Final Results

29 March 2017

Johnston Press plc

Preliminary results for the 52 week period ended 31 December 2016

Positive performance of the i and strong margins

Johnston Press plc, (LSE: JPR), one of the UK's foremost news publishers, announces its results for the 52 week period ended 31st December 2016.

Financial Highlights1

- Adjusted1 revenue (including the i from April) down 6.0% for the period, down 5% Q3 and with trends improving, revenues up 1% in Q4

- Cost savings of £26m (excluding acquisitions) for the period

- Adjusted1 EBITDA margins continue to exceed 20%

- Statutory loss before tax of £300m includes non-cash impairment of £223.9m in H1 and £120.4m in H2.

1 The results are presented on a continuing adjusted basis which exclude the following items: mark-to-market gain on the bond, impairment of intangible and tangible assets, restructuring costs, items related to the defined benefit pension plan, share based payment costs, trading and write downs relating to the closure of titles and digital operations, one-off legal costs and disposal gains. It includes the results from the acquisition of the i from April 2016 and excludes the results of the Isle of Man operations disposed in August 2016.

2 Adjusted net debt is stated excluding fair value mark to market valuation adjustments on the bond.

3.Classified and other advertising for the period is £42.1m, down 28% for the period.

Operational Highlights

- Record audience growth, with increase of overall audience:

o Improving print volume trends across the regionals

o Average on-network monthly Unique Users up 15.4% from 19.5m in 2015 to 22.5m in 2016, following mid-year re-launch of entire web portfolio of 173 sites.

o Off-network (predominantly Facebook) unique users up 60% year-on-year to 2m.

o Average on-network monthly page views up 4.6% to 91.1m in 2016

- Further success of i newspaper:

o Acquisition of the i newspaper in April 2016 for £24m

o i newspaper sales volumes up 5% (ABC excluding bulks) year-on-year

o Q4 circulation revenues up 20% year-on-year

o Launch of inews.co.uk, reaching average 1.4m unique users per month in Q4 2016

- More efficient sales operation:

o Focus on restructuring sales teams

§ restructured teams creating retention, transaction and acquisition teams

§ sales and distribution staff reduced by 200 over the year

§ adopted modern approach to sell creative, native and targeted digital and print advertising solutions

§ moved 21,000 small, infrequent customers into Media Sales Centre

o New commercial platform to support Local Display, Features and Entertainment

o Built our partnerships and programmatic model on 1XL platform

- Manage obligations 

o Raised £21.25m of cash through disposals of the Isle of Man titles in August (£4.25m) and East Anglia/Midlands titles in Jan '17 (£17m)

o Revolving Credit Facility cancelled January 2017, removing maintenance covenants

o Strategic review commenced of options for £220m bond refinancing in June 2019

Market context

The Group operates in a sector that is experiencing substantial revenue volatility and structural change.

- National print display advertising contracted by 12.5% in 2016 (WARC / AA1)

- National digital display advertising up 2.1% in 2016 (WARC / AA)

- Total circulation volumes across national quality newspaper sector declined by 9% in 2016 (ABC2)

- Clear impact of Brexit on advertising in June 2016 and Q3 2016, especially SMEs, Jobs, & Property sectors

- Weakness of sterling has increased the cost of imported paper and ink

- Signs of improving economic confidence (among SMEs) in Q4 2016 and Q1 2017

Asset impairment

Following an impairment at the half year of the carrying value of acquired publishing titles, the downturn in quarter 3 and continued revenue pressures, have resulted in a further impairment of £120.4m in H2.

Current trading

Against an industry back-drop which remains challenging, we delivered improved trends in Q4 which have continued into 2017. 

- Improving performance in digital:

o Digital advertising revenue up 2% in Q1 2017 year-on-year (up 10% excluding classifieds)

o On-network digital audiences have grown 9% year-on-year to 24.6m end Feb '17 (with further substantial growth on social platforms)

o 114m (record) page views in January - up 14% year-on-year

- Print circulation of key national daily titles showing improved trends in Q1 2017 (year-on-year) to end of Week 11:

 *1 under previous ownership of ESI. 2017 Q1 figure excludes bulks.

*2 Assisted by activity around 200th anniversary and bulks.

*3 The Yorkshire Post was the best performing regional title in H2 '16 ABCs.

- Overall, current trading, including both the i and the regional portfolio, is in line with management expectations.

1 Source: WARC/AA (World Advertising Research Centre Advertising Association) YOY Q3 2016 report for regional press

2 Source: Enders Feb 2017 Newsbrands Report - graph of National newspaper circulation trend based on ABC reported numbers

Ashley Highfield, Chief Executive Officer, commented,

"Despite an industry wide backdrop of significant downward pressure on revenues, the actions we have taken to pilot the business through this rapidly-changing market and create the conditions from which to create growth are starting to bear fruit: circulation figures of key titles are improving, the i has bucked the trend of declining national newspaper sales and our progressive editorial and sales models are starting to transform our regional businesses.

While we can expect to see continued pressure on traditional print revenue streams, we have seen digital return to growth in Q1 2017, with better margin products, and will see growth from our investment in the i from both the newspaper and website. Further, we will start to see the benefits of our restructured sales teams and product roll out.

Amid ever growing concerns from advertisers, both big and small, about the placement of their brand alongside unacceptable content, and increasing uncertainty around fake news, we believe our strategic focus on providing readers and advertisers alike with news platforms that serve as a trusted source of truth and insight, put together by teams of professional reporters who know their communities, is becoming an ever more important USP. By combining digital innovation with real news value, we will continue to see further growth in monetisable audiences.

Statutory and adjusted basisIn the Management Report, performance is stated on an adjusted basis to provide a more meaningful comparison of the Group's performance taking account of the closure of businesses and other non-tradingitems. The adjusted results aim to demonstrate the performance of the Group without the volatility created by non-recurring items, restructuring charges in respect of cost reduction measures and accounting items suchas the impairment of intangible assets, pension finance and administrative expenses, the impact of fair value changes on the value of the bond and the impact of tax legislation changes. A reconciliation between the statutory and the adjusted results is provided under Non-GAAP measures within this financial information.

Forward-looking statementsThe report contains forward looking statements. Although the Group believes that the expectation reflected in these forward- looking statements are reasonable, it can give no assurance that the expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. 

Market abuse regulationThis announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

For more information, contact:

Johnston Press will host a presentation for institutional investors and analysts this morning at 11:00am (GMT). The presentation will be webcast through our partner Northcote (https://secure.emincote.com/client/johnston_press/johnston006), and a conference call facility will also be available. To dial into the conference call, participants should dial +44 20 3059 8125. No password is required.

About Johnston Press

Johnston Press is a leading multimedia business with a vibrant mix of news brands that reach national, regional and local audiences. We provide news and information services to local and regional communities through our extensive portfolio of hundreds of publications and websites.

Sharing information and opinion remains at the heart of what we do and our titles, which include iconic i, The Scotsman, The Yorkshire Post and News Letter in Northern Ireland are read via traditional print, online platforms and mobile devices by 37.8 million people every month.

We are experts in combining national reach with local targeting and are better equipped than ever to help advertisers tell their stories, too, through our trusted platforms.

END OF FRONT PART OF PRESS RELEASE

Management Report - 52 week period ended 31 December 2016

Chairman's Statement

2016 saw further profound change in our business and we have again faced the combined headwinds of further structural change in our industry and significant economic and market setbacks - not least the impact of the run up to and aftermath of June's referendum on the UK's membership in the European Union. The management team remained focused on improving the performance of the business within its control, but in particular the third quarter saw a significant downturn in advertising activity, especially in the recruitment and property market, and a distinct improvement in quarter four.

The Group reported a statutory operating loss of £323.1 million in the period, which included a £344.3 million impairment charge on certain assets. £223.9 million of the impairment charge was taken at the interim, with a further write-down of £120.4 million taken at the year-end. The write-down on publishing titles and print assets reflects the current trading performance of the Group and further explanation is provided in the Financial Review. Excluding the impairment charge in the period and other adjusting items (as discussed in the statutory to adjusted reconciliation), the Group reported an adjusted operating profit of £42.1 million, and adjusted EBITDA of £49.1 million, in the period.

