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The Age and SMH to go tabloid sized; 1900 redundancies; presses to be shut

Fairfax media logoFairfax has announced a series of radical moves including The Age and The SMH moving to a compact size format, the closure of print works, the axing of 1,900 jobs and the introduction of paywalls for online content.

The two newspapers will move to a compact size format in nine months’ time. The leap comes more than five years after the company first weighed up a change of format. Another possibility would have been the midsized “Berliner” format used by the likes of The Guardian in the UK. However that was discounted partly because of the additional investment needed at the print works.

A key challenge the company will now face with the advertising market will be negotiations over ratecard for ads in the smaller size print edition.

The move is also a signal that the company is preparing for a time when the newspapers are no longer in print format, referring to moving the business “to a digital-only model if that is what is required in the future”.

However, as part of its debt reduction drive, the company is selling down its holding of NZ website Trade Me from 66% to 51%.

The shift – labelled “Fairfax of the Future” – comes as mining billionnaire Gina Rinehart closes in on getting seats on the board of Fairfax. After further [purchases last week, she is reported to be closing in on a 20% share.

The announcement:

SYDNEY, 18 June 2012: Fairfax Media Limited [ASX:FXJ] has today announced fundamental changes to the Company. The changes are focused on three objectives:

  • Positioning the Metro Media business to address further structural movements and provide flexibility to move the business to a digital-only model if that is what is required in the future;
  • Reducing group-wide costs and corporate overhead in line with the revised business structure;
  • and Strengthening the Fairfax Media balance sheet during a period of restructuring costs.

Metro Media

Fairfax Media is the clear market leader on digital platforms and continues to grow its audience base.

From this position it is seeing an acceleration of content being consumed on digital platforms.

The Sydney Morning Herald and The Age now attract 7 million high-quality unique users to the mastheads every month. This represents a 25% increase over the last five years, with around 65% of all readers of The Sydney Morning Herald and The Age now accessing Fairfax journalism through digital means – online, tablet, smartphone or smart TV.

While Fairfax Media’s print circulation remains meaningful and the Company has been working hard to boost Metro revenue and implement major cost cutting initiatives over the past 12 months, the profitability of the Metro business will come under further pressure with its current legacy cost base.

Four changes announced today will provide Metro Media with the business model and cost base to match the reduced significance of print readership to an increasingly digital business.

1. Metro Mastheads to Move to Compact Format: The Sydney Morning Herald and The Age will move to “compact” formats similar to The Australian Financial Review, with the first copy to be released on 4 March 2013.

This format will be more reader friendly while editorial standards will be unchanged, and existing content will be retained.

2. Digital Subscriptions Introduced to Metro Mastheads: Digital subscriptions will be implemented across The Sydney Morning Herald and The Age during the first quarter of calendar 2013. A “metered” model will be adopted with a base level of free access to the websites retained. The pricing and plans for digital subscriptions will be announced by the end of 2012.

3. Closure of Chullora and Tullamarine: It is proposed that the Chullora and Tullamarine printing facilities be closed by June 2014. Both sites were commissioned when almost all of Metro Media’s content was delivered through the printed newspaper. They have legacy presses with significant surplus capacity which is no longer required. It is proposed that printing of Metro papers will be reallocated to the Fairfax printing network.

4. Digital-First Editorial Model: The editorial function will be restructured to ensure full integration across our digital, print and mobile platforms. There will be increased flexibility with greater sharing of editorial content across geographies and across platforms.

Increasing and Accelerating Fairfax of the Future

Fairfax announced on 23 February 2012 that cost savings from the Fairfax of the Future program were expected to reach annualised savings of $170 million by FY2015.

Current progress is ahead of schedule, and we will now move to further accelerate implementation of the cost savings previously identified together with a number of additional cost-saving initiatives. In aggregate, this will result in a reduction in staff of 1,900 over the next three years.

Together with the proposed closure of Chullora and Tullamarine printing facilities, total savings are now expected to be $235 million on an annualised basis by June 2015. Of this total, $215 million will be achieved by June 2014.

The one-off costs associated with achieving these cost savings are expected to be approximately $248 million on a net basis including proceeds from expected land sales.

Strengthening the Balance Sheet

Fairfax has executed a fully underwritten share placement for the sale of 59.4 million Trade Me shares to reduce its interest from 66% to 51%.

The shares are being sold at a price of A$2.70 per share and will provide Fairfax with approximately A$160 million of proceeds. This selldown is on an EV/EBITDA (2012F) multiple of 14.6x based on Prospectus forecasts, and compares with a price per share equivalent to A$2.05 at the time of the

IPO of Trade Me in December 2011.

The selldown of Fairfax’s Trade Me interest will strengthen Fairfax’s balance sheet and is prudent in the context of the current environment and planned restructuring.

As a result of the sale, Fairfax will have net debt, excluding the consolidation of Trade Me’s net debt, of approximately $800 million.

Fairfax remains highly supportive of the Trade Me business and intends to retain a majority shareholding.

Conclusion

Commenting on today’s announcements, Chief Executive and Managing Director Greg Hywood said: “No one should be in any doubt that we are operating in very challenging times. Readers’ behaviours have changed and will not change back. As a result, we are taking decisive actions to fundamentally change the way we do business.

“The changes announced today have been selected after considering the merits of a full range of structural alternatives, including a demerger. The package of strategic initiatives is bold, and several are difficult, particularly as they will impact on some of our people. However, we believe that they are in the best interests of Fairfax, our shareholders, and ultimately the majority of our people. They are necessary to ensure Fairfax retains its position as a leading independent media company and a key voice in our markets.

“The evolution of The Sydney Morning Herald and The Age to compact formats and the implementation of digital subscriptions for these mastheads are landmark events for Fairfax. Our investment in quality journalism and our editorial standards will not be compromised and will continue to underpin our success.

More follows shortly

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