SHARES in publisher Johnston Press tumbled yesterday after the firm admitted that it will come under significant financial pressure in the next year if it cannot resolve issues relating to the future of its large defined benefit pension deficit and how to repay £220 million of bond debt.
The business, which publishes titles including The Scotsman and the i, is due to repay the £220m debt on June 1 next year, but in its results for the first half of this year said there was “a material uncertainty” over whether it would be able to restructure or refinance the debt.
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At the same time, Johnston Press chief executive David King – who replaced Ashley Highfield in June this year – confirmed in the half-year report that the business had yet to formalise a plan for how to deal with its significant pension liabilities.
Mr King said that the business had “recently commenced discussions with the relevant parties, including the pension trustees and the Pension Regulator” about the potential for offloading its pension via the use of a regulated apportionment arrangement (RAA).
That would allow the firm to pass its pension scheme - which had an accounting deficit of £40.7m at the end of June – to the Pension Protection Fund, although the regulator stipulates that it will only approve an RAA if the alternative is the sponsoring employer becoming insolvent.
Meanwhile, Mr King noted that while the business has “made the assumption that it can secure an appropriate restructuring or refinancing” of its bond debt, if it cannot do so it is unlikely to be able to continue as a going concern.
“Given the challenges faced by the newspaper and printing industry as a whole, the current trading experience of the group, and the likely financial position of the group at the time the bonds are due for repayment in June 2019, there is material uncertainty surrounding the group’s ability to restructure or refinance the bonds at par in the market on commercially acceptable terms,” he wrote in the results.
“Failure to repay, restructure, refinance, satisfy or otherwise retire the bonds at their maturity would give rise to a default under the indenture governing the bonds dated 16 May 2014, and this possibility indicates a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern.”
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He added that if the firm’s ongoing strategic review “does not deliver a solution for the group then it may be unable to realise its assets and discharge its liabilities in the normal course of business”.
Together Johnston Press’s pension and bond debt add significantly to the company’s cost base, with the firm paying £9.5m in bond interest in the first six months of this year while committing to paying £10.6m into its pension for the full year.
The latter figure will increase by three per cent each year until the firm makes a final payment of £12.7m in the year to December 2024.
Meanwhile, turnover at the business is continuing to fall, with total revenues for the first six months of this year dropping by 10%, from £103.3m in the first half of 2017 to £93m.
Classified advertising saw the biggest decline, falling by 30% to £12.1m, while print advertising fell by 15% to £21.4m. The fall on newspaper sales was less marked at 2%, taking the total for the period to £38.9m.
The i newspaper, which Johnston Press bought from the publisher of the London Evening Standard for £24m in 2016, bucked the overall trend, with sales increasing by 17% to £12.9m and advertising revenue rising by 20% to £3.6m. Sales were helped in part by the cost of the i rising by 10p during the week and by 20p on a Saturday.
While Johnston Press saw a pre-tax loss of £10.2m in the first half of 2017 turn into a pre-tax profit of £6.2m in the first half of this year, much of the change was down to an £8.8m gain in the value of its bond debt.
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If that rise was stripped out, the firm would have made a loss of £2.6m.
Similarly, if a £4.4m loss in the value of the bond debt was stripped out in the previous year, the firm's loss would have been reduced to £5.8m.
The company’s shares closed 18% down yesterday after falling from 5.1p to 4.2p.
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