While Fairfax Media CEO David Kirk was helping send the share price to a new low of $1.59 this morning by confirming that earnings in the first half will be down, the publishing industry is full of rumours about the September quarter circulation figures, due for release tonight for tomorrow’s papers.

There are suggestions that the national papers (The Australian and Australian Financial Review) will again be strong, but state-based papers, Monday to Friday and again Sundays, will be weak.

For magazine publishers there will be a second quarter of bad news, especially for ACP where there will be more blood on the floor. The Sydney Morning Herald reported today that the PBL media annual accounts contains a forecast that ACP revenues and circulation are expected to be down in the 2009 financial year.

“ACP’s circulation and ad revenues are expected to decline in the year to June, the company predicts,” the SMH reported the PBL Media accounts as predicting. The sales performance of its expensive new launch, Grazia, will be closely watched by competitors.

Pacific Magazines, the arm of the Seven Media Group, has been losing senior staff from its New Idea title for months as sales settle lower. The question to be resolved by the release of the ABC figures is which is doing worst of all: New Idea or ACP’s Women’s Day? It’s a battle to the bottom, judging from what is being said in the industry.

Fairfax management should have been aware of the latest ABC figures at the AGM in Melbourne today. Perhaps that’s why chairman Ron Walker told the meeting in his address that “We foresee tough trading conditions for some time.” On Fairfax’s current performance, Mr Kirk told the meeting:

In late August this year at the time of reporting our 2008 results, I said that advertising markets had slowed since the start of the financial year. Global events and the flow on to economic activity in Australia and New Zealand have resulted in continued weakness in these markets.

In the first quarter of the current financial year, EBITDA was below the same period last year by mid-teen percentages.

However trading performance has improved in the second quarter. EBITDA in the second quarter to this point is below the same period last year by mid single digit percentages. This is not a result of strengthening revenue. The improvement is driven by strong cost reductions. We are confident of continued strong cost performance across the Group.

The current low levels of business and consumer confidence together with continuing uncertainty and volatility in financial markets makes it very difficult to predict trends for the crucial Christmas trading period and beyond. However, Fairfax is better positioned today than at any time in its recent history to face these challenging times.

In effect, Fairfax is cost cutting its way to break even. Thanks to the merger with Rural Press, Fairfax’s revenue rose 34% to $2.92 billion in the 2008 year with net profit after tax of $386.9 million, up 47%.

Peter Fray

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