The UK’s struggling local newspaper market is heading for a round of consolidation after Johnston Press, the heavily indebted group behind the i, The Scotsman, The Yorkshire Post and around 200 other titles, put itself up for sale.
The company has been struggling to put its finances in order since March 2017, when it first started negotiations to refinance a £220m bond due next year and kicked off a strategic review of its options.
Along with other newspaper groups, Johnston Press has suffered from a steady decline in advertising revenue and a sharp fall in income from classifieds. Facebook and Google have become dominant forces in online advertising at the expense of established print players, while digital portals that specialise in car and property sales have also hit the revenues of local news outlets.
David King, Johnston Press chief executive, said on Thursday the company would struggle to refinance its 2019 debt payment. “We have a refinancing need in nine months,” he told the Financial Times. Consolidation in local news was “overdue”, he added.
The company’s pension scheme also has a £40m deficit.
Johnston Press is still profitable and reported an increase in operating profits of £7.4m at its most recent interim results. It has an earnings before interest, tax, depreciation and amortisation margin of 20 per cent.
But debt pressure has weighed on the shares: the market value of the company is just £3m. Mr King said a sale could unlock value in the company. “We’re obliged to find out the real value of Johnston Press.”
Analysts said strategic buyers would include Reach, formerly known as Trinity Mirror, and Newsquest, which both have large local newspaper portfolios. But the debt may scare off potential bidders, said Douglas McCabe, analyst with Enders Analysis. “The question is, can they sell the whole portfolio or is there an inevitability about it being broken up?”
He pointed to the pressures on local outlets, saying that The Scotsman sells only 13,000 print copies a day around its core market of Edinburgh and Lothian. “Even the trophy assets are challenged,” he said.
The company’s cash flow could make it attractive to private equity buyers, he added. “They are as likely to be interested as Reach and Newsquest.”
A tough market for local news amid falling circulation has hurt all local newspaper groups. But the debt pressure on Johnston Press has prevented it from investing its profits in innovation, Mr McCabe said. “The way to make this attractive is to use some of the margin that the business generates on innovation and investment in the future because we all know that the print model is not going to survive.”
Mr King sounded a more upbeat note, pointing to the company’s record in recent years when it has not had to close any titles. “There is significant value here that another player could unlock,” he said.
Rothschild will run the formal sale process. Shares in the group fell 4.4 per cent after the news on Thursday.
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