3rd Mar 2005 07:02
Trinity Mirror PLC03 March 2005 Trinity Mirror plc 2004 Preliminary Results for 53 weeks ended 2 January 20053 March 2005 Trinity Mirror plc announces the Group's Preliminary Results for the 53 weeksended 2 January 2005. Operational highlights • "Stabilise Revitalise Grow" strategy delivering ahead of expectations • Robust revenue and profit performance Revenues(1) up 5.8% with operating profit(1,2) up 20.9%. Excluding the benefit of an additional week's trading, revenues(1) are up 4.5% and operating profit(1,2) is up 16.6% • Continued improvement in Group margin(1,2) Increased from 19.4% to 22.2%. Excluding the additional week's trading margin(1,2) improved to 21.7% • Incremental cost savings of £23.0 million Delivered net annualised savings of £28 million in 2004 and on target for at least £35 million net annualised savings for 2005 • Continued strength of cash flow contributing to £154.7 million fall in net debt to £450.4 million • Final dividend increased by 11.7% Annual dividend increased by 10.4% to 20.2 pence per share • Intention to return up to £250 million capital to shareholders through a three-year share buy-back programme commencing in 2005 Financial highlights Like-for-like(1,2) (pre exceptional items) Actual (post exceptional items) 2004 2004 2003 % % 2004 2003 % 53 weeks 52 weeks 52 weeks Change Change £m £m Change £m £m £m 2004 53 weeks 2004 52 weeks Turnover 1,141.7 1,127.5 1,078.9 5.8% 4.5% 1,141.7 1,095.1 4.3%Operatingprofit 253.1 244.2 209.4 20.9% 16.6% 240.9 100.5 139.7%Profitbefore tax 216.8 208.5 172.5 25.7% 20.9% 207.1 60.6 241.7% Earningsper share 50.9p 49.0p 41.1p 23.8% 19.2% 48.9p 4.6p 963.0%Dividendper share 20.2p 18.3p 10.4% Net debt 450.4 605.1 Footnotes(1) Turnover and operating profit adjusted to exclude the results ofWheatley Dyson & Son Limited which was disposed of in February 2003 and theIrish regional newspaper titles in Belfast, Derry and Donegal which weredisposed of in January 2004. During the 53 weeks ended 2 January 2005 thesebusinesses achieved turnover of £nil million (2003: £16.2 million) and operatingprofit of £nil million (2003: £3.1million). Further narrative on the statutoryfinancial information is provided in the financial summary on pages 11 and 12.(2) Group operating exceptional items of £12.2 million (2003: £112.0million) include a £nil million (2003: £100.0 million) impairment charge againstthe carrying value of the publishing rights and titles of our Regional titles inthe South. Total exceptional items before tax of £9.7 million (2003: £111.9million), and after tax of £6.0 million (2003: £106.7 million), also include thenet profit on the disposal of subsidiary undertakings and properties. Furthernarrative on the statutory financial information is provided in the financialsummary on pages 11 and 12. Sir Victor Blank, Chairman of Trinity Mirror plc, commented: "We are in good shape both operationally and financially. The management team isfocused on growth, both organically from within our existing businesses, and byreviewing the opportunities for acquisition. We have both the talent andresources to achieve this and in returning capital to shareholders, we will notbe inhibiting our plans for growth" Sly Bailey, Chief Executive of Trinity Mirror plc, commented: "The results represent the effect of the first full year of our performancebased strategy Stabilise Revitalise Grow. They are also a testament to thehighly motivated and talented people who make up Trinity Mirror and haverefocused and reprioritised their efforts. This is absolutely a team effort andtogether we have delivered all of the financial targets we promised." Enquiries: Trinity Mirror plc 020 7293 3000Vijay Vaghela, Group Finance DirectorNick Fullagar, Director of Corporate Communications Finsbury 020 7251 3801Rupert YoungerJames Leviton Chief Executive's Statement The 2004 results have benefited from the first full year of ourperformance-based strategy 'Stabilise Revitalise Grow'. The Group has deliveredsignificantly improved results with a 5.8% increase in turnover* from £1,078.9million to £1,141.7 million, and a 20.9% improvement in operating profit* from£209.4 million to £253.1 million. Group operating margins* increased by 2.8%from 19.4% to 22.2%. Excluding the impact of the additional week's trading in2004, turnover* increased by 4.5% to £1,127.5 million, operating profits*increased by 16.6% to £244.2 million and operating margins* increased by 2.3% to21.7%. Furthermore, we achieved all of our stated financial targets as follows: • Incremental net cost savings of £23 million representing annualised savings of £28 million in 2004. The Group is on track to deliver