2000 Fairfax AGM transcript

July 9, 2008

Here is an edited transcript of our exchanges at the 2000 Fairfax AGM.

Stephen Mayne: Firstly, I was just down at the PBL meeting. Did you work out to organise these meetings to clash because people like to follow both media stocks and it makes it very difficult to get to two meetings when they both start at 11 o'clock?

Chairman Brian Powers: We did not work it out to do that.

Stephen Mayne: Just a couple of quick issues which I don't think have been covered to far. Firstly f2, at the e-corp meeting this morning they were gloating about how they are extending their lead over the f2 sites in traffic terms and ninesm will be cashflow positive this financial year. Could you give us a little more detail on the path to profitability with f2, and also whether it is correct what e-corp is saying about extending their lead over f2 in terms of traffic?

Also, obviously the opposition is going to talk up such a thing, but just reading The Australian yesterday, they had great detail about the supposed conflict of SMH and this argument about Paul McGeogh, the former editor who was arguing for more resources on the editorial side, versus Greg Hywood, the publisher who was more focused on the bottom line. They were portraying it as a victory for the bottom line - the fact that Paul McGeogh has been despatched to New York. Is there going to be this extra mooted cut to editorial at the SMH as they're suggesting? What's the official company line and what's actually happened here between Mr McGeogh and Mr Hywood?

Brian Powers: On the question on e-corp's gloating, it's being going on for about 18 or 24 months. They've picked a small segment of their business to map - that's going to be profitable. We have segments of our business that are profitable and online, we're much more concerned about building the business instead of hyping a stock short term. That seems to be their primary motivation in this and they don't realise they talk down the industry and are probably doing themselves more harm than good.

In terms of traffic, I think that traffic flows have not changed very dramatically, it depends how you measure who has the most traffic. They probably win because they have the Hotmail service which is very popular. That's a service, which while popular, has very little value. If you look at revenues, pure online revenues, we're comparable for them. If you look at revenues per unique user, for people who come on, we make more money per person that can go onsite than they do - witness why their Hotmail traffic is not very valuable traffic.

I think if you look in the newspaper, our advertising revenue is substantially higher than our competitor in Sydney. The readers we attract by the quality of our content are more valuable to advertisers and we'll be more valuable to merchants as we go along. I think we're very comfortable in our position, especially in areas where we go head to head with e-corp, we do exceptionally well in those areas.

In terms of path to profitability, I don't know, I could pick out some areas and say we could be profitable in this one segment. It really depends how much we investment spend. I think some of our sites will be profitable within 12 to 18 months, but we are naturally going to have to spend some money. In our venture with Macquarie this year, that obviously will put the profitability of the entire operation back. I assure you we are looking at how we spend the money well, carefully, and I think we're spending it well.

The question about The Sydney Morning Herald, I think our competitors like to read drama and political motive into everything. I think what I draw, the most important lesson I draw and something I take great comfort in with the changes at the Herald, is Paul McGeogh had a successful couple of years run as editor. In the past when someone's felt it was time to make a change, we've always lost that talent from the group - there were a bunch of political reasons, personal reasons, just inability to cope with changes.

I think it's terrific that Paul who's an outstanding, award winning journalist, will stay in the group in a very important position. I think that's a real sign of maturity which I credit Fred and several of his colleagues with, to understand that you do move managers around, and you move journalists around, basically to put them where they're most valuable at a point in time. The fact that someone's being moved doesn't mean that they have to leave the group and you lose that talent. He's probably the first editor of the Herald to move and stay within the group, certainly within my memory, and I think that's a terrific accomplishment and a real plus for the Company, not losing that talent. Very senior journalist talent is thin on the ground, to keep someone of that calibre is terrific.

In terms of cost cutting etcetera, I think there's no change in what we've been doing going on. Last year, you'll see that our costs ran up. They ran up because, as I said before, we're publishing larger papers. We have larger advertising volumes, which is terrific news, and that requires, especially in the display area, more editorial content, to keep the balance - to keep it an interesting newspaper to read. We had strong growth last year, the strongest volume growth we've had in ten years.

This year, assuming we continue to grow in volume, as I said earlier, we started off very strongly, volumes are more recently running closer to last year's level than growth, so that what we have to do now, we're anticipating basically higher volumes. If the volumes stabilise at last year's very high level, mind you, I think what we do is just adjust our staffing to those levels as opposed to higher levels. I think that we don't have to take any redundancies or things like that, it's just that when someone leaves, where the expectation was that you have growing volumes, you need to replace that person, I think if you don't have growing volumes, they're not growing as quickly as you had expected, maybe you don't have to replace every person who leaves.

