March 12, 2009 2:00 am

Johnston must press on

You never had it so good, or rather, you will never have it so good again. Local newspapers will not claw their way back to the 30 per cent margins they used to make. But if "good" isn't on offer, investors would settle for mediocre. Is that even possible? Contemplating the future of local media is like imagining the survival of dinosaurs nearing the end of their Cretaceous era (and that's according to one of the species, Johnston Press's outgoing chairman, Roger Parry). To avoid extinction, a new kind of product will have to emerge that can survive on more meagre rations. One figure stood out from results announced yesterday by Johnston: advertising revenue to date in 2009 is down 35.9 per cent compared with 2008. Even if the rate of decline decelerates, and eventually stabilises, advertising revenue could still fall some 20 per cent or more compared with the previous year. And that is optimistic.

A deal with the banks, on the other hand, involves less hope and more common sense. Johnston ended the year with net debt of £477m, a hangover from acquisitions. It is cutting costs and planning asset sales. But the banks will still have to ease up on the covenants. The case for doing so is that Johnston, at least, is profitable and cash generative and will continue to be so, even as the combined asteroids of the recession and the internet smash into the company. And just think of the political furore if banks bailed out by taxpayers pulled the plug on such pillars of local democracy. Then there is the small element of the fee. A renegotiated deal could net the banks a neat 150 to 200 basis point commission, plus, of course, higher continuing interest on the debt to reflect the higher risk. Some animals did survive the mass wipe-out of the dinosaurs. Crocodiles were among them.

andrew.hill@ft.com To comment, visit www.ft.com/lombard

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