Johnston Press struggles as ad sales plunge faster than ever

Uncertainty over refinancing raises doubts about group's future
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The Independent Online

Johnston Press raised questions about its future as a going concern yesterday as it unveiled annual losses of £429m in 2008, compared with profits of £125m the year before.

Despite a net cash inflow of £51m, the local newspaper group's £477m debt pile, alongside impairment charges and goodwill writedowns of £418m, dragged the group into the red. Revenue also fell by 12.4 per cent to £532m as recession-hit advertising sales plummeted at the fastest rate in the company's history and revenues from the sale of newspapers also dropped by 1 per cent.

The local newspaper publisher has scrapped its final dividend as part of plans to focus on debt repayment in a difficult trading environment. But uncertainty over the publisher's debt refinancing negotiations and the sale of its two Irish businesses "may cast significant doubt on the group's ability to continue as a going concern", Johnston's financial report said.

Company executives tried to down-play the seriousness of the group's situation yesterday, maintaining that the implication of doubt over the group's future was merely "standard wording" used in regard to situations – in this case refinancing negotiations and disposals – over which the management has no control. John Fry, the recently appointed chief executive, said: "Even in the current massive cyclical downturn, which is the worst in our lifetimes, the business is still cash-positive, is paying interest and is repaying its debt."

But the storm shows little sign of abating. Johnston's ad sales, which make up about two-thirds of the company's revenues, fell 16.8 per cent in the UK and 22.6 per cent in Ireland in 2008, and have dropped by 36 per cent in the first two months of 2009.

Despite the £212m rights issue last May, which brought the debt down from £692m to today's £418m figure, Johnston's debt remains the biggest concern. The current facilities, worth a total of £630m, run until September 2010 and were due for renegotiation this year. But the group has started the discussions early. It has appointed KPMG as advisers to help with discussions with banks about relaxing current covenant agreements as well as the negotiations of the terms of the new arrangements.

To help cut its debts, Johnston has already instituted strict cost-cutting measures. The group took out £32.3m in 2008. It is also looking at selling off some of its businesses. Johnston's Irish titles were put up for sale last month, and the deadline for formal offers is at the end of next week. But the sale is only expected to bring in between €80m (£74m) and €90m.

Investors remain wary. Johnston's stock has lost more than 90 per cent of its value in the last 12 months and closed down by another 27 per cent at 5.6p yesterday.

Richard Hitchcock, at Numis, said: "The company is in a very difficult position because the top line is still deteriorating at an accelerating rate and there is no sign of that letting up. It also has too much debt, so if it does nothing it will breach its covenants. But in renegotiating the terms, it will have to pay higher interest and probably additional fees."

Johnston is not the only regional publisher struggling in the current economic climate. The Local Media Alliance, which includes Johnston and rivals Trinity Mirror and Northcliffe Media, is lobbying the Government for help, including relaxation of merger restrictions.

Johnston Press: What could be sold?

The problem with trying to sell newspapers in the current economic climate is that there are few obvious buyers.

Discussions are under way over Johnston's Irish titles. The group bought Local Press Ltd and the Leinster Leader Group in 2005, for £65m and €139m (£129m) respectively, but is expected to sell for little more than €80m. City speculation says the bidders, due to submit formal offers next week, must be local entrepreneurs wanting trophies.

Johnston says it is not planning to sell off any other titles – which is just as well because options are limited.

The Scotsman is an obvious choice. The flagship would likely find a buyer, but the loss would not be worth the gain. The same is true of the Yorkshire Evening Post. "But Johnston wouldn't want to sell the crown jewels", an analyst said.

The long list of smaller titles – from the Arbroath Herald, to the Diss Express, to the Pocklington Post – would struggle to find takers. "Trade buyers are unlikely because either they have their own problems or they are trying to diversify away from regional papers," an analyst said. "That only leaves private individuals."