Trinity warns on profits after slump in advertising

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The Independent Online

Trinity Mirror issued a profits warning yesterday and joined the growing list of newspaper groups struggling in the face of the straitened property market and worsening economic climate.

The forecast that profits for the year will be 10 per cent lower than anticipated sent the group's stock down by 28 per cent, on top of the 59 per cent the price had already lost since the start of the year.

Despite the fact that online revenues are up 24.4 per cent and a £20m cost saving scheme is on track, the preliminary figures for the last six months make grim reading. Underlying half-year revenues are expected to be down by 4.5 per cent compared with last year, and circulation revenues have dropped by 2.4 per cent at the group's regional papers, and 1.4 per cent at its national titles, which include the Daily Mirror and The People.

But it is advertising revenues that are really suffering – hit by the contracting housing market, slowing consumer spending and uncertainty in the recruitment sector. Ad income has dropped by 6.1 per cent at Trinity's national papers, 7.5 per cent at the regionals – and the slide is speeding up. Sales across the whole group are down by 7.2 per cent for the first six months of 2008, but the figure for the last nine weeks alone is 12.6 per cent. "Advertising market conditions have deteriorated, reflecting the uncertain outlook for the UK economy with the ongoing adverse implications of inflationary cost pressures and the wider implications of the credit crunch," Trinity Mirror said in a statement.

The worst-hit categories are motor classifieds, down 17.5 per cent; property, down 17.1 per cent; and recruitment, down 8.4 per cent. "We have seen a marked year-on-year decline in advertising revenues across our businesses during May and June and this is expected to continue for the remainder of the year," the company said. "Month-on-month volatility remains and this could worsen as we trade through a very uncertain economic outlook." With that in mind, Trinity Mirror, whose chief executive is Sly Bailey, has cancelled the remaining £67m of its £175m share buy-back programme and deferred a firm statement on dividend levels until later in the year, when it has "better visibility of trading conditions".

Because of its reliance on classified advertising, the newspaper industry, especially regional titles, are particularly exposed to the economic environment. Trinity Mirror is by no means the only company feeling the pinch. Daily Mail and General Trust (DMGT), which also lost nearly 5 per cent yesterday, saw profits at its Northcliffe Media local newspaper division fall by 13 per cent, to £13.8m, in the six months to March, blaming a "recession" in the property sector.

Last month, Gannett, the US newspaper publisher, blamed collapsing property advertising at its Newsquest arm – the UK's fourth-largest regional publisher – for writedowns of up to $3bn (£1.5bn). Johnston Press, which publishes The Scotsman and the Yorkshire Post, was in danger of breaching its banking covenants earlier this year, before resorting to a £212m emergency fund raising that saw a Malaysian billionaire, Ananda Krishnan, take a controlling 20 per cent stake in the company and the founding family lose its place as the largest shareholder for the first time. The question is what will happen next? Trinity Mirror is in no immediate danger – its balance sheet is strong, and it has negotiated a new five-year £210m banking facility. But the City is not optimistic about the sector as a whole.

One investment analyst said: "Not much these publishers can do because they are already heavily re-structured, costs are rising and they are under pressure to invest in the internet. The only way out is to merge, but it is a very restrictive market from a regulatory point of view so that option may be more difficult. That is why these shares are on such low ratings – because no one is sure where things go from here."

Nick Hood, at Begbies Traynor, said: "Now is the time for publishing companies to look at their strategic options. The woes of Trinity Mirror, DMGT and Johnston Press are indicative of the wider – very grim – picture. The sector, in its current parlous state, is in near-terminal decline."

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