Fairfax Media plans to list its lucrative real estate classifieds business, Domain, on the ASX by November, after the media group swung back into the black with a $83.9 million full-year profit.
Domain contributed nearly 20 per cent of group revenue over the 12 months to June 25 and more than 40 per cent of underlying earnings, as Fairfax bounced back from last year's writedown-heavy $893.5 million loss.
Rival private equity groups had been interested in buying Fairfax but one walked away and the other failed to lodge a formal bid, leaving Fairfax with its original plan of extracting maximum value from Domain by listing it separately on the ASX.
Fairfax will retain 60 per cent of Domain - with Fairfax shareholders receiving the rest - and chief executive Greg Hywood said the company was well positioned to withstand the separation.
Its newspaper division containing The Australian Financial Review, The Sydney Morning Herald and The Age achieved earnings growth in a year that featured a journalists' strike in response to more than 100 newsroom redundancies.
"Our three publishing businesses are modern, cost efficient and sustainable across digital and print," Mr Hywood said.
"In the context of the global structural change impacting upon the media industry, the fact that our publications remain profitable and sustainable is an outstanding achievement."
Underlying earnings before tax, interest, depreciation and amortisation (EBITDA) across Fairfax dropped 4.3 per cent from the prior year, but the metro media business had a 26 per cent improvement to $49 million.
Publishing costs fell 12 per cent, while digital subscriptions rose 21 per cent.
"Revenue went backwards but they've had earnings growth, an improvement in costs, a lift in digital subscriptions and a reduction in costs," CommSec analyst Steven Daghlian said.
"Where the newspaper division is struggling is in attracting advertising dollars."
The company's revenue in the first six weeks of the current financial year was about four per cent lower than in the same period last year.
Underlying EBITDA from Domain fell six per cent to $113 million in 2016/17 due to what Mr Hywood said were costs associated with a transition away from print, and acquisitions.
"Domain has created a strong platform for revenue growth," Mr Hywood said.
Citi analysts value Domain at $1.05 per share.
Fairfax shares dropped half a cent to $1.005.
Fairfax will prepare a scheme booklet for the Domain partial spinoff by late September and hold an investor roadshow the following month.
Shareholders will vote on the plan in early November, with shares trading on the ASX by the end of that month, subject to regulatory approval.
The relationship between Fairfax and Domain will be similar to that between media rival News Corp and ASX-listed property advertiser REA Group.
Mr Hywood received 20 per cent of his short-term incentives in 2016/17, with his total remuneration of $2.38 million, including shares and rights, down 13 per cent from the previous year.
Fairfax shares closed 0.5 cents higher at $1.015 on Wednesday.
FAIRFAX MEDIA GETS BACK TO THE BLACK:
* Full year net profit of $83.9m v $893.5m loss
* Revenue down 4.8 pct to $1.74b
* Underlying EBITDA down 4.3pct to $271.1m
* Final dividend steady at 2 cents per share, fully franked