TIDMJPR
RNS Number : 9372O
Johnston Press PLC
12 February 2016
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS
RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN
WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED
STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER
JURISDICTION IN WHICH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE
UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS
ANNOUNCEMENT.
Johnston Press plc
Proposed acquisition of the business and certain assets of i
Further to the announcement on 11 February 2016, Johnston Press
plc ("Johnston Press" or the "Company") is pleased to announce that
it has conditionally agreed to acquire the business and certain
assets of i from Independent Print Limited through a wholly owned
subsidiary (the "Acquisition"), for a total consideration of GBP24
million, to be satisfied as to GBP22 million in cash on Completion
and as to GBP2 million in cash on 20 April 2017.
i is a UK national daily newspaper providing concise quality
editorial content, priced at 40 pence per issue Monday to Friday
and 50 pence per issue on Saturday. It has a 20% market share of
the newspaper "quality market", or 8% of the combined newspaper
"quality" and "mid-market" (source: analysis of Audit Bureau of
Circulation data as at December 2015). i was named National
Newspaper of the Year in 2015 at the industry's News Awards.
The Acquisition would create the UK's fourth biggest news
publishing group, centred around a handful of leading brands (by
circulation), selling the equivalent of over 600,000 copies a day
predominantly outside London.
77% of i readers are from the ABC1 demographic category. The
average reader is aged 53 and 63% of its readership is male
(source: National Readership Survey). i enjoys a broad reach across
Great Britain, with 85% of its circulation outside of London,
though currently it has no presence in Northern Ireland. After
London, the largest concentration of circulation is Meridian (15%),
the Granada region (13%), Central (12%), Anglia (9%), Yorkshire
(8%), West (8%), South West (5%), Scotland (5%) and Tyne Tees
(3%).
Transaction Highlights
-- Acquisition of i, comprising the goodwill relating to the i
business; the benefit of certain trading contracts; and stocks of
newsprint and the Business Intellectual Property Rights;
-- The Acquisition is expected to be immediately earnings enhancing;
-- Consideration of GBP24 million represents 4.6x i's unaudited
"carve-out" operating profit of GBP5.2 million in the year ended 27
September 2015;
-- The GBP24 million consideration will be satisfied from the
Group's existing cash resources. Following the Acquisition, the
Enlarged Group is expected to have pro forma leverage of around 3.2
times EBITDA;
-- The Directors believe that the i will provide strong cash
generation, which in turn will provide financial flexibility for
continued investment in digital and regional areas of the UK within
Johnston Press' core strategic focus; and
-- Expected cost savings and revenue synergies are to provide additional benefits.
Acquisition benefits
-- The Directors believe that the combination is a strong
strategic fit. i will help build the Group's national print and
digital display advertising revenues through access to a number of
strategically important local markets and the large and attractive
ABC1 demographic category which comprises 77% of i's readership, as
well as a number of blue chip advertisers, the majority of whom do
not currently advertise with Johnston Press' titles;
-- Increased scale and contribution of circulation revenues. i's
circulation revenue grew at 24% year on year in 2015 and accounted
for 64% of its total revenues in the financial year to 27 September
2015 (the equivalent figure for Johnston Press in the financial
year to 3 January 2015 being 29%). This higher proportion will help
Johnston Press to stabilise its combined circulation revenues;
-- Accelerating growth of digital audiences and digital
revenues. i does not currently have a standalone website. The
Directors believe this offers an opportunity to launch and develop
digital products associated with i's brand using Johnston Press'
network, and will help grow the 1XL digital advertising network;
and
-- Developing primary news brands. The Directors believe that
the acquisition of i would build strength into the existing
portfolio of Johnston Press' brands, such as The Scotsman, The
Yorkshire Post and (the Belfast based) Newsletter, enabling the
Group to offer a package of "premium brands" to the market.
Ashley Highfield, Chief Executive of Johnston Press said,
"This is a transformational acquisition for Johnston Press and
an important step towards delivering our long-term strategy. i is a
highly regarded newspaper with a clear market position and a loyal
readership. By joining with Johnston Press the combined circulation
will be equal to 9% of national daily circulation, making us the
fourth largest player in the market. This enhanced reach represents
a significant growth opportunity for Johnston Press in terms of
national print and digital advertising revenue. It also rebalances
our revenues towards less volatile circulation revenues.
"With our considerable digital experience the combination of
Johnston Press and i will also allow us to grow digital audiences
and revenues through the creation of inews.co.uk.
