Growth in Fairfax Media's digital businesses helped push the company's profit up 47%.

The publisher of the smh.com.au and theage.com.au websites said after-tax profits rose to $386.9 million, just short of the $388.8 million forecast by analysts. Overall revenue gained 34%.

Fairfax Media shares rose 4 cents, or 1.4%, to close at $2.82, after having fallen as much 6% earlier in the day.

Profit before interest, tax and depreciation from the company's digital division gained 41% while sales rose nearly one-third for the year. Unique browsers, a key gauge of online traffic, rose 15%.

"These results highlight the successful implementation of our strategy of diversification of revenue, investment in digital earnings growth and constant focus on operational improvement to drive earnings per share growth," said chief executive David Kirk in a release.

Fairfax continues to integrate Rural Press newspapers, Southern Cross radio stations and Southern Star assets its acquired in November 2007.

Revenue for Sydney and Melbourne metropolitan newspapers and magazines fell 2.8% for the year. EBITDA earnings for the division fell 8.9% for the year to $174.1 million.

Metro publishing revenues were weaker, with total revenues reflecting poor ad sales growth, particularly in Sydney. Melbourne market conditions were stronger but weakened in the second half, the company said.

Online strategy

"The real growth driver, the online segment, was encouraging," said analyst Tim Morris from Wise-owl.com.

Fairfax is making strides in the new media where some of its peers, such at Ten Network, may be struggling, he said.

"We're pretty confident Fairfax has a solid online strategy."

Brisbanetimes.com.au and watoday.com.au are also said to be challenging the dominance by News Ltd and WA Newspapers in those respective markets, he said.

Wise-owl.com sees Fairfax as a long-term "buy" because of its position to gain from changes in the media landscape, as well as the markets its regional newspapers serve.

To that end, the 2007 takeover of Rural Press continues to look wise.

Given the outlook for agricultural prices to rise, in conjunction with the end of the prolonged drought," we think rural incomes will look pretty strong and in the next few years the company should reap the benefits."

Growth slowing

"No doubt that the second half and fourth quarter have seen a sharp slowdown in advertising particularly in New Zealand but also across Digital and regionals," said Citi media analyst Digby Gilmour.
 
Given the change in the economic backdrop, the first half of financial year 2009 results are likely to be weaker.
 
"Digital growth has slowed from 40% in first half to 30% in second half" and Gilmour predicts the digital division will see only 20% growth in 2009.
 
The lower revenues will weigh on the stock which face two obstacles in coming months: declining advertising revenue across the company's divisions and consensus downgrades to reflect the weaker ad demand.

Outlook

In a presentation to analysts, Mr Kirk declined to provide a specific profit forecast amid weaker growth in the company's key markets of Australia and New Zealand.

"When general economic slow, so do advertising markets," Mr Kirk said.

Looking ahead, executives emphasised plans to contain costs across its divisions while maintaining growth although deputy CEO Brian McCarthy said Fairfax currently had no major cost-cutting initiatives to announce.

However, the company would take advantage of opportunities to reduce costs as they arise, with staff remaining a major cost item, executives said.

Asked about the possibility of creating a news website in Adelaide similar to brisbanetimes.com.au or watoday.com.au in Perth, Mr Kirk said the market may be "below the critical mass" needed for a successful expansion there.

Diversification

One media analyst, who preferred not to be named, said Fairfax's diversification strategy was paying off as regional newspapers and online news helped offset weakness in its metro papers.

In total, the company's changing mix of revenue sources "shows that Fairfax is one of the better-positioned media companies in the world," the analyst said.

However, questions remain about the company's costs, which increased only 1.4% in the year to June 30, 2008.

The results did not include guidance on future expenses the company would face in its online transition, the analyst said, adding the omission was "a key disappointment."

The fiscal 2008 result included $8.4 million in non-recurring items related to property costs associated with the relocation from Darling Park to Pyrmont, and restructuring and redundancy charges.

''Overall, these are a very satisfactory set of results in the face of declining earnings for our Sydney and Melbourne metropolitan newspapers in Australia and tough trading conditions, particularly in New Zealand,'' Fairfax chief executive David Kirk said.

Fairfax Media continued to grow in the second half, with earnings per share up 7.7%, he said.

Regional growth

Fairfax chairman Ron Walker said that while overall economic conditions were not robust at present, the group was ''well positioned competitively''.

In 2007/08, Fairfax said its Regional and Community Newspapers continued to post strong revenue and profit growth in Canberra, Newcastle, and regional publications across Queensland, Victoria, South Australia, Tasmania and Western Australia. But weaker real estate markets affected NSW community publications.

Revenue for Sydney and Melbourne metropolitan newspapers and magazines fell 2.8% for the year.

Metro publishing revenues were weaker, with total revenues reflecting poor ad sales growth, particularly in Sydney. Melbourne market conditions were stronger but weakened in the second half, the company said.

The company said Fairfax Magazines performed very well, with strong revenue and profit growth.

Fairfax Business Media had strong revenue and profit growth, with robust advertising growth in The Australian Financial Review.

Australian Printing benefited from restructuring, consolidation and investment. Revenue fell 1.0% and costs declined 9.5% but EBITDA increased 3.5% to $73.1 million.

Online gains

Online - comprising Fairfax Digital in Australia and Trade Me in New Zealand - revenue increased by 33.0%, costs increased 26.8%.

Total traffic across all the Fairfax sites increased to over 16.5 million unique browsers per month, up 15% on the prior corresponding period.

Among the site, Brisbanetimes.com.au enjoyed strong growth, and WAtoday had exceeded expectations thus far, the company said.

Fairfax Radio Network - comprising metropolitan and regional radio networks - saw revenues fall by 2.1% on a like-for-like basis, costs decreased 5.2%, but EBITDA increased 8.8% to $19.7 million.

Fairfax said the radio network enjoyed good performance in Melbourne, Perth and Brisbane, with Sydney operations stabilising. Overall ratings improved as the year progressed.

Expected cost synergies had been achieved fully, the company said.

Earnings before interest and tax at its regional presses gained 7.8% for the year, while those at its specialist publications gained 15%.

The company declared a final dividend of 10 cents per share, bringing the total dividend for the year to 20 cents.

czappone@fairfax.com.au

BusinessDay, with agencies