Fairfax Media is now firmly set on course to emulate its bitter Australian rival, News Corp, in separating its property listings business into a partly owned subsidiary. Fairfax CEO Greg Hywood made it clear in today’s earnings announcement and briefing that getting the Domain business listed on the ASX would be the major focus of the company in the following months. 

But the outlook and current trading situation remains glum (“challenging” is again a favoured description). Fairfax said: “Trading in the first six weeks of FY18 saw revenues around 4% below last year. Domain’s digital revenue growth was 26% and total revenue growth was 16%. Publishing trends were broadly consistent with FY17 H2.”

In fact, the tone of the Fairfax results and briefing was starkly different to that from News Corp last Friday, which was all all about cost cutting in its news and information business.

And the Fairfax result was also very different to the red ink-stained report from Seven West Media with massive cuts (more than $988 million worth of impairments) to the value of its TV, newspaper, magazine and other assets. Fairfax undertook nearly $900 million in cuts in 2015-16 as it started preparing the ground for the separation of Domain and then cut $30 million of costs (and the jobs of 125 staff) earlier this year from its metro publishing division.

So it is no surprise that newspapers were not the focus of the Fairfax results, or even the performance of the Domain online property listings business. Instead it was the terms of the separation of the Domain business from the rest of the company and a timetable for the amicable divorce.

As was expected, the company’s results were mixed — weaker print revenues, some good, some worrying figures for Domain, and a solid end to the 2016-17 financial yea. Operating earnings were slightly better than previously forecast (which is something of a rarity for the company in recent years). Fairfax said net profit rose 8% to $142.6 million, with group operating earnings before interest, tax, depreciation and amortisation (EBITDA) of $271 million — $5 million to $10 million more than forecast. Revenues fell 4.8% to $1.73 billion. Fairfax is paying a steady final dividend of 2 cents a share, and a unchanged 4 cents a year final.

Hywood said the company was releasing a timeline for the Domain separation and listing on the ASX.

He said Fairfax Media would retain 60% of Domain, with 40% distributed to Fairfax shareholders. “We consider this to be the appropriate level to achieve sufficient liquidity in the market to maximise value over time.” Domain is expected to draw $150 million of net debt upon separation “with proceeds to Fairfax as part of business transfers”. Fairfax chair Nick Falloon will be chairman of Domain, and according to Hywood, “the board recruitment process is underway”. 

The formal report and details of the separation scheme will be ready late next month, with a roadshow to investors and shareholders in October, a shareholder vote in early November, and trading in Domain shares expected to start in mid to late November.

Hywood said the core publishing business — Australian Metro Media — which includes The Sydney Morning Herald, The Age, The Australian Financial Review, Digital Ventures and Life and Events businesses — recorded a 9% slide in revenues, but a 26% jump in EBITDA to $49.1 million from $36 million.

“Metro publishing advertising revenue declined 17%,” Hywood said.

“Overall circulation revenue was stable, benefiting from the strong growth in paid digital subscriptions revenue which increased 21%. The Sydney Morning Herald, The Age and The Australian Financial Review have around 236,000 paid digital subscribers. All three titles delivered year-on-year growth. Declines in print circulation volumes were partially offset by cover price increases.

“The 12% reduction in Metro publishing costs for the year reflected an acceleration in cost out in the second half. The 14% cost improvement in H2 was partly attributable to early benefits from the Australian Metro Publishing restructure announced in April.”

The company’s Australian Community media business recorded an 11% fall in total revenue for the year with a 12% decline in advertising revenue, which “reflected 2% growth in agriculture-related advertising, offset by weakness in national and classifieds advertising. Excluding the impact of closures and frequency changes, advertising revenue reduced 10%. Circulation revenue declined, reflecting lower retail volumes.” EBITDA fell to $73 million from $90 million.
Macquarie Media revenue was down 1%. Cost and operational synergies, together with licence fee relief in H2, delivered 26% uplift in EBITDA to $31.5 million from $25 million.  

Over in New Zealand, total revenue was down 7% in local currency terms, and Fairfax is appealing the decision by the NZ competition regulator to block its merger with rival NZME.