During the year we have undertaken a number of initiatives in order to enable the business to adjust to the continued downward pressure on print advertising revenues. Our sales teams have been reorganised and retrained to better equip them for the commercial environment in which we now operate and we have sought to reset our digital offering across a range of fields (including, for instance, discounting lower margin digital offerings). We have made important changes to the Group's portfolio of titles and our newspaper printing business has also had a successful year with several significant contract tender wins.

Strategy

The management team has been focused on pursuing its key strategic aims: growing the overall audience, executing on an ever more efficient editorial and sales operation, maintaining liquidity and managing our obligations to our stakeholders including bondholders and pensioners, and, since its acquisition, driving the success of the i newspaper.

Growth of audiences and revenues in our digital business remain a key longer-term objective. Following four years of double-digit growth in digital revenues, 2016 enjoyed some successes, but saw a dip in revenues in the year, driven by a downturn in some of our larger digital revenue categories (particularly employment revenues from small & medium sized businesses (SMEs) reflecting economic uncertainty around the EU referendum). Encouragingly, the digital revenue trend improved in the fourth quarter and, thus far, digital audience figures in 2017 have improved year-on-year growth.

On 12 February 2016, we announced the proposed acquisition of the i newspaper, which was completed in April (the consideration represents a 4.6x multiple of the i's 2015 full year "carve out" operating profit for 2015 of £5.2 million). The acquisition has provided the Group with significantly increased scale, a national footprint and added a major brand to its portfolio. The i newspaper has grown both its circulation and market share in the period since acquisition which has also seen the launch of its dedicated website. The paper presents us with a significant opportunity to grow our national advertising revenues. Further details of the success of the i newspaper and the collaboration between it and our other titles are explained in the Chief Executive Officer's Report.

The drive for a more efficient sales operation in 2016 saw the sales team restructured and a consistent sales approach applied across the Group. The team is using Salesforce.com to support the sale of creative, native and targeted digital and print advertising solutions.

The relentless cost cutting programme saved over £26 million during 2016, and now totals some £100 million since 2012, ensuring we maintained strong margins despite severe revenue pressures.

Finally, to strengthen the balance sheet, we sold three titles on the Isle of Man to Tindle Newspapers Limited last August, and in December we announced the disposal of 13 titles in the East Midlands and East Anglia to Iliffe Media Limited. That sale was completed in January 2017, on a multiple of 4.6x EBITDA, reducing net debt and increasing our liquidity. It also enabled the Group to cancel its revolving credit facility. Although we have no current plans for further significant disposals we will continue to monitor opportunities presented by the market.

We have recently commenced a strategic review of our financing options in relation to the £220 million 8.625% senior secured notes which becomes due on 1 June 2019. The Board is being advised by Rothschild & Co. and Ashurst LLP.

As part of this review process, the Board is engaging with its major stakeholders whose views will be taken into consideration.

Dividend

The provisions of our bonds restrict the Company's ability to pay ordinary dividends until certain conditions are met. No ordinary dividend is proposed for the year. Preference dividends have been accrued but due to the lack of distributable reserves within the Company are unable to be paid.

Industry issues

As members of the Independent Press Standards Organisation (IPSO), we are at the forefront of our industry's opposition to the proposed introduction of s.40 of the Crime and Courts Act 2013. If enabled, this could operate to make newspaper publishers who are not members of a statutorily approved body liable for the costs of dealing with complaints against them - even where those complaints are dismissed or shown to have no merit. It is no exaggeration to say that such a measure would threaten the very existence of many titles, and the requirement to sign up to a state-approved regulator to avoid that risk serves to undermine the very nature of the free press in the United Kingdom. With Ashley Highfield as Chairman of the News Media Association (NMA), Johnston Press has also played a leading role in the negotiations between the NMA and the BBC in working though the details of a ground-breaking agreement that will see 150 journalists employed to cover local democracy reporting. Recruitment will start mid-2017, with the process due to be completed in early 2018. The agreement between the NMA and BBC will also see the establishment of a new data journalism unit serving the local news industry and the release of BBC videos on local news provider websites. 

Board

2016 saw significant change in the make-up, not only of the Group, but also of our Board and I would like to thank my Board colleagues for their work throughout the year. We announced early last year that Stephen van Rooyen would step down at the 2016 AGM. Mark Pain subsequently also stepped down at the end of August.

I would like to record my thanks to Ian Russell, our previous Chairman. Ian stepped down at the end of the year as a result of an acute illness in his family. His wise advice and tireless hard work on behalf of the Company since becoming Chairman in 2009 (having joined the Board in 2007) have been invaluable to the Board. We wish him and his family well for the future.

In addition to the Board's gratitude to Ian and Stephen, I would like to thank Mark for his service since 2009 on our Board and, in particular, for his Chairmanship of the Audit Committee from 2010.

We were very pleased to welcome Mike Butterworth to the Board in June. Mike, a Non-Executive Director and Chairman of the audit committees at St Ives plc, Cambian Group plc and Stock Spirits Group plc, is a former Chief Financial Officer of several listed companies and has succeeded Mark Pain as Chairman of our Audit Committee. Mike is also undertaking the role of Senior Independent Director on an interim basis until a new Chairman is recruited.

Ralph Marshall will step down from the Board at the forthcoming Annual General Meeting. Ralph was appointed to the Board as a representative of Usaha Tegas which owns 10.63% of the Company's ordinary share capital and has served on the Board since 2008. The terms of the shareholder's agreement under which Ralph was appointed to the Board allow for a successor to be appointed. We are in discussions with Usaha Tegas regarding the identity of their new nominee and expect to make an announcement shortly in respect of this. I would like to take the opportunity to thank Ralph for his work on our behalf over the past nine years.

In considering candidates to fill Board vacancies, the Nomination Committee has regard to the benefits of, and the need to encourage, diversity (including gender) within the Board's membership and this is a specific consideration of the recruitment process and is included in the Committee's terms of reference. The Board has adopted a written diversity policy for this purpose.

The Board regularly reviews both the balance of its membership and the issues it considers when it meets. The agenda for the Board's meetings continue to be structured in such a way as to scrutinise both strategic and operational matters and the meetings are held in an atmosphere of constructive challenge and debate. I am satisfied that the Board remains effective.

Employees

The valued and tireless work of our management and employees in 2016 was again an enormous factor in the progress we made. During a period of significant and ongoing change our staff have repeatedly adapted to the evolving industry and market we are experiencing. Their professionalism has been outstanding and, on behalf of the Board, I wish to thank them for their efforts and their contribution.

Outlook

Overall, current trading, including both the i and the regional portfolio, is in line with management expectations.

Camilla Rhodes

Interim Chairman

Chief Executive Officer's Report

We made significant progress against our strategic objectives in 2016, despite the challenges we faced in our industry, particularly in the wake of the EU Referendum in June.

Our primary focus throughout the year continued to be progress towards returning the business to revenue growth and we believe the strides made during 2016 have put us on a much firmer footing to achieve this, evidenced through improving average order value in our advertising business, and our media sales centre (MSC) transactional (telesales) revenue now in growth, following the transferring of 21,000 accounts from the field. Our contract print division also returned to year-on-year growth.

The acquisition of the i has been a success in both audience and revenue numbers. Overall audience numbers have improved, driven by both digital and improving trends in print circulation. Its success has helped it to garner a number of nominations in prestigious industry awards. The acquisition of the i has helped our overall print circulation revenue return to growth.

Revenue trends deteriorated during 2016 and remained challenging for much of the year, particularly around the EU referendum, the resulting uncertainty affecting business confidence within the small and medium enterprise (SME) community, our primary advertising base. Despite a subsequent improvement in economic confidence, further structural changes to advertisers' behaviour, especially the shift to Facebook, has led to a slow recovery for print advertising. Nevertheless the Company has again successfully taken action to address its cost base and to protect profit margins.

The uncertainty advertisers faced in 2016 is reflected in our results for the year. Statutory total revenues were down 8% from £242.1 million in 2016, to £222.7 million. Total statutory advertising revenue (combined print and digital) declined by 17.7% to £122.6 million. Statutory print advertising was down 18.6% from £117.6 million to £95.7 million. Statutory newspaper sales revenue, grew by 11% from £72.0 million to £79.9 million, including the i from the date of acquisition, while adjusted digital revenues (excluding classified) improved fractionally by 1.1%. More information on the Adjusted items can be found in the Financial Review section of this report and the Reconciliation of Statutory to Adjusted items.

