Fairfax reports $128m profit

Embattled media publisher, Fairfax Media (ASX:FXJ), has reported an underlying profit of $128 million for the 2013 financial year.

The results beat guidance the company gave at an investor day in June, but after taking a $445 million non-cash impairment charge within its regional, printing and agricultural divisions, Fairfax reported a statutory net loss of $16.4 million.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) came it at $366 million, 28% below the previous year, excluding significant items. Net debt has been substantially reduced by $760 million to a total of $15 million, thanks to the sale of its stake in Trade Me (ASX:TME) and the US agricultural business.

Fairfax CEO Greg Hywood said that its Fairfax of the Future program had contributed $118 million to full year EBITDA, and the company was on track to achieve $311 million in annualised savings by June 2015. The Sydney Morning Herald is the most read masthead with 4.5 million readers a month said Mr Heywood, while the company has achieved half of its 12-month target for paid subscribers in the first four weeks since introducing digital subscriptions for its main mastheads.

Domain, the company’s real estate advertising portal appears to be closing the gap on market leader REA Group’s (ASX:REA), with a 21% jump in the number of real estate agents advertising on Domain. But Fairfax faces both structural and cyclical declines in its newspaper business, according to Seek Limited (ASX:SEK) chief executive Andrew Bassat, despite newspapers accounting for 33% of Australia’s total advertising revenue.

Foolish takeaway

While Fairfax continues to see deteriorating conditions for its print publications, its digital businesses appear to be growing nicely, and at some stage will become the dominant driver of earnings for the group.

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Motley Fool writer/analyst Mike King owns shares in Fairfax Media and Seek.

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