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Fairfax returns to profit as newspaper earnings weaken, online growth continues

Monday 22nd February 2010

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Fairfax Media, publisher of daily newspapers in Australia and New Zealand and owner of the popular TradeMe auction website, returned to profit in the first half with print media continuing to weaken and earnings growth at its online business.

Net income was A$143.5 million, or 6.1 cents a share, in the six months ended December 27, from a loss of A$375.6 million, or 23.1 cents a year earlier, the Sydney-based company said in a statement today. Sales fell 13% to A$1.26 billion.

Fairfax’s year-earlier results were dominated by one-time charges of A$522.9 million to write down the value of its mastheads and recognise an impairment in the value of radio licences and goodwill. The writedown underlined the fading prospects for newspapers in a digital age, and were amplified by the economic downturn, which eroded advertising sales and spurred the company to rein in costs.

“We have extensively re-engineered the company to ensure that all our businesses are operating much more efficiently,” said chairman Roger Corbett.

Shares of Fairfax rose 1.1% to A$1.80 on the ASX and have advanced 95% in the past 12 months. The stock is rated ‘outperform,’ based on the consensus of 11 analyst recommendations compiled by Reuters. Four rate it a ‘buy’ and one recommends selling the shares.

Trading in the first six weeks of the second half have been “stronger” than in the same period a year earlier, Fairfax said, without being specific. Assuming current market trends continue, second-half earnings will be higher than in the final six months of the 2009 year, it said.

“Whilst this is encouraging, revenue visibility and booking cycles remain quite short with no sustained trends evident,” the company said. “Revenue growth is being experienced across the majority of media and digital operations but the New Zealand publishing market has remained subdued.”

The company will pay a first-half dividend of 1.1 cents a share, down from a year-earlier 2 cents. Fairfax isn’t reinstating its dividend reinvestment plan.

Sales at the company’s biggest unit, Metropolitan Media, which includes Australian daily newspapers the Age, Sydney Morning Herald and Sun Herald, fell 11% to A$457 million, while earnings before interest and tax sank 29% to $49.5 million. That’s little more than the company earned from its online business, which lifted EBIT by 11% to A$47.9 million as revenue grew 8% to A$101.8 million.

TradeMe’s revenue climbed 14% in New Zealand dollar terms while EBITDA gained 15%.

New Zealand Media, which includes the Dominion Post, Press. Waikato Times and Cuisine magazine, reported an 8.5% decline in revenue to $243 million, while EBIT tumbled 29% to $41.6 million.

Australian Regional Media, which owns a suite of provincial newspapers in Australia, had a 5.4% slide in revenue to A$255.9 million, for a 12% drop in EBIT to A$72 million.

Its Australia and New Zealand printing business, which derives the bulk of its revenue from printing the group’s publications, reported gross revenue of A$272 million, down 4.1%, while EBIT rose 3.7% to A$24.9 million.

Specialist Media, the division that publishes the Financial Review, BRW and runs the website, had a 13% decline in revenue to $142.7 million and a 9.4% drop in EBIT to A$34.6 million. The unit also publishes rural titles including The Land and Farm Weekly.

In broadcasting, which houses Fairfax’s Australian radio stations including Sydney’s 2UE, revenue edged down 0.5% to A$55.4 million while EBIT gained 8.8% to A$14.8 million.

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