Aussie media chain downgrades 2009 profit forecast by 28 per cent

Australia's Fairfax Media Ltd, which publishes newspapers such as the Sydney Morning Herald, The Age and the Australian Financial Review forecast a decline in profits for the 2009 financial year driven by weak advertisement revenues.

The Sydney-based company said its earnings are estimated to fall to about A$600 million for the current financial year, about 28 per cent down from its earnings of $831.2 million for 2007-08.

''Assuming no further major deterioration in trading conditions, the company expects to report underlying earnings before depreciation, interest and tax (EBITDA) of circa $600 million,'' said Brian McCarthy, chief executive officer and managing director of Fairfax.

McCarthy told reporters that he didn't expect a return to the 2008 days of $800 million-plus operating profits until at least 2012.

Fairfax chief financial officer Brian Cassell said Fairfax's advertising revenue for the June half was down by about 25 per cent.

Cassell said the recent $650 million capital raising by Fairfax had left it with net debt of about $1.8 billion. Based on its current earnings, as well as reduced interest expense, Fairfax was "well within our covenants" for the financial year, he said.

McCarthy also refused to rule out further redundancies at Fairfax in the wake of a programme of 550 job cuts last year, and revealed a freeze on executive salaries in 2009-10.

''In the weeks since Easter, a clearer picture has emerged in relation to trading conditions in advertising markets in both Australia and New Zealand. It is apparent the markets have continued to deteriorate and although the rate of deterioration has abated, advertising levels are not expected to show any marked improvement at least for the rest of this financial year,'' he added.

However, McCarthy pointed out that the company's diversification programme had extracted strong performance from regional publishing, broadcasting and digital businesses, offsetting the impact of more significant advertising declines in the metropolitan publishing business.

Notwithstanding the advertising revenue declines, market shares have improved in key advertising categories, he noted.

''Fairfax Media has undertaken wide ranging cost reduction initiatives. For the second half to date, total costs are approximately 10 per cent lower than for the prior corresponding period,'' he said.

''The new management structure, multi media diversification, cost initiatives and strength of the Company's performance in its markets ideally positions it to take advantage of any upturn in conditions,'' McCarthy added.

McCarthy said the current economic downswing was a major factor in declining advertisement revenue at its flagship newspapers.

Fortescue dismisses Shanghai listing buzz

Australia's Fortescue Metals Group (FMG), the country's third largest iron ore producer, yesterday rejected the speculation regarding the company's listing in the Shanghai stock exchange.

Last month, Australian authorities approved a A$1.2 billion deal involving FMG and China's Hunan Valin Iron & Steel Group for raising the Chinese stake in the Australian company to 17.5 per cent to become its second largest shareholder. (See: Australia okays Valin stake in Fortescue Metals)

Andrew Forrest, chief executive of FMG was in China recently to attend a ceremony to celebrate the Hunan Valin investment in the Perth-based miner, where he had revealed to journalists that the company had been studying the possibility of its listing in Shanghai stock exchange for over a year.

The official China news agency reported Forrest's view that FMG's equity tie-up with Hunan Valin would help its localisation in China and may facilitate a Shanghai listing.

The reports said Chinese authorities planned to ease the stringent regulations to facilitate foreign firms listing in the country's stock exchanges under an ambitious development programme and converting Shanghai to a global financial hub by 2020.

FMG spokesman acknowledged the Chinese reports and told the company continually explores all options to enhance shareholder value, although no concrete decision has been made on the issue yet. 

Further to the news, FMG share prices soared by 43 cents to A $3.07 on Monday, over 16.3 per cent higher than its previous closing, on large trading volumes. However, the prices retreated to A$2.88 yesterday, by 19 cents or 6.2 per cent.

Australian securities exchange (ASX) questioned the abnormal share price movement on Monday to which FMG responded that it was not aware of any information that had not been announced and might explain the trading in its securities.

Referring to the official ceremony in China, FMG said in a letter to the ASX: "At that ceremony, both companies reconfirmed their intent to work together."

It further stated:''With the strong relationship with Hunan Valin, Fortescue has been encouraged to review a listing on the Shanghai exchange. However, given existing restrictions on foreign company listings and other regulatory approval processes, such an action is not a current proposition."

Fortescue to look for Chinese funds

FMG will require up to $4 billion to boost its iron ore mining operations in Western Australia to meet the future demand of iron ore. Its Chinese partner Hunan Valin is in talk with China Investment Corp. to source the funds from China's sovereign wealth fund on a possible debt investment. Valin may also help in talking to other Chinese financial companies for the assistance. 

Last week, another cash-strapped Australian iron ore miner Gindalbie Metals Ltd. got the government's approval for a deal with China's Anshan Iron & Steel Group emphasising the recent trend of increasing Chinese investments in Australia's minerals resources sector. (See: Ansteel gets nod to increase stake in Gindalbie)

Another major tie-up under review by the Australian government is the $19.5 billion Chinalco-Rio deal which has sparked widespread debates and criticism in the country, the latest being a joint advertising campaign by two prominent upper legislative house members calling for the government to block the deal signaling the growing dissatisfaction among politicians and campaigners.