So that's the change in mindset and it's something that happens. You could be running a restaurant, at a specially busy time you add a waiter because you're using tables you don't usually fill. In this case, if you stop using them because the Olympics are over, you don't need to replace that waiter if he leaves. The analogy is if we're running at super-charged levels and we're staffed at those levels, if we don't continue to build on those levels, we don't need to keep adding to staff when people leave.

So for any company, it's business as usual. I think that again the drama played out in some of the media is a bit over-stated. Announce how the year's going, keep a short focus on costs, and make sure the papers are resourced adequately and well to do what they're doing. We're going to guarantee that happens and if we're producing a little less editorial content, we need fewer people.

Stephen Mayne: I've got a few comments on the Director elections. The Australian media scene is noted for the fact that the Packer and Murdoch empires are quite dominant. Over the years they have shown in my view, as a working journalist, a reckless abuse of their power, Murdoch and Packer, to pursue their own commercial interests rather than journalistically what's in the public interest. Therefore it's absolutely vital that John Fairfax as the premier newspaper group in Australia be completely independent of any Packer and Murdoch influences.

My key issue is that the three Directors up today all have historical associations with one of the two camps. Now, there's another broad issue I should touch on first. All three of you are merchant bankers. Fairfax is a operational company, we aren't out there doing big deals. We did a deal with Macquarie this year, but it's a relatively small deal. It's a publishing operational company. We don't need three merchant bankers on the Board, we not out there doing seven deals a year.

So I guess the first thing is, why do we need all three of these merchant bankers, and then there's specific issues for each individual. I actually had a brief chat to Rupert Murdoch after the Newscorp Annual Meeting last year, and he made the observation and this is a quote, and he said "all the Fairfax Directors are Packer stooges", which is clearly is not right. There are some associations, but clearly it is not right. I actually didn't make the remark at the time but should have.

In the case of Mr Burrows, he's actually a long term associate of Mr Murdoch. I think it was Mr Burrows who, having read bits of Mark Westfield's book this year on the history of pay television, Mark Burrows was advising Rupert Murdoch right through that process of establishing pay-TV. It was Mark Burrows who got Murdoch into Channel 7. I remember talking to a senior Fairfax commentator at the time of the Fairfax sale back in 1991, and he said that Mark Burrows had told him that he'd been faxing his columns to Rupert Murdoch during this process, and he was a bit concerned about this.

So, it's simply a case of perceptions at the very least, we don't need three merchant bankers and we shouldn't have anyone on our Board who has a long term merchant banking advisory relationship with a competitor, particularly in this industry where the public interest and competition and diversity is so important. I would like you, Mr Chairman, to comment as to whether you think that Mr Burrows is a suitable Director for this Company, given his long term association, and I'd also like Mr Burrows to tell the meeting exactly what association he has had with Mr Murdoch over the last couple of years. Has he spoken to him, does he talk to Lachlan Murdoch, what is the current status of the relationship? (Applause).

Brian Powers: I'll make a couple of comments and then I'll answer the specific questions. First of all, on three investment bankers, I think Mark has been an investment banker for most of his professional career. My understanding is that Mr Gonski is a lawyer, not an investment banker. I have been both a lawyer and an investment banker. I've also run Publishing and Broadcasting, our largest media company, I ran that, I wasn't investment banker, I was Chief Executive then Chairman. I also ran a group in Hong Kong for three years in the mid eighties as Chief Executive with 6,000 employees, it was very operational and intensive.

I think you've got one investment banker - I think you need a lot of financial acumen on a board as well as industrial experience from that perspective. Mr Burrows has advised many of Australia's largest companies and he's sat on some of the outstanding boards in Australia. Mark brings a great deal of talent to us.

Mr Gonski is a pre-eminent lawyer and is very, very valuable on the Board and that's why I think he sits on so many prestigious boards and turns down most that he's asked to sit on.

In terms of conflicts, and this is what I assume you're getting at, I've seen no evidence in the case of either Mr Burrows or Mr Gonski of any relationship past or present with anyone in the media that has compromised the way they've acted as a Director. I think if you ask - witness your remark from Mr Murdoch - any of the Packers and Murdochs if they think they're getting any favourable treatment whatsoever from this Board of Fairfax, the answer would be absolutely not. They compete very, very aggressively and the coverage of both of them is robust. I think the only person who's sued Mr Hilmer personally has been Mr Packer on a couple of occasions. He doesn't think he's getting treated very nic~y. Be clear that the relationship of anyone on this Board does not interfere with-what our journalists write, whatsoever. They do their job and they do it independently.

Mark, would you care to respond, I don't think that you are required to respond to who you talk to and how often.

Mr Burrows: If I could just make one comment, or three comments. Firstly, I would hope that shareholders would have no lingering doubt whatsoever about my commitment to this Company. I was the person who was put in charge of actually restoring it from the grave in 1990. Following that I did some work for News Corporation and in fact the last major transaction I did for them was in 1993 in Australia, which was their entry into Channel 7. I think the fact that I know the Murdochs and I know the Packers, I would assume or hope would not be an impediment to my position on this Board.