a minimum of £7 million incremental net cost savings in 2005, contributing to net annualised cost savings of at least £35 million in 2005 • The final dividend has been increased by 11.7% which coupled with the increased interim dividend of 7.3% represents an increase in the total dividend of 10.4% • Net debt reduced by £154.7 million to £450.4 million • Operating margins* for the Regionals division further improved by 4.2% to 27.9%. Excluding the additional week's trading, operating margins* have increased by 3.9% to 27.6% • Digital media activities achieved a profit of £0.7 million, an improvement of £4.5 million from a loss of £3.8 million in 2003 While the Group surpassed all of its financial targets, the six-monthly marketshare performance of the Daily Mirror was disappointing. Although market sharestabilised at around 19.5% by the end of the year, it fell by 0.8% during 2004.This was principally as a result of an estimated 3% loss of circulationfollowing the publication in May of the fake Iraq prisoners abuse pictures. In the highly competitive Sunday tabloid market, which is driven by substantialpromotional activity, the Sunday Mirror improved its six-monthly average marketshare from 15.6% to 15.9% while The People lost 0.7% market share from 10.5% to9.8%.Looking forward, the maintenance of market share for the Group's National titleswill remain a key focus. However, the emphasis will be on building profitabilityand enhancing shareholder value rather than maintaining market share at any costin a marketplace characterised by significant price cutting and marketingactivity. Building a platform for growth 2004 was a year of substantial change and progress for the Group as we continuedto strengthen our financial position while building a robust platform forgrowth. The key areas of progress during the year were as follows: • Strengthened management and operational structures within the core business. In the Regionals division a new Managing Director has been appointed who will manage the division through a newly created Regionals Executive Board. The Executive Board consists of senior management drawn from within the division and the centre. A new senior post of Newspaper Sales Director has been created in the Regionals division to focus on driving and improving circulation performance. The Nationals division (UK and Scottish) is now managed by a single Managing Director with responsibility for all aspects of the division's operations. • An increased focus on driving top-line revenues, both in the core business and from developing new activities. Examples can be seen across the Group and include the creation of new standard advertising platforms for the Regional titles, significant growth in digital revenues, increased revenues from the Metro titles, and the launch of The One Directory in Scotland. The Nationals division achieved growth in advertising revenues for the first time since 2000. • Establishment of a Group-wide Advertising Board to assist in the drive for higher performance and best practice across the advertising function, to co-ordinate sales activity with key clients and to oversee the installation of a common Group-wide Advertising system. The introduction of more efficient processes, the development of specialist sector knowledge and cross-selling between our Regional and National titles have already begun to drive incremental revenues. • Circulation revenue benefits seen from the 'little and often' cover pricing policy implemented across the Group. • Creation of an efficient Manufacturing network. The number of print sites across the Group has been reduced from 12 to 9 contributing to better operational efficiencies and significantly reducing capital requirements. This network of printing assets has enabled the Group to drive new printing revenues and to secure a new 15-year contract with Guardian Media Group to print their regional titles in the North of England. The same contract also halved the £45 million capital expenditure requirement for four new full-colour presses in Oldham. The Group has also saved a further £30 million of future capital expenditure through the closure of two plants in Huddersfield and Chester. The newspapers previously printed at these sites are now using print facilities in Oldham, Liverpool, Birmingham and Scotland and have benefited from a switch to a tabloid format with increased colour, making them more attractive to readers and advertisers alike. • A drive for greater efficiencies in the supply chain, covering all newstrade activities from distribution and trade marketing through to retail and home delivery. Progress to date has included the re-negotiation