Business News
Johnston Press Plc: RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Wednesday 11. March 2009 - Johnston Press plc, one of the leading multi-platform community media groups in the UK and Ireland, announces results for the year ended 31 December 2008.
KEY FINANCIALS
2008 2007 %Change
£m £m
Revenue 531.9 607.5 -12.4
Operating profit before non-recurring items 128.4 178.1 -27.9
Profit before tax and non-recurring items 98.8 137.4 -28.1
(Loss)/ profit before taxation (after all non-recurring items) (429.3) 124.7
Earnings per share pence pence
– Underlying (before non-recurring items)* 13.41 25.08 -46.5
Results reflect significantly worsening trend in advertising decline as year progressed, partially offset by
significant cost reduction programme – £32.3m cost saving in 2008.
Advertising revenues down 16.8% in UK and 22.6% in Republic of Ireland.
Newspaper sales revenues down 1.0%.
Non cash impairment charge of £417.5m taken against publishing titles and goodwill – included in non-recurring
items.
Year end net debt of £476.8m (2007 : £691.7m). Would have been £41.0m lower if sterling had not weakened
against Euro.
Net debt reduction of £214.9m mainly from £205m net proceeds of equity fund raising.
Net cash inflow of £51 million pre Rights Issue proceeds and movement in borrowings.
With Boards priority on debt reduction, no final dividend.
Operating margin before non-recurring items 24.1%, only 5.2% lower than 2007 due to substantial cost savings.
Digital revenues up 31.1% to £19.8m (2007 : £15.1m)
Contract printing revenues up 2.6% to £35.9m (2007 : £35.0m)
Commenting on priorities and prospects, recently appointed CEO John Fry said:
“
we need to plan for the turn of the cycle, which will undoubtedly happen”.
“
..advertising markets remain very depressed with advertising revenues to date in 2009 35.9% below those for
2008. However, we are benefiting from the full effects of the 2008 cost reduction programme with more initiatives
in place which will drive further efficiencies. Costs for the first two months of 2009 are running 15.7% down on the
same period in 2008. In the short term there is little prospect of a turn in the advertising cycle and our expectation
is for 2009 to be a very challenging year with revenues significantly below 2008 levels and only partially offset by
lower costs.
Johnston Press will continue to develop its traditional print operations in a cost effective way whilst at the same
time enhancing and upgrading the digital publishing platforms. We will remain an invaluable source of news,
information and entertainment in local markets which will enable us to be the business partner of choice for local
advertisers as we have been for many years”.
Chairmans Statement
The past year has been a particularly challenging one for the regional press. Local publishing companies
experienced a very significant and rapid decline in advertising revenues.
This was driven by the credit crisis and the consequent economic downturn. It is manifest by the major decline in
the volume of advertising in respect of property and recruitment in particular but also by significant declines
across all other categories. The Board recognises and regrets that 2008 has been an especially painful year for
our shareholders who have suffered a substantial loss in value.
Johnston Press has faced the same difficult market conditions as other publishers. In addition, we entered the
year with a relatively high level of debt, incurred as a result of earlier acquisitions, primarily in 2005. Much of
the past year has been about addressing these problems, a process which remains ongoing.
Results
During 2008 total revenues were £531.9 million, a reduction of 12.4% compared to 2007 (£607.5 million). This
decline reflects the very challenging market conditions referred to above which resulted in overall advertising
revenues, in print and digital, falling by £75.2 million or 17.1% from 2007 with a significantly worsening trend
as the year progressed, as summarised on page 12. The only areas of revenue growth were in our digital
operations, up by 31.1% to £19.8 million (2007 £15.1 million) and contract printing which grew by 2.6% to
£35.9 million (2007 £35.0 million), reflecting additional revenues from News International following completion
of the new press installation in Portsmouth.
At £128.4 million, operating profit before non-recurring items was 27.9% down with an operating margin of
24.1%. This was only 5.2% lower than 2007 as a result of substantial cost savings implemented during the
course of the year and reflects the extent to which our business has responded to the challenges which it faces.
Underlying earnings per share, adjusted by the discount element of the Rights Issue were 13.41p compared to
25.08p in 2007, a reduction of 46.5%.