I think that the one thing shareholders should be aware of, is that there are people with diverse interests and associations on this Board, none of which has intruded on their judgment, on what was best for Fairfax. I think that shareholders should be aware that I've been on several Boards and this is one of the most cohesive and constructive Boards I've ever been on. It probably has more interaction with people who have the best interests of you shareholders at heart that I can actually remember, and I think it's refreshing to have people that bring an independence and an intellect that represents a wider view of where we're going and what's happening, in something as complex as media. But I have no personal problem about my friendship with the Murdochs, it doesn't impinge on my ability to be a Director. Thank you.

Stephen Mayne: I'm a proxy holder for my wife. As I said.earlier, there are some specific issues to be raised for Mr Gonski. One of them relates to the number of cross directorships we have with Westfield Holdings. We have three Directors on our Board, the Chief Executive Fred Hilmer, Dean Wills and David Gonski, who also sit on Westfield Holdings Board. Personally I think that's too many. We as a major publishing company shouldn't have such a large amount of cross directorships with a major company and also a company which is dealing very much in public interest issues. The point I'd make is that Westfield actually was exposed last year for producing bogus newsletters around the old Arnott's factory where there was a rival shopping centre.

So three Directors of a very principal and important publishing company are on the Board of another company, Westfield Holdings, which is fairly controversial in the way it operates through planning issues, all that sort of stuff, actually producing bogus newsletters. In my view, this was outrageous that they were doing that, and three of our Directors are actually on this Board, supporting that.

I guess my point is that I am speaking against the re-election of Mr Gonski, for one reason because there are too many cross directorships. I don't think there should be any cross directorships with this company after this bogus newsletter episode. My other problem with Mr Gonski is his long term advisory relationship to Kerry Packer over the last ten years. I think I spoke against Mr Gonski's re-election a couple of years ago, and he did admit that he had advised him on a couple of deals but he wasn't their largest client. But Mr Gonski actually advised Mr Packer on structural issues on setting up his shareholding in Fairfax through the FFX Trust.

So, my question again is, we've got too many merchant bankers, too many cross directorships in Westfield, sometimes I worry that Westfield issues aren't getting covered properly in the Fairfax papers, and I've actually got one personal interest there, I've actually nominated for the Westfield Holdings Board, and there's quite a serious issue in my view of them censoring what goes out in the platform. I would have thought that this would have been picked up in the Fairfax press and I've presented it to the Fairfax press as an issue and there's been no interest. My concern is that they're not covering Westfield properly.

I wanted to ask specifically Mr Gonski, jf he can tell us what the current status of his relationship with the Packers is? What's the last deal he advised the Packers on? I was slightly encouraging to hear from Mr Burrows that he hadn't advised the Packers for seven years. When was the last time Mr Gonski advised them on a deal, and does he talk to the Packers about any Fairfax issues?

Brian Powers: Before I ask David to respond, the Westfield point, I think you provided the answer. I think the coverage which was not flattering to Westfield earlier this year was led by our journalists and was very strong, it was very good reporting and (end of tape).

Mr Gonski
: Firstly can I say yes, last time Mr Mayne did speak strongly against my election, I did say at that time that Mr Packer was a client of ourfirm. He continues to be a client of our firm. I have not in any way advised him on any matters which have any conflict whatsoever, or indeed would have anything to do with Fairfax or anything akin to Fairfax, and would of course clearly not wish to do so, nor would I do so in any event.

I'd like to add, and say this, that Mr Mayne is very concerned about people haVing relationships with other people in the media industry. I think it should be observed that probably is not a sign of those people perhaps being involved with rogue people or whatever, but rather a sign of the size of our market. I want to freely admit to you that over 23 years of giving advice on commerce and business as I have, I've actually done work with every media proprietor that struts the stage of media in this country. I'd be very surprised if people who don't know the industry and are not involved in the industry really are able to say anything other than that.

I think if you're asking that you want people who do not do any work for the media, who don't know these people, you're probably talking about people who don't know the industry at all, and I think this applies to journalists as well. You find that journalists move from one media company to another. Hopefully when they come to Fairfax they stay here because they know we're a good company, but the fact is that to get their training, to get their information, to work out things over time, in a small market they have to work for all of them. But today, which is relevant, I can honestly say, as I said two years ago, I have absolutely no conflict with sitting on this Board and being somebody who has as a client of our firm, Mr Packer, as we have as clients of our firm, Westfield and a number of other people involved in commerce in Australia. I believe that as Mr Burrows said very aptly, this is an excellent and cohesive Board and I would hope that what I have hopefully contributed over the five years I've been here illustrates that I have not been in conflict on any matter whatsoever. (Applause).

Brian Powers: Thank you David.

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