The Group once more successfully delivered a further significant cost management programme with adjusted operating costs (including depreciation and amortisation) reducing to £179.4 million from £186.4 million in 2015. Adjusting for the impact of the i acquisition, cost savings of £26 million were made during the year. This was achieved while still effecting targeted investments in key strategic areas and including the i acquisition costs of some £1.8 million. Adjusted operating costs exclude the impairment charge of £344 million that was written-off the carrying value of certain assets including the publishing titles and print assets (refer to the Financial Review for further detail).

Adjusted operating profit was £42.1 million, a £7.2 million decrease on the prior year, and adjusted EBITDA of £49.1 million was achieved in 2016, compared to £56.0 million in 2015. As a result of the cost management programme noted above, the Group maintained a strong operating margin, decreasing slightly from 20.9% to 19.0% year-on-year.

Adjusted basic earnings per share, was 16.9 pence, compared to 22.9 pence in 2015 (refer to the Financial Review for further detail).

Net debt, excluding bond mark-to-market, was £203.9 million, compared to £179.4 million at the end of 2015, largely reflecting the cost of acquiring the i. Subsequent to the year-end we received £17.0m from the sale of publishing titles and websites to Iliffe Media Limited. A reconciliation of statutory net debt to net debt excluding mark-to-market is provided in the Financial Review.

Highlights in 2016

Acquisition of the i newspaper

The acquisition of the i newspaper in April has been transformational for the business, significantly strengthening the Johnston Press portfolio. It has been, as anticipated, earnings enhancing, boosting both circulation revenues and advertising revenues.

The i has increased its newspaper sales volumes by 5% (ABC figures excluding bulks) year-on-year, which, coupled with a 10p (25%) week-day cover price rise, has seen Q4 circulation revenues up 20% compared to the equivalent quarter in 2015. The Saturday edition of the i has performed especially well, with circulation volumes up 13% year-on-year (cumulative Saturday sales April to December 2016 vs 2015). Five nominations, in various categories, at this year's Society of Editors' Press Awards, as well as a number of nominations in the British Media Awards and News Awards, are testament to the regard with which the i newspaper is now held by industry peers.

These strong sales are attributed to a combination of the closure of the Independent newspaper, the investment in creating a dedicated i newspaper editorial team, strong and independent editorial leadership, improved distribution and the reintroduction of the title into Northern Ireland.

Being part of the wider Johnston Press Group has also brought a number of benefits: content sharing, improved distribution efficiency taking advantage of the Group's infrastructure and the use of the weekly newspaper portfolio of regional brands to provide a low-cost approach to increasing public awareness of the i.

We also invested in the launch of a new website - inews.co.uk - which, in its first nine months, went from zero to achieving an average of 1.4 million unique users a month during the fourth quarter and surpassing 1.9 million unique users¹ in November. Its clean, modern interface and unique content is resonating clearly with readers. The inews.co.uk website was nominated for website of the year at the British Press awards , and news website of the year at the 2017 News Awards.

The number of advertising brands in the i increased from 68 to 128 from July 2016 to February 2017², the highest since acquisition and we have been delighted to see brands including Porsche, FedEx and Debenhams advertise in the title for the first time.

Since the acquisition, a number of inherited contracts have been renegotiated, reducing costs by over £1 million per annum. Further cost reductions are expected as contracts come up for renewal.

Having acquired the i for £24 million (a 4.6x historic operating profit multiple) the Group expects to see the full year benefits of circulation improvement, improved advertising trends since the transition period post-acquisition and cost reduction actions taken, to deliver a continuing improvement in performance from the i in 2017.

Focusing the portfolio

A key part of our ongoing business transformation is to focus on and invest in titles which afford us the best opportunity for growth through audiences and/or geography and we realised two divestment opportunities during 2016. The cash from disposals reduced net debt whilst also providing the business with liquidity, enabling the Group to cancel its revolving credit facility.

First, we sold three titles (and associated assets) in the Isle of Man to Tindle Newspapers Ltd for £4.25 million and, in December, we announced the proposed sale of 13 publishing titles and associated websites in the East Anglia and East Midlands for £17 million to Iliffe Media Limited, with the deal concluding in January 2017.

Second, we introduced a new publishing strategy as we increased our focus on markets that can offer the greatest growth potential, such as those in our 'Big Cities' initiative (Leeds, Sheffield and Edinburgh) and digital growth towns. The aim of introducing one consistent and relevant content plan across the key city titles, increasing story count, sharpening focus on social media and campaigning with passion is to drive audience growth and we are seeing some signs of improving circulations trends across these titles.

A particular editorial highlight of 2016 was the successful launch of our investigations unit, a team of journalists from across the portfolio tasked with carrying out investigations into stories that are important nationally but which have local relevance. The first investigation, which uncovered the scandal of low sentences for dangerous drivers, has led to a Government review.

Our printing services delivered a 1.3% increase in revenues in 2016. The business secured two significant new contracts in 2016. The first, in October, was a 12-month rolling contract to print copies of the Metro in Portsmouth. We were also delighted to announce that we have entered an agreement with Associated Newspapers Limited (ANL) to print the Monday to Saturday issues of the Daily Mail newspaper. The multi-million pound contract spans a five-year period and ANL will have the option to extend the term after those five years.

Advertising

Advertising revenues were dealt a blow following the Referendum vote in June. Whilst we did see improving growth momentum towards the end of the year, it was not enough to return local display advertising to growth in 2016. In particular, the employment and property markets were under significant pressure

Our digital business grew in the fourth quarter and both Media Sales Centre transactional revenues (telesales) and contract printing were each up 2% in 2016. The decline in circulation revenues in the existing portfolio has been offset by the strong i circulation revenues, resulting in growth in total statutory circulation revenues of 11% year-on-year. These categories make up over 50% of our total revenue.

We previously set out our ambition to completely restructure the sales teams and in July - after thorough testing - we fully launched our sales transformation programme - called Salesforce of the Future.

We transferred 21,000 of our lower value, highly infrequent transactional customers into a new team in the Media Sales Centre to allow our field-based sales teams to fully focus on the higher yield customers. A new customer acquisition team was launched, with hundreds of our sales teams were trained to use Salesforce.com, fully equipped with new technology and provided with new sales material.

Digital

Unique visitors were up year-on-year by 15% and we are getting more visits than ever due to the redesign of our 173 sites, despite industry-wide shift to mobile and Facebook.

However, due largely to the EU Referendum impacting SME marketing and recruitment decisions, digital revenue (including classifieds) was down for the year. Digital revenue was significantly impacted by a very difficult market for classifieds, particularly for jobs. Excluding classifieds, digital revenue was marginally higher in 2016. The fourth quarter improved significantly over quarter three, returning the business to digital revenue growth as we exited 2016.

The launch of the We Are Digital initiative helped to drive a huge shift towards readers finding us through Facebook, and we've enjoyed a 60% growth¹ in Facebook followers in 2016 to two million.

Commercially, we now have a modernised digital commercial product set, with new audience targeting options. We have also seen a shift of national advertising towards algorithmic, programmatic purchasing, which we have responded to with new technology to raise our yields in real time. Dropping older digital products with lower margins also depressed revenue growth in 2016.

We launched a native advertising/sponsored content solution, creating content for customers to help them reach their customers in an integrated way on our sites. We also have continued to improve our marketing solutions products, adding a Facebook solution to help SMEs with targeted marketing to local, social users.

Current trading statement

At the time of writing in late March 2017, we have seen a continuation of the improving advertising and circulation trends we witnessed during the fourth quarter of 2016, enabling our digital business to return to revenue growth.

Refinancing

The Directors, along with the Group's advisors, are currently exploring the strategic options available to the Group in relation to its £220 million 8.625% senior secured notes which become due on 1 June 2019. This is discussed in detail in the Viability Statement.

Summary

Despite the challenging market for news publishers, including a very difficult summer, we have seen some improvement in our markets. Whilst we expect the overall market environment to remain challenging for both the Group and the industry as a whole, we remain focused on delivering on our strategic priorities of growing our overall audience, driving further success of the i, delivering a more efficient editorial and sales operation and strengthening the Company's balance sheet.