of long-term contracts with wholesale partners, for the first time across the entire Group. Presently the Group is evaluating the potential benefits of moving some of its internal regional distribution network to its external wholesale partners. • Increased operational efficiencies through completion of the centralisation of our Finance, Human Resources and IT functions. This has the dual benefit of allowing local management to focus on driving publishing initiatives in their markets while being supported by improved Group management of these functions. • A continued focus on cost management which is now embedded in the corporate culture of the Group. This is demonstrated by the higher than targeted cost savings achieved in the year. In addition to the improvements seen as a result of implementing the Group'sperformance-based strategy, the business benefited from a general improvement inthe advertising market, in particular for the Regionals division. However, theGroup faces the industry-wide challenge of improving overall circulation volumeperformance. Growth initiatives As the performance of the business has stabilised and improved, management hasfocused attention on driving growth initiatives, seeking to grow revenues bothfrom the core business and from new products and revenue streams, building onits competencies, market positions and customer relationships. Ongoing initiatives to revitalise and grow the business include the following: • A number of the Group's Regional titles have been relaunched in tabloid format with benefits to both advertising and circulation revenues, including a positive impact on circulation volumes. 2005 will see a continued focus on the management of the portfolio, both through improvements to existing titles and new launches, such as the successful launch of a new free newspaper in Maidenhead in October 2004. • Our digital activities have been refined and developed across the Group during 2004 and will form a key pillar of the strategy going forwards. In our Regionals division management has focused on becoming a true multi-platform local publishing and advertising business. Performance of digital media activities in the Regionals division has been significantly improved, with strong revenue growth of 60.5% and profits seen for the first time in 2004. The Group's commitment to fish4 is beginning to pay real dividends with the recent NORAS survey rating fish4 as the UK's most popular website for job seekers. The online activities of the Group's Sports division also continue to show marked improvements with profits* of £0.6 million in 2004, an increase of 100%. New digital launches have included the launch of ScotCareers, a new recruitment website in Scotland, and a public sector recruitment website in Wales. • Building on our core competencies and strong market positions, the Group is also exploring new activities. Utilising existing infrastructure, The One Directory has been successfully launched in Edinburgh and Glasgow. This unique combination of editorial and classified directory content has secured new revenue and delivered profit in its first year. Building on this success the Group is considering further roll-out of The One Directory in 2005, initially in Scotland. Our focus on continuing to improve the core businesses while seeking outopportunities in new but related markets is part of our strategy of growing thebusiness. While initiatives to date derive from our existing core businesses,the Group will also consider external opportunities to grow the business. Anyopportunities must satisfy our key objective of enhancing shareholder value. A firm foundation to grow shareholder value As a direct result of the continually improving profitability of the corebusiness, the Group has exceeded its financial targets. Given the highlycash-generative nature of the Group's businesses coupled with continuedconfidence in improving performance, the Board believes it appropriate tocommence a substantial return of capital to shareholders in order to maintain anefficient yet prudent capital structure. While we will continue to review allopportunities for enhancing returns to shareholders it is our current intentionto return up to £250 million through a share buy-back programme over the nextthree years. In addition to returning capital to shareholders through a share buy-backprogramme, the Group is committed to progressively increasing dividends. The combination of increased dividends and a share buy-back programme representsthe most significant return of capital to shareholders in the history of theGroup. Board changes Penny Hughes and David Marlow, non-executive directors, will