MLC scoops Fairfax shares

THE Australian Stock Exchange has informed markets that MLC Investments bought 16,001,549 Fairfax Media shares on February 19, increasing from 109,823,749 shares (7.23%) to 125,825,298 shares (8.28%). For news of the Fairfax financial announcement today, and the CEO’s message to staff, see earlier stories.

This is a message sent to Fairfax Media staff by their Chief Executive, Brian McCarthy, before his analyst briefing call this morning. (see earlier story about the Fairfax announcement)

Good Morning,

With our first half results being reported to the market this morning, I wanted to write to you directly on where our company is at and the road ahead.

As I wrote in my email to you on December 11, 2008, I believe firmly in the overall strength of Fairfax Media and its long-term future. The headline net loss being reported today by the company is due principally to a non-cash write down of the value of some of our media assets across Australia and New Zealand, in publishing and broadcasting.

The write down is a significant number, however it represents less than 8% of the intangible asset base on our balance sheet. The write down has caused the company to report an overall net loss for the first half of the financial year.

In addition to the asset write downs, there are additional one-off charges, including a staff redundancy charge of $62.4 million. It is very important that the half year result be properly understood.

The fact is that Fairfax Media achieved an underlying EBITDA of $370 million. This is equal to media consensus analyst forecasts for the half year. We remain profitable, with strong cash flows. This underlying trading performance constitutes a creditable first half result. This is thanks to your efforts, and those of your staff, in the face of difficult economic conditions. With regard to debt, we see no need to refinance any debt before 2011.

We have good headroom on our debt covenants. With regard to raising equity, the Directors see no present need to raise equity and there has been no decision to do so.

The Directors will keep this matter under constant review. Fairfax Media has many strengths. Fairfax Media has excellent brands, strong circulations, and growing audiences. We are strongly diversified across print, radio and online. This has helped us withstand the present economic conditions and will help us benefit from the upturn when it comes.

As you know from our reporting of the news each day, these are tough economic times. They are depressing consumer and market sentiment, and this carries over into the share price. In my personal view, today’s share price does not properly reflect the value of this company.

There are challenges ahead for us to face. We are going to have to work as hard as ever this year as a team, and in the long term I have no doubt that we will come through these challenges.

On a personal level, I have very much enjoyed these first two months as CEO of Fairfax Media, and visiting our sites and offices around Australia and in New Zealand. We’ve had some good discussions that help my thinking on what’s ahead and how we will work through it together.

In the near future, I will be outlining the management structure that meets the challenges of these times to take the company forward. We will have an excellent leadership team. I hope this note will help you put the the half year result in context, and help you better understand the creditable underlying trading result that was achieved in the circumstances.

I thank you and your staff for the commitment to the company in these testing times. Please pass this email on to your teams as appropriate.

Kind regards

Brian McCarthy


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