Net debt at 31 December 2008, as summarised in note 10, was £476.8 million, a reduction of £214.9 million
from the start of the year. This was achieved primarily as a result of a fund raising exercise in the first half,
which netted proceeds of £205 million after the deduction of fees, through a combination of a subscription of
shares by Usaha Tegas Sdn. Bhd. and a 1 for 1 Rights Issue. In addition the Group continues to generate cash
with a net inflow from operations during 2008 of £126.9 million. Net debt was adversely affected by the
deterioration in the value of sterling against the euro, especially towards the end of 2008. Had this weakening not
occurred net debt would have been £41.0 million lower.
The loss for the year before taxation was £429.3 million, of which a profit of £98.8 million related to trading
before non-recurring items. The balance related to non-recurring costs of £528.1 million. The majority related to
the impairment of goodwill and the value of publishing titles, together with an intangible adjustment explained
later, collectively totalling £511.4 million. The balance related to a fundamental restructuring of a number of our
businesses and operations as part of a continuing exercise to align our costs more closely to the current economic
environment. This included a non-cash item amounting to £7.0 million, being the accelerated depreciation on the
press at Northampton closed during the year.
Dividend
Reflecting the position at the Interim Results, and in line with the intentions regarding the dividend policy as
expressed in the Rights Issue prospectus, the Board has decided to recommend no final dividend payment. The
Board continues to believe that the most important use of available cash in the current environment is to reduce
the Groups indebtedness.
Business Operations
Classified advertising in local newspapers is a lead indicator of economic activity. Through movements in
advertising revenues they anticipate more general changes in the wider economy. Indications of a deteriorating
climate were seen very early in 2008 and this enabled the management team to anticipate a tough year ahead. As
a result plans were put in place to undertake a radical restructuring of costs and also to bring down the total level
of net debt through the fund raising exercise as outlined above. Both initiatives proved timely and well judged.
However the severity of the advertising slump in the second half of 2008 turned out to be far worse than we
anticipated.
The principal cost saving initiatives have focused on using technology to streamline and rationalise our
operations. With our new press centres in Dinnington, in Yorkshire, and Portsmouth exceeding our expectations
we have also been able to close several of our older printing operations. Whilst the majority of our headcount
savings have come from these areas, we have also reduced numbers to a lesser extent in both advertising and
editorial functions. Towards the end of 2008 we initiated a more radical restructuring of our editorial
organisation by changing the approach to content production. Similarly in advertising, we embarked on a
rationalisation of our tele-sales functions to create a smaller number of regional call centres. Both initiatives will
result in significant additional savings during the course of 2009.
Comparing December 2008 with December 2007, the Groups full-time equivalent headcount has fallen from
7,538 to 6,408 and, as an illustration, operating costs for the month of December 2008 were £29.4 million which
were 16.9% lower than in December 2007. We anticipate further cost savings during the course of 2009 with a
number of plans to achieve this already in place as outlined above.
Notwithstanding the pressures under which we are having to operate, we continue to invest in our digital
platforms. The result has been revenue growth of 31.1% in 2008 to reach a total of £19.8 million (2007: £15.1
million). Similarly strong growth has been achieved in unique users up by 48.8% and page impressions which
increased by 167.5%. We have ambitious plans for further developments in 2009.
The result of these initiatives, coupled with continuing efforts to grow our total print audience through targeted
niche product launches, has resulted in a significant expansion in total reach. Research undertaken by Survey
Interactive in the autumn of 2008 indicates that our websites have extended our audience reach by 27% in the
UK.
Reflecting the efforts of our local management teams, we have been rewarded with a number of awards for our
print publications and our websites. The most noteworthy amongst these included Scottish weekly newspaper of
the year to the Falkirk Herald; Scottish weekly paid-for newspaper of the year to the Southern Reporter; How
do media awards website of the year to the Lancashire Evening Post; and a number of individual awards to
employees. These included the Baron Trophy for a lifetime achievement in Journalism in the Highlands and
Islands to Donnie Macinnes after 40 years with the Stornoway Gazette; NCTS trainee sports reporter of the year
to Jonathan Jurejko at the Doncaster Free Press and Scottish Newspaper Society Journalist of the year to Richard
Elias at Scotland on Sunday.