retire at theconclusion of the Annual General Meeting on 5 May 2005 and will stand down fromthe Board. Gary Hoffman, Chief Executive of Barclaycard, has been appointed asnon-executive director with effect from 3 March 2005. Outlook The strong results delivered in 2004 and the continuing benefits of ourperformance-based strategy lead the Board to look forward to another year ofprogress during 2005. Review of operations Regionals division The turnover* and operating profit* of the Group's Regionals division,incorporating Metros and Digital Media, are as follows: 53 weeks 52 weeks 52 weeks Change Change 2004 2004 2003 53 weeks 52 weeks £m £m £m % %Turnover*Regional newspapertitles 522.1 517.7 494.8 5.5% 4.6%Metros 11.9 11.9 10.5 13.3% 13.3%Digital mediaactivities 6.1 6.1 3.8 60.5% 60.5%Regionals division 540.1 535.7 509.1 6.1% 5.2% Operating profit*Regional newspapertitles 148.6 145.7 124.4 19.5% 17.1%Metros 1.3 1.3 0.2 550.0% 550.0%Digital mediaactivities 0.7 0.7 (3.8) n/a n/aRegionals division 150.6 147.7 120.8 24.7% 22.3% Operating margin* 27.9% 27.6% 23.7% 4.2% 3.9% The combination of numerous revenue initiatives and the continued tightmanagement of costs has driven robust operating profit* and margin* progressionfor the Regionals division. Revenue* increased by 6.1% and operating profit* increased by 24.7%. Excludingthe benefit of the additional week's trading, revenues* increased by 5.2% andoperating profit* increased by 22.3%. A strong performance for core Regionalnewspaper titles was supported by significant improvements from Metros andDigital Media activities. The Group's three Metros achieved a £1.1 millionimprovement in operating profits* to £1.3 million while Digital Media activitiesachieved a profit* of £0.7 million, representing an improvement of £4.5 millioncompared to a loss of £3.8 million in 2003. Operating margin*, a key area of management focus, improved by 4.2% to 27.9%.Excluding the benefit of the additional week's trading, operating margin*improved by 3.9% to 27.6%. Advertising revenue* for the Regionals division increased by 6.0% from £394.0million to £417.8 million. This includes advertising revenue* growth of 5.2% forthe Regional newspaper titles excluding Metros, 13.5% for Metros and 100.0% forDigital Media activities. Excluding the additional week's trading, advertisingrevenues* increased by 5.3% with Regional newspaper titles, excluding Metros,achieving growth of 4.5%. The division achieved year-on-year growth for allcategories (excluding the additional week's trading) with Display up 3.9%,Recruitment up 6.8%, Property up 12.5%, Motors up 0.3% and other classifiedcategories up 2.8%. Advertising revenues for the Regional newspaper titles in London and the SouthEast have continued to improve with growth of 4.5% (3.8% excluding theadditional week's trading) reflecting 3.7% in the first half and 5.2% (4.0%excluding the additional week's trading) in the second half compared to adecline of 2.5% in 2003. Metros achieved strong advertising revenue growth of £1.4 million (13.5%) drivenby an 11.7% (excluding the additional week's trading) increase in Display and a43.6% (excluding the additional week's trading) increase in Recruitment. Digital Media activities delivered a robust performance with total revenues up60.5% with advertising revenues increasing by 100.0% with all categoriesachieving strong year-on-year growth. Circulation revenue* increased by 6.0% from £76.1 million to £80.7 million.Excluding the benefit of the additional week's trading, circulation revenuesincreased by 4.3% to £79.4 million. The performance reflects the benefit ofcover price increases partially offset by circulation volume declines. Duringthe year the Regionals division experienced circulation declines of 5.6% forEvening titles, 3.0% for Morning titles, 2.0% for Weekly titles and 8.7% forSunday titles. Improving this circulation performance remains a key area offocus for management. Some improvement in performance was achieved for a numberof titles in the second half of the year with the daily Morning titles decliningby 2.3% in the second half compared to 3.7% in the first. Nationals division The turnover and operating profit* of the Group's Nationals division is asfollows: 53 weeks 52 weeks 52 weeks Change Change 2004 2004 2003 53 weeks 52 weeks £m £m £m % % TurnoverUK Nationals 407.2 400.1 386.2 5.4% 3.6%Scottish Nationals 112.5 110.7 106.0 6.1% 4.4%Nationals division 519.7 510.8 492.2 5.6% 3.8% Operating profit*UK Nationals 70.4 66.3 60.8 15.8% 9.0%Scottish Nationals 24.7 23.5 25.0 (1.2)% (6.0)%Nationals division 95.1 89.8 85.8 10.8% 4.7% Operating margin* 18.3% 17.6% 17.4% 0.9% 0.2% The Nationals division