Fairfax Media says gloomy conditions in the advertising market are still dragging on its revenues.
The pan-media publishing group this morning reported a big rise in its first half net profit, thanks to the sale of its stake in Trade Me and its agricultural publishing business in the United States.
Fairfax's half-year results
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Fairfax's half-year results
Fairfax Media CEO Greg Hywood summarises the company’s first-half results and the outlook for 2013.
Shares were down 2.3 per cent to 53.25 cents in early trade.
Fairfax’s net profit rose to $386.3 million during the first half ended December 30 from $97.6 million in the previous corresponding period.
Excluding the businesses sold during the period, Fairfax - the publisher of this website - recorded a net profit of $83 million, down from $135.7 million.
Revenue dropped to $1.1 billion from $1.2 billion, in line with analysts’ expectations because of declining advertising income.
Fairfax chief executive Greg Hywood said trading conditions remained tough, with December revenues down five per cent on the same period a year earlier.
Revenues for the first six weeks of the second half were nine to 10 per cent below the previous corresponding period.
‘‘Continuing weakness in real estate and the national advertising market are providing a drag on group revenue, although there is considerable volatility from month to month,’’ he said in a statement this morning.
‘‘A sustained improvement in consumer sentiment is required in order to see an uplift in a number of our key advertising categories, and we note recent positive economic commentary in relation to the consumer economy.’’
Analysts supported Mr Hywood's prognosis. ‘‘Given the challenging environment, we expect the Australian ad market to be under pressure in 2013 with flat growth in the June 13 half and 2.6 per cent growth in the December 13 half benefiting from a recovery in the economy and federal elections,’’ says Deutsche Bank.
Fairfax cut its fully-franked interim dividend to one cent a share from two cents a share.
Mr Hywood said Fairfax’s financial performance during the first half was in line with expectations, given the challenging economic conditions.
The media group’s transformation plan was also ahead of schedule, he said.
Fairfax is in the middle of a four-year, $235 million cost-cutting program, which has included 1900 job cuts.
Mr Hywood said Fairfax’s metropolitan media division, which includes The Sydney Morning Herald and The Age newspapers, continued to be profitable, with rising circulation revenue.
However weakness in government spending, employment and real estate ads weighed on the performance of the group’s regional and agricultural division.
Elsewhere, Fairfax’s radio division lifted ad revenues 6.8 per cent in the first half.
Mr Hywood said Fairfax’s net debt was now less than $200 million, allowing the group to invest in its businesses.
Fairfax said that cost savings from its transformation plan are ahead of schedule and is now expected to produce total savings of $251 million by the 2014-15 compared to previous forecasts of $235 million.
‘‘We are currently pursuing potential additional structural initiatives and cost savings beyond those currently envisaged under the Fairfax of the Future program,’’ Mr Hywood said.
He said it was difficult to give guidance at this stage given there is still ‘‘significant volatility in the market’’.
Mr Hywood said six months ago hecouldn’t see anything that would cause a cyclical lift.
‘‘The only thing that’s occurred in the meantime is the fact has been a strong lift in the equity market,’’ he said.
If the downturn in consumer sentiment is based around fear of loss of wealth both in terms of lower property prices and stressed superannuation accounts, a sustained run in the equity markets will help consumer sentiment.
‘‘That traditionally, in our business, flows through into the property martket which is 30 per cent of our advertising’’ he said. ‘‘That’s the only difference I would make between were we were 6 months ago and where we are now.’’