A mammoth £109m write-down related to the declining worth of its titles pushed regional newspaper publisher Johnston Press, the owner of the Scotsman and Evening News, deep into the red, the group's latest financial results revealed yesterday.
The Edinburgh-based company, which owns 18 daily and 300 weekly local UK newspapers, unveiled pre-tax losses of £53.7m for the six months to the end of June, compared with £67.5m of profits for the same period last year.
At the same time, shares plungeed 5.9%, or 3p, to 47.75p as the group's performance fell short of City expectations - amid the red ink and the revelation that advertising revenues had slumped 21% year-on-year in the first seven weeks of the second half.
Johnston also decided to scrap its interim dividend.
Tim Bowdler, the group's chief executive, yesterday said of the writedown: "I can see how its size might draw attention to itself, but this is a one-off accounting adjustment that has no implication on cash or the performance of the group. At the operating level, the group is in profit, and that says a lot about the underlying positive performance of the business."
Johnston, which also publishes the The Star in Sheffield and the Yorkshire Post in Leeds, added that total revenue fell 6.3% to £293.1m for the first six months of 2008, compared with £312.8m in the same period last year.
And while underlying operating profit remained positive before the one-off adjustments, it still tumbled 15.6% to £81.6m, and the impairment charge of £109m against the value of goodwill and publishing titles drove the company deep into negative territory at the pre-tax level.
Bowdler said: "The downturn in advertising is a reflection of the general downturn in the economy - particularly when it is property-led. Newspapers cannot buck an economic trend.
"Advertising trends have continued to deteriorate over the course of the year and future performance will inevitably be linked to the economies of the UK and to a lesser extent that of Ireland."
The overall poor state of the UK housing market meant property print revenues declined by 17.8% during the six months, with the figure for June showing a fall of 33.1%.
Employment advertising also suffered a worsening trend, down by 10.4% in the six-month period but off by 16.7% in the month of June.
Johnston, like the rest of newspaper industry, has been caught in a pincer grip of declining advertising and tumbling circulation.
Asked how he planned to lead Johnston out of these tough times, Bowdler said: "There are some structural things we can do. The company achieved a year-on-year cost reduction of £7.6m in the first half and we have also reduced headcount across the group by about 300. We're also building our digital presence. Digital revenues grew by 52% over the period."
Nonetheless Bowdler admitted the digital side of the operation was a relatively small earner. Online revenues for the six months came in at £11m, compared with £189m in print-based revenues.
He added: "Newspapers will remain a very important medium in future. Eventually, the economy will turn."
Meanwhile, net debt was reduced to £483.9m, compared with £691.7m in December last year. Johnston's financial situation would have been worse had it not raised £205m from a rights issue and the recent sale of a 20% stake in the business.
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