Andrew Neil Q&A on the sale of the Scotsman Publications to the Johnston Group

Andrew Neil, publisher of the Press Holdings Group, explains the decision behind the sale of the Scotsman.

1. Why are you selling?
"We have been offered a very attractive deal, which reflects Scotsman Publications' sustained profitability and the investment and effort we have put in over the last decade to ensure its editorial and financial strength. The purchase price of £160m is almost twice what we paid for the newspapers in 1995 (£85m) and, at 16 times 2005 broad operating profits (Ebitda), is a particularly good price in today's bracing newspaper climate. Add to that the fact that we will keep ownership of the building, which we built on time and on budget for £16m in 1999, which is now valued at over £25m and in which Johnson Press will now become our tenants and we felt we had been made an offer we it was sensible to accept. "
2. But if the papers are in such good shape, why are you selling?
"All companies, but especially private companies, have to take stock every now and then of how their capital is employed - and whether it could be better employed elsewhere. TSPL is in robust financial health, making good profits year after year and a decent rate of return on revenues, with every prospect of doing so in the future; but it is a mature business in a mature industry and prospects for further growth are limited because of TSPL's size vis-à-vis the competition.
Newspapers are under all manner of well-known threats and size is important in meeting them. TSPL is a smallish company and wanted to expand in Scotland to give it the scale better to compete and grow. But the attitude of the Scottish political establishment during the takeover battle for the Glasgow Herald and its sister titles - that under no circumstances would we be allowed to buy it - seriously curtailed our ability to grow to the appropriate size in Scotland that would allow us to deal adequately with threats as various as the internet and the growing and well-financed Scottish editions of the London-based nationals.
Johnston Press is already a major Scottish-based newspaper publisher which can provide the size and economies of scale for TSPL to compete in such circumstances.
As for Press Holdings, of which TSPL is a part, we think we can get higher rates of return by deploying our capital elsewhere."

3. What will the new owners do with the papers?
"That is a matter for them. Suffice for us to point out that we have not sold them to an international conglomeration headquartered in distant parts that knows little or nothing about Scotland or the papers' proud traditions. We have sold them to a reputable and prestigious Scottish-based newspaper group that fully understands the history and reputation of the papers."
4. Is there no sense in which this is a distress sale.
"Not at all. Indeed we did not seek a sale and were under no pressure whatsoever to sell. Operating profits (Ebitda) this year will be around £10m on a turnover of under £65m, which is a high return on revenues by Fleet Street standards; and, despite tough market conditions, we are projecting even higher profits for next year. We decided to sell because Johnston Press made us a very good offer (see question one).
Over the decade, TSPL has made accumulated operating profits of £80m at a time when many quality newspaper groups in Fleet Street have been losing substantial sums (Times, Independent) or making only derisory profits (Guardian, FT) at best.
Moreover our titles have done well editorially in difficult circumstances.
The Edinburgh Evening News is one of the most successful and profitable newspapers in the country in the difficult evening market.
Scotland on Sunday has seen off the challenge of the Sunday Herald, which was launched on the back of unlimited free TV promotion time. It remains the market leader in Scotland despite this extra competition and the huge sums pumped into their Scottish editions by the London-based Sundays.
The Scotsman remains Scotland's most prestigious newspaper. It has experienced a slow slide in sales, but it is no more than par for the course in the industry - and it has done better than any of its Scottish peers: over the last decade, sales of The Scotsman are down 13% compared with a fall of 19% at the Aberdeen Press & Journal and 24% each at the Glasgow Herald and Dundee Courier. So, in a declining market, The Scotsman has out-performed its peers.
All these factors - editorial and commercial - explain the attractive price Johnston Press has been prepared to pay."
5. Has this sale anything to do with the Telegraph?
"Nothing. TSPL is in a separate financial "pot" (Press Holdings Group, PHG) from the Telegraph."

6. So what will you do with the proceeds of the sale?
"That remains to be determined. But within PHG we are embarking on a major expansion of - both at home and abroad - and this year we will start a three-year programme of commercial and editorial expansion at The Spectator. We are also on the look out for appropriate acquisitions, both online and offline, in the magazine and related sectors."

Guidance Notes from Andrew Neil, Publisher of The Press Holdings Group (PHG), owners of The Scotsman Publications Ltd.

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