As I See It
Publishers papering over the cracks
In figures released last week Trinity Mirror chief executive Simon Fox and Ashley Highfield, his counterpart at Johnston Press, owner of The Scotsman, hailed the success of recent acquisitions.
To a greater or lesser extent, both deals helped put a gloss on chronic challenges in controlling costs and boosting revenue.
Curiously, the two have taken divergent paths. Trinity tried and failed to launch a new national newspaper – New Day – and instead has opted to go local.
JP, on the other hand, is heading the other way, spending £24m on the ‘i’ newspaper which gives the group a presence in the national newspaper market.
Mr Fox said the 83-title Local World, which Daily Record owner Trinity bought for £220m, helped boost sales by 30% and contributed to a 42% rise in pre-tax profits. However, stripping out the Local World contribution, Trinity’s income fell 7.8% and the group is committed to taking a further £15m out of costs.
Mr Highfield claimed in JP’s half-year statement that the ‘i’ had increased its share of the daily market from 18% to 20%. It was about the only good news in an otherwise grim announcement. His focus on the group’s new cut-price baby could not save the group from a disastrous 27% plunge in profits and descent into a massive loss after revaluing its titles.
Of the two, JP’s position looks the more worrying. It may be increasing its digital reach, but taking the ‘i’ out of the equation leaves the larder a little light on stock. It is now looking to sell more assets to shore up its balance sheet and after successfully renegotiating repayments on its huge debt it didn’t impress investors by revealing that it had actually risen.
Analysts at Numis said the half year results came in below its estimates at every level.
“Our key issue at Johnston remains debt which has risen to £209m (from £179.4m) representing almost 4x our annualised EBITDA.
“This material debt pile, relative to cashflows, in combination with the declining and uncertain trading environment place a significant question mark on the equity value in the business.”
Numis said it expects to cut estimates “reasonably sharply” in both fiscal years 2016 and 2017.
If the share price is an accurate indicator of investor sentiment, then neither group comes out as a sure-fire bet.
Trinity’s shares are down 50% on this time last year, but traders gave it the benefit of the doubt on Local World’s ability to help reduce costs and add to the top and bottom lines. The group also hiked the interim dividend by 5%. It was rewarded with a 23% rise in the share price over the week.
It was a different story for JP whose whopping £183.7m bottom line loss threw investors into a cold sweat. The shares plummeted 15% after the results on Thursday, and by a further 9.7% on Friday to just 10.5p, an all-time low.
JP’s value has been almost entirely obliterated in just 12 months. The shares are down 90.6% on a year ago which has seen the entire group plummet in value from £120m last August to a mere £11m this weekend.
Considering it paid £160m for The Scotsman titles alone a decade ago, that is an almighty collapse in value and suggests investors do not share Mr Highfield’s optimism in the group’s prospects.