Fairfax flags 18% drop in annual earnings as sales slide

BUSINESSDESK: Fairfax Media, the Australian media group that has taken charges of more than $A1 billion against its mastheads and goodwill since 2010, says sales continued to slide in its second half of this year, leading to an 18% slump in annual earnings.

The Sydney-based group, which publishes the Dominion Post, Sunday Star-Times and Press in New Zealand, expects earnings before interest, tax, depreciation and amortisation of about $A500 million in the 12 months ended June 30.

That is down from $A607.4 million a year earlier and is 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% to 59.5 Australian cents on the ASX, and have shed 17% this year.

"This (difficult) trading environment has continued and the company expects revenue for the second half to be approximately 8% 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 $A1.41 billion is about 44% the analysts' consensus for enterprise value of $A2.53 billion.

Mr Hywood said Fairfax will repay a $A553 million eurobond on June 15, using cash reserves and undrawn debt lines.

As at December 31, the group had net debt of $A1.13 billion and it expects that to fall below $A1.1 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 $NZ220 million in dividends in its last full year of ownership.

Fairfax hopes to strip out $A170 million of costs over three years in a plan to shift its focus into digital media, which makes up just 14% of revenue, and away from print. The thinking behind the plan is to centralise its systems and cut back on duplication.

Mr Hywood said the strategy is running ahead of plan, with the 2012 run rate beating the targeted $A40 million of savings this year.