Johnston pledges no job cuts as it buys 'Scotsman' for £160m

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The Independent Online

The regional newspaper group Johnston Press has promised not to cut jobs and to invest in the editorial content of The Scotsman, which it bought yesterday for £160m.

Despite a reputation for achieving high profit margins, Johnston's chief executive Tim Bowdler insisted the company had a strong track record of investing in its titles, including the Yorkshire Post.

Andrew Neil, the publisher of Scotsman Publications, which include the Edinburgh Evening News and Scotland on Sunday, said the Barclays brothers, who also own The Daily Telegraph, had decided to sell the titles they have owned for a decade after their failed attempt to buy the Glasgow Herald. Even though The Scotsman made a profit of £7.7m on a turnover of £63.5m last year, he said the company lacked the scale to compete in the competitive Scottish newspaper market. Mr Neil is believed to have received a sizeable bonus as a result of the sale.

The Scotsman is the latest acquisition by Johnston in a spending spree which has included the £155m purchase of Scottish Radio Holdings' newspaper arm Score Press and the acquisition of two Irish newspaper groups for £160m. But Mr Bowdler said the company was still interested in buying all or part of the rival regional newspaper group Northcliffe, which is currently valued at £1.5bn.

Mr Bowdler said: "Of course we want to see an improvement in the operating margins, but it would be wrong to compare The Scotsman with our average group margin. We would need to achieve cost savings of less than £1m in 2006 to make the deal earnings-enhancing.

"We don't have any plans for cuts in editorial. I've drawn the parallel with the Yorkshire Post which we acquired in 2002 and every year since we've seen an increase in editorial budgets."

Analysts said Johnston would be keen to improve profit margins at The Scotsman titles, which are currently about 12 per cent, well below the company's average margins of more than 30 per cent.

Alex DeGroote, of Panmure Gordon, said: "Johnston will be looking to improve the operating profit going forward. Allowing for the fact that The Scotsman assets will have a different profile, 30 to 33 per cent is maybe unrealistic, but 12 per cent is probably too low."

The sale price is almost twice the £85m the Barclay brothers paid for The Scotsman titles in 1995 and 16 times the broad operating profits (Ebitda) for 2005.

The Barclays will retain ownership of The Scotsman's new offices near the Scottish Parliament, which are worth £25m, with Johnston becoming tenants.

Mr Neil said Johnston had approached the Barclays about the sale rather than the other way round. But he added: "The attitude of the Scottish political establishment during the takeover battle for the Glasgow Herald and its sister titles - that under no circumstances would we be allowed to buy it - seriously curtailed out ability to grow to the appropriate size in Scotland that would allow us to deal adequately with threats as various as the internet and the growing and well-financed Scottish editions of the London-based nationals."

The Daily Telegraph, which the Barclays acquired in 2004, is one of the national newspapers competing against The Scotsman, providing another incentive to sell the title.

The Barclays plan to reinvest several million pounds from the sale in expanding the women's internet lifestyle portal, launching it in the US, Australia and possibly India, and creating two sister sites - for younger women and for career women with children.

Despite Johnston's reputation for squeezing the maximum possible profits out of its regional titles, the National Union of Journalists welcomed the deal. Paul Holleran, the NUJ's Scottish organiser, said: "It's a great opportunity for long-term sustainability. There's been a lot of concern for some time about Andrew Neil's involvement in Scotsman Publications. We'll be glad to see the back of him."