Fairfax Media (ASX:FXJ)

Greg Hywood
CEO & MD
Market Cap (AUD): 1.52B
Sector: Communication Services
Last Trade (AUD): 0 +0 (+0%)
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1. About

On 7 December 2018, the takeover of Fairfax Media Limited by Nine Entertainment Limited (ASX:NEC) was completed and the Company was delisted from the ASX.

Prior to that, Fairfax Media Limited was an ASX-listed company operating and holding a portfolio of businesses across information, marketplace and entertainment assets.

Fairfax Media's business divisions included Australian Metro Media, Australian Community Media, Stuff (Fairfax New Zealand), Fairfax Events and Entertainment, and Corporate.

Fairfax Media also had a 60% shareholding in real estate media and technology services business Domain Holdings Australia (ASX:DHG); a 54.5% interest in radio broadcaster Macquarie Media Limited (ASX:MRN) with No. 1 stations in Sydney (2GB) and Melbourne (3AW); a 50% interest in Australia's leading subscription video on demand (SVOD) service Stan; and other investments.

2. Business model

 

The Group operates in following divisions:[1]

 

Divisions

Revenue ($’000)

% of Revenue

% of Profit (bef. Int Tax,dep & Amort.)

Profit drivers[2]

Domain Group

$357,273

21.2%

42.9%

Domain Group EBITDA of $117.6 M increased 4% for the year notwithstanding the impact of separation costs. Domain digital revenue increased 20% with growth in core digital and new transactions businesses. Print revenue was 13% lower reflecting the transition to a digital business, somewhat offset by the launch of the Domain glossy magazine format

Metropolitan Media

$490,210

29.1%

19.4%

Australian Metro Media revenue declined 6% with advertising revenue benefiting from improved digital performance supported by the Google programmatic ad sales partnership, as well as moderating print declines.

Circulation revenue declines moderated in H2, benefiting from 9% growth in digital subscription revenue for the year, and cover price increases. Other revenues declined 5% reflecting the sale of Tenderlink in October 2016.

Australian Metro Media expenses declined 8% for the year, with a 9% reduction in publishing costs largely from savings in staff, technology, and print production.

Australian Community Media

$400,187

23.8%

20.9%

Australian Community Media revenue declined 9% with relatively stable contribution from agricultural titles, benefiting from strong agricultural commodity prices and digital investment in the sector. This was offset by weakness in regional advertising and circulation, with some impact from the closure of several unprofitable mastheads. Declines in local and real-estate print revenue contributed to the reduced advertising revenue outcome. Circulation declines reflected lower retail volumes.

Australian Community Media’s continued strong cost discipline delivered a 6% reduction in expenses and underpinned EBITDA margin of 16.3% for the year

New Zealand Media

$280,755

16.7%

13.6%

Fairfax Media Limited New Zealand business, Stuff, reported total revenue down 8% with digital revenue growth of 21%. Digital revenue benefited from strong growth from internet service provider Stuff Fibre and hyper-local social networking platform Neighbourly

Radio

$136,582

8.1%

 11.9%

Fairfax Media’s 54.5% shareholding in the ASX-listed Macquarie Media Limited made a solid EBITDA contribution of $32.6 M. Macquarie Media’s reported revenue was flat. Underlying revenue increased 4% excluding disposals and one-time items, underpinned by robust growth from the primary stations. EBITDA increased by 3% with the EBITDA margin expanded from 23.0% to 23.8%

Other

$19,002

1.1%

(8.6%)

N/A

3. Strategy

 

Key strategies include:[3]

 

Combined Fairfax / Nine Digital Assets and Brands

  • Leverage combined assets to drive audience and revenue growth

 

Enhanced Sales Proposition

  • Leverage cross-platform media sales proposition with unique and innovative advertising solutions

 

Domain

  • Leverage expanded marketing platform to turbocharge Domain’s geographic expansion and revenue from transactions businesses
  • Domain value acceleration through expanded marketing and cross - promotion

 

