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Last updated: May 13, 2009 5:51 pm
Shares in Johnston Press fell 38 per cent after the regional newspaper publisher said on Wednesday it had withdrawn its Irish titles from sale and would probably breach lending covenants next month.
In spite of signs that advertising revenues were no longer falling steeply, Johnston said its first-quarter trading indicated earnings for the full year at the low end of expectations.
Analysts said Johnston was “at the mercy of its banks” as it sought to renegotiate net debt of £448m.
John Fry, chief executive, conceded the state of its balance sheet – less than a year after Johnston had a £210m rights issue and received a cash injection from Ananda Krishnan, the Malaysian billionaire – showed how difficult the marketplace was for regional papers.
“But, in the last few weeks, it has begun to look relatively healthier. Six months ago, it was falling rapidly but week by week now it seems quite stable,” Mr Fry said.
First-quarter advertising revenues were down 34.4 per cent, with even internet revenues down 18 per cent.
An analyst at Morgan Stanley said Johnston’s failure to sell 11 Irish newspaper titles, including the Leinster and Limerick Leader newspapers, was the real disappointment for the market.
The 11 Irish titles, some of which are lossmaking, were expected to raise €80m to €90m (£72m-£81m) when the company put them up for sale this year. But second and final round bids came in at less than €40m.
The three bidders were Richard Findlay, the former chief executive of Scottish Radio Holdings, which originally owned some of the titles; Joe Hayes, a former managing director of the Kilkenny People and two Tipperary titles before Johnston bought them; and John McStay, a former owner of the Leinster Leader group.
The analyst said: “Johnston Press has far too much debt and is clearly at the mercy of its banks now. Fortunately for them, those banks are Lloyds and RBS [both now majority-owned by the state] and I doubt the government will be looking to close down regional papers.”
Mr Fry said the banks had been supportive of withdrawing the Irish titles from sale. He was confident that, by the time of the covenant test at the end of June, “it will either be settled or we will have a standstill [agreement]”.
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