Publishing profitable as Fairfax views Domain split

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Australia's Fairfax Media has taken the first steps to freeing up the value in it businesses with preparations for the "potential separation" of the Domain real estate listings operation.

Ahead of today's half-yearly results and an exchange trading halt, the company said it would hold a strategic review into the possibility of spinning off the business into a new ASX listed entity later this year and had appointed Macquarie Capital to advise on this.

Fairfax would own between 60-70 per cent of the new company while issuing shares in it to its own shareholders.

Chairman Nick Falloon said the move would enable Domain to attract "new shareholders with different investment criteria", while chief executive officer Greg Hywood said the current intention was that no new capital would be raised. Post separation costs and adjustments are likely to be between $8-10 million a year.

"The time is right for Domain to consider taking this next step... having achieved the scale in revenue, earnings and audience needed to operate as a standalone listed entity," he said.

Domain Group chief executive Antony Catalano would continue to lead the current management team.

In the half-yearly resultsm Fairfax disclosed that print advertising had fallen 11 per cent, and while operating expenses had grown 19 per cent overall (including a 44 per cent increase in digital expenses), print expenses had fallen 11 per cent "as a result of implementation of efficiencies across the group".

Fairfax made a net profit after tax of $83.7 million - more than three times last year's $27.4 million for the period - on revenue of $913 revenue, despite a fall of 4.7 per cent on the previous year. Net debt is put at $111.9 million.

Hywood said the board was pleased with the continued profitability of its publishing businesses "in the face of the largest structural change in the industry's history.

"This is a remarkable performance which few publishers globally have matched."

In the Australian Metro Media segment - which includes the Sydney Morning Herald, The Age, the Australian Financial Review, Digital Ventures and Life and Events businesses - revenue was down eight per cent and EBITDA was down 12 per cent, with metro publishing impacted by weakness in retail and motor advertising. Hywood reiterated the commitment he made in a memo to staff last week to continuing to print its publications daily "for some years yet.

"This is the best commercial outcome for shareholders based on current advertising and subscription trends."

He reported the appointment of Allen Williams as managing director for publishing transition, where he oversees "cost transformation" and is responsible for Australian Community Media and Printing and Distribution.

In its Digital Ventures division, Hywood reported a $6.1 million gain on the sale of Tenderlink last October 2016, "solid results" from Weatherzone, and an improved profit contribution from RSVP/Oasis.

Fairfax's announcement on Domain has reignited speculation that the company might merge with Nine Entertainment, with streaming video service Stan a prime asset. Hywood said the business was now the leading local market SVOD service, and set for cashflow breakeven during the 2018 financial year.

Currently, Stan has more than 700,000 active subscribers, he said.

Beyond the possibility of a tie-up with Nine, the much smaller post-Domain Fairfax business is seen as a potentially easy takeover target. Some in the industry believed that today's announcement would be timed with news of a major investment by a US private equity firm, but this would appear to be premature.

• Fairfax has appointed California resident Mickie Rosen to its board, crediting her with "extensive operational, strategic, and investment experience at the intersection of media and technology". She is currently a senior advisor to Boston Consulting Group and is a director of Pandora Media in the USA. Her CV includes roles as a partner in digital media venture capital firm Fuse Capital, as head of entertainment for Fox Interactive Media, and with the Walt Disney Company and Fandango.

Peter Coleman

Pictured: New director Mickie Rosen in her most recent role as senior vice-president of Yahoo's global media and commerce division (Picture Yahoo)

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