Stan

  • Move from 50% to 100% ownership/control

 

Macquarie Media Limited

  • Maximise value of 54.5% ownership/control

 

Reduced Corporate Overheads

  • Realise cost efficiencies

 

Combined Balance Sheet

  • Utilise balance sheet strength and low gearing

4. Markets

 

The Group operates in the following industries:[4]

 

Industry (Australia)

Industry Revenue (2018)

Growth Rate (annual 13-18)

Newspaper Publishing

$3 billion

(8.4%)

Magazine and Directory Publishing

$2 billion

(9.8%)

Radio Broadcasting

$2 billion (2017)

0.2%

Internet Publishing and Broadcasting

$2 billion

13.4%

5. Competition

 

Major competitors Include:[5]

 

  • Twenty-First Century Fox Inc (NASDAQ:FOX)
  • HT&E Ltd (ASX:HT1
  • Nine Entertainment Co Holdings Ltd (ASX:NEC)

6. History

 

1941[6]   

Purchased the Sydney Morning Herald

 

1951   

Founded the Australian Financial Review

 

1955   

Acquired a license for Sydney’s ATN7 television

 

1956   

Became a public company

 

1960   

Acquired the Newcastle Morning Herald, Newcastle Sun, and Canberra Times

 

1969   

Acquired the Melbourne based Syme company

 

1971   

Launched the National Times

 

1979   

Rupert Murdoch took over The Herald and Weekly Times

 

1992   

Listed on Australian Stock Exchange

 

2005   

Acquired the privately owned online-dating service RSVP.com.au

 

2010   

Fairfax Media acquired TenderLink.com, the Southern Hemisphere’s largest e-tendering service

 

2011   

Acquired occupancy websites and extended online Holiday Rentals Business

 

2013   

The Age and the Sydney Morning Herald compact editions launched

 

2015   

Fairfax Media acquired Metro Media Publishing Holdings (MMPH)

 

2016   

Brisbane Times launches 'MyBT Gold Coast'

Update on NZME & Fairfax NZ merger process and Adshel option

 

2017   

Fairfax proceeds with domain separation end discussions with Private Equity

 

2018   

Merger of Nine Entertainment and Fairfax media

7. Team

 

Board of Directors[7]

 

Nick Falloon – Chairman

Patrick Allaway

Jack Cowin

Greg Hywood – Chief Executive Officer and Managing Director

James Millar AM

Linda Nicholls AO

Mickie Rosen

Todd Sampson

 

Management Team

 

Greg Hywood – Chief Executive Officer & Managing Director

David Housego – Chief Financial Officer

Allen Williams – Managing Director, Managing Director, Australian Community and Printing

Brad Hatch – Director of Communications

Chris Janz – Managing Director, Australian Metro Publishing

Dhruv Gupta – Group Director, Strategy and Corporate Development

Gail Hambly – Group General Counsel & Company Secretary

Martin Jolly – Managing Director, Fairfax Events

Michelle Williams – Group Director, Human Resources

Robert Hutchinson – Product and Business Development Director and Group Product Strategist

Sinead Boucher – Chief Executive Officer, Stuff


read more

8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/2018 (ended 24 June 2018 and 25 June 2017 ):[8]

 

Divisions

Revenue ($’000)

% Change

Underlying EBITDA ($’000)

% Change

Domain Group

$357,273

11.5%

$117,567

3.9%

Metropolitan Media

$490,210

(6.1%)

$53,148

8.3%

Australian Community Media

$400,187

(6.5%)

$ 57,204

(21.6%)

New Zealand Media

$280,755

(9.6%)

$37,283

(28.8%)

Radio

$136,582

(0.3%)

$32,568

3.3%

Other

$19,002

32.6%

($23,553)

50.9%

Total

$ 1,684,009

(2.8%)

$274,217

1.2%

9. Risk

 

Major risks include:[9]

 

Interest Rate Risk

Interest rate risk refers to the risks that the value of a financial instrument or future cash flows associated with the instrument will fluctuate due to movements in market interest rates. Interest rate risk arises from interest-bearing financial assets and liabilities that the Group utilises. Non-derivative interest-bearing assets are predominantly short-term liquid assets. The Group’s borrowings which have a variable interest rate attached give rise to cash flow interest rate risk.