Strategy
The Board of Johnston Press has been consistent in believing that the strength of the Company lies in its focus
on providing local communities with news, information and entertainment, thereby building large local
audiences which advertisers are keen to access. The Board has also long recognised that a reliance on print alone
is insufficient and that a multi-platform approach which embraces digital channels is central to a successful long
term strategy. Whilst this accepts that the business does face structural challenges to which it must respond, there
is an equally strong belief that print will remain a vital part of the media mix for the long term. As a result of
this, we have an ongoing programme of investment to develop our digital publishing platforms which build on
our existing print franchises. Whilst this period of extreme economic weakness adds to the challenge of pursuing
this strategy, we are committed to doing so.
During the year only one very small acquisition was made 2
being a small weekly free distribution newspaper,
South Tipp Today, which circulates in County Tipperary in the Republic of Ireland. The title is performing well
and ahead of expectations at the time of acquisition.
More generally, we continue to believe that industry consolidation is very beneficial to readers and advertisers
alike and that in the longer term, further developments in this direction are likely. The extent to which this will
be possible remains substantially dependent on the application of merger regulations. An easing of the narrow
view of market definition in assessing newspaper mergers is long overdue.
Johnston Press plc Annual Report and Accounts 2008
Employees
2008 has been a year of extreme difficulty for our management and employees. It is to their collective credit that
the business has responded so effectively to the tough challenges it faces, especially as we have unfortunately
found it necessary to reduce the total number of people we employ. The Board thanks them for their efforts.
Board Changes
There have been significant changes to the Board of Johnston Press. During the year we appointed two new Non-
Executive Directors, Gavin Patterson, who is a Director of BT Group plc and Chief Executive of BT Retail, and
Ralph Marshall, an Executive Director of Usaha Tegas, our new major shareholder. Gavin accepted the position
before his promotion to the role of CEO of BT Retail and, with the new additional calls on his time in the current
economic climate, sadly Gavin has decided not to stand for election at the Annual General Meeting in April.
Ralph brings to the Board a considerable breadth of business experience.
Simon Waugh, who has been a Non-Executive Director since 2003 and was Chairman of the Remuneration
Committee, stood down in January 2009 following his appointment by the Government as the first Chief
Executive of the new National Apprenticeship Service. Peter Cawdron, who was planning to stand down at the
AGM in 2009, has agreed to stay on until the AGM in 2010. He will take on the Remuneration Committee
chairmanship until that time.
Given the changes above, during 2009 a number of new independent Non-Executive Directors will be recruited
to the Board.
Our long serving Chief Executive, Tim Bowdler, stepped down on 31 December 2008 after 15 years with the
Company. He will remain available for a limited period to assist in a smooth handover to John Fry who has
succeeded him after spending six years as Chief Executive of Archant, the UKs seventh largest regional
newspaper publisher.
John was for nine years President of the information company Dun & Bradstreet for UK, Europe, Middle East
and Africa, after four years as a consultant with Bain & Company. He started his career with Procter & Gamble.
As CEO, Tim led the remarkable growth of Johnston Press by successfully acquiring numerous other regional
newspaper publishing businesses. Under his leadership Johnston Press has grown from a relatively small
business to become the UKs second largest regional newspaper publisher and the largest publisher of weekly
newspapers in the Republic of Ireland. During much of his tenure the Company achieved significant growth in
profits and earnings per share. It is unfortunate in all respects that he leaves the business after the recent sharp
decline in the share price which reflects the seriousness of the current downturn and concern over the level of
debt currently on the balance sheet.
Despite the recent collapse of the advertising markets, Tim leaves Johnston Press as a well run, cash generative
business. On behalf of the Board and shareholders, I would like to thank him for his long and distinguished
period of leadership. We wish him well for the future.
Lastly, after 12 years on the Board, eight of which as Chairman, I have decided to step down from the Board at
the AGM in April. I gave an undertaking to the Board that I would take the responsibility of leading the process
to recruit the right candidate to succeed Tim Bowdler. In appointing John Fry to the post, I am confident that I
have met that undertaking and now seems the right time to resign from the Board and let a new team take the
Company forward. Led by Peter Cawdron as the Senior Independent Director, the Board has appointed Ian
Russell as Chairman elect and Ian will take over as Chairman effective from 12 March 2009. I will remain on the
Board until the AGM when I will not be seeking re-election. I wish Johnston Press every success in the future.