The publisher of the Guardian and Observer halved its losses in the last financial year, and the company is on track to break even this year.

Guardian News & Media (GNM) reported a £19m loss in the year to the end of March, half the £38m loss recorded in the previous financial year.

The publisher, which is now in the final year of a three-year plan to break even, has cut losses to a third of the £57m reported when the drive to reshape the business began.

GNM’s £19m loss is 25% better than its internal target of £25m, due to a combination of better-than-expected revenue growth and almost £20m removed from the group’s cost base.

The publisher cut costs by 7% year-on-year, from £252m to £235m. The reduction includes the first savings from the shift to a tabloid format in January.

“We are well on track with our three-year strategy to make the Guardian sustainable and break even at operating level by 2018-2019,” said editor-in-chief Katharine Viner and David Pemsel, the chief executive of GNM parent Guardian Media Group in a joint statement. “Thanks to outstanding collaborative work in the UK, US and Australia, we have finished the second year well ahead of our forecast.”

Total revenues increased marginally by 1% to £216m, a second consecutive year of growth in the face of tough market conditions for publishers.

The steep declines in print ad revenue affecting all publishers was more than offset by strong growth in digital income and the rapid growth of reader revenues.

Reader revenues – from contributions, a three-tier membership programme, and print and digital subscribers – are a core part of the Guardian’s plans to diversify revenue streams and reduce reliance on traditional income from advertising and newsstand sales.

More than 800,000 people now financially support the Guardian, up 200,000 from a year ago. Of these about 200,000 are print or digital subscribers, more than 300,000 are members or regular contributors, and more than 300,000 gave one-off contributions.

Reader revenues, including income from the sale of the Guardian on newsstands, now exceed revenues generated from advertising.

“We have achieved very rapid growth in our reader revenues - contributions, membership and subscriptions - across the UK, US, Australia and the rest of the world,” said Viner and Pemsel.

“We enter year three with the goal to break even, but we still face challenges and uncertainties. This unpredictability makes sensible financial and business planning more critical than ever, and so we are already beginning to look beyond the coming year and plan how we invest for the long-term future.”

The Guardian’s US and Australian operations performed strongly over the last year.

“Our international businesses are now sustainable and on a sound financial footing,” said Viner and Pemsel. “Both will continue to grow and become more important to the Guardian in future years.”

Guardian Media Group incurs additional costs meaning that the overall loss is likely to be about £24m to £25m when the group officially reports its annual results later this year. In the previous financial year GMG reported a £45m loss.