Johnston Press, owner of The Scotsman and the Yorkshire Post, admitted yesterday that newspaper advertising revenues had plunged 23 per cent in the first three weeks of August - the fastest rate of decline that the group had experienced this year.

Collapsing profits prompted Tim Bowdler, the chief executive, to concede that Johnston would be unable to restore profit margins to the levels they were before the credit crunch hit.

Advertising at Johnston's titles tumbled 20 per cent last month and 16 per cent in June and Mr Bowdler said that he could not predict when the fall-off would ease because advertisements were booked only a short time in advance.

Asked if he believed whether advertisers would return to newspapers in the same volumes should conditions improve, Mr Bowdler said: “The mix will be different; some advertisers will not return and new areas of business will be coming through. But I don't think we'll be seeing 30 per cent-plus margins for the foreseeable future.”

Profit margins at Johnston Press are the highest in the newspaper industry, peaking at nearly 35 per cent in 2005 and remaining above 30 per cent until the first half of 2008, when the figure dropped to 27.9 per cent. Its success depended in part on the relatively large number of freesheets in the group. They are highly profitable in a healthy economy but generate no cover price revenue to insulate against a downturn.

Tumbling bookings also forced Johnston into a £109 million write-off against acquisitions made in Ireland, tipping the company £53.7 million into the red in the first six months. Before the write-off, operating profits were £62.5 million, down 18 per cent compared with last year, while advertising revenue in the half was 9.5 per cent lower.

The dismal summer trading prompted analysts to lower their profits forecasts, with Numis Securities cutting its prediction for pre-exceptional full-year pre-tax profit by £10 million to £95 million.

Richard Hitchcock, a Numis analyst, said: “What's happening is exactly what you would expect for classified advertising - which is big in property, motors and jobs - in a downturn. As to when it recovers, that's a macro-economic call.”

Johnston scrapped the interim dividend, saving it nearly £20 million a year, and Mr Bowdler said that the company would make a judgment at the time as to whether it would make a payout at the end of the full year. “It would have been odd to hand back cash when we've just raised money from investors,” he said.

The publisher raised £204 million from investors in the first half, largely from Ananda Krishnan, the Malaysian billionaire, who is now a 20 per cent shareholder in the group. Debt fell by £249.2 million to £483.9 million and ended the half at 2.6 times underlying earnings, well within the bank limit of four times.

Analysts expect that ratio to increase slightly this year, but Mr Bowdler said that Johnston had not “flagged this up as a concern” as he tried to deflect worries about the need for a further cash call. The shares slipped 3p to close at 47p.

Independent under fire

Denis O’Brien, the rebel investor in Independent News & Media (IN&M), repeated his calls for The Independent to be sold or closed after the newspaper group’s UK operations suffered a 27 per cent fall in profits. IN&M’s titles — The Independent and the Belfast Telegraph — generated €4.7 million (£3.8 million) in the first six months - a fall of 26.9 per cent if currency movements were stripped out. Mr O’Brien said “decisive moves are urgently needed”. Profits at IN&M were €96.6 million, up 2.7 per cent, with growth in South Africa offsetting weakness in the UK.

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