has delivered a robust performance in an extremelychallenging and competitive marketplace. Revenues were up 5.6% with operatingprofits* up 10.8%. Excluding the benefit of the additional week's trading,revenues increased by 3.8% and operating profit* increased by 4.7%. A strongperformance for the UK Nationals was partially offset by a weaker performance inthe Scottish Nationals. The reduced operating profit* in the Scottish Nationalsreflects additional investment in product and marketing, a net investment of£0.4 million in ScotCareers, a substantially increased FRS17 pension charge andthere being no increase in the cover price for the Monday to Friday editions ofthe Daily Record until November 2004. Operating margins* improved slightly by 0.9% from 17.4% to 18.3%. Excluding thebenefit of the additional week's trading, operating margins* increased by 0.2%to 17.6% with the UK Nationals improving by 0.9% to 16.6% and the ScottishNationals falling by 2.4% to 21.2%. Circulation revenue increased by 6.5% from £261.9 million to £279.0 million,reflecting a 7.4% increase for the UK Nationals and a 3.3% increase for theScottish Nationals. Excluding the benefit of the additional week's trading, circulation revenue increased by 4.7% to £274.2 million, reflecting a 5.5%increase for the UK Nationals and a 1.7% increase for the Scottish Nationals.The increase in circulation revenues reflects the benefit of increased coverprices partially offset by reduced circulation volumes. The Daily Mirror average circulation volume over the 12-month period fell by6.9% (6.8% fall in 2003). The disappointing performance reflects the impact ofreduced volumes following the publication of the fake Iraq prisoner abusepictures in May. Average circulation volumes were down 5.3% in the first halfcompared to 8.4% in the second half. Six-monthly market share (excludingsampling) for the Daily Mirror fell by 0.8% from 20.3% to 19.5% during the year.The market share was maintained at 20.3% for the first 5 months but fellfollowing the publication of the fake Iraq abuse pictures in May. The Sunday Mirror and The People continue to operate in a highly competitiveSunday market driven by marketing and promotional activity. Despite theincreased level of competitive activity in the marketplace, the Sunday Mirrorlimited average circulation volume decline over the 12-month period to 1.8%. The2004 performance compares to declines of 6.9% in 2003. Average circulationvolumes were down 3.0% in the first half compared to 0.6% in the second half. Inthe final quarter of 2004 the Sunday Mirror achieved year-on-year growth of 0.4%with every month achieving growth. The significantly improved circulationperformance enabled the Sunday Mirror to increase six-monthly market share(excluding sampling) by 0.3% from 15.6% to 15.9%. The People had a disappointing circulation volume performance with circulationfalling by 8.6% during the 12-month period. However, the title improved its rateof decline compared to the 13.8% fall in 2003. The circulation performance ofThe People contributed to a fall in six-monthly market share of 0.7% to 9.8%.For the first 10 months The People maintained market share in excess of 10.0%. The Scottish National newspaper market continues to be challenging with pricediscounting and substantial marketing investment by rival UK tabloid newspapers.However, despite the intense competition, the Daily Record improved itsyear-on-year circulation trend. This improved trend reflects the benefit ofadditional product and marketing investment and the first full year of the neweditor appointed in September 2003. The Daily Record and Sunday Mail averagecirculation volume (Scottish sales only) declined over the 12-month period by4.3% (6.4% for 2003) and 5.1% (4.6% for 2003) respectively. An improved advertising environment during 2004 enabled advertising revenues forthe Nationals division to increase by 3.9% with the UK Nationals increasing by3.6% and the Scottish Nationals increasing by 4.8%. Excluding the benefit of theadditional week's trading, advertising revenues for the Nationals divisionincreased by 2.1% with the UK Nationals increasing by 1.7% and the ScottishNationals increasing by 3.1%. This represents the first year of increasedadvertising revenues for the Nationals division since 2000. For the three UK titles advertising revenue growth of 2.6% in the first half waspartially reduced by growth of 0.7% (excluding the additional week's trading) inthe second half. Advertising revenues in December, excluding the additionalweek's trading, fell by 2.5%, reflecting the stronger comparative for 2003 whenadvertising revenue grew by 8.7%. In Scotland, advertising