The long speculated sale of Fairfax’s real estate service Domain – perhaps via an IPO – looks less likely today following an announcement by the company.

With its annual results due on August 10, the newspaper company today revealed it will create a group segment, formalising reporting of Domain’s performance which previously sat within the Australian Metro Media Segment. That won’t leave the Metro Group looking very healthy, we suspect.

CEO Greg Hywood told the ASX, Domain makes a significant earnings contribution and remains an integral and growing part of Fairfax. We have no plans for that to change that (italics added).”

There has been growing speculation over the last 18 months that Fairfax would break the business out, perhaps through a share market float. The commentators where at it again today. Once again they missed the point such a move is probably too complicated, given that so much of the value remains locked up in the otherwise struggling newspaper assets.

This line in the announcement “… accounting standards do not allow Fairfax to recognise in its accounts all of the considerable value which Domain has created over the past four years,” suggests the the company’s accountants have arrived at the same conclusion.

Instead, Hywood now says, “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.”

There are also suggestions that Fairfax will look to close its Metro print titles the Sydney Morning Herald and The Age or at least the week day editions.  The company itself has openly discussed the idea. Such a move of course would compromise the idea of Domain as a standalone business given how important the print advertising revenues are to the brand. Still its possible the company believes it can hold the line in print with weekend only editions. In fairness to Hywood, that’s more likely now than at the start of his tenure.

One billion headaches

Fairfax will also take a billion write down. In its statement to the ASX, Fairfax says it 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. According to the company, “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 impairments are non-cash and do not impact on banking covenants. “

The $989 million pre-tax impairment charges comprise:

  • In Australian Metro Media, an impairment of $484.9 million will be recorded.
  • In Australian Community Media, an impairment of $408.8 million will be recorded.
  • In New Zealand, an impairment of $95.3 million will be recorded.

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According to Hywood, “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.”

 

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