Domain Group Sees 'Considerable Upside' to Nine-Fairfax Merger
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Domain Group sees 'considerable upside' to Nine-Fairfax merger Domain executive chairman Nick Falloon says combining data from the business with Nine will be powerful.Daniel Munoz by Max Mason Domain executive chairman Nick Falloon says the proposed merger of Fairfax Media and Nine Entertainment will provide a platform for national growth and strengthen the business' traditional powerbases of Sydney and Melbourne. Mr Falloon, who is also chairman of Fairfax, publisher of The Australian Financial Review and Domain's controlling shareholder with a 60 per stake, said the appeal of the merger is not just Nine's free-to-air television business, but its growing digital business. "We see being able to work with a Nine-Fairfax merged business going forward as just strengthening," he said. "Clearly, it will help us geographically spread the business. We're stronger in Sydney- Melbourne at the moment, off the back of the mastheads over the last few years, we see it'll help us there as well but also help us expand out in a cost-effective manner." The Domain boss said combining combining data from the business with Nine will be powerful. "They've established a huge database. Traditional free-to-air never had any direct engagement with its audience, they've got that, we've got, at Domain, a lot of rich data which we've been working on the last few years, so the ability to work together there, which will benefit both businesses going forward, is quite exciting." Beyond traditional markets Patrick Potts, an investment analyst at fund manager Martin Currie Australia, which also owns Fairfax shares and believes Nine should pay a higher price for the publisher, said the merger should be positive for Domain. "Getting that presence in markets outside of their traditional ones in Sydney and Melbourne is going to help drive adoption in those markets and build brand awareness," Mr Potts said. "They've got listings parity, and hopefully building brand awareness in those markets will drive eyeballs to those sites and you'll see Domain monetise those markets." The comments came as Domain reported its first full-year results since listing on the Australian Securities Exchange late last year. Pro forma net profit, excluding significant items, lifted 7.7 per cent to $52.9 million, while revenue rose 11.5 per cent to $357.3 million. Operating earnings before interest, tax, depreciation and amortisation jumped 12.5 per cent to $115.7 million. Domain shares jumped 3.1 per cent to $3.29 on Monday. On a statutory basis, Domain reported a loss of $6.2 million. This included $29.6 million in impairments from the exit of a stake in utilities connection business Beevo, a revaluation of its stake in tradie marketplace Oneflare, the rebranding of The Weekly Review print titles to Domain Review, as well as $6.4 million in restructuring charges. Despite a mixed property listings market, residential revenue rose 19.9 per cent to $172.5 million, while media, developers and commercial revenue gained 11.2 per cent to $54.1 million, agent services jumped 9.2 per cent to $27.9 million, core digital lifted 16.7 per cent to $254.5 million, and transactions revenue was up 74.5 per cent to $24.4 million. Mr Falloon flagged Victoria as a particular point of focus for improvement after a weaker year for Domain in the state. He said listings softened in May and June and continued into July, but suggested there were early signs of a slight improvement in August. Rival REA Group also noted a soft listings environment at its results on Friday. "We know the business we're in is cyclical by nature. I think the underlying economy is strong, I think people will still transact their homes. Property prices are coming off all-time highs. The corrections we're getting in terms of pricing at the moment is probably healthy," Mr Falloon said. "We're unsure as to how far that goes looking out. So we're just focusing on all the things that we can control and running the business within that, we're very comfortable with how the business is performing." The next wave Domain is combating the softer listings with initiatives to increase yields, depth penetration – or premium ads – and grow other businesses, such as broker business Domain Loan Finder, utilities comparison site Compare & Connect and building, house, landlord and car insurance business Domain Insure. "We see it as bringing the next wave of growth, there's still more growth in the listings and residential business for us, but in a few years there will be significant growth starting to come out of those businesses," Mr Falloon said. Mr Potts said there were positives and negatives in Domain's results, but overall the "positives won". "Twenty per cent revenue growth was in line with REA – that's a pretty good result given the softer listings environment. The growth in depth products in markets outside of Sydney and Melbourne. Queensland, South Australia and WA was promising. Victoria was a little bit disappointing, given it's a key core market," he said. "The softer listings environment is not ideal but REA reported the same on Friday. At the end of the day we're coming off a really hot property market, you could expect at some stage those elevated housing turnover number were going to normalise." At the end of August, Mr Falloon will step back from his executive chairman role to non-executive chairman as former Google Australia and New Zealand boss Jason Pellegrino takes over as managing director and chief executive. "Jason's leadership acumen and track record for inspiring and driving performance at Google will be great for Domain and our many talented people as we enter our exciting next stage of growth," Mr Falloon said. Mr Pellegrino replaces Antony Catalano, who left in January, just months after the business listed. As noted upon his departure, he forfeited 4.27 million options with a face value at their granting of about $5 million, and Domain's annual report on Monday also revealed he forfeited up to $960,000 in incentives for 2017-18. .