"We are delighted with the positive reaction of Shareholders to
the deal and are excited by the opportunities this acquisition
brings. We look forward to working with the team at i as we deliver
the next phase of Johnston Press strategy."
Steve Auckland, CEO of ESI Media, added,
"We are incredibly proud of the success of i since its launch in
2010. In just five years, i has changed the face of national
newspapers, demonstrating that you can innovate in print.
I would like to thank everyone who has contributed to the
success of i for their dedication, ingenuity and creativity. A
magnificent team effort!"
A conference call for analysts and investors will take place at
2:00 p.m. on Friday 12 February 2016. Dial-in details as
follows:
United Kingdom 020 3059
(Local) 8125
+ 44 20 3059
All other locations 8125
Notes
1. The financial information relating to i in this announcement
has been prepared on a "carve out" basis from the Vendor's
financial statements by separating out the historical results
attributable to i from those of the Vendor's other business, the
Independent, and are unaudited.
2. In view of its size in relation to Johnston Press, the
Acquisition constitutes a class 1 transaction under the Listing
Rules and the Acquisition is therefore both subject to and
conditional upon the approval of Shareholders of Johnston
Press.
3. Further details of the Acquisition, together with a notice
convening a general meeting to approve the Acquisition, is to be
contained in a circular that will be sent to Shareholders in due
course. The circular will include a recommendation from the Board
of Johnston Press that Shareholders vote in favour of the
Acquisition.
For further information please contact:
Johnston Press
Ashley Highfield, Chief Executive
Officer 020 7612 2601
David King, Chief Financial Officer 020 7612 2602
Bell Pottinger
Dan de Belder 020 3772 2561
Panmure Gordon (Sponsor and Joint
Broker)
Dominic Morley / Andrew Potts
/ Alina Vaskina (Corporate Finance)
Charles Leigh-Pemberton (Corporate
Broking) 020 7886 2500
Liberum (Joint Broker)
Neil Patel 020 3100 2000
Ingenious Corporate Finance (Financial
Adviser)
Toby Ramsden 020 7319 4159
Graham Smith 020 7319 4162
IMPORTANT NOTICE
This announcement is not directed at, or intended for
distribution to or use by: (i) any person or entity outside the
United Kingdom; or (ii) any person or entity that is a citizen or
resident or located in any locality, state, country or other
jurisdiction where such distribution or use would be contrary to
law or regulation or which would require any registration or
licensing.
This announcement contains or incorporates by reference
"forward-looking statements". These forward-looking statements may
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "anticipates", "projects",
"expects", "intends", "aims", "plans", "predicts", "may", "will",
"seeks", "could", "would", "shall" or "should" or, in each case,
their negative or other variations or comparable terminology, or by
discussions of strategy, plans, objectives, goals, future events or
intentions. These forward-looking statements include all matters
that are not historical facts and include statements regarding the
intentions, beliefs or current expectations of the Board
concerning, among other things, the Company's results of
operations, financial condition, prospects, growth, strategies and
the industries in which the Company operates.
(MORE TO FOLLOW) Dow Jones Newswires
February 12, 2016 07:00 ET (12:00 GMT)
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future or are beyond
the Company's control. Forward-looking statements are not
guarantees of future performance and are based on one or more
assumptions. The Company's actual results of operations and
financial condition and the development of the industries in which
the Company operates may differ materially from those suggested by
the forward-looking statements contained in this announcement. In
addition, even if the Company's actual results of operations,
financial condition and the development of the industries in which
Company operates are consistent with the forward-looking statements
contained in this announcement, those results or developments may
not be indicative of results or developments in subsequent
periods.
The forward-looking statements contained in this announcement
speak only as of the date of this announcement. The Company and the
Board expressly disclaim any obligations or undertaking to update
or revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, unless
required to do so by applicable law, the Prospectus Rules, the
Listing Rules, the London Stock Exchange Rules or the Disclosure
Rules and Transparency Rules.
Johnston Press plc
Proposed acquisition of the business and certain assets of i
Information on i
i was launched in October 2010 initially as a Monday to Friday
publication priced at 20 pence, targeting existing "quality"
newspaper readers and lapsed readers with an entertaining and
concise daily briefing. In May 2011, a Saturday issue was launched
priced at 30 pence. Subsequent price increases took place in late
February 2014 and late February 2015 to take the price point to the
current 40 pence on weekdays and 50 pence on Saturdays. i's current
weekday price of 40 pence per copy is below the average price per
copy for a "quality" daily newspaper of GBP1.59 and a "mid-market"
newspaper at 63 pence (source: analysis of Audit Bureau of
Circulation data as at December 2015). There is currently no Sunday
edition of the Title.
i had an average audited circulation for the period December
2015 of 268,000 (source: ABC). i's bulks sales comprise
approximately 25% of the total audited circulation. Recent cover
price increases in late February 2014 and late February 2015, which
took the prices of the weekday and Saturday editions to their
current levels, have only had a small impact on circulation.
