Johnston Press chief executive Ashley Highfield outlines business strategy as it announces losses of £144m

As Johnston Press announces losses for 2011 of £144m, its chief executive Ashley Highfield, not long in the job, explains the business strategy for the company going forward.

Business Review - Chief Executive's Report

Since I joined Johnston Press at the start of November 2011, we have focussed on developing a strategy and plans for the future, at the same time as maintaining current business performance in a tough market, looking for opportunities to drive further operational savings and ensuring a successful outcome to our refinancing. In my first 90 days, I spent a lot of my time visiting more than 50 of our regional newspapers.

I will explain more about our vision below after reviewing our performance in 2011. However, I would like to start by thanking my predecessor for his work over the previous three years. John Fry guided Johnston Press through a very difficult period in its history and we wish him well for the future.

Review of the Year

The past 12 months were challenging for the Group as the rates of growth in the economies of the United Kingdom and Republic of Ireland again declined. We reported the deteriorating trend in certain advertising categories in the latter part of 2010 in last year's report. As anticipated at the time, that trend continued and we moved swiftly to address revenue declines and the impact of higher newsprint prices through a number of cost-saving measures. However this was not sufficient to prevent a decline in operating profit for 2011 to £64.6 million before non-recurring and IAS 21/39 items.

While structural decline continued to affect print advertising, three of our revenue streams - newspaper sales, digital advertising and contract printing - were all broadly unchanged or growing.

National advertising and print recruitment revenues remained particularly challenged, but internet advertising revenues finished 2011 strongly and there are many areas where the hard work and innovation of our staff is delivering positive results. Nevertheless, print advertising revenue declined by 9.7% over the course of the year, reflecting the difficult trading environment. Our challenge is to improve our performance across advertising categories and that will involve developing compelling propositions for our customers which stretch across the range of platforms our readers use to access our services. There is plenty of evidence within the Group to suggest we can rise to that challenge. A number of titles re-launched over the last 12 months produced significantly improved results both in absolute circulation terms and in circulation revenues. The re-launch format also proved more effective in cross-selling from print to online which bodes well for the rapidly increasing demand for access by mobile devices.

Cost control was again essential and like-for-like operating costs (excluding the impact of significant newsprint price increases) fell by £24.5 million over the course of the year. The number of staff employed by the Group fell to 5,245 in 2011, a reduction of 11.3% on 2010. Further efficiency measures are now under way including a reorganisation of our existing divisional structure and the introduction of a sales effectiveness programme across the Group after a trial in one region. The early results for this have been very positive and more detail can be found in the Operational Review on page 4. Further, we have started the process of consolidating our twelve contact centres into two. We aim to keep local editorial and local sales staff in the heart of the community, but increasingly centralise everything else. However, our internal reorganisation is not simply about costs. Of equal importance is the need to develop the Group into a simpler organisation - one more appropriate for its future needs as explained below.

Our review of future requirements led to a further rationalisation of our print capacity. In the last quarter of the year we announced the closure of our printing plant in Douglas, Isle of Man, and at the start of 2012 we began consultation on the closure of the print facility in Leeds. These moves reflect activity across the industry and are essential for ensuring the efficiency and streamlining of our operations. This leaves the Group with five modern print works at Portsmouth, Sheffield (Dinnington), Peterborough, Sunderland and Carn.

Refinancing

We are very pleased to announce the completion of our refinancing which provides the Group with lending facilities to take it through to September 2015. This is due in no small measure to our efforts over the last three years to significantly reduce our net debt by over £125 million, restructure our cost base, taking out over £90 million of costs, and introduce strong revenue initiatives for the future. Details of the refinancing can be found in the Performance Review. Further reduction in debt remains a priority for the Group in the coming years.

Future Strategy

We aim to put digital at the heart of Johnston Press. Newspapers will remain our primary revenue stream for many years to come, but the web and apps, accessed from PCs, tablets and smartphones, are becoming as important, if not more so, as an access method for an increasing percentage of our audience.

We have embarked on an ambitious plan to re-launch all our titles as far more integrated digital and print hybrid offerings, refreshed and revitalised in print, with new web, mobile and iPad offerings. In some cases the internet will become the hourly and daily pulse of a community and we will move to printing the physical paper just once a week - with overall audience uplift and a considerable increase in profitability for those titles. In all communities that we serve we aim to have a web audience at least as big as our newspaper circulation and to use print to actively cross-promote the web and vice versa, thus remaining relevant in a digital age, while not alienating our heartland audience.

It is clear the Group must undertake further radical change in its operations to be appropriately structured for the future and in recent months our strategic focus has been the subject of a great deal of work. Since joining the Group I have taken time to visit as many of our sites as possible. Our dedicated staff deliver a vast amount of good work and it has been extremely useful to meet a large number of them. I have found some titles are already handling web production, digital cross-promotion and digital advertising upsell very effectively and the re-launch of titles will ensure best practice is spread right across the Group.

We will also look to make much greater use of subscriptions and the bundling of content across a variety of platforms. In some cases, as already stated, the re-launch project means the move of some of our titles from daily to weekly publication. This is clearly a significant change and in each case it is based on detailed research into the readership habits of that community. It is vital that we develop a far greater synergy between our printed publications and online offerings - recognising the different ways that our users access content at different times of their day and week - through a further modernisation of our websites, with a particular focus on mobile devices. In December 2011 we completed the roll-out of specific mobile sites for each of our titles and that was followed by the introduction of our iPad app for The Scotsman early in 2012. The early signs are encouraging, with two-thirds of users of the mobile sites aged under 35.

Our aim is that these steps will allow us to create local portals providing a range of trusted information and media resources for the communities where we publish. Location-based services will be a key driver for becoming the information provider of choice, where local advertisers remain central to our offerings.

We are very much aware that in all aspects of these developments careful choices will need to be made regarding our use of resources, and our re-launch programme aims to be self-financing (after repayment of modest seed investment). Not least as there is a significant opportunity for cover price increases when we re-launch in many markets.

Looking a little further ahead, Johnston Press must look to diversify into new areas of business where we can put our existing strengths to good use. The introduction in 2011 of our successful Find it and DealMonster offerings showed what can be achieved and we will look at finding similar new business niches. These will be characterised by localness and a broad appeal to social media.

We have built a huge repository of valuable content from all our newspapers, held in a single database, all indexed with excellent metadata. The opportunity is therefore there to aggregate and publish this content around specific interest areas, creating new websites, and we will be launching the first of these in 2012.

Summary

Clearly there is much to do to reshape our business, and to succeed we must increase the pace at which we adapt to the new environment and continued rapid change in our sector. Although the prospects for the economy remain downbeat in the short term, I believe we can return Johnston Press to being a growth business through the twin track approach of re-launching and revitalising our papers while simultaneously growing our websites, and taking full advantage of the opportunities created by technology and the changing media demands of our users to deliver innovative propositions.

In cities and towns throughout the British Isles, we are a trusted brand in communities. I believe that in a world that values local communities more not less, where smartphones (and iPads) are becoming ubiquitous and social media intrinsic to people's lives, we are in a unique position to capture much of this new value being created across advertising, paid-for content and transactional revenues.

Ashley Highfield

Chief Executive Officer

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