revenue growth of 2.9% in the first half was supportedby growth of 3.6% in the second half. The better performance for the Scottishtitles includes the benefit of the newly launched The One Directory in Glasgowand Edinburgh. Excluding The One Directory, advertising revenues in the ScottishNationals increased by 1.1% for the year (excluding the additional week'strading) with the second half growing by 0.3%. Sports division The Sports division continued to deliver strong performance with revenuesincreasing by 12.7% to £48.9 million and operating profits* increasing by 26.8%to £18.0 million (2003: £14.2 million). Excluding the benefit of the additionalweek's trading, revenues increased by 10.8% to £48.1 million and operatingprofits* increased by 21.8% to £17.3 million. Circulation revenues grew by 10.2% from £28.3 million to £31.2 million.Excluding the benefit of the additional week's trading, circulation revenuesgrew by 8.1% to £30.6 million. The circulation revenue performance reflects thebenefit of increased cover prices for all titles and additional Sundaypublishing days. This was partially offset by reduced volumes for the Monday toSaturday editions of the Racing Post, which fell by 2.5% in part due to a hiatusin satellite TV coverage of UK racing between March and June 2004 . The division achieved strong advertising revenue growth of 18.0% from £12.2million to £14.4 million. Excluding the additional week's trading, advertisingrevenues increased by 16.4% to £14.2 million. The division's online operations continued to make further improvements withrevenues increasing by 20.0% to £1.8 million and operating profits* increasingby 100.0% to £0.6 million. Racingpost.co.uk, which was merged withSmartbet.co.uk during the year, had average monthly page impressions of 44.3million in 2004. Operating margin* for the Sports division improved by 4.1% from 32.7% to 36.8%.Excluding the benefit of the additional week's trading, operating margins*improved by 3.3% from 32.7% to 36.0%. Magazines and Exhibitions The division achieved revenue growth of 4.3% from £30.5 million to £31.8 millionand operating profit* growth of 47.9% from £4.8 million to £7.1 million. The2004 results demonstrate the benefits of portfolio restructuring during 2003 and2004. Circulation revenue increased by 4.7% to £4.5 million driven by cover priceincreases partially offset by reduced volumes. Advertising revenue increased by 2.8% to £14.7 million. Other revenue, which isprincipally stand and ticket sales for exhibitions, increased by 5.9% to £12.6million. The Wedding and Bridal shows in particular achieved strong stand spacerevenue and visitor numbers. Operating margin* for the Magazines and Exhibitions division improved by 6.6%from 15.7% to 22.3% reflecting the full-year benefits of the cost savingsgenerated by the comprehensive restructuring programme. Arrow Interactive Arrow Interactive reported losses* of £1.3 million, an increase of £1.0 millionfrom £0.3 million losses in 2003. The division has now been refocused on drivingrevenues for the Group only and will not be separately reported for 2005. Central Costs During the year central costs* increased by £0.5 million, from £15.9 million to£16.4 million. The increase in central costs reflects the benefit of costsavings offset by additional costs associated with the newly launched Long TermIncentive Plan (LTIP), increased bonus payments to central areas driven byimproved performance and an increase in the size of the central development teamto focus on revitalising our products and processes and to develop growthopportunities. Progress on key projects The Group continues to make significant progress on the three key projects:Manufacturing, Supply Chain and Procurement. Manufacturing Manufacturing includes the Group's print facilities across the country andaccounts for approximately £124 million of annual costs excluding the costsassociated with external print contracts. These costs are to some extentdependent on volumes. Prior to July 2003, all print sites, with the exception ofthe three Nationals print sites in Watford, Oldham and Cardonald, were managedindependently. During 2003 the Group set a number of key objectives in this areaas follows: •Improve the quality of products to better serve the needs of readers and advertisers •Improve operating efficiencies •Reduce printing costs •Significantly reduce, over time, the level of capital expenditure required for the Group's printing assets The Group has made good progress during 2004 in achieving these objectivesthrough a transformation of the operational structure of printing through thecreation of a Manufacturing network. From 12 print sites