Fairfax's Hywood upbeat on NZ business as Neighbourly grabs real estate listings

Fairfax Media Group chief executive Greg Hywood is optimistic about the outlook for the New Zealand division as the now-profitable hyper-local Neighbourly website breaks ground with a growing number of real estate listings.

The New Zealand division posted a 7.7 percent decline in earnings before interest, tax, depreciation and amortisation to $55.5 million in the 12 months ended June 30 as shrinking advertising drove a 7 percent decline in revenue to $325.9 million. However, digital revenue jumped 29 percent and the Neighbourly website controlled by Fairfax generated positive ebitda in the second half of the financial year and was breaking new ground in the hotly contested real estate listings space.

Hywood told analysts in a briefing today that the New Zealand business was "very, very interesting" with the stuff.co.nz website the fourth most popular site with a monthly audience of 2.1 million people behind Google, Facebook and Youtube, and is a "tremendous digital growth platform".

That's helped drive the success of the Neighbourly website, which has attracted 470,000 members and is reaching a monthly audience of 810,000. Fairfax lifted its stake in Neighbourly to 70 percent in December, resulting in a fair value gain of A$2.7 million for the Australian media company.

A key strategy for the wider Australian group has been to carve out its Domain online real estate company into a separately listed entity, retaining a 60 percent and distributing the remaining 40 percent to its own shareholders.

Hywood said they decided against launching Domain in New Zealand where it would be a third-ranked player behind "two significant market leaders", but said Neighbourly has made ground in that space with 6,000 real estate listings.

"Given the size of growth in Neighbourly members, driven by Stuff, we have seen real possibilities in that space," he said. "We believe there's a real opportunity the future of that business."

New Zealand's booming property market has provided a boon for publishers, particularly in Auckland where an expanding population and shortage of housing drove up prices beyond the realm of first-home buyers in recent years. That activity has tapered off in recent months as stricter lending criteria and Reserve Bank-imposed mortgage restrictions excluded riskier buyers.

Online auction site Trade Me, which used to be owned by Fairfax, currently has 29,221 residential property listings on its website, while realestate.co.nz, part-owned by the industry lobby Real Estate Institute of New Zealand, has 32,593 listings.

Rival Kiwi media group NZME is scheduled to report its first-half earnings next week, and Forsyth Barr's Matt Henry predicts it will post a 3 percent fall in profit to $10.1 million on a 3 percent decline in revenue to $191.8 million. Trade Me will report annual earnings the same day, and Forsyth Barr's James Bascand predicts it will post a 9 percent gain in profit to $92.2 million on an 8.1 percent lift in revenue to $235.7 million.

Fairfax tried to merge its New Zealand business with NZME but was turned down by the Commerce Commission which deemed the aggregation of soft power and dwindling number of voices in the media landscape was too great a cost for the economic gains a united entity would enjoy.

The companies are appealing the commission's decision, which is scheduled to be heard in the High Court in October, and Fairfax chairman Nick Falloon today said the regulator's decision "failed to grasp the commercial realities of modern media and the opportunity of allowing two local media companies to gain the scale and resources necessary to aggressively compete against market-dominating global search and social giants, now and into the future."

Still, Fairfax has a back-up plan for the New Zealand business, using the Stuff website to drive new products such as the Stuff Fibre internet service.

Chief financial officer David Housego told analysts the company was investing in the New Zealand business to support that digital growth, and that any cost-cutting measures would be on the publishing side of the business.

Fairfax cut operating costs 6.4 percent in the latest year to $270.4 million, while increasing its local headcount with 1,205 full-time employees compared to 1,197 a year earlier, and 107 part-timers and casuals, up from 88.

The media company's New Zealand print advertising revenue fell 11 percent in the year, with overall ad sales down 9.1 percent to $203.9 million, while circulation shrank 4.8 percent to $102.2 million. Other New Zealand revenue rose 6 percent to $19.8 million.

Hywood said the company has started rationalising regional newspaper titles by reducing the frequency of publication. Fairfax has cut the Marlborough Express's daily publication to three days a week from May 1, and is considering a similar move at the Nelson Mail.

NBR VIEW BACKSTORY: The StuffMe Merger from NBR Radio on Vimeo.

(BusinessDesk)