Our number one priority for 2017 is for our local display advertising revenue category (combined print and digital) to join transactional advertising via tele-sales (serviced through our media sales centre) in achieving growth.

Our continued drive to maximise operational efficiencies, which includes a relentless focus on cost management, gives us flexibility in the face of a challenging market and gives the management confidence that we can make further progress.

Finally, I want to extend my sincere thanks and appreciation to our former Chairman, Ian Russell, who stepped down from the Board at the end of December.

Ashley Highfield

Chief Executive Officer

¹ Source: Internal metrics - IBM Digital Analytics)

² Source: AdDynamics

³ Source: Crowdtangle Analytics, Facebook Leaderboard, growth reported for period 1 January 2016 to 31 December 2016.

Principal Risks and Uncertainties

There are a number of potential risks and uncertainties which have been identified by the Company that could have a material impact on the Group's long-term performance.

Operational Review

DELIVERING OUR STRATEGY

Throughout a turbulent year of global change we remained a leading source of news and information in the United Kingdom.

Whilst 2016 was challenging both for the industry and Johnston Press, the business continued to evolve, adapt and innovate.

The addition of the i national newspaper to the portfolio - and subsequent launch of inews.co.uk - has helped to accelerate delivery of our strategy and we are able to deliver national and regional advertisers a highly successful platform to link them directly with local audiences.

AUDIENCE DEVELOPMENT

The acquisition of the national newspaper the i, coupled with the planned divestment of some titles and the merging/closure of others, resulted in a streamlined print portfolio, which has allowed for sharper focus on growing audiences in markets and across groups of titles that offer the best digital and economic growth and/or prospects.

The relaunch of all of our websites ensured a better digital experience for users as we continued to focus on better audience engagement on our digital platforms.

A number of editorial initiatives to grow both print and digital audiences through improved content were implemented, including We Are Digital and the Big Cities Strategy - which encouraged one consistent and relevant content plan across all city titles.

DIGITAL PRODUCT AND MARKET DEVELOPMENT

It is increasingly vital to offer an optimised mix of advertising solutions and Johnston Press is uniquely positioned to deliver these solutions. Throughout 2016 Johnston Press put in place a flexible organisational design, smarter solutions and the right tools to reach readers and serve customers better than ever, giving them the right product on the right device, at the right time.

Our sales force is now data-driven and allows us to serve customers in a profitable way with specialised teams.

We have a new understanding of the most advanced algorithmic/programmatic sources and are leveraging our expertise in locally-relevant content, offering our advertisers a native advertising service to generate content to connect with readers.

Our newsrooms have sophisticated new tools and skills to publish onto social channels such as Facebook, and are 'going live' to broadcast from anywhere - providing truly local content that reaches far beyond our borders.

OPERATIONS AND PRODUCTION

The printing services division secured two further significant contracts in 2016, further strengthening its position as one of the best print providers in the country, a testament to the highly-skilled teams based at the Sheffield, Portsmouth and Carn sites.

COMMERCIAL DEVELOPMENT

Our sector continues to be impacted by challenging print revenue trends but we are now better placed than ever to serve the advertising needs of our customers. 

During 2016 we focused on restructuring our sales teams and adopted a modern and consistent approach to selling creative, native and targeted digital and print advertising solutions. Our raft of products and multi-platform approach to advertising means we are now better positioned to meet the individual needs of our advertisers. 

Around 21,000 of our smaller, infrequent clients have been transferred to our Media Sales Centres, high and mid-spend sales teams have consolidated and a new acquisitions team created to help attract new business or revive lapsed customers.

A new commercial platform was launched to support LDFE (Local Display, Features and Entertainment) and new Go To Market collateral created as part of the sales transformation. 

Monetisation of increased digital traffic through our national sales platform 1XL enabled digital revenue to increase by 10% in Q4 year-on-year, and with a comScore unique total audience reach now exceeding 22.7m (Total Audience January 2017), 1XL can match the national unique coverage offered by the portals through display media hosted exclusively on sought-out, unique-content filled and implicitly trusted branded news sites.

INFORMATION TECHNOLOGY

The IT department was restructured around three pillars in 2016 - Agile, Core and Finance IT to improve delivery time on key projects.

As always, IT was at the core of the business playing a significant role in most major projects during 2016, including delivering a full end-to-end technical solution for the i in six weeks, which included Editorial, Advertising and Newspaper Sales, alongside the commissioning of a new office and associated computer systems.

The team has also completely re-engineered the Group's financial systems in order to support the move to a vertical structure and heavily supported the Salesforce project team through its pilot to successful launch.

MANAGEMENT STRUCTURE

A number of changes to the management structure have been made to ensure the business is as agile and effective as possible.

In early March 2017, Jeff Moriarty, our Chief Digital & Product Officer, took on the additional responsibility for the multi-platform publishing strategy to ensure our portfolio offered a truly integrated digital and print offering.

The commercial teams have undergone significant changes as part of the Sales transformation and a single, collaborative function has enabled us to focus on growing revenue through providing an even better customer experience.

A new LDFE and Sales Operations leadership team has helped to accelerate the sales strategy, as we continued to equip and develop our teams to provide a consistent, quality service to customers.

The team continue to provide quality data so we can approach how we target and serve customers in the right way. This will help us secure longer-term bookings and take action on the back of revenue trends to ensure we are focusing our efforts accordingly.

PROPERTY AND ESTATE

We have continued to review our property portfolio to identify markets and centres that have an accommodation which no longer meets the requirements of the business. During 2016 we disposed of ten freehold properties and exited nine leases (net of relocations). Overall we reduced the total number of operating properties within the portfolio from 125 at the end of 2015 to 107 by the end of 2016, with nearly half of all staff either having relocated or having seen investment in their work environment in recent years. The Group expects to take advantage of additional opportunities to rationalise the property portfolio across 2017, including 8 leases that will be reassigned or sublet as part of the East Anglia and East Midlands disposal to Iliffe Media Ltd.

Financial Review

Strong circulation performance from the acquisition of the i newspaper and improving volume trends across regional titles helped partially offset challenging advertising trading conditions which saw adjusted operating profit decline in 2016.

Introduction

This Financial Review provides commentary on the Group's statutory and adjusted performance during the 52-week period ended 31 December 2016 (2015: 52 weeks).

Basis of presentation of results

The statutory results are for the continuing Group, which exclude the disposed of Isle of Man business. The prior year statutory results have been restated to exclude discontinued operations.

In preparing commentary on performance, the financial impact of a number of significant accounting and operational items has been removed to determine the adjusted results discussed in this Financial Review. The adjusted results are considered a more meaningful presentation of the 'underlying' results of the Group, excluding the effect of closed titles and businesses and the significant impairment charged in the period.

The i newspaper is included in results from the date of acquisition, in April 2016, and therefore is not included in the 2015 comparatives.

A reconciliation of statutory to adjusted figures is provided in the Financial Review.

¹ Operating costs include cost of sales and are stated before depreciation and amortisation.

² EBITDA is earnings before interest, tax, depreciation and amortisation.

³ The i newspaper is included in results from the date of acquisition, in April 2016.

Revenue

Total adjusted revenues were down 6.0% for the year, and down 13.6% excluding the i. Tough trading conditions in 2015 continued into 2016 and were exacerbated in Q3 prompted by Brexit-related uncertainty. Trading improved in Q4 as a result of both strategic initiatives implemented during H1 2016 and signs of improving business confidence.

Total revenues in Q4 were up 1% compared to the equivalent quarter last year compared to a 5% decline in Q3 in the immediate aftermath of the Brexit vote.

Digital advertising was impacted by tough trading conditions, but also impacted by a significant decline in digital employment revenues, down £2.2 million, 27.2% year-on-year.

Newspaper sales revenue

A mix of cover price increases, continued rationalisation and content improvement initiatives across the portfolio and the sale of the titles has contributed to adjusted newspaper sales revenues of £79.7 million in the year. This compares to newspaper sales revenue of £71.6 million in 2015, year-on-year growth of 11.3%. Total circulation revenues have increased overall due to the inclusion of the i newspaper which has mitigated the overall decline in the remaining title portfolio.

Adjusted newspaper sales revenues excluding the i were £64.9 million for 2016 (2015: £71.6 million), a decline of 9.3%.

