Shareholders ignored Fairfax Media’s (FXJ) weakish interim results and focused on the confirmation of the Domain property website business spin off. Up went the shares after trading was halted on Tuesday and they ended the day up more than 8% at 94 cents.
Macquarie Group is advising Fairfax on the partial spin off of 60% to 70% of Domain and Fairfax Media CEO, Greg Hywood said in yesterday’s results briefing that “it was the present intention (that) no new capital will be raised” by the Domain sale, which will end speculation from some greedy shareholders looking for a capital return in the wake of this deal being done.
But the actual results should raise the odd warning signal.
For example, Hywood revealed that trading so far in 2017 (the company’s second half) had revealed a 6% fall in revenues in February on February 2016. And “Trading in January saw revenues around 10% below last year in a slower than usual start across the media industry.”
A year ago Hywood said that in the first seven weeks of 2016 revenues were down “1% to 2%". Revenues fell around 5% in the six months to December 31, to just over $900 million. If sustained over the rest of the period to the end of June, Fairfax could be facing a larger fall in revenues that it would have been budgeting for. Print ad revenues are weak and not improving.
The details of the print business here and in NZ were not good in the half year.
Revenue in metro media fell 8.2% to $279.1 million and EBITDA fell 12.2% to $27.7 million in the half year. In the ‘community’ or regional and local newspaper businesses, revenues fell 12.2% to $225.6 million while EBITDA dropped 4.7% to $43.1 million. In NZ, revenue fell to $159.2 million, down 4.1% and EBITDA dropped 6.2% to $25.9 million (it is being merged into the rump of the APN print and radio business, NZME, with an decision from regulators expected next month).
Macquarie Radio saw a 1% rise in revenue to $69.6 million and a solid rise in EBITDA to $13.3 million from $12 million. That was the best performed of the business and the only one to grow profits.
But there was another bright note – Stan, the streaming video joint venture with Nine Entertainment, is also a success – more than 700,000 local subscribers (it battered Presto, Foxtel/Seven West Media’s joint venture into submission, generating millions of dollars in losses) and Hywood says it is on track to be at “cash flow break-even in fiscal 2018”.
That was probably the most positive part of yesterday’s announcement and briefing.
But Domain’s future was the big interest and there were several warning flags.
A year ago Hywood said Domain was showing a 25% rise in “organic revenues” in the early weeks of the year. Yesterday there was no mention of “organic” revenue growth at Domain, just the cautious “New real estate listings have seen some early signs of improvement in February following the weak FY17 H1 performance.” (when they fell 7%). In fact Domain seems to have hit something of a wall.
In the first half of 2016-17, Domain’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell 12.8% to $57.3 million, down from $65.7 million in the first half of 2015-16. (In the teleconference Hywood didn’t mention that the EBITDA figure in the latest period was down on a year ago when he was running through the results at the start. He did say that the company was "still investing in Domain through the listing cycle”).
Overall, real estate listings fell 7% for the half year, with the falls concentrated in Sydney and Melbourne, similar to what rival REA Group experienced.
In the first half of 2015-16 Domain’s EBITDA of 65.7 million contributed more than 40% to Fairfax’s EBITDA of $161.1 million. This half group EBITDA fell 9.9% to $155.1 million and Domain’s share fell to 39.4%.
So Fairfax is looking to separate Domain at a tough time in the real estate market.
But investors and analysts were not interested by the financial nitty gritty (or the fate of the newspaper businesses really, judging from comments on this morning’s teleconference with CEO Greg Hywood). They can see a pot of gold – the new REA Group (61% owned by News Corp) and want in on the ground floor – hence the moaning that Fairfax should be selling more than the 60% to 70% planned by the company – or all of it.
In print media, Hywood said the company was pleased with the performance, especially in digital (up 22% to $22 million the half, and 226,000 digital subscribers across the Melbourne Age, The Sydney Morning Herald and the Financial Review). Print ad revenues fell 16% in the half but circulation revenues rose 1% thanks to the rise in paid digital subscriptions. But print is increasingly an afterthought.
Interim dividend of 2 cents a share is being maintained.
