Fairfax Media has announced a strategic review of its Domain real estate listings business in preparation for its potential separation into a new Fairfax controlled ASX-listed entity by the end of the year.
The announcement was made by Fairfax chief executive Greg Hywood as the company posted its first half results, which saw a 6 per cent increase in post-tax profit to $85 million over the corresponding period last year, despite a 4.7 per cent drop in revenue to $913 million.
Domain led the way with a 15 per cent lift in digital advertising in what was regarded as a challenging listings environment, offsetting an 8 per cent drop in revenue at the company’s Australian metro media division.
Mr Hywood said the company had evolved a new, digitally-focussed, publishing business model that would sustain a commercially successful print proposition. This would see continued publication of hard-copy editions of its major daily titles for some years to come.
He said while many options were considered, this model provided the best commercial outcome for shareholders, based on current advertising and subscription trends.
Ending a week of intense speculation over a possible spin-off, Mr Hywood said the time was now right for Domain to consider taking the steps necessary to become separate business.
“It has achieved the scale in revenue, earnings and audience needed to operate as a standalone listed entity,” he said.
“Fairfax would continue to own a controlling majority of Domain (between 60 per cent and 70 per cent), while issuing shares in Domain to Fairfax shareholders at the time the separation is implemented.
“The current intention is that no new capital will be raised.”
Mr Hywood said the decision to proceed with the Domain separation would be subject to a number of conditions, including a satisfactory outcome of discussions with the Australian Taxation Office and a Fairfax shareholder vote.
He said that while Domain delivered 15 per cent growth in digital revenue, supported by further depth penetration, yield increases and new growth, print advertising was constrained by the listings environment, with revenue down 11 per cent.
The digital growth at Domain was impressive. Total visits were up 13 per cent in the six months to December. Total mobile visits increased 27 per cent, with total app visits up 23 per cent.
“Mobile app downloads now exceed 5.3 million with strong audience engagement supporting record digital display advertising revenue,” Mr Hywood said. “Domain has a strong competitive position in mobile which generates 70 per cent of its leads.”
He said the Domain Group would continue to be led by current chief executive Antony Catalano.
There were further revenue declines in the company’s Australian metro media division, which includes The Sydney Morning Herald, The Age, and The Australian Financial Review, as well as its Digital Ventures and Life and Events businesses. Revenue in this division was down 8 per cent, while earnings before interest, tax, depreciation and amortisation were down 12 per cent.
“Metro publishing advertising revenue declined 16 per cent, impacted by weakness in retail and motoring categories,” Mr Hywood said. “Overall circulation revenue increased 1 per cent, benefiting from the strong growth in paid digital subscriptions.
“Declines in print circulation volumes were partially offset by cover price increases. Metro digital subscription revenue of $22 million was up 22 per cent. This was supported by a digital subscriber base of 226,000 across The SMH, The Age and The Australian Financial Review. All three titles delivered year-on-year growth, particularly the Financial Review.
“Metro publishing costs improved 9 per cent. We expect to maintain a similar run-rate in the second half.”
Mr Hywood spoke positively of the recent restructure that saw digital expert Chris Janz take over as managing director of Australian metro media publishing from Allen Williams.
“Chris joined Fairfax in August last year and is overseeing the impressive product and technology development work that will be the centrepiece of metro’s next generation publishing model,” he said.
“This involves an even greater primacy of our digital publishing focus, delivering unrivalled news and information products to our customers, and sustaining a commercially successful print proposition. “While we have considered many options, the model we have developed involves continuing to print our publications daily for some years yet. “
The results also revealed that Stan, Fairfax’s video streaming joint venture with the Nine Network, had 700,000 active subscribers, while its Macquarie Media radio division delivered a 1 per cent lift in revenue for the half.
Fairfax declared an interim dividend of 2c per share, 70 per cent franked.
In other key divisions:
Australian Community Media
Total revenue for this division was down 10 per cent. A 4 per cent growth in agriculture-related advertising partially offset weakness in classified advertising. Circulation revenue declined, reflecting lower retail volumes. Operating costs were reduced by 12 per cent, underpinning an EBITDA margin improvement for the half. The rate of cost improvement is expected to moderate in the second half following the significant cost reduction benefits already realised.
New Zealand Media
Total revenue for the New Zealand business was down 9 per cent in local currency terms. Excluding magazine disposals, revenue was down 6 per cent. “Weakness in print advertising revenue was partially offset by strong digital growth of 21 per cent and significant expansion in the contribution of Events,” Mr Hywood said.
“Circulation revenue declined 8 per cent with volume declines offsetting improvements in yield. “Cost management continued, with an 8 per cent reduction in operating costs, notwithstanding a continued investment in digital and events.
“We expect the NZ Commerce Commission to make its determination on the proposed merger of Fairfax NZ with NZME by mid-March.”
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