Contract printing

Contract printing revenue of £12.8 million was marginally up year-on-year by 1.3%. Printing revenue grew year-on-year 5.2% to £10.2 million while revenues from paper supply fell by 11.4% to £2.6 million as a result of circulation volume reduction of customer titles. Two major contracts were announced in 2016 and the first quarter of 2017 which has helped mitigate the decline in internal Group printing. The Group has three high-quality print presses that are well positioned to service both its external customers and the Group's own portfolio.

Advertising revenue

The news publishing market continues to suffer from the severe headwinds of both falling advertising revenues (particularly classified advertising) and the decline in print circulation.

Total advertising revenue (excluding classified) was down 6.7% year-on-year. Total advertising revenue (excluding classifieds) in Q3 fell 7% compared to the equivalent quarter last year, improving to down 2.5% in Q4. Classified revenue performance was down 28.0% year-on-year. The employment category was particularly heavily hit, down 26.5%% in print and 27.2% in digital.

Excluding the i, total advertising revenue (excluding classifieds) declined 10% for the year, having declined 12% in Q3, while improving to a 7% decline in Q4. Classifieds also showed a marginal improvement in run rate in Q4 compared to Q3.

Quarterly adjusted advertising revenue performance, including i, is presented in the tables below.

Print and digital publishing advertising adjusted revenue analysis

¹ Digital marketing services, formerly Digital Kitbag (DKB).

Leaflets, syndication and other revenues

Leaflets, syndication and other revenues (which include events, reader offers and waste sales) declined £0.4 million period-on-period, which can be attributed to a reduction in the number of events and outsourcing of leaflet business to Mediaforce.

The table below presents the historic adjusted revenue presentation, for the purpose of reconciling to the Group's previous revenue reporting and statutory breakdowns in the note to the financial statements.

Operating costs

Operating costs (including depreciation and amortisation) were reduced to £179.4 million in 2016 from £186.4 million in 2015, representing, on an adjusted basis, a £7.0 million year-on-year reduction, including the costs of the i, acquired in April 2016.

Excluding the i, adjusted operating cost savings of £26 million were achieved by the Group. Cost savings were made across all areas of the business including production, distribution, editorial, sales, marketing, establishment, administration and head office costs.

The depreciation charge rose by £0.3 million to £7.0 million in 2016 as a result of the digital investment in 2013 and onwards.

The weakness of sterling post the Brexit vote has increased the cost of imported paper and ink. However, management's continued focus on costs has enabled it to maintain an adjusted EBITDA margin of some 22% (compared to 24% in the prior year), believed to be amongst the highest in our industry.

Operating profit

In 2016 the Group's adjusted operating profit was £42.1 million, a 14.5% decline on the prior year. Adjusted Total Group revenues were down £14.2 million to £221.5 million, a decline of 6.0%. This decline was partially mitigated by cost reductions of £26.0 million, excluding the cost incurred following the acquisition of the i. Operating margin declined slightly from 20.9% to 19.0% in the period.

Finance income and costs

Adjusted total net finance costs were £19.5 million, an increase of £0.5 million year-on-year. Adjusted total operating finance costs reduced by £0.3 million year-on-year, as the Group had the full-year benefit of the August 2015 bond buy-back. Investment income includes dividends received from the Press Association in 2015. No similar dividends were received in 2016. The fair value gain on the bond for the period to 31 December amounted to £43.6 million (period to 2 January 2016: £23.9 million gain). Refer to Note 14 Borrowings for further information.

¹ Adjusted net financing costs excludes the mark-to-market fair value gain on the bond of £43.6 million (2015: £23.9 million gain), pension finance expense and exceptional financing costs.

Profit before tax

The Group's adjusted profit before tax was £22.9 million (2015: £30.7 million). The year-on-year decline of £7.8 million is due to the shortfall in revenues being only partly mitigated by operating cost savings.

Tax Rate

The Income Statement includes a tax credit of £53.4 million (2015: £8.5 million tax credit) which comprises a current tax charge of £0.7m (2015: £0.4m tax credit) and a deferred tax credit of £54.1 million (2015: £8.1 million tax credit). The Statement of Other Comprehensive Income includes a £1.1m current tax credit in relation to the current tax benefit of pension contributions in excess of net pension financial charges.

The deferred tax credit of £54.1 million arises primarily as a result of the impairment of publishing titles, which resulted in a £62.3 million release of deferred tax liability. A deferred tax charge of £8.4 million arose in the period in relation to the bond.

The Group's effective tax rate was 17.7% for the 2016 financial year (2015: 295.2%). The effective tax rate was reduced from the prevailing UK corporation tax rate of 20.0% largely due to the difference between the current and deferred tax rates applied, with the difference arising primarily on the Groups publishing titles.

(Loss)/earnings per Share and dividends

A reconciliation of statutory to adjusted Earnings per Share is detailed within the detailed reconciliation of the statutory to adjusted results.

The provisions of the Group's bond restrict the Company's ability to pay dividends on the Company's Ordinary Shares until certain conditions, including that net leverage is below 2.25x EBITDA, are met. Although the Board wishes to resume dividend payments as soon as is appropriate, no ordinary dividend is declared for the period.

Preference share dividends of £0.1 million were approved on 18 May 2016 and paid on 30 June 2016 based on the Directors consideration of distributable reserves available at the time. Following continued difficult trading conditions and Brexit impacting discount rates, a further review of the valuation of intangibles was undertaken resulting in a significant impairment at the interim and the extinguishment of distributable reserves. As a result, preference share dividends were not paid at the year-end but have been accrued.

Acquisition of the i

On 10 April 2016, Johnston Publications Limited, a 100% owned subsidiary of the Group, acquired the principal assets of "the i", part of the Independent Group for a consideration of £24.1 million (net of working capital).

Since acquisition, the i has generated £18.5 million of revenue and incurred £15.2 million of operating costs, generating EBITDA of £3.3 million (H1'16 £0.4 million, H2'16 £2.9 million). Cashflows in relation to the i acquisition in the period are summarised in the table below:

Further cash consideration of £2.0 million is due to be paid in April 2017.

The level of fees incurred reflected the acquisition being classified as a Class One transaction requiring a prospectus and the involvement of Reporting Accountants.

Cashflow and net debt

The Group's net debt increased to £203.9 million at 31 December 2016 reflecting the acquisition of the i on 10 April 2016, and excludes mark-to-market on the bond and bond discounts totalling £77.0 million. In the period, a £43.6 million fair value movement gain has been recognised. The net debt after mark-to-market adjustments was £126.9 million. Refer to the statutory net debt and net debt excluding mark-to-market reconciliation within the Financial Review and Note 14.

Cash generated from operations of £16.5 million is after payment of a £4.3 million LTIP payment relating to the 2014 refinancing that was payable in early 2016, the cash for which was raised in 2014, £1.8 million for i acquisition costs, and pension contributions of £9.7 million.

 Cash interest paid in the period was £19.4 million (2 January 2016: £19.7 million).

Cash held at 31 December 2016 was £16.1 million, with the reduction from the prior period largely due to the acquisition of the i and the impact of underlying trading performance and payment of restructuring accruals (£2.4 million) and a one-off LTIP accruals (£3.9 million) set-up in 2014, being paid out in 2016. Capital expenditure was reduced to £6.1 million (2 January 2016: £7.8 million) offset by £2.3 million received from non-core asset sales (2 January 2016: £2.3 million)). During the period, the Group disposed of assets in the Isle of Man, for proceeds of £4.25 million.

In January 2017, the Group announced that it had successfully divested 13 East Anglian and East Midlands titles to Iliffe Media Limited, receiving cash proceeds of £17.0 million. The Group's revolving credit facility (RCF) was renegotiated in 2016 but was cancelled on completion of the disposal. Refer to post-balance sheet event Note 19.

2019 Bond Refinancing

The Group's borrowings consist of £220.0m of bonds due for repayment on 1 June 2019. The Directors, along with the Group's advisors, are currently exploring the strategic options available to the Group in relation to its £220 million 8.625% senior secured notes which become due on 1 June 2019. This is fully discussed in the Viability Statement.

