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August 27, 2008

Johnston Press 1H08 Results: The Conference Call

By Peter Kirwan MM blog

Results presentations usually contain hatfuls of interesting data — but oddly no-one covers them live in the UK. So we thought we’d redress the balance a bit. Here’s my near-live take on JP’s 1H08 results , which Tim Bowdler & Co. delivered at 9am this morning. If you like it, let me know, and we’ll do more of the same in the future. . .

8.40: Ahead of this morning’s conference call with analysts, Johnston has published its topline results for the six months ending 30 June 2008. I’ll be blogging the conference call live, looking for clues about the depth of the downturn.

8.45: Those topline results include overall revenues down by 6.3%. Within this, ad revenues (which comprise three-quarters of all revenues) are down by 9.5%. If this strikes you as a moderate decline, remember that it has been progressive. By late June, ad revenues were falling by much, much more than 9.5%.

Tucked away at the base of Johnston’s press release is the real stinker: “advertising revenues for the first 7 weeks of the second half are down by 21% year-on-year”.

In this month’s edition of Press Gazette, I write about The 20/20 Scenario. This is the idea of a 20% decline in ad revenues during 2008, followed by the same next year. This would submerge most of the UK’s news-generating organizations beneath a tide of red ink. Johnston Press seems to be leading the way.

8.51: Some slightly positive news. Courtesy of its rights issue, JP has paid off a wholesome chunk of its net debt, which stood at £692m six months ago. Now it’s down to £483.9m. If this was your mortgage, you’d probably be delighted (although your other half might resent selling off the living room to a Malaysian investor along the way).

08.53: Is JP competing with Trinity Mirror to hack the most cost out of its business? Looks like it. They’ve cut £7.6m during 1H. TM’s target for the full year is £20m — in the context of turnover 50% higher than JP’s. Do the maths yourself.

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9.06: Tim Bowdler, chief executive, kicks off proceedings: Plays up the op margin “which still looks relatively good” at 27%+. However, JP is in a “severe cyclical downturn” — “owed entirely” to the downturn.

9.08: Stuart Paterson, finance director: Turnover down by 6%, operating profit before non-recurring items down 16%.

9.10: Into margins. “Every publishing divison has seen a reduction in margin”. Most significant in the Republic of Ireland.

Slight reduction in advertising yields — only 1%.

Circulation sales down 1%.

Digital revenues: £11.1m, up by 52%.

[Ed note: Great — the slides have gone down. I’ve got sound but no vision. Are the non-existent slides a feature or a bug?]

Costs would be worth focusing upon, if only I could see the slide Mr. Paterson is talking about. Big cuts in newsprint costs, but these are presumably a one-time saving.

Editorial costs actually up, from £38.09m to £39.9m (wonder how the NUJ feels about that?). Advertising and marketing costs flat. Costs of digital = £4.5m up from £4.1m a year ago. Most of JP’s cost cuts (£7m+) occurred in Q2.

Where will JP cut costs in 2H? Perhaps editorial will need to take its turn as we approach Christmas. Nice.

9.15: Ads: Q1 down 9%, Q2 down 13%.

Property down — 24.5% in Q2

Display down — 10.8% Q2.

“A good number of estate agents withdrawing totally from advertising for August.”

9.18: Digital — Page impressions more than doubled and uniques up by 42% YOY.

9.20: Net cashflow down by 16% YOY. The rights issue is the “primary reason” for reduction in debt. Net debt to EBITDA — 2.6 times.

9.22: Danny Cammiade, chief operating officer, is winding himself up for a Big ‘Un. He starts out with a pleas for the “power of the regional press” based on research. (“One in three adults in our catchment areas read one of papers every week.”) In the background, I can hear analysts snoring.

He quotes some positive research from Google suggesting that newspaper advertising “works”, is “trusted” and “generates a response”. Better tell that to Eric Schmidt.

9.25: Now he’s talking about wine clubs. And self-service advertising opportunities — “following what you can get on Easyjet”. Allowing advertisers to book their own ads online sounds like an interesting project, but the detail is wafer-thin.

Cammiade promises that all JP presentations to advertisers now involve digital (if that’s just happening now, isn’t this a bit worrying?).

Reader databases: JP now has 2.6m personal records, with permission to contact over 1m of them.

[Whoa! The visuals are back. . . Only a dozen slides later. Thanks JP.]

9.28: Lots of non-specific (in financial terms) discussion of digital development. Danny has looked up the value of houses in his street on a JP site and found they’re down by 15%.

9.31: More discussion of “unleveraged ad opportunities”. This seems to mean revenues generated by selling digital-only solutions. Clearly, this is growing important as print advertising declines.

But JP’s mention of “unleveraged ad opportunities ” twice in this presentation makes me wonder how much turmoil is going on within sales teams. If they’ve been selling digital as an add-on to print, when print ads decline, they’re in trouble. The politics of this must be highly enjoyable.

9.32: Discussion of IT infrastructure. Non-specific talk of savings. Mention of a “new generation content management system”.

9.34: Cammiade is still going strong: “We re looking very hard at using technology to drive efficiencies in editorial and advertising. But we want to keep customer-facing staff close to their markets, which is something we take very seriously and won’t give up easily”.

At first glance, this sounds Churchillian. But note the bit that says local presence is “something we won’t give up easily”. Does JP have a regional retrenchment programme if things continue like this into 2009? You bet. But it’s not going to see the light of day for a while — if ever (we hope).

NB: All replacement recruitment at JP now has to be personally approved by Cammiade himself.

Oh, and unlike the rest of the JP Empire, The Isle of Man doesn’t have colour printing. But the islanders don’t need it, says Cammiade. (Mmm: JP’s three printed products on the island look colourful to me.)

09.37: Some useful figures on headcount:

Editorial — June 2008: 2542
Editorial — December 2007: 2563

In anyone’s language, that’s flat.

09.38: Back to Tim Bowdler. Another couple of high-level slides. . .

. . . and then, at 9.40, this, the equivalent of the monster from the JP lagoon. Bowdler is presenting ad revenues for the first even weeks of 2H. They look horrible:

In print (£):

— Employment: down 27.9%
— Property: down 40%
— Motors: down 22.8%
— Other classified: down 8.4%
— Display: down 9.9%

Total print ad revenue decline YOY for July and August: — 21.4%.

Happily, digital is up by 25% YOY, from £1.2m to £1.5m.

But it’s a drop in the ocean. Those digital numbers hardly move the needle for overall ad revenues, which are down by 21% YOY during July and August (thus far).

The 20/20 Scenario? Yeah, bring it on. . .

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