BANGOR-BORN executive David Montgomery is facing growing pressure after the pan-European newspaper group controlled by his private-equity firm, Mecom, registered a loss of £23.8 million (€30.7 million) for 2007.
The disappointing result comes after shares lost almost half their value in January, bottoming out at 25 pence. Yesterday, the shares were worth 30 pence.
The London-based Mecom group has pursued an aggressive acquisition strategy since it was founded in 2005 and now owns 100 titles across Europe with a total circulation of 18 million (see panel).
The company generated a cashflow of £83 million in 2007, up from £19 million 2006. Its profit for the period, before £62.2 million of exceptional items, was £38.4 million. Mecom said that on a like for like basis, its revenue rose 3 per cent to £1.35 billion, while like for like operating profit was £120 million, compared to £98 million in 2006.
The mixed results come as a revolt looms across the group's European operations, led by the Berliner Verlag newspaper group, bought by Mecom in October 2005 under massive employee protest. Today, the staff are still mutinous and say the approach of Mr Montgomery, a former Mirror Group chief executive, has confirmed all their worst fears.
"The company is being squeezed like a lemon," Michael Klehm of the Association of German Journalists (DJV) said. "It only exists to service the debt taken by Mecom to buy it and to pay out a dividend to Mecom's investors."
The Berliner Zeitung - the broadsheet in the Berliner Verlag group - is profitable with a yield of 14 per cent after tax. But managers are under pressure to reach 18-20 per cent, a challenge in Berlin's shrinking newspaper market.
The newspaper's sales have dropped by 15,000 to 175,000 daily since Mecom took over, reflecting cuts in the marketing budget. In the same period, 19 journalists have left or are planning to leave with little expectation of being replaced. The newspaper, staff say, is produced in a "permanent state of protest".
Mr Montgomery has said little about his engagement in Germany, except that it is a long-term one, with the online revolution at its heart. "The internet will revolutionise everything," he said to German magazine Cicero. "Journalists should recognise that, otherwise the revolution will sideline them."
Remarks like that get the blood up in the Berliner Zeitung's communist-era headquarters on Alexanderplatz.The paper's website - the heart of Mr Montgomery's online vision - is, in reality a late 20th-century "embarrassment", according to one journalist. He said the weak online presence, with no dynamic content or user forums, meant the newspaper could not attract the younger readers it needs to survive.
Last month, Berliner Zeitung staff wrote an open letter to Mr Montgomery, calling for a clear strategy for the company's future. "If Mecom is unable to come up with such a strategy, in the interests of the paper and its readers, a new, appropriate proprietor should be sought," said the letter.
It also addressed the merging of the positions of chief executive and editor-in-chief, which staff see as a contradictory policy for the newspaper's commercial and editorial interests. The staff have called on chief executive and editor Josef Depenbrock to resign, saying he does not have their confidence. This week, staff went to court seeking clarification that the dual role contravenes the newspaper's editorial statute.
"Management talk of quality journalism but, in reality, it's about profit. Working conditions are worsening," said Mr Klehm. "Eventually, not investing in people and technology in the company will affect editorial quality, the advertisements will fall away, readers too, and it will all catch up with Mecom."
Around Europe, other Mecom newspapers tell similar tales of cost-cutting, redundancies and revenue pressures. The journalists have decided to develop a pan-European network to respond to management pressures.
"It's impossible to develop a newspaper with a constant profit demand of 18-20 per cent," said Frederik M Juel, works council representative of the Danish Berlingske-Verlags group, on a Danish media website.
Mr Montgomery declined to comment on the concerns at Mecom titles.
He said the publicly-traded company would move to the main market of the London Stock Exchange next month.
The company has no further expansion plans in Europe for the moment and plans to pay its first interim dividend for the year ending December 2009.