Net liabilities position

At the period end, the Group had a net deficit of £24.7 million, a reduction in assets of £283.7 million on the prior year. The movement in the net asset position from the prior year includes: an impairment write-down of £344.3 million (discussed further below), a £40.8 million increase in the pension deficit, partially offset by £43.6 million reduction in borrowings (which is due to the fair value gain of £43.6 million recorded in the period) and a reduction of £60.5 million in the net deferred tax liabilities (arising from the movement in intangibles, pensions).

Asset impairment

The carrying value of assets is reviewed for impairment at least annually or more frequently if there are indications that they might be impaired. In light of the difficult trading conditions that continued in 2016, and the resulting decline in adjusted operating profit, the Group has written down the carrying value of certain assets by £344 million. The impairment charge on publishing titles and print assets reflects the current trading performance, and reduced long term growth rates. The write-down reduces the assets carrying value of publishing titles to £120 million (excluding the i) and print assets to £20 million. (Refer to Note 12 in the financial statements).

As a consequence of the impairment of publishing titles, the Company has net assets which are less than half of its called-up share capital. Pursuant to section 656 of the Companies Act 2006, the directors will call a general meeting of the company within 28 days to consider whether any, and if so what, steps should be taken to deal with the situation. As part of its strategic review the Company is working with its advisers to address the issues which result from this.

Pensions

As at 31 December 2016, the net pension deficit has increased to £67.7 million from £26.9 million at 2 January 2016. The increase in deficit is largely a result of a significant rise in pension liabilities due to falling corporate bond yields and increasing inflation expectations together with a small adjustment on mortality assumptions.

Each of the financial assumptions were reviewed in light of market conditions resulting in the application of a discount rate of 2.7% (down from 3.75% at 2 January 2016), and an increase in inflation assumption by 0.4% to 3.4%. The increase in liabilities has been substantially offset by positive asset returns over the year.

The 'health study' completed in 2015 has continued to be used to inform the mortality assumptions and the application of the historic spousal age differences. Allowing for most recent scheme experience, the mortality assumption has decreased from + three to + two years. The revised mortality assumption has resulted in a revision of the future life expectancy of males and females aged 65 from 19.7 and 21.3 respectively to 20.1 and 21.7 respectively. Refer to Note 15 for more detailed disclosure surrounding the Johnston Press Pension Plan.

During the course of 2016, the Group completed the legal process concerning the equalisation of scheme benefits for 'Affected members' in the Portsmouth & Sunderland section of the Plan. The outcome of the aforementioned consultation has the effect of changing the scheme rules and this has been recognised as a Past Service Cost in the Group Income Statement. A charge of £3.5 million has been reflected against a possible risk of £8 million identified in the 2015 Annual Report contingent liabilities disclosure.

The results of the triennial valuation were due at the end of March 2017. Agreement with the Trustees will be deferred until the Group has completed its review of its strategic options relating to the refinancing of the bonds in June 2019. The Annual Report includes disclosure of the current position and the Company will provide an update when it is in a position to do so. Pension contributions will continue to be made by the Company at the level previously agreed (£10.3 million for 2017).

Capital expenditure

The Group capitalised £6.1 million of assets in the period (2015: £7.8 million). Of this, £4.6 million was spent on developing the digital platforms (2015: £5.0 million) and £1.6 million spend on other infrastructure (2015: £3.8 million), including £0.4 million on leasehold improvements and £1.2 million on other plant and machinery.

Reconciliation of statutory and adjusted results

Adjusted operating profit of £42.1 million (2015: £49.3 million) includes the results of the i from the acquisition date and has been calculated after adjusting for revenue and cost of sales for closed titles and digital brands. Adjustments made to operating costs include restructuring, impairment and other non-trading related costs.

Continuing statutory revenue has been adjusted for closed titles and digital products. The adjustment to revenue is a £1.2 million reduction in 2016, and £6.4 million in 2015. A detailed reconciliation of the statutory to adjusted revenue adjustments is shown below.

A reconciliation of statutory to adjusted operating (loss) / profit and to EBITDA, is provided below:

¹ Impairment includes publishing titles, print presses and property assets. Refer to impairment commentary in the Financial Review.

² Pension equalisation includes £3.5 million of pension equalisation cost (Note 15) and £0.6m of associated legal and professional fees.

Financial reporting

The effect of IFRS standard changes that are applicable to annual periods beginning on or after 1 January 2017 are further described in Note 3.

Factors Affecting Future Group Performance

The performance of the Group will continue to be affected by the economic conditions in our markets, cyclical conditions, structural and business-specific circumstances and economic trends including employment, property transactions, new car sales and the levels of consumer and SME confidence. However, the outlook for the Group will also depend on a number of other factors, including:

· growing new digital revenues in the Group's existing market segments to offset print revenue decline;

· ability to adapt to customer requirements through new sales propositions and digital advertising channels;

· the impact of new entrants and competitors to the market;

· continually improving existing efficient operations through technology infrastructure and improved processes;

· further re-engineering of the cost base of the business;

· the level of investment required to support digital growth, and restructuring, and its impact on cash generation;

· impact on the sterling following Brexit impacting paper prices; and

· Conclusion of negotiations with pension Trustees regarding annual pension contributions.

Five Year Summary

The Group's current level of debt reflects the residual debt left in the business following a period of acquisitions in the early 2000's.

The Group has continued to seek to reduce the level of debt despite experiencing revenue contraction, consistent with the wider newspaper publishing industry.

Action has been taken to offset a large part of the revenue decline experienced during the period through both growth of its digital business over the period and through cost reductions of over £100 million (representing over one-third of total costs at the beginning of the period).

Most recently the Group acquired the i as part of its strategy to create new revenue streams.

Assessment of Group's prospects

Liquidity and Going Concern

As at 31 December 2016, the Group had a net debt of £204 million, comprising cash of £16 million and borrowings of £220 million. The borrowings comprise £220 million of high yield bonds (senior secured notes), which are repayable in full on 1 June 2019 and are not subject to any financial maintenance covenants. At year end, the Group also had a £10 million revolving credit facility ('RCF'), which was undrawn.

Subsequent to year end, on 17 January 2017 the Group received gross cash proceeds of £17 million arising from the completion of the disposal of its East Anglia and East Midland businesses. These cash proceeds were used to increase the level of cash held by the Group for working capital purposes. The RCF, which had remained undrawn since year end, was cancelled on 17 January 2017.

The Group has performed a review of its financial resources taking into account, inter alia, the cash currently available to the Group, the lack of financial maintenance covenants in the high yield bonds, and the Group's cash flow projections for at least the 12 month period from the date of this report. Based on this review, and after considering reasonably possible downside sensitivities and uncertainties, the Board is of the opinion that the Group has adequate financial resources to meet its operational needs for at least the next 12 months from the date of this report and, as a result, the directors have concluded that it is appropriate to prepare the Group's financial statements on a going concern basis.

Consideration has been given by the directors to the financial position of the Group over a longer period of time in the Viability Statement below.

Viability Statement

In accordance with provision C.2.2. of the Corporate Governance Code, the directors have assessed the prospects of the Group over a period of time longer than the 12 months required to determine the going concern basis for the preparation of the Group's financial statements.

The directors have determined that the period of three years from the balance sheet date is appropriate for the purposes of conducting this review. This period was selected with reference to the Group's strategy and planning cycle. The Board formally reviews strategy twice a year, normally in May and September, with a view to informing the subsequent annual budget setting. The budget forms year one of the three year plan, with projections for years two and three.

The annual budget provides a more detailed reflection of the Group's immediate plans and is reviewed and approved by the Board before the start of the financial year.

In setting the annual budget and three year plan the Board considers the current trading position and the principal operating and financial risks and opportunities identified by the Group. In particular:

· The opportunity to invest and grow its audiences and its digital revenue streams;

· The ability of the Group to continue to reduce costs, to mitigate the continuing decline in print based circulation and advertising revenues;

· The level of capital expenditure required to support investment in growth, and the level of restructuring costs needed to support further cost reduction initiatives;

· The funding required to support the recovery plan of the historic closed defined benefit pension scheme obligations; and

· The cash generated to meet bond interest commitments as they fall due.

The Group operates in an industry which is undergoing a sustained period of significant structural change. This is driven in part by new competitors and new methods of accessing content which are provided by rapidly-changing technology and which are in turn facilitating very significant and ongoing changes in consumer behaviour. The Group's ability to adapt to this constantly changing environment will affect its prospects over the three year period.

