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Scotsman group sees some gains

Sales down 6% as Johnston tackles ‘headwinds’

Scotland on Sunday scotsmanJohnston Press, owner of The Scotsman and the Falkirk Herald, said revenue for last year will fall by a further 6% as it grapples with “severe headwinds” in the advertising market.

The group once again has indicated the extent to which the ‘i’ newspaper is helping to prop up the trading performance. Excluding the ‘i’, which it bought last April, income was down almost 10%.

After a period of difficult trading in the summer prompted by Brexit-related uncertainty, trading improved in the final quarter, Johnston said in a trading update.

This was a result of “strategic initiatives” implemented the second half of the year and signs of improving business confidence.

Q4 total revenues were up 1% compared to the equivalent quarter last year, driven by a strong performance from the ‘i’ and other “key titles” such as The Yorkshire Post.

This compares to a 5% decline in Q3, in the immediate aftermath of the Brexit vote.

London-based Johnston said the news publishing market “continues to suffer from the severe headwinds of falling advertising revenues (particularly classified advertising) and print circulation.”

Total advertising revenue (excluding classifieds) fell 7% in Q3 compared to the equivalent quarter in the previous year, improving to a fall of 3% in Q4.

Excluding the i, total advertising revenue (excluding classifieds) declined 9.7% for the year, having declined 12% in Q3, while improving to a 7% decline in Q4, while classifieds have also shown a marginal improvement in run rate in Q4.

As previously reported, the weakness of sterling after the Brexit vote has increased the cost of imported paper and ink.

However, management’s continued focus on costs has enabled it to maintain an adjusted EBITDA margin of some 22%, believed to be amongst the highest in the industry.

“Notwithstanding the headwinds faced, in line with our strategy, a number of areas are in growth. In addition to our digital business, both media sales centre transactional revenues (telesales) and contract printing were each up 2% in 2016.

” In addition, the decline in circulation revenues in the existing portfolio has been offset by strong “i” circulation revenues, resulting in growth in total circulation revenues up 11% year on year.  These categories make up over 50% of our total revenue.

“While the industry and the Group face a difficult operating environment, especially in classifieds including the structurally long term challenged areas of property, motors, and jobs, the board is pleased to note good progress across its four strategic priorities.”

The company said this year has started strongly with record web figures: 114 million page views, up 15% year on year on January 2016, excluding disposals.

Monetisation of this traffic through 1XL enabled revenue to increase by 10% in Q4 year on year. Its news brands have two million followers on Facebook.

It said January has seen “impressive newspaper sales results” following its strategic focus on the large quality titles operating in growth markets:

–     Full copy sales of the “i” have increased its market share from 17% on acquisition to some 20% despite the 10p, 25% cover price rise (Monday – Friday edition).

–     The Scotsman has seen print sales gain momentum through the month, with an average growth of 2% year on year, helped by its 200th anniversary.

–     The Yorkshire Post and the News Letter (Northern Ireland) are both in single digit decline and have further improved their year on year run rates in January 2017

The “i” has increased its newspaper volume sales rise by 5% (ABC excluding bulks) year on year which, coupled with a 10p (25%) week-day cover price rise, has seen Q4 circulation revenues up 20% compared to the equivalent quarter last year. The Saturday edition of the “i” has performed especially well, with circulation volume up 13% year on year.

These strong sales are attributed to a combination of the closure of the Independent newspaper, the investment in creating a dedicated “i” newspaper editorial team, strong and independent editorial leadership, and the reintroduction of the title into Northern Ireland.

The number of advertising brands in the “i” increased to 103 during December 2016, the highest since acquisition. Brands including Porsche, Fedex and Debenhams have advertised with the “i” for the first time.

Since acquisition a number of inherited contracts have been renegotiated, reducing costs by over £1 million. Further cost reductions are expected as contracts come up for renewal.

Having acquired the i for £24 million (a 4.6x historic operating profit multiple) the group expects to see the full year benefits of circulation improvement, improved advertising trends since the transition period post acquisition, and cost reduction actions taken, to deliver continuing improvement in performance from the “i” in 2017.

2016 saw a restructured sales team removing layers of management and reforming the “isolated, regional approach”. Cost cutting saved more than £25 million during 2016, and now totals some £100 million since 2012.

The cash from disposals has reduced net debt, while also providing the business with liquidity, enabling the group to cancel its revolving credit facility.

Ashley Highfield, chief executive said: “Despite the challenging print market, including a very difficult summer prompted by Brexit-related uncertainties, we have seen some improvement in our markets during the fourth quarter.

“Whilst we expect the overall market environment to remain challenging for both the group and the industry as a whole, we remain focused on delivering on our strategic priorities of growing our overall audience, driving the further success of the “i” newspaper, delivering a more efficient editorial and sales operation and strengthening the balance sheet.

“The market for quality news brands, that know their audience, in print and online, in a world of ‘fake news’, ‘alternative facts’, and internet ad fraud, is increasingly appreciated by our readers and advertisers alike.

“Our continued drive to maximise operational efficiencies gives us flexibility in the face of a challenging market and gives the management confidence that we can make further progress.”

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