and 41 printing pressesin 2003, the Group has now consolidated into 9 print sites and reduced thenumber of printing presses to 37. The reduction in the number of print sites andprinting presses has reduced the potential future re-pressing costs for theGroup of some £30 million and will contribute to annualised costs savings of £5million during 2005. While the obvious benefits of consolidation in terms of operating efficienciesand cost savings are being achieved there have also been additional benefits interms of product enhancements and additional contract print revenues. The availability of colour for our newspapers has been significantly improvedduring the year. Three of our sites have full-colour printing presses andadditional colour units have been installed in the Newcastle print plant. Inaddition the Group has announced a joint investment with Guardian Media GroupRegional newspaper division (GMG Regionals) of £45 million in 4 new colourpresses in Oldham, which will provide full colour for the Daily Mirror and anumber of our Regional titles in the North West in 2006. Whilst providingimproved colour facilities the GMG Regionals contract demonstrates the Group'sapproach to reducing the level of capital investment in print sites whilstimproving quality of our products. In addition to the benefits of sharingcapital investment, the Group has secured a 15-year contract to print the GMGRegionals titles in the North which will benefit the Group in reducing overallnet costs of printing. The Group's largest 12-press print site at Watford, the 4-press site inCardonald, Scotland and the 3-press site in Liverpool may require additionalinvestment in the short to medium term. While no commitments have been made todate, we envisage the costs associated with repressing the Watford print plantto be approximately £55 million and we will consider our options in relation toCardonald and Liverpool over the next couple of years. As the Group now operatesall its printing assets through the Manufacturing network, the capital costs forthese sites will be significantly lower than that under the previous structurewhere printing assets were managed through the local publishing businesses.Supply Chain The Supply Chain review covers all newstrade activities from distribution andtrade marketing through to retail and direct to home delivery. For the firsttime this review is being undertaken across the entire Group with the specificaim of: • Improving circulation volumes and thus revenues • Capturing the benefits of scale • Reducing costs • Increasing flexibility and responsiveness The project will help drive better overall performance across the businessthrough shared learning, improved copy management and more targeted analysis ofmarket opportunity. Progress during 2004 has included the following: • Conclusion of new 5-year wholesaler supply chain contracts on mutually beneficial terms • Commencement of a detailed review of our current in-house distribution network in some regions with our wholesale partners. The review will seek to evaluate the most efficient method of distribution (i.e. external or internal) with a view to finalising plans by the second half of 2005 • Commencement of the establishment of a centrally-led network (CLN) for circulation management for the Regional newspaper titles. A new Newspaper Sales Director for the Regionals division has been recruited and joined the Group in February 2005 and will lead the CLN. The CLN will better drive circulation performance through the establishment of common systems and procedures, thereby reducing overall operating costs, optimising investment and improving copy allocation and availability to drive circulation volume performance • Improved copy allocation and availability across all National titles The benefits of some of this work will become evident in the 2005 performance. Procurement In prior periods, with the exception of newsprint, the Group was not extractingthe full benefits of leveraging its scale in procurement. The establishment of aprocurement committee has enabled significant benefits to be extracted in allareas where common services and materials are acquired across the Group. Areasreviewed have included utilities, security, property services, insurance,travel, print materials and other consumables. The benefits of these newcontracts are included in the reported cost savings targets. Financial Summary Accounting policies used in the preparation of the financial information for the53 weeks ending 2 January 2005 are consistent with those set out in the Group'sfinancial statements for 2003. Profit and loss account On a statutory basis Group revenues increased 