Advertising revenue has historically been sold through ESI
Media's sales team and is principally comprised of display
advertising from brands in the following categories: (i) technology
and telecommunications (45%); (ii) retail (32%); (iii) finance
(8%); (iv) motors (8%) and; (v) other (7%) (source: i's top 30
advertisers). This provides the potential for cross-selling
activity. Of the i's top 30 advertising clients only seven
currently overlap with the Company's top 30 advertising
clients.
i is currently published by the Vendor (which is 100% owned by
Lebedev Holdings Limited), which also publishes its sister title,
The Independent. As described above, i does not directly employ a
dedicated sales team; however, this function will be performed by a
separate sales team supplied by the Vendor as part of a
transitional services agreement. i has dedicated resources in
editorial (17 people), marketing (2 people) and newspaper
circulation (6 people), who will transfer to Johnston Press post
Completion, subject to consultation under TUPE. The current editor
of the Title is Oliver Duff who will continue in his role following
Completion. Printing and distribution services for i are currently
provided under contract by Trinity Mirror. i operates out of the
offices of Daily Mail and General Trust plc, based in Derry Street,
London.
Summary of carve-out financial information of i
The financial information relating to i below has been prepared
on a "carve-out" basis from the Vendor's financial statements by
separating out the historical results attributable to the Business
from those of the Vendor's other business, the Independent, and are
unaudited.
Year Year Year
ended ended ended
27 September 28 September 29 September
2015 2014 2013
(unaudited) (unaudited) (unaudited)
GBP'000 GBP'000 GBP'000
-------------- -------------- --------------
Continuing operations
Revenue 26,129 24,531 21,811
Cost of sales (14,387) (16,677) (17,005)
-------------- -------------- --------------
Gross profit 11,742 7,854 4,806
Operating expenses (6,580) (5,263) (5,918)
-------------- -------------- --------------
Operating profit / (loss)
before tax 5,162 2,591 (1,112)
-------------- -------------- --------------
Tax (credit) / charge - - -
-------------- -------------- --------------
Profit / (loss) for
the year 5,162 2,591 (1,112)
============== ============== ==============
As at 27 September 2015, i had unaudited gross assets of GBP4.4
million.
In accordance with the Listing Rules, the circular will contain
audited historical financial information on i covering the periods
ended September 2013, 2014 and 2015 prepared in accordance with
IFRS and consistent with Johnston Press' accounting policies. The
unaudited financial information on i set out above may differ from
the audited financial information on i to be included in the
circular.
i derives the majority of its revenue from a combination of
circulation and advertising. Circulation revenues accounted for
approximately 64%. of total revenue with advertising accounting for
32%. in the financial year to 27 September 2015.
Revenue growth in the financial year to 27 September 2015 was
the result of growth in circulation revenues, which increased by
GBP3.25 million or 24%. to GBP16.7 million from the previous year,
with revenues benefiting from the impact of the price rise which
occurred in the middle of i's financial year in late February
2015.
i has seen a strong annual increase in profitability, delivering
"carve-out" operating profit of GBP5.2 million in the financial
year to 27 September 2015, primarily driven by improvements in
revenue.
i Current Trading
Since the financial year ended 27 September 2015, i's revenue
mix has continued to shift towards circulation and away from
advertising. Both the Monday to Friday and Saturday newspaper
revenues have performed well, partially offsetting the impact of
the softness in the national print advertising market. This is
particularly encouraging given the price increases in late February
2014 and late February 2015 to 40 pence on weekdays and 50 pence on
Saturdays, respectively.
Background to and reasons for the Acquisition
The Group has stated its plans to focus the business on growth
markets, growth audiences, and advertiser segments with growth
potential with a view to driving revenues and improving
profitability. This is expected to be realised by refocusing
Johnston Press' existing operations, by organic growth through
development of new products and/or by inorganic activity that
supports the strategy. In addition, as announced in its trading
update on 19 January 2016, the Group has identified a number of
brands that do not meet its stated strategic objectives. The
Directors believe that the process to explore the sale of these
assets to identified parties has so far been encouraging.
