Fairfax Media has indicated it is ready for mergers and acquisitions in the wake of the Australian government’s recent media reforms after what it described as a strong half-yearly result on Wednesday.
While the company’s revenues have fallen 3.9 per cent to $877.1 million in the half, year-on-year earnings before interest, taxes, depreciation and amortisation increased 1.3 per cent to $146.9 million.
Chief executive Greg Hywood said the result showed the solid performances of the company’s businesses – virtually across the board – and demonstrated the strength of the Fairfax Media portfolio.
There also were significant gains in revenue from the company’s metropolitan publications, with strong increases in digital subscriptions.
“Fairfax is strongly positioned due to the success of growth and transformation initiatives we have implemented over the past five years,” he said. “Domain’s digital growth is continuing; Metro publishing has delivered increased earnings; the Radio business is showing the benefits of the merger; and Stan is going from strength to strength.
“We will take advantage of opportunities arising from media consolidation as and when it occurs. Any decisions we take will be in the best interests of our shareholders,” Mr Hywood said.
Mr Hywood also announced that Fairfax would accelerate the transition to digital in its New Zealand business and would reduce its NZ print publications by 35 per cent.
Some significant costs weighed against the Fairfax group’s bottom line. Net profit after tax fell to $38.5 million, a 54 per cent loss compared with $83.7 million in the prior corresponding period. The fall was attributed to costings of significant items including outdated technology and licensing fees of Macquarie Media which, after tax, totalled $38.7 million.
The publisher’s group revenue fell to $873 million, a 3 per cent change compared to first half of FY2017.
Meanwhile, net profit saw a reduction of 10 per cent, finishing at $76.3 million, which Mr Hywood attributed to an increase in minority interests associated with the separation of Domain last year and several other factors.
“Our ongoing cost and efficiency focus delivered a 4 per cent reduction in expenses, notwithstanding continued investment in growth initiatives at Domain and Stuff,” Mr Hywood said.
Australian Metro Media, which includes The Sydney Morning Herald, The Age and The Australian Financial Review, saw EBITDA grew 8 per cent in the period.
The metro business managed to reduce costs by 11 per cent, with publishing costs also receding 11 per cent, with less expenditure on staff, technology and print production.
“Metros are in good shape – the best they’ve been in recent history. And there’s more to come. Initiatives to deliver rapid innovation across consumer products and advertising are well underway – and we haven’t let up on driving cost efficiency,” Mr Hywood said.
Australian Metro Media’s 11 per cent rise in digital subscriptions helped ensure the result, with The Sydney Morning Herald having the highest total masthead audience in Australia according to emma data, at 5.2 million. The increase offset the “modestly lower” overall circulation revenue.
Mr Hywood said: “Net paid digital subscriptions for The Sydney Morning Herald, The Age and The Australian Financial Review recorded their strongest reported uplift in four years, increasing by almost 50,000 from August 2017 to more than 283,000. We are encouraged by positive trends in consumers’ willingness to pay for trusted and quality content.”
Australian Community Media’s advertising revenue declined 9 per cent, particularly in local and real estate print, while agriculture-related advertising revenue remained stable year-on-year.
Digital revenue increased 20 per cent as circulation revenue declined, reflective of lower retail volumes.
“Other revenue increased 11 per cent, benefiting from a strong performance from Fairfax Marketing Services which delivers full digital marketing solutions to regional clients,” Mr Hywood said.
“ACM is well managed with operating costs improving by 7 per cent, building on the 9 per cent reduction in FY17. During the half, six community titles and one speciality magazine were closed, with positive EBITDA contribution to be reflected in the second half.”
Stuff Limited, Fairfax’s New Zealand business, saw revenue losses of 8 per cent in the first half of FY18, while EBITDA is down 27 per cent.
The $1.5 million investment in energy retailer Stuff Fibre was also one of the contributing factors to underlying EBITDA falling 15 per cent, alongside a $3.6 million provision for local legislation.
The business increased digital revenue by 33 percent, primarily due to the increase of people using Fairfax-owned social network Neighbourly and recent growth from the recent investment in energy retailer Stuff Fibre.
Digital and non-print revenue now represents 17 per cent of Stuff’s total revenue. Following the result, Mr Hywood announced the company would be reducing NZ print publications by 35 per cent as a greater emphasis is put on digital.
“We have enormous confidence that Stuff is heading towards sustained growth as its digital business continues its strong momentum. We have acted decisively to bring this forward, and are announcing today a plan to exit around 35 per cent of our NZ print publications through sale or closure.
“The rationalisation of these smaller community titles and free inserts will deliver additional EBITDA contribution over a full year – and bring forward the time when increases in digital revenue outweigh declines in print,” he said
Video streaming business Stan showed strong gains, reporting EBITDA growth of 23 per cent and margin improvement.
The site, which is half-owned by Nine Entertainment, is nearing 1 million subscribers, with an 83 per cent increase in subscription revenue year on year. Operating costs also improved by 29 per cent compared to the same corresponding period.
Radio asset Macquarie Media grew its EBITDA by 23 per cent, including margin improvement.
Domain makes strong start
In its first results as a listed company, Domain Holdings Australia delivered an 8.7 per cent increase in operating profit to $56.8 million, a result that executive chairman Nick Falloon said demonstrated the company’s strong underlying momentum.
Net profit fell 8.1 per cent to $24.7 million, calculated on a pro forma basis, when costs associated with its separation from parent company Fairfax Media were taken into account.
Fairfax retains a 60 per cent stake in Domain, which was listed on the Australian Securities Exchange in November.
Listings were down 2 per cent as the real estate market cooled in Sydney and Melbourne.
Mr Falloon said the search was continuing for a new chief executive to replace Antony Catalano, who resigned last month.
“Having stepped in as executive chairman, I can attest to the bench strength of the entire Domain team and their passion, skill and commitment,” he said