In reviewing its plan the Group conducts sensitivity analysis, to understand the impact of continued or accelerated decline in revenues, and considers what actions the Group might take to mitigate those risks. The future assessments and plans adopted by the Board are subject to change and a level of market uncertainty. As a result of the risks and uncertainties faced by the business (including those outlined in the Principal Risks & Uncertainties section) the outcomes reflected in its plan cannot be guaranteed.

The Group's trading performance in 2016 reflected a period of difficult trading in the summer, prompted by Brexit-related uncertainty, but with an improvement in trading in the fourth quarter as a result of both strategic initiatives implemented during the first half of 2016 and signs of improving business confidence. However, for the year as a whole, and in line with the industry, the Group has seen increased volatility and accelerated decline rates in print advertising and newspaper sales. If the rates of decline experienced in 2016 continue into 2017 and beyond, then anticipated digital revenue growth and cost reduction initiatives may not be sufficient to mitigate the effect of the lost revenues, impacting the Group's ability to return to growth.

As noted in the review of Liquidity and Going Concern (above), as at 31 December 2016 the Group had net debt of £204 million, comprising cash of £16 million and borrowings of £220 million. The borrowings comprise £220 million of high yield bonds (senior secured notes), which are repayable in full on 1 June 2019. Subsequent to year end, on 17 January 2017 the Group received gross cash proceeds of £17 million arising from the completion of the disposal of its East Anglia and East Midlands businesses. These cash proceeds were used to increase the level of cash held by the Group for working capital purposes.

The repayment of the £220 million of high yield bonds on 1 June 2019 falls within the three year period of this viability review. The Directors anticipate that the Group will remain in a position to meet its obligations in respect of the bonds, including with regard to the payment of interest, in the period to their maturity. However, in light of the challenges faced by the industry as a whole, the current trading experience of the Group, and the likely financial position of the Group at the time the bonds are due for repayment in June 2019 there is uncertainty surrounding the Group's ability to refinance the bonds at par in the debt markets on commercially acceptable terms. Failure to repay, refinance, satisfy or otherwise retire the bonds at their maturity would give rise to a default under the indenture governing the bonds dated 16 May 2014 and could have a material impact on the Group's operations and its ability to continue as a going concern. As a result, the Directors, along with the Group's advisors, are currently exploring the strategic options available to the Group in the event that a refinancing of the bonds in the debt markets prior to June 2019 is not possible.

Based on the above, and subject to the uncertainty around the repayment, refinancing, satisfaction or retirement of the bonds in June 2019, the board confirms it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period under review.

 Directors' Responsibility Statement

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are requiredto prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period.

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether applicable IFRSs as adopted by the European Union and applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Parent Company financial statements respectively; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's and the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the financial and corporate governance information included on the Company's website (www.johnstonpress.co.uk). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

In accordance with Section 418 of the Companies Act 2006, each Director in office at the date the Directors' Report is approved, confirms that:

· so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

· he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

We confirm that to the best of our knowledge the:

1. financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

2. strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

3. Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

By order of the Board:

Ashley Highfield David King

Chief Executive Officer Chief Financial Officer

29 March 2017 29 March 2017

Group Income Statement

For the 52-week period ended 31 December 2016

The accompanying notes are an integral part of these financial statements.

Group Statement of Comprehensive Income

For the 52-week period ended 31 December 2016

For the 52-week period ended 2 January 2016

Group Statement of Changes in Equity

For the 52-week period ended 31 December 2016

1 Includes release of own shares to retained earnings on exercise of options in the current and prior financial periods.

For the 52-week period ended 2 January 2016

1 During 2015 the Group reduced its share premium by £275 million increasing distributable reserves.

2 On lapse of schemes balances held are released to distributable reserves.

3 Includes release of own shares to retained earnings on exercise of options in the current and prior financial periods.

The accompanying notes are an integral part of these financial statements.

Group Statement of Financial Position

At 31 December 2016

The financial statements of Johnston Press plc, registered in Scotland (number 15382), were approved by the Board of Directors and authorised for issue on 29 March 2017.

They were signed on its behalf by:

Ashley Highfield David King

Chief Executive Officer Chief Financial Officer

The accompanying notes are an integral part of these financial statements.

Group Cash Flow Statement

For the 52-week period ended 31 December 2016

The accompanying notes are an integral part of these financial statements.

Notes to the Condensed Consolidated Financial Statements

For the 52 week period ended 31 December 2016

1. GENeral information

The financial information in the Preliminary Results Announcement is derived from but does not represent the full statutory accounts of Johnston Press plc. The statutory accounts for the 52 week period ended 2 January 2016 have been filed with the Registrar of Companies and those for the 52 week period ended 31 December 2016 will be filed following the Company's Annual General Meeting in 2016. The auditor's reports on the statutory accounts for the 52 and 52 week periods ended 2 January 2016 and 31 December 2016 were unqualified. Neither report contained a statement under Sections 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated financial statements of Johnston Press Plc have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost convention, except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period. The accounting policies adopted in the preparation of this condensed consolidated financial statement are consistent with those applied by the Group in its audited consolidated financial statements for the period ended 31 December 2016.

Whilst the financial information included in this Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The 2016 Annual Report and Accounts for the 52 weeks ended 31 December 2016 will be made available on the Company's website at www.johnstonpress.co.uk, at the Company's registered office at Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS and sent to shareholders in April2017.

2. Basis of Preparation

Johnston Press plc ('Johnston Press' or 'the Group') is a public limited liability company incorporated in Scotland under the Companies Act 2006 and listed on the London Stock Exchange. The registered office is Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS. The principal activities of the Group are described in the Operational Review and Financial Review sections of the Strategic Report.

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS.

These financial statements have been prepared for the 52-week period ended 31 December 2016 (2015: 52-week period ended 2 January 2016).

The significant accounting policies used in preparing this information are set out in Note 3.

The financial statements have also been adjusted, where appropriate, by new or amended IFRS's described below.

These financial statements have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost basis except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period.

3. Significant Accounting Policies

Adoption of new or amended standards and interpretations in the current year

The following new and amended IFRS's have been adopted for the 52-week period which commenced 3 January 2016 and ended 31 December 2016.

New and amended standards applicable for annual periods beginning in 2017 and beyond

The following new standards, which are applicable to the Group, have been published but are not yet effective and have not yet been adopted by the EU:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company:

· has the power over the investee;

· is exposed, or has rights, to variable return from its involvement with the investee; and

· has the ability to use its power to affects its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

· the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

· potential voting rights held by the Company, other vote holders or other parties;

· rights arising from other contractual arrangements; and

· any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company losses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.

All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

When the Group disposes of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or [wrap line below]transferred to another category of equity as specified/permitted by applicable IFRSs).

The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement, when applicable, the costs on initial recognition of an investment in an associate or a joint venture.

Basis of preparation

The financial information has been prepared on the historical cost basis, except for the revaluation of certain properties, pension balances and financial instruments including borrowings. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this Report. Accordingly, the financial statements have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost basis except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period.

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the Income Statement as incurred.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, including publishing titles, are recognised at their fair value at the acquisition date, except for:

· deferred tax assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and

· non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations', are recognised and measured at fair value less costs to sell.

Investment in associates

An associate is an entity over which the Group is in a position to exercise significant influence and is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these Group financial statements using the equity method of accounting.

Investments in associates are carried in the Group Statement of Financial Position at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments.

Non-current assets held for sale

Non-current assets (and disposal groups) classified as held for sale are measured at net realisable value.

Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

Publishing titles

The Group's principal intangible assets are publishing titles. The Group does not capitalise internally generated publishing titles. Titles separately acquired after 1 January 1989 are stated at cost and titles owned by subsidiaries acquired after 1 January 1996 are recorded at fair value at the date of acquisition. These publishing titles have no finite life and consequently are not amortised. The carrying value of the titles is reviewed for impairment at least annually with testing undertaken to determine any diminution in the recoverable amount below carrying value. The recoverable amount is the higher of the fair value less costs to sell and the value in use is based on the net present value of estimated future cash flows. Any impairment loss is recognised as an expense immediately. A reversal of an impairment loss is recognised immediately in the Group Income Statement given these assets are not carried at revalued amounts.

