Fairfax Media (FXJ) has made its second big write down in the value of its metropolitan and regional newspapers in four years, outlining a near $1 billion impairment as it moves towards the top to bottom revamp of its newspapers business.
The cuts, which include a near $100 million impairment of the company’s Kiwi newspapers, sees the Domain property business separated from the newspaper operations (to allow investors to better appreciate its growth prospects), and moves the company closer to closing the Monday to Friday editions of the Melbourne Age and the Sydney Morning Herald and the weekend edition of the Australian Financial Review.
Fairfax last took the axe to its asset values back in 2012 when it cut them by $2.6 billion.
Yesterday’s announcement follows comments made in early May which first revealed that the company was thinking seriously about closing the week day editions of both metro papers and the weekend edition of the AFR.
The announcement left the market unimpressed and Fairfax shares fell nearly 2% to $1.03 in a market up almost half a per cent.
FXJ 10Y – The end of newspapers draws closer at Fairfax
CEO Greg Hywood pointed out that the cost (actual cash) of doing this was now around $150 million (down from $450 million) and that the AFR generated most of its revenue from its week day editions, not at the weekend when 65% of the ad revenue for the Age and the SMH was generated.
In the statement to the ASX yesterday, Fairfax revealed impairments of $989 million (and there’s also nearly $96 million written off the value of its NZ Newspapers ahead of the planned merger with the NZ print and radio assets of APN now in a listed company called NZME) as part of a move to separate the Domain online property business from the rest of the company.
The Australian Metro Media will record an impairment of $484.9 million and one of $408.8 million will be recorded against the assets in Australian Community Media.
"As part of the year-end impairment review process, Fairfax expects to book impairment charges of $989 million pre-tax ($922.7 million post-tax) in FY16 relating to publishing assets and adjustments to segment reporting. The impairment charges reflect the separation of the business units and the outcome of the review process including the allocation of assets between Australian Metro Media and Domain,” the announcement to the ASX read.
"Fairfax Media Limited today announced the details of the creation of a Domain Group segment and significant items relating to non-cash impairments of publishing assets. The adjustments to segment reporting and impairment charges outlined today will be reflected in Fairfax’s full-year 2016 results to be reported on 10 August 2016.
"Domain Group’s operating results will be shown as a separate reporting segment. Its results were previously included in the Australian Metro Media segment with additional disclosure provided. The remaining Australian Metro Media segment comprises metropolitan and national newspapers and websites, Digital Ventures and Events.”
Justifying the move, Mr Hywood said in the announcement: “Domain has established itself as a genuine force and aggressive competitor in real estate media and services. Domain makes a significant earnings contribution and remains an integral and growing part of Fairfax.
"We have no plans for that to change. We continue to invest in Domain to make it stronger and extend its business model beyond listings to capture the immense opportunity in the broader real estate ecosystem.”
And he pointed to the forthcoming decision for the metro dailies and the AFR (and perhaps some regional dailies such as the ones in Albury, Wollongong, Newcastle and Canberra) when he was quoted as saying;
“The new segment presentation for Metro provides a clearer picture of the operational performance of the business as it transitions to a new sustainable publishing model over time.”
“The Australian Metro Media adjustments reflect the market realities that the Metro business is facing and the change to segment reporting. The considerable work done to transform the publishing business has created flexibility and optionality around the future, and we are confident in our plans to transition to our new sustainable publishing model.
With regard to Australian Community Media, we have successfully delivered on our transformation program through FY16. The adjustments we are announcing today are appropriate as we recognise the challenges this business continues to face in rural and regional markets. We continue to develop initiatives and consider opportunities for this business.”
Once this is done the forthcoming Fairfax annual report will likely show a higher valuation for Domain and possibly a higher share price for Fairfax Media, and no doubt higher bonuses and rewards for senior management and the board?
The impairments mean that Fairfax no longer believes the print assets in Australia and NZ will generate enough revenue, cashflow and earnings in the coming year to justify their current book values.
News Corp has been forced to make similar impairments to its Australian newspaper assets in recent years for the same reason. In the case of Fairfax its also linked to the separation of Domain into a standalone business.
