It was very interesting to read the comments of PMP CEO David Kirk in The Australian
today, who was reported as saying:

“We were not going to say anything to the market until we
had something substantial to support a downgrade. We didn’t have the
benefit of another two months of trading. Volumes are down, we are
filling the presses up with lower-margin work and we have no room for
spot colour work, which is where the higher margins are.”

This sounds like a man nervous about appearing to have withheld
price-sensitive information that was clearly flagged by Crikey in this piece
from our February 17 edition. The stock subsequently tanked from $2.30
to $1.86 in the two months. The smart money got out and PMP really
should have announced their profit downgrade a lot earlier than
yesterday.

In
the interests of full disclosure, I bought 380 PMP shares at $1.40 a
pop yesterday in preparation for a good debate about all these issues
at the next PMP AGM in October.

And Glenn Dyer writes:

As if the problems in printing and the 1st Fleet distribution
contract aren’t bad enough, PMP and its distribution arm, Gordon &
Gotch, are facing the prospect of legal action from newsagents over
claims of breaches of contract and the Trade Practices Act. News of the
possible legal action comes as G&G struggles with the 1st Fleet
magazine distribution deal in NSW and Victoria that’s losing hundreds
of thousands of dollars a year, affecting the sales of magazines from
G&G and from the other major group, PBL’s ACP/Network Services.

Higher
fuel charges have added to the financial pressures on PMP as the poor
performance of the “outsourced distribution contract” contributed to
the steep profit downgrade yesterday which saw the share price tank 40%
at one stage. PMP also blamed the lack of printing capacity and too
much low margin work for much of the drop in forecast earnings, so an
expensive and bitter legal argument with newsagents and the possible
involvement of the ACCC is not what PMP management would want to be
seeing right now.

A note is due to be sent to all members of the
Australian Newsagents Federation in the next few days outlining the
action, which kicked off earlier in the year when a number of
newsagents in NSW and Victoria started complaining about being
over-supplied with Gordon and Gotch titles: in some cases the
oversupply was 30% or more of normal levels in the early part of 2004.
The story was broken in Crikey in March as you can see here.

After Thursday’s big fall, PMP shares were a little firmer in morning trade, up 2.5c to $1.43.

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Peter Fray
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