Fairfax’s Greg Hywood shaves publishing assets by $1bn

Fairfax Media chief executive Greg Hywood wrote off nearly $1bn of its struggling publishing business yesterday.

Fairfax Media’s Greg Hywood says Domain remains integral to the company. Picture: Richard Dobson

Fairfax Media chief executive Greg Hywood’s plans to provide the company’s newspapers with a sustainable future suffered yet another setback yesterday as he wrote off a huge part of its struggling publishing business.

Mr Hywood shifted the focus to Fairfax’s high-flying online classifieds portal Domain Group by separating its operating results from Australian Metro Media, publisher of The Sydney Morning Herald, The Age and The Australian Financial Review.

In doing so, Fairfax moved a step closer to spinning off Domain while leaving the newspapers more directly exposed to the stockmarket’s obsession with short-term profit through trading.

Shares in Fairfax fell 1.9 per cent, or 2c, to $1.03, as the media company took a $989 million pre-tax revaluation against its publishing assets. The wider share­market rose 0.45 per cent.

A writedown of $484.9m was booked against its Metro Media unit, $408.8m against its rural and regional papers, and $95.3m in New Zealand.

“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,” Mr Hywood said in a statement to the ASX.

With investors increasingly anxious that Domain’s value is not being reflected in the company’s static share price due to concerns about the newspapers, shareholders welcomed the move.

“It’s a huge number but that the impairment has taken place is itself not surprising although perhaps the quantum is,” said Simon Mawhinney, chief executive of Allan Gray Australia, which holds Fairfax shares.

“It is handy to know exactly how much Domain earns. I can’t imagine too many people will be tremendously upset that revenues will be separately disclosed. If print can’t stand up on its own two feet, it should probably be exited.”

At the most recent half-year results, Domain’s earnings jumped 74 per cent to $65.7m for the six months to the end of December.

Fairfax’s shares, however, slumped at the time by 3.6 per cent to 80c in response to the figures, underscoring why shareholders wanted to see Domain spun off to existing Fairfax shareholders.

“The management have done a great job over the past few years of reinvigorating the Domain asset, which in our opinion is significantly undervalued,” said Chris Stott, chief investment officer and portfolio manager at Wilson Asset Management, which owns Fairfax shares. “We see today’s news as a continued step in the right direction.”

However, Mr Hywood looked to immediately hose down talk of a corporate transaction.

“Domain makes a significant earnings contribution and remains an integral and growing part of Fairfax,” he said.

Any move to launch a Domain IPO could see Fairfax retain 60-70 per cent of the business, mirroring News Corp’s 62 per cent stake in REA Group, operator of realestate.com.au, Australia’s No 1 property listings website.

Credit Suisse analyst Fraser McLeish values Domain at $1.95 billion. He expects the division to account for more than half Fairfax’s earnings before interest and tax in the 2016 fiscal year.

Analysts put Fairfax’s total worth at less than the value of Domain, implying a negative value for the newspaper mastheads despite them producing most of the company’s revenue, and profits.

It comes as Australia’s traditional media companies look to reduce costs as they battle a cyclical downturn and the migration of advertising to the internet.

Mr Hywood again raised the spectre of a plan to stop printing The Age and The Sydney Morning Herald during the week without outlining a timetable. “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,” he said.

Mr Hywood said the publishing business in New Zealand faced similar issues to those in Aus­tralia.

“This impairment has been calculated on a stand-alone basis and does not take into account any potential benefit from the proposed merger with NZME. The impairment has no bearing on the proposed transaction or its structure,” he said.