There’s some grim news for
newsagents and other magazine outlets in Victoria and NSW suffering from the
continuing problems of the 1st Fleet magazine distribution contract: it’s not
going to improve over the next few months according to PMP, the parent of one
of the industry’s big two, Gordon and Gotch.

Gordon and Gotch swung heavily into losses in the back half of 2004
and these have continued in the early weeks of 2005 as 1st Fleet and its
contractors still struggle to make deliveries on time and the newsagent home
delivery program continues to be a failure for the ACP arm, Network Services.

Listed printer, PMP is the
owner of Gordon and Gotch and in a briefing to investors
on the ASX website on Thursday about the Gordon and Gotch
first half performance, CEO, David Kirk said :

“We don’t foresee any
performance improvement in the current six months, but we believe that by the
end of the financial year we’ll have a stable operating platform for Gordon and
Gotch. We’ll look forward to a performance
improvement next financial year.

“The benefits of
outsourced logistics are delayed and higher fuel costs and magazine returns
contributed to higher costs than forecast at the start of the year. More work
is required to establish a stable operating platform for the company and a
small earnings loss is expected at year end.”

Further more the company
revealed the cost of the problems, Gordon and Gotch
swung from a $1.5 million profit in the first half of 2004 to a $200,000 loss
in the six months to December thanks to the lack of efficiencies, higher fuel
costs and the problems of implementing the new arrangements continued.

“Gordon and Gotch had a difficult six months” was the way PMP
described the distributor’s first half, an understatement is ever there has
been one.

In fact it was a miserable
time for one of the country’s major magazine distributor (it is probably
bigger than Network Services, the Packer owned arm of its ACP Magazine group)
and a miserable time for customers in newsagencies,
supermarkets and other newsstands, as well as customers frustrated by delays
and of magazines.

As Crikey
has been reporting for months deliveries have been late, going astray, the
wrong magazines delivered to the wrong outlets, especially for home delivery
under the Network subscriber program, returns have been too high because too
many magazines have been sent and some newsagents and other outlets have been
left starved of sales because of under delivery.

Here’s a story from last
month on problems of oversupply of magazines by Gordon and Gotch
to some newsagents in the Sydney
area – Newsagents loaded up with unwanted magazines.

That has been resolved in favour of the agents. They will be negotiating the
rebalancing of their accounts and returns to better reflect their demand.

But
I hear the explanation
from G&G is quite amazing. It has been telling agents that it
didn’t realise the extent of the oversupply. One of the reasons
given for this lack of understanding was that it had pulled most of its
field service staff back to head office to try and fix the problems
being
encountered daily and weekly with the 1st Fleet contract!

No wonder the financial
performance of Gordon and Gotch is poor at the
moment!

The open briefing interview
contained this exchange (some of which is quoted
above). It seems there is no other answer at PMP to the problems with the
distribution system for magazines that to continue with it.

“The Gordon and Gotch Magazine Distribution business made an EBIT loss,
before significant items, of $0.2 million in the first half, down from a profit
of $1.5 million in the previous corresponding
period. Given the problems you’ve continued to experience in outsourcing
deliveries, why are you persisting with the outsourcing model and do you foresee any
performance improvement in the near term?”

CEO David Kirk answered:

“We believe there’ll
be real benefits to the business in concluding the outsourcing model and we’re
well advanced in doing that, so it would make no sense to stop at this point.
Nevertheless, the benefits have been delayed and there have been greater costs
to achieving them.

“We don’t foresee any
performance improvement in the current six months, but we believe that by the
end of the financial year we’ll have a stable operating platform for Gordon and
Gotch. We’ll look forward to a performance
improvement next financial year.”

That’s still more hope than
reality. Obviously, no one at PMP has been game to ask publicly, ‘should we be
flicking this arrangement, taking a big financial hit and finding someone else
to do the work who knows what they are doing’.

This is a joint venture
with Network and ACP so it would be very hard for them to do anything without
Network and ACP saying “yes”.