Fairfax Media Full Year Result: FXJ plans to spin-off Domain; trading to start in November

CommSec

Media group, Fairfax (FXJ) has returned to profitability, posting an improved $83.9m full year profit for the 12 months to June 30 and provided details on its planned Domain IPO. While underlying earnings (not including significant items) went backwards over the year, EBITDA came in ahead of market expectations. The result follows more than $900m in write-downs of its publishing assets which held back its FY16 result. While Domain has been its star performer for some time, its print business has been coming under pressure due to a slide in advertising dollars and a systemic change in the way Australians consume their news.

FXJ confirmed it plans to spin-off its best performing asset, Domain and for trading in the real estate classifieds business to begin in mid to late November. The group intends to retain 60% of Domain with the remaining 40% to be distributed to FXJ shareholders. The split is still conditional on shareholder and regulatory approvals (including ASIC, ASX and ATO). Investors can expect the scheme booklet (which outlines all details of the separation) in late September 2017.

Domain Group, FXJ’s best performer for some time and biggest earner, lifted digital revenue by 18% despite difficult conditions for real estate listings in the first half of the year with print revenue sliding by 13%. Domain accounts for 41% of the group’s EBITDA. Mobile visits to the app and website rose by 20% while users are also spending more time using their services. Melbourne and Sydney are its two biggest markets.

Its core newspaper division, Metropolitan Media – which includes SMH, The Age and The AFR – went backwards, with revenue falling by 9% over the year while earnings improved and were ahead of most analyst expectations. While it has enjoyed EBITDA growth, margin improvements, a lift in digital subscriptions and a reduction in costs (partly on staff cuts), the group continues to struggle maintaining advertising dollars, which have declined by 17% over the year.

Community Media – which includes its rural and regional newspapers – posted a drop in advertising dollars, circulation, revenue and earnings while expenses rose by almost 10%. The result was held back by its transformation program and changes made to frequency and exits of some unprofitable titles.

Its controlling stake in Macquarie Media – which includes 2GB (Sydney), 3AW (Melbourne), 4BC (Brisbane) and 6PR (Perth) – posted a 26% lift in EBITDA and sold its 2CH (CH stands for ‘Churches’) in January. Its New Zealand operations posted a largely expected slide in EBITDA, revenue, advertising and circulation over the year.

FXJ shares are lifting today after revenue and EBITDA beat market expectations. While its shares fell sharply in July after two suitors walked away from potential takeovers, FXJ shares are still up ~16% Year-to-Date (since January 2017).

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ASX:FXJ Fairfax media Steven Daghlian August 2017 Reporting Season

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