Green shoots visible for Fairfax

FAIRFAX tripled its first-half earnings to more than $386 million following big asset sales, but the media group warned on Thursday that the advertising outlook continued to be challenging and flagged further cost cutting.

Excluding the profit on business sales during the period, including Fairfax's remaining stake in New Zealand online auction house Trade Me, the company reported a profit after tax of $83 million, compared with $135.7 million for the prior first half. Group revenues were down 7.8 per cent to $1.1 billion for the half-year while group expenses declined 3 per cent to $908 million.

Fairfax chief executive Greg Hywood said the print editions of The Sydney Morning Herald and The Age newspapers - which are about to move to a new compact format - continued to be profitable, with circulation revenue rising from recent price increases.

While underlying earnings met market consensus estimates, Fairfax declined to give guidance for the full year, saying there is still "significant volatility in the market".

The company reported December revenues were down 5 per cent on a like-for-like basis, while the first six weeks of this year were down 9 per cent to 10 per cent.

Mr Hywood cautioned about reading too much into the latter figures, but was cagey about signs of improvement in the media sector outlook.

Mr Hywood said six months ago that he could not see anything that would cause a cyclical lift.

"The only thing that's occurred in the meantime is the fact that there has been a strong lift in the equity market," he said.

The silver lining is whether a sustained run in the equity markets helps consumer sentiment.

"[Consumer sentiment] traditionally, in our business, flows through into the property market which is 30 per cent of our advertising," Mr Hywood said.

Simon Marais, the managing director of major Fairfax shareholder Allan Gray, said the results were good, with costs under control and very little debt following the Trade Me sale.

"The big question is whether they can turn revenues around," he told BusinessDay.

He was not overly concerned about the slow start to the current half-year, saying signs of an advertising turnaround are evident, but it may take time to trickle through to property and job ads, on which Fairfax prospers. "The green shoots are there and they haven't been there for ages," he said.

Fairfax said cost savings from its transformation plan were ahead of schedule and now expected to produce total savings of $251 million by 2014-15, compared with previous forecasts of $235 million.

"We are currently pursuing potential additional structural initiatives and cost savings," Mr Hywood said. Further detail will be provided later this year.

Fairfax cut its fully franked interim dividend to 1¢ a share from 2¢ a share.

The company's shares dropped 1.5¢ to close at 53¢ on Thursday.