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Fairfax Media says revenue slide likely to lead to 18% drop in annual earnings

Tuesday 12th June 2012

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Fairfax Media, the Australian media group that's taken charges of more than A$1 billion against its mastheads and goodwill since 2010, says sales continued to slide in its second half of this year, leading to an 18 percent slump in annual earnings.

The Sydney-based group, which publishes the Dominion Post, Sunday Start Times and Press in New Zealand, expects earnings before interest, tax, depreciation and amortisation of about A$500 million in the 12 months ended June 30, down from A$607.4 million a year earlier. That would be the group's worst underlying result since 2008.

Chief executive Greg Hywood said it was appropriate to give an update given the recent "volatility in market conditions and advertising trends" and the performance of media companies. The shares fell 0.8 percent to 59.5 Australian cents on the ASX, and have shed 17 percent this year.

"This (difficult) trading environment has continued and the company expects revenue for the second half to be approximately 8 percent below last year," Hywood said in a statement.

The earnings guidance excludes any further impairments Fairfax may take against its titles in the latest year.

Fairfax has been fighting running battles on several fronts in recent months, with its biggest shareholder Gina Rinehart pushing for two seats on the board, an Australian strike over outsourcing production to New Zealand, and speculation its plunging share price might attract a hostile takeover from a private equity player.

The stock is rated a 'hold' according to a consensus of 13 analysts compiled by Reuters, who have a median target price of 73.2 Australian cents. Its market capitalisation of A$1.41 billion is about 44 percent the analysts' consensus for enterprise value of A$2.53 billion.

Hywood said Fairfax will repay a A$553 million eurobond on June 15, using cash reserves and undrawn debt lines. As at Dec. 31, the group had net debt of A$1.13 billion, and it expects that to fall below A$1.1 billion by the end of this year.

The media company bolstered its balance sheet by spinning off a third of the shares in auction website Trade Me last year, having loaded the subsidiary with debt and extracted NZ$220 million in dividends in its last full year of ownership.

Fairfax hopes to strip out A$170 million of costs over three years in a plan to shift its focus into digital media, which makes up just 14 percent of revenue, and away from print. The thinking behind the plan is to centralise its systems and cut back on duplication.

Hywood said the strategy is running ahead of plan, with the 2012 run rate beating the targeted A$40 million of savings this year.

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