Domain does some financial housekeeping, welcomes Nine merger

Well, hit me with a feather and call me Greg Hywood — Fairfax chairman Nick Falloon reckons the planned takeover of the company by Nine is a good deal. Yep, that’s the news reported yesterday about what Falloon said with his other hat on — as chairman of Domain, the digital real estate listings business 60% owned by Fairfax (which reports its full year results tomorrow). In Domain’s annual results, released yesterday, Falloon said Domain welcomes the proposed merger.

“We only see considerable upside for Domain through the additional marketing and audience reach of the combined Fairfax/Nine businesses,” he said. Seeing he set up the deal with a talk to Nine’s chair, Peter Costello, it’s unsurprising that Falloon is in favour. The big story would have been if he had not welcomed it. (The Australian Financial Review thought it was so newsworthy that it was the lede on its report on Page 13 today.)

The real story from the Domain report was a spot of financial housekeeping in its first annual accounts since spinning off from Fairfax, with millions of dollars of write-downs which produced a net loss for the 2017-18 financial year. That saw the company report a $6.2 million loss, down sharply from the $23.5 million net profit it posted in the prior year. That’s a paper loss according to Domain, the question is whether it should have been Fairfax’s.

The write-down was $29.6 million and predominantly related to its print and transactions segments. Print revenue fell nearly 13%, due to the move to digital advertising. Its print business includes Domain’s magazines, and listings published in newspapers like The Sydney Morning Herald, The Age and the Financial Review.

“Print EBITDA declined 3.4% for the year,” Falloon said. “Cost initiatives contributed to a 15% reduction in expenses year-on-year, supporting EBITDA growth in the second half. There is a continued focus on cost efficiencies relating to print and distribution.” 

On top of these losses, there were $4.6 million worth of restructuring and redundancy costs.

Seeing Fairfax only spun off Domain last November, the write-downs in the value of the print businesses was a little sudden. Print revenues from the likes of the Domain inserts has been falling — down 12.6% when owned by Fairfax in 2016-17 and down 12.6% in the year to June. That’s from $101 million in 2015-16 to $77.1 million in 2017-18. Shouldn’t Fairfax have carried out the impairment before it spun off Domain late last year? To do so would have raised doubts about the value of the business and one of the marketing points to investors of the importance of the print inserts in various Fairfax papers. 

That value has fallen and it will come under more pressure once Nine and Fairfax complete their merger and start looking at the $50 million in savings suggested in talks last month. It looks as though Fairfax crossed its fingers and pushed the impairment decision out until it was Domain’s responsibility. You can bet that the print business at Domain doesn’t feature highly in “the additional marketing and audience reach of the combined Fairfax/Nine businesses” Falloon mentioned in his comments yesterday. Still Fairfax will be happy — it will get a total first year dividend of $27.8 million from Domain’s eight cents a share dividend.

Why, that’s almost as much as the impairment of Domain’s print business.