For the purpose of impairment testing, publishing titles are allocated to each of the Group's cash generating units, and are included within the Group's publishing segment (Note 4). Cash generating units are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of the value of publishing titles and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Other intangible assets

Other intangible assets in respect of digital activities are amortised using the straight-line method over the expected life, of two to five years and are tested for impairment at each reporting date or more frequently where there is an indication that the recoverable amount is less than the carrying amount.

Costs incurred in the development of websites are only capitalised if the criteria specified in IAS 38 are met.

Valuation of share-based payments

The Group estimates the expected value of equity-settled share-based payments and this is charged through the Income Statement over the vesting periods of the relevant awards. The cost is estimated using a Black-Scholes valuation model. The Black-Scholes calculations are based on a number of assumptions that are set out in Note 29 and are amended to take account of estimated levels of share vesting and exercise.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Print advertising revenue is recognised on publication and circulation revenue is recognised at the point of sale. Digital revenues are recognised on publication for advertising or delivery of service for other digital revenues. Printing revenue is recognised when the service is provided.

Foreign currencies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each period end, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the close of business on the last working day of the period. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items carried at historical cost in respect of which gains and losses are recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the period end date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Property, plant and equipment

Property, plant and equipment balances are shown at cost, net of depreciation and any provision for impairment. In certain cases the amounts of previous revaluations of properties conducted in 1996 or 1997 or the fair value of the property at the date of the acquisition by the Group have been treated as the deemed cost on transition to IFRS. Depreciation is provided on all property, plant and equipment, excluding land, at varying rates calculated to write-off cost over the useful lives. The principal rates employed are:

Assets classified as held for sale

Where a property or a significant item of equipment (such as a print press or property no longer required as part of Group operations) is marketed for sale, management is highly committed to the sale and the asset is available for immediate sale, the Group classifies that asset as held for sale. All assets in this category are expected to be sold within 12 months, as per the criteria of IFRS 5, and have therefore been classified as current assets. The value of the asset is held at the lower of the net book value or the expected net realisable sale value.

The Directors have estimated the sale values based on the current price that the asset is being marketed at and advice from independent property agents. The actual sale proceeds may differ from the estimate.

Provisions for onerous leases and dilapidations

Where the Group exits a rented property, an estimate of the anticipated total future cost payable under the terms of the operating lease, including rentals, rates and other related expenses, is charged to the Income Statement at the point where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Where there is a break clause in the contract, rentals are provided for up to that point. In addition, an estimate is made of the likelihood of sub-letting the premises and any rentals that would be receivable from a sub-tenant. Where receipt of sub-lease rentals is considered reasonable, these amounts are deducted from the rentals payable by the Group under the lease and provision charged for the net amount.

Under the terms of a number of property leases, the Group is required to return the property to its original condition at the lease expiry date. The Group has estimated the expected costs of these dilapidations and charged these costs to the Income Statement. No discounting has been applied to the provision as the effect of the discounting is not considered material.

Inventories

Inventories, largely paper, plates and ink, are stated at the lower of cost and net realisable value. Cost incurred in bringing materials to their present location and condition comprises: (a) raw materials and goods for resale at purchase cost on a first-in first-out basis; and (b) work in progress at cost of direct materials, labour and certain overheads. Net realisable value comprises selling price less any further costs expected to be incurred to completion and disposal.

Cash and cash equivalents

Cash and cash equivalents are those cash balances held by the Group and short-term bank deposits with an original maturity of three months or less.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Investments are recognised and derecognised on the trade date in accordance with the terms of the purchase or sale contract and are initially measured at fair value, plus transaction costs.

Available for sale financial assets

Listed and unlisted investments are shown as available for sale and are stated at fair value. Fair value of listed investments is determined with reference to quoted market prices. Fair value of unlisted investments is determined by reference to the latest set of audited results. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in reserves in reclassified to profit or loss.

Dividends on available for sale equity investments are recognised in the Income Statement when the Group's right to receive the payment is established.

Available for sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value, and reduced by appropriate allowance for estimated irrecoverable amounts.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each period end date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance for estimated irrecoverable amounts. Changes in the carrying value of this allowance are recognised in the Income Statement.

Financial liabilities and equity

Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Borrowings

The borrowings of £220 million 8.625% senior secured notes due 2019 agreed as part of the June 2014 refinancing are recorded at quoted market fair value and classified as Level 1 according to IFRS 13. As the borrowings are shown at fair value the associated issue costs have been charged to the Income Statement (refer to Note 8c).

Trade payables

Trade payables are not interest-bearing and are stated at their nominal value.

Leases

Rentals payable under operating leases are charged to the Group Income Statement on a straight-line basis over the term of therelevant lease. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the term of the lease.

Where the Group is a lessor, rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Operating (loss)/profit

Operating (loss) / profit is stated after charging restructuring, impairment, depreciation, amortisation and staff costs but before investment income, other finance income, finance costs and the results of discontinued operations.

Adjusted profit

The Group presents adjusted results to enable senior management to review the underlying performance of the Group.

Adjusted profit is stated after restating results for the impact of closed titles, discontinued operations, disposal of titles. In addition to the afore-mentioned the Group has also re-presented its results to exclude costs associated with business transformation, restructuring, impairment of printing presses and publishing titles, share based payment charges, accelerated write-downs of certain items of PP&E, acquisition-related, RCF reset, refinancing and pension-related costs. Refer to Non-GAAP measures on page xx for more detail.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the period end date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax-based values used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when the relevant requirements of IAS 12 are satisfied.

Retirement benefit costs

The Group provides pensions to employees through various schemes.

Payments to defined contribution retirement benefit schemes are charged to the Income Statement as an expense as they fall due.

For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each period end date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the Income Statement and presented in the Statement of Comprehensive Income. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. Net-interest is calculated by applying a discount rate to the net defined benefit liability or asset and is recognised within finance costs.

The retirement benefit obligation recognised in the Statement of Financial Position represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Valuation of pension liabilities

The Group records in its Statement of Financial Position a liability equivalent to the deficit on the Group's defined benefit pension schemes. The pension liability is determined with advice from the Group's actuarial advisers each year and can fluctuate based on a number of factors, some of which are outside the control of management. The main factors that can impact the valuation include:

· the discount rate used to discount future liabilities back to the present date, determined each year from the yield on corporate bonds;

· the actual returns on investments experienced as compared to the expected rates used in the previous valuation;

· the actual rates of salary and pension increase as compared to the expected rates used in the previous valuation;

· the forecast inflation rate experienced as compared to the expected rates used in the previous valuation; and

· mortality assumptions based on standard base table adjusted to reflect specific conclusions and conditions based on a study of the actual scheme members.

Details of the assumptions used to determine the liability at 31 December 2016 are set out in Note 15.

Impairment of publishing titles, print presses and other intangible assets

Determining whether publishing titles are impaired requires an estimation of the value in use of the cash generating units (CGUs) to which these assets are allocated. Key areas of judgement in the value in use calculation include the identification of appropriate CGUs, estimation of future cash flows expected to arise from each CGU, the long-term growth rates and a suitable discount rate to apply to cash flows in order to calculate present value. The Group has identified its CGUs based on the seven geographic regions in which it operates. This is considered to be the lowest level at which cash inflows generated are largely independent of the cash inflows from other groups of assets and has been consistently applied in the current and prior periods.

Determining whether print presses are impaired requires an estimation of the value in use of each print site. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the print sites and a suitable discount rate in order to calculate present value).

Details of the impairment reviews that the Group performs in relation to other intangible assets are provided in Note 12.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the period end date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Fair value measurements and valuation processes

The key assumptions concerning the future and other key sources of estimation uncertainty at the period end date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of publishing titles

The group is required to test, on an annual basis, whether intangible assets have suffered any impairment based on the recoverable amount of its cash generating units. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a pre-tax discount rate in order to calculate the present value of the cash flows. More information is included in the Critical judgements in applying the Group's accounting policies section above and within Note 12.

Pensions

The liabilities of the defined benefit pension schemes operated by the group are determined using methods relying on actuarial estimates and assumptions, including rates in increase in pensionable salaries and pensions, expected returns on scheme asserts, life expectancies and discount rates. Details of the key assumptions are set out included in the Critical judgements in applying the Group's accounting policies section above and within Note 15. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in assumptions used may have a significant effect on the group statement of comprehensive income and the group balance sheet.