 

Foreign Currency Risk

Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will fluctuate due to changes in foreign currency rates. The Group’s foreign currency exchange risk arises primarily from:

  • borrowings denominated in foreign currency
  • firm commitments and/or highly probable forecast transactions for receipts and payments settled in foreign currencies and prices dependent on foreign currencies respectively

The Group is exposed to foreign exchange risk from various currency exposures, primarily with respect to:

  • United States Dollars
  • New Zealand Dollars

 

Credit Risk

Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause the Group to make a financial loss. The Group has exposure to credit risk on all financial assets included in the Group’s balance sheet. To help manage this risk, the Group:

  • has a policy for establishing credit limits for the entities it deals with;
  • may require collateral where appropriate; and
  • manages exposures to individual entities it either transacts with or enters into derivative contracts with (through a system of credit limits)

 

Liquidity Risk

Liquidity risk is the risk that the Group cannot meet its financial commitments as and when they fall due. To help reduce this risk to the Group:

  • has a liquidity policy which targets a minimum level of committed facilities and cash relative to EBITDA
  • has readily accessible funding arrangements in place
  • staggers maturities of financial instruments

References

  1. ^ Annual Report 2018, P.73
    https://www.listcorp.com/asx/fxj/fairfax/news/annual-report-2018-1951139.html
  2. ^ Annual Report 2018, P.61
    https://www.listcorp.com/asx/fxj/fairfax/news/annual-report-2018-1951139.html
  3. ^ Full Year Results,Investor Presentation 2018  P. 10
    https://www.listcorp.com/asx/fxj/fairfax/news/full-year-results-presentation-1951137.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=169
    http://www.ibisworld.com.au/industry/default.aspx?indid=170 http://www.ibisworld.com.au/industry/default.aspx?indid=638
    http://www.ibisworld.com.au/industry/default.aspx?indid=2240
  5. ^ http://www.hoovers.com/company-information/cs/competition.fairfax_media_limited.b448e7b554eaac8f.html
  6. ^ http://www.fundinguniverse.com/company-histories/john-fairfax-holdings-limited-history/ http://www.smh.com.au/news/business/fairfax-buys-online-dating-service/2005/07/11/1120934155856.html
    http://fairfaxmedia.com.au/shareholders/Tenderlinkacquisition13-12-10.pdf
    http://fairfaxmedia.com.au/shareholders/FairfaxMediaacquiresOccupancyandExtendsOnlineHolidayRentalsBusiness.pdf
    http://fairfaxmedia.com.au/shareholders/040313_Compactlaunch.pdf
    http://www.fairfaxmedia.com.au/pressroom/au---nz-press-room/au---nz-press-room/fairfax-media-acquisition-of-mmph
    http://www.fairfaxmedia.com.au/pressroom/au---nz-press-room/au---nz-press-room/brisbane-times-launches-mybt-gold-coast
    https://www.listcorp.com/asx/fxj/fairfax/news/fairfax-proceeds-with-domain-separation-ends-pe-discussions-1626007.html
    https://www.listcorp.com/asx/fxj/fairfax/news/fxj-update-on-nzme-and-amp-fairfax-nz-merger-option-process-1474414.html
    https://www.asx.com.au/asxpdf/20180726/pdf/43ws6ypcbz1d7j.pdf
  7. ^ http://www.fairfaxmedia.com.au/Company/board-of-directors
    http://www.fairfaxmedia.com.au/Company/executive-management
  8. ^ Annual Report 2018, P. 73
    https://www.listcorp.com/asx/fxj/fairfax/news/annual-report-2018-1951139.html
  9. ^ Annual Report 2018, P. 99 - 102
    https://www.listcorp.com/asx/fxj/fairfax/news/annual-report-2018-1951139.html