Fairfax Media Limited still struggling with decline in print media

Domain still the bright spot in Fairfax Media Limited's (ASX:FXJ) results

Mike King

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Published August 10, 2016 10:42 am AEST

Fairfax Media Limited (ASX: FXJ) has today reported a slight fall in revenues for the 2016 financial year (FY16), as the media company continues to move away from non-digital media.

The fact the company only saw a 2% fall in statutory revenues, despite digital and non-print media contributing 40% of Fairfax's earnings before interest, tax, depreciation and amortisation (EBITDA). The publisher says on current trends, that will be closer to 60% of total EBITDA, reflecting the growth of digital and non-print earnings.

Here's a summary of the main points:

Revenue: $1,830.5 million – down 0.6%
Underlying EBITDA: $283.3 million – down 1.4%
Underlying EBIT: $213.2 million – down 4.2%
Underlying net profit after tax: $132.5 million – down 7.6%
Underlying earnings per share: 5.7 cents – down 5.7%
Impairments of $1 billion taken on assets

By divisions, you can see that apart from Domain and Fairfax's 54.5% stake in radio broadcaster Macquarie Media Limited (ASX: MRN), all are facing declining revenues and earnings.

2016 financial results — Source: Fairfax Media

The good news is that Domain continues to go from strength to strength. The real estate portal may trail REA Group Ltd's (ASX: REA) realestate.com.au site, but it is growing faster and improving its margins too. Domain saw 33% growth in revenues – against REA's 17.4%. The division also saw a 2% improvement in EBITDA margins from 38.5% last year to 40.5% in FY16. REA increased its margin by ~1.4% to 62% in the same period.

The biggest problem Fairfax faces is declining advertising revenues for its traditional print media businesses – and the company is struggling to cut its costs by a faster rate.

That's reflected in the first five weeks of the 2017 financial year, with revenues down 8%-9% below last year. The booming property sector a year ago compared to the muted growth currently is also creating a drag on Domain's revenues. New listing volumes were down 25% in Sydney and 11% in Melbourne the company says.

Foolish takeaway

The market has shown what it thinks of the Fairfax results – with the share price down 5.3% to 94.2 cents in early trading. Fairfax might need to consider splitting off Domain and corralling the print media businesses – with the market virtually assigning zero value to the legacy media assets and 100% to Domain.

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