in 2010 after it wrote down the value of assets by around $159 million (which had been previously announced).
Ignoring these one-off items, APN said it had an underlying profit of $78 million, which was still 24% lower than a year earlier.
And then to Ten Network Holdings — where not even billionaires can keep the company on track, according to yesterday’s results.
A year ago today Ten’s then-CEO Grant Blackley was sacked by the board. The reason: higher costs and a 13% fall in interim profit, despite a 2% rise in revenue. Lachlan Murdoch took over as interim CEO (having bought 8.9% of the company from James Packer). Blackley had only been appointed CEO in mid-December of last year, so it was a brief reign. Chairman Nick Falloon was also forced out, along with other senior executives and about 60 staffers across the country: all in the name of cost cuts.
A year on and Ten had more bad news, but no one took the blame. Just-appointed chairman Murdoch is still there (having spent a week in London holding Rupert’s hand at The Sun). And the man Lachlan Murdoch poached from Seven, James Warburton is there, having inherited the hospital pass from Lachlan Murdoch having to report revenues crashing 12% in the six months and profits off 40%.
The latest news makes the previous regime a success and calls into question the decision-making of the board and previous chairman Brian Long, who stood aside for Murdoch earlier this month. Given that Murdoch was in charge when the programming and ad targets were set for 2012 last year, the question has to be raised: why did the Ten Network board make Murdoch chairman earlier this month? The answer was in the announcement on February 10:
“The board is pleased that Lachlan has agreed to accept the role of non-executive chairman. His extensive media experience will provide Ten with invaluable strategic leadership. As interim CEO he reset Ten’s strategic vision and cost base and was instrumental in recruiting Ten’s new chief executive officer, James Warburton.
“‘The board believes that the combined media capability of James Warburton as Ten’s chief executive officer and Lachlan Murdoch as non-executive chairman provides the best opportunity for value creation for all shareholders,’ Mr Long said.”
So if Murdoch reset Ten’s strategic base while interim CEO last year, what happened to the earnings? After all TV companies, like all businesses, aren’t charities.
Now Ten is facing a 40% drop in TV earnings, on a 2% plunge in revenue for the best period of TV, the Christmas period when money is supposed to be rolling in the door. In fact Christmas didn’t come for Ten with the company saying yesterday the final quarter of 2011 was weak. That is on top of the disaster called The Renovators, which was set up by the Blackley management team, which included head programmer David Mott, who has kept his job under Murdoch and now Warburton, despite 2011 and early 2012 being 14 months of programming flops.
A 40% drop in TV earnings before tax and interest means profit will be about $57 million, down from the $94.9 million for the first half of the previous year and $109.6 million for the year before that. Group earnings before interest, tax, depreciation and amortisation (EBITDA) would fall to $64 million for the six months to February 29, from $106 million for the six months to February 28, 2011.
And the interim dividend has been axed, as Ten joins the likes of Goodman Fielder, Qantas and Specialty Fashion in inflicting financial pain on shareholders following managerial mistakes or failures.
Ten’s share price dropped 9%, or 8 cents to 77 cents, which is bad news for James Packer, Lachie Murdoch and Gina Rinehart, all of whom bought Ten shares at about $1.20. Rinehart holds 10% of Ten, with Packer and Murdoch owning a stake of 8.9%. They have again proved that you don’t have to be rich, or even in the business, to lose money investing in the Australian media.
Ten said television revenue would be down about 12%, while revenue at its outdoor advertising business would be off 7%.
In the six months to December, Ten had 27.93% of the metro market television advertising market, well behind Seven’s 38.1% and 34.87% for Nine. That was lower than the 28.8%% for the June 30 half year and a long way from the 30% the network has always wanted, and achieved briefly under the management forced out by Murdoch and Packer.
“The metropolitan advertising market remains short, with limited visibility,” Ten said said in yesterday’s statement. That’s industry speak for the ad market is weak and everyone is buying short term and on the basis of week-to-week success, which means Ten’s weak ratings performance last year and so far in 2012 has cost it revenue and profits.That means Seven (which saw a small profit fall in the December half year), is dominant because of its very strong ratings in 2011 and so far in 2012 (as it did last year). Ten said it expected to realise $30 million of savings from its television business in the full 2012 fiscal year. That is about what the network spent on The Renovators.
Ten is also spending millions on launching a breakfast program to go up against Sunrise (Seven) and Today (Nine). That launched today at 6am and not next Monday as planned. It needs 100,000 viewers to be considered a success. It should be a cost saving with revenue plunging and profits slumping, but the network is stuck with it and an expensive contract for the main presenter, New Zealander Paul Henry.
Final interim results will be released on April 12. That’s an admission that Ten’s income is sinking because its ratings were poor over Christmas-New Year and so far this year.
Seven West Media was able to tell a better story yesterday, revealing Seven had earnings before interest and tax of $205.7 million for the December half-year on revenues of $655.8 million. That was still 6.5% down on the 2010 first half EBIT of $220 million. Revenue fell 1% from the $664 million in 2010.
There’s no word on how Nine Entertainment went in the December half year, but the group is on the verge of collapse. Earnings were down in the September quarter and its owners, CVC, struggle to refinance $2.7 billion in debt. That debt is due in in a year. CVC is due to update its bankers and debt holders on the December quarter and half- year performance next month. CVC has put ACP Magazines on the market with the price a discounted $300 million. No takers, as yet.
Earlier this month pay-TV group Foxtel recorded earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to December 31 of $280 million. Foxtel didn’t add any subscribers to its own base in the December half year, but it can at least claim to be achieving something the commercial networks aren’t. Earnings were only up $2 million for the December half year, but they were up, unlike Ten, and Seven.
And regional pay television operator Austar said full-year net profit rose by 21% despite a fall in the number of subscribers of more than 8800 in the year. The company posted a net profit $120.1 million for calendar-year 2011, up 20.5% from $99.65 million in 2010. Revenue in 2011 was flat compared to 2010 at $712.8 million, due to the impact of natural disasters in regional areas and a fall in subscriber numbers.
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