Fairfax posts $63.8 million loss

Fairfax Media (ASX: FXJ) has swung to an annual net loss of $63.8 million for fiscal 2018, hit by write-offs at its regional and New Zealand operations as well as restructuring and redundancy costs. Revenue was down 5 per cent in the first six weeks of the new financial year.

The media group, which is in the process of being acquired by Nine Entertainment Co (ASX: NEC), booked significant items totalling $188.7 million for the year ended June 30. These were mainly from impairment charges at its regional unit, Australian Community Media, and its New Zealand division, Stuff.

Fairfax reported $83.9 million in net profits for the in 2016-2017 financial year.

Underlying earnings rose 1.2 per cent, to $274.2 million for 2017-2018, driven by growth at property listings group Domain (ASX: DHG), of which it owns 59.4 per cent. Fairfax's metropolitan newspapers and radio businesses also contributed, as did lower corporate costs.

Revenues were around 5 per cent lower in the six weeks since 1 July 2018, relative to the same period last year.

The result was "disappointing," according to Morningstar equities analyst Brian Han – especially the June figures, as revenues fell below expectations. He singles out the company's real estate advertiser Domain (ASX: DHG) as one of the few bright spots, having reported an 11 per cent revenue increase of $357.3 million.

Corporate overheads fell 51 per cent over the fiscal year, reflecting benefits from lease incentives, transfer of costs and savings in underlying corporate costs, according to Chief executive Greg Hywood.

"Fairfax is in good shape, and that's the reason Fairfax shareholders have the opportunity to benefit from a step-change in growth through the proposed combination of our company with Nine.

"We have long believed that media consolidation provided enormous potential to leverage increased scale of audiences and marketing inventory to grow our assets," he says.

Nine announced its takeover of Fairfax on 26 July, which is expected to create a $4 billion media giant. At the time, Morningstar equity analyst Brian Han warned of risks on the horizon for investors who decide to remain with the Nine supergroup.

He says the company's long-term value is "hostage" to how it competes against the onslaught of digital disruptors such as Google, Facebook, and Netflix.

Made possible following changes to Australian media laws last year, the deal needs approval from the competition and consumer regulator, though Morningstar foresees no impediments.

Fairfax Media's revenues for the 12 months to 30 June fell 3.1 per cent to $1.69 billion, with revenue down across its four divisions, Metro, ACM, Stuff and Macquarie Media.

Its share price was down 1 per cent to 88 cents per share in the first two hours of trading on Wednesday.

Performance highlights:

Net loss of $63.8 million, from profit of $83.9 million year ago
Revenue down 3.1pct to $1.69 billion
Final dividend of 1.8 cents, partially franked, down from 2 cents a year ago

Analyst note to follow.

Emma Rapaport in a reporter with Morningstar Australia.

With AAP.

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