Costs Weigh On Maiden Domain Results
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Investors liked the first financial report from the newly independent Domain Holdings, Fairfax Media’s 60%-owned property website listings subsidiary, despite signs the company’s costs need trimming and that its print business is suffering a serious revenue slide.
The shares rose more than 4% to $3 in the wake of yesterday’s release of its interim report and ahead of tomorrow’s release of its parent’s half year figures.
Yesterday’s rise will trim the year’s losses for the shares back to around 12%, 16% up to the close last Friday.
A lot of the losses have flowed from the still not fully explained departure on January 22 of CEO, Antony Catalano. And there were no further details the sudden (and timing timing) Catalano’s resignation in the first ever interim financial report from Domain (https://search.asx.com.au/s/search.html?query=dhg&collection=asx-meta&profile=web).
The company’s separation and float from Fairfax Media late last year created the various profit and revenue estimates (statutory v. proforma or underlying). That will continue until the full year figures in August. For that reason investors will be wary about going the full panic if costs continue to rise sharply.
Ignoring the statutory loss of $3.4 million after significant items (the costs of the separation and float) and statutory revenue of $112 million, Domain’s underlying result was OK, but nothing to boast about.
Proforma revenue up 12.5% to $183.3 million. Earnings before interest, tax, depreciation and amortisation of $56.8 million, up 8.7% were the highlights and played up by management. Left unnoticed was the 2.7% fall in earnings before interest and tax (EBIT) and the 8.1% slide in after tax profit to $24.7 million.
The company is paying a first up dividend of 4 cents a share. That is paid out of after tax profit and because it dipped, the share of that figure in the dividend is a rather hefty 93% (giving Fairfax Media a nice $13.76 million dividend payment). The worry for both Fairfax and Domain investors is the trading outlook issued this morning:
"Pro forma digital revenue growth of 21%.Pro forma total revenue growth of 11%. For FY18, Domain’s pro forma costs are expected to increase around 12% to 13% from FY17’s proforma costs of $216 million.” The 12% to 13% rise in costs against an expected rise of 11% in revenues is not a good look for investors and analysts. A particular worry for investors will be these comments about Domain’s print operations (inserts in Fairfax newspapers, such as the Age, SMH and AFR):
“Print revenue declined 11.6% and Print EBITDA declined 25.4%. This performance reflects ongoing structural decline, with some offset from cost initiatives,” Mr Falloon said in a release with the results. “Cost initiatives delivered a 6% reduction in expenses year-on-year. There are further cost opportunities in printing and distribution efficiencies.”
More cuts at Domain, not front page news but reality.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.