Johnston Press aims to achieve its objectives through the
following:
-- Stabilising its declining print circulation revenues;
-- Building national print and digital display advertising revenues;
-- Accelerating growth of its digital audience and digital revenues;
-- Developing primary news brands;
-- Investing in UK cities with growth opportunities and in
audiences with higher disposable incomes;
-- Increasing focus on local display, features and entertainment advertising; and
-- Disposing of brands that do not meet the stated objectives.
The Directors believe that the acquisition of i presents an
exciting opportunity for the Group and will help Johnston Press
achieve a number of the objectives above.
Stabilising its declining print circulation revenues
Between i's launch in 2010 and 2013, print circulation volumes
in the quality newspaper market were all in decline. However, in
this period, i's circulation volumes grew consistently. i derived
64% of its total revenues from circulation in the financial year to
27 September 2015 (the equivalent figure for Johnston Press in the
financial year to 3 January 2015 being 29%). This higher proportion
will help Johnston Press to stabilise its combined circulation
revenues.
Due to i's strong circulation revenue performance, the combined
effect of Johnston Press and i in the first half of 2015 would have
resulted in a combined overall circulation revenue decline rate of
approximately 1.3% With i's circulation revenues growing 24% in the
financial year to 27 September 2015 and only seven months'
contribution from the cover price increase in late February 2015,
the Directors believe that the acquisition of i will provide more
stability to the Enlarged Group's income stream.
(MORE TO FOLLOW) Dow Jones Newswires
February 12, 2016 07:00 ET (12:00 GMT)
The Acquisition would create the UK's fourth biggest news
publishing group, centred around a handful of leading brands,
selling the equivalent of over 600,000 copies a day without
significant exposure to the highly competitive London market.
Through its extensive network of over 240 newspapers and
corresponding local websites, Johnston Press intends to promote the
national i brand, in its local markets with little marginal cost,
to support circulation income.
Build national print and digital display advertising
revenues
The Acquisition would provide Johnston Press with access to a
number of strategically important local markets and the large and
attractive ABC1 demographic category of the National Readership
Survey as well as a number of blue chip advertisers, the majority
of whom do not currently advertise with Johnston Press. The
Directors believe that the addition of i will increase the daily
circulation reach from the equivalent of approximately 380,000
copies per day to the equivalent of over 600,000 copies per day,
enabling Johnston Press to compete more effectively with other
newspaper groups and brands for a larger share of the national
advertising market, in addition to its local print and digital
advertising market share.
Key regional publishing competitors have a national newspaper
presence, for example Trinity Mirror publishes The Mirror and
Newsquest owner Gannett publishes USA Today. i is itself a strongly
regional UK national title, which is particularly advantageous to
Johnston Press' "mass localisation" strategy, offering national
media buyers a UK-wide reach with local-level engagement.
Accelerating growth of digital audiences and digital
revenues
i does not currently have a standalone website. The Directors
believe this offers an opportunity to launch and develop digital
products associated with i's brand using Johnston Press'
network.
Following Completion, it is intended that i will launch a
dedicated website (www.inews.co.uk). These digital products will
aim to fulfil the needs of time-poor readers, delivering concise
and quality content alongside the newspaper title. i's brand will
aim to create a digital experience that delivers on the proposition
of "the essential daily briefing" in a multi-platform context
(print, tablet, desktop and mobile).
The digital products will offer additional traffic and a
national brand to Johnston Press' 1XL network and enable i to
generate revenue from digital display and affiliated incomes for
the first time. The Group will employ a small digital team
dedicated to i, whilst working with the digital product development
teams within Johnston Press.
As at January 2016, Johnston Press' existing digital platforms
delivered monthly web traffic of over 100 million page views and 25
million unique users. The 1XL network offers national brands access
to a large-scale network of digital news brands, through a single
sales house, including those offered by Johnston Press, Newsquest,
Tindle, Archant and other publishers. The national digital network,
1XL, is already the third largest quality digital news and media
audience in the UK, and enabled the Group's digital national
revenues to grow by 99% in 2015. Since 2011, Johnston Press has
increased average unique users per month by 156% across its
websites.
Developing primary news brands
The Directors believe that the acquisition of i would build
strength into the existing portfolio of Johnston Press' brands,
such as The Scotsman, The Yorkshire Post and (the Belfast based)
Newsletter, enabling the Group to offer a package of "premium
brands" to the market. The Directors also believe that i's existing
circulation in metropolitan markets outside of London can
complement Johnston Press' existing local portfolio of 13 daily and
over 200 weekly newspapers. This would expand Johnston Press'
footprint into more UK cities and ABC1 audiences.
