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Johnson Press: Zombie Company?

The company is saddled with huge debt.

Johnson Press, Photograph, Getty Images.
Johnson Press, Photograph, Getty Images.

Johnston Press is known in some circles, rather unkindly, as a zombie company.

This is because in blunt financial terms the main reason it exists is to enable it to continue to service its £351.7m bank debt at the usurious interest rate of 10 per cent.

The reason the rate is so high is because – like Greece – the banks have doubts about whether the cash can ever be repaid.

Against this backdrop and a share price of 6p (compared with over £4 five years ago) chief executive Ashley Highfield has set out a vision to return the company to growth and pay back all that cash.

It’s a bold vision and Highfield deserves huge credit for the creativity he has brought to this challenge. He’s the first major regional press chief executive I can remember in recent years who hasn’t been an accountant or a salesperson and it shows.

He’s also happy to put his vision up to journalistic scrutiny by being questioned about it – which makes a refreshing change.
Highfield answered questions from Press Gazette and other publications yesterday.

We asked whether Johnston wasn’t paying the price for the folly of his predecessors in pursuing unsustainable profit margins (of 35-40 per cent) and over expansion.

Johnston is saddled with the huge debt it has because it overpaid grossly for assets like Regional Interactive Media (£560m in 2002 at more than 20 times operating profit) and £160m on The Scotsman in 2005.

The tragedy of Johnston Press is that, in the current climate, most businesses would do cartwheels at managing an operating profit margin of 17 per cent last year which it did.

But Highfield, through no fault of his own, has to double that margin over the next eight years if he is to pay back is bank paymasters. And that’s what his 2020 vision is based on.

He told Press Gazette that debt or no debt he would be pursuing the same strategy. And that the size of the group enables him make use of things like state-of-the art owned print plants and a national content network. But one wonders if so many experienced journalists and editors would be losing their jobs (more than 500 staff cut in the last year alone) if it wasn’t for the need to pay the bankers.

Some £250,000 is being spend on new design templates to relaunch all Johnston’s paid-for daily and weekly titles. This compares with £11.5m spent just paying the fees on agreeing a new finance deal with the banks (£38.5m was spent on interest alone last year).

But we are where we are and Highfield’s vision is a bold one. He sees a long-term future for weekly papers, a limited one for dailies and salvation in the form of mobile and online content.

I believe it could work, but I fear the days of 35 per cent-plus profit margins are long-gone – and were not sustainable even in the early Naughties.

Highfield insists that the digital-first strategy won’t “rob print Peter to pay digital  – Paul” – thereby hastening the decline of print.

But while that is easy to say whilst martialing a powerpoint flowchart in the boardroom, it is common sense that a journalist writing breaking-news for online cannot at the same time work-up an in-depth news story, feature, backgrounder or exclusive for print. We must, at times, do one or the other.

As I said I do not want to appear overly pessimistic. Highfield’s vision is a rational one. With a fair wind he could pay down another £70m of debt over the next three years, bring the debt-to-earnings ratio down to 3-1 and have an opportunity to renegotiate the lending deals and get the blood-sucking bankers off his back.

And then we could be looking at a bright new future for Johnston Press.

In the meantime, that share price says that the market remains sceptical about whether this will happen.

Asked how journalists can be optimistic about their prospects in these circumstances, Highfield says:

” I’ve literally had hundreds of emails from staff, saying that they’ve really bought into this, because what we’re laying out is a future, a good future where JP not just survives, but thrives. Where, if you’re a journalist, more people read what you write rather than less and more people consume it across print and digital.

“I suppose the only thing you need to get your head round as a journalist, is that that audience in the future is going to be a different mix of print and online, and the vast majority of journalists welcome that, not least because they are already there in the blogosphere and using Twitter, they are already engaging with their audience and finding it benefits their written word in print and online.

“Of course if there are some impacts on JP on making it a more efficient organisation, there will inevitably, at times, be impacts on staff, I can’t deny that. The staff recognise that, they want to be treated as grown-ups but given a clear direction that the company’s heading in and that’s what I’m trying to do.”

You can read the full in-depth Ashley Highfield interview in the May edition of Press Gazette.