Johnston Press has significant experience in producing quality
daily newspapers in the markets it serves and through leveraging
some 1,000 journalists directly employed by Johnston Press and its
existing strategy of sharing the best content, it will be able to
provide i access to new content, enhancing the range and depth of
regional content available to i.
Building on Johnston Press' efficient operating model and
extensive infrastructure, the Directors believe that the addition
of i's national title offers a complementary audience, and delivers
an attractive platform for brands to reach audiences.
Financial effects of the Acquisition
The consideration of GBP24 million represents 4.6x i's unaudited
"carve-out" operating profit of GBP5.2 million in the year ended 27
September 2015.
The Board believes that the Acquisition will generate
considerable value for Shareholders, with operational improvements
made at i in the last 12 months and the opportunity for further
cost savings under Johnston Press' ownership. These benefits and
cost savings are contingent on the Acquisition and might not be
achieved independently.
The key financial implications of the Acquisition are expected
to be as follows:
-- the Acquisition is expected to be immediately earnings enhancing;
-- following the Acquisition, the Enlarged Group is expected to
have pro forma leverage of around 3.2 times EBITDA;
-- the Directors believe that the i will provide strong cash
generation, which in turn will provide financial flexibility for
continued investment in digital and regional areas of the UK within
Johnston Press' core strategic focus; and
-- expected cost savings and revenue synergies will provide
additional benefits, as set out below.
Cost savings
Johnston Press has a track record in delivering cost savings.
The Directors expect that under Johnston Press' ownership i should
be able to achieve incremental cost savings making use of Johnston
Press' established infrastructure.
Revenue synergies
The Directors believe that Johnston Press is well-placed to
capitalise on its large number of readers and unique users in order
to support i in building a new digital product offering, provide
cross-promotion to both its print and digital offering in the
markets Johnston Press currently serves and provides access to the
1XL national digital display advertising network. In addition, the
Directors believe that Johnston Press can support i in accessing
new audiences and customers.
Integration plan
On Completion of the Acquisition, Johnston Press plans to manage
i as a stand-alone brand within its current portfolio.
The 25 i staff, working mostly in editorial, will transfer by
law to Johnston Press, subject to consultation under TUPE, and will
initially remain in a dedicated central London office. It is
intended that the i team would be working on Johnston Press' core
enterprise systems remotely as is consistent with the current
arrangements within the Group. The editor of i, Oliver Duff, will
also remain with the Title. The head office functions, such as
information technology, human resources, finance, logistics and
marketing, will be provided by Johnston Press to maximise the
potential cost synergies.
i will also retain editorial control over the content of its
Title independent of Johnston Press. Johnston Press has also
entered into a three year rolling content supply agreement with the
Vendor, forming the basis of much of the content for the Title. In
addition, i will be able to access content created by the Johnston
Press titles.
Primary content sources for i would include the
independent.co.uk staff; feeds from London Evening Standard; newly
created i-only reporting staff and other content from third
parties. The Company will seek to ensure that the Group only takes
content that it judges to be of high quality and is consistent with
the positioning of i.
During an initial three month period after Completion, as agreed
in a transitional services agreement entered into between the
Company and the Vendor, i's sales function will be performed by a
separate team supplied by the Vendor. During this period, Johnston
Press will create a dedicated i sales team within its current
structure, which will be located in central London, and which will
assume this role upon the expiration of the three month transition
period. On Completion, Johnston Press intends to offer a print and
digital package in conjunction with 1XL, the Group's national
digital display advertising network, to build a new digital product
offering for i.
The printing and distribution services for i are currently
provided by Trinity Mirror, through a contract with the Vendor. The
printing and distribution contract between the Vendor and Trinity
Mirror does not allow assignment or novation of the contract
without consent. The Group intends to engage with Trinity Mirror in
the period prior to Completion with a view to seeking novation of
the printing and distribution contract with Trinity Mirror on
Completion. If the contract is not novated or assigned, Johnston
Press intends to either use a third party for printing and
distribution or, alternatively, to utilise its own printing
facilities and existing distribution relationships for the
Title.
Asset disposals
The Company announced on 19 January 2016 that, as part of the
Group's portfolio review, a number of brands have been identified
that are not part of its long-term future, as they fall outside its
selected markets, or do not match the audience focus, or do not
offer the levels of digital growth sought by the Group.
A process was initiated to explore the sale of these assets to
identified parties, and the Directors are encouraged by the
responses received.
Details of the Acquisition Agreement
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February 12, 2016 07:00 ET (12:00 GMT)
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