4.3% from £1,095.1 million to£1,141.7 million and operating profit before exceptional items increased by19.1% from £212.5 million to £253.1 million. On a like-for-like basis, excludingthe results of disposed activities from the 2003 results as defined in footnotes(1) and (2) on page 1, Group revenues* increased by 5.8% from £1,078.9 millionto £1,141.7 million and Group operating profit before exceptional itemsincreased by £43.7 million, representing an increase of 20.9% from £209.4million to £253.1 million. The 2004 results cover a 53-week compared to a 52-week period for 2004. The 2004period ended 2 January 2005, which was the closest Sunday to 31 December 2004.During the additional week, the final week of the period, revenue and operatingprofit was £14.2 million and £8.9 million respectively. Excluding the benefit ofthe additional week's trading, Group revenue* increased by 4.5% to £1,127.5million and operating profit* increased by 16.6% to £244.2 million. The 2004 results incorporate the benefits of £23 million incremental net costsavings partially offset by an increased FRS 17 operating profit current servicepension charge of £8.1 million. Further net incremental cost savings of at least£7.0 million are targeted for 2005 with annualised net cost savings of at least£35.0 million. The FRS 17 operating profit current service pension charge for2005 is expected to be £28.6 million, representing a decrease of £4.0 million. Contribution from associates was £1.3 million (2003: £1.2 million), reflectingthe Group's share of profits from its associate, The Press Association.Dividends totalling £3.2 million have been received from The Press Associationduring 2004 (2003: £0.9 million). Net interest payable (excluding the FRS 17 finance charge) fell by £3.4 millionto £34.9 million, reflecting the benefit of lower debt levels, which have beenpartially offset by increased interest rates. Excluding the additional week'sinterest charge, net interest payable fell by £4.0 million to £34.3 million.Group operating profit before exceptional items covers the net interest cost 7.3times. Other finance charges/income, reflecting the FRS 17 interest charge, fell by£0.2 million from £2.9 million in 2003 to £2.7 million. For 2005 an FRS 17finance credit of £1.8 million is expected. Exceptional costs, before tax, of £9.7 million (2003: £111.9 million) wereincurred during the year. These include net operating exceptional costs of £18.0million offset by profits on disposal of properties of £1.0 million,Maxwell-related receipts of £1.3 million, release of old accruals for which nofurther costs are expected of £3.5 million and non-operational profits of £2.5million. Note 4 to the summary financial information attached to thispreliminary results statement details the nature of the exceptional items. Acontinuing focus on driving through cost savings may result in additionalexceptional items in 2005, but will be supported by incremental cost benefits. Profit before tax and exceptional items was £216.8 million (2003: £172.5million). Excluding the benefit of the additional week's trading profit beforetax and exceptional items was £208.5 million. The tax charge for 2004 of £63.0 million incorporates a charge of £66.7 millionon profit before tax and exceptional items of £216.8 million, representing anunderlying rate of 30.8% (2003: 30.2%). Underlying earnings per share, before exceptional items, were 50.9 pence pershare (2003: 41.1 pence per share) an increase of 23.8%. Excluding the benefitof the additional week's trading in 2004, underlying earnings per share, beforeexceptional items, were 49.0 pence, representing an increase of 19.2%. Subject to the approval of the shareholders at the Annual General Meeting, thedirectors propose a final dividend of 14.3p per share to be paid on 10 June 2005to shareholders on the register at 6 May 2005. This will bring the full-yeardividend to 20.2p per share, an increase of 10.4%. The dividend is covered 2.5times by pre exceptional earnings and will be fully funded from operating cashflow. FRS 17 During the year the FRS 17 pension deficit has decreased from £248.1 million to£222.5 million (net of deferred tax). Total contributions to defined benefitpension schemes to fund ongoing accrual of benefits and past service deficitsincreased by £11.3 million from £25.2 million to £36.5 million. Contributions todefined contribution pension schemes increased from £0.2 million to £0.5million. For 2005, we currently expect defined benefit funding to increase by afurther estimated £10 million. The FRS 17 defined benefit operating profitcharge, before past service costs (£0.6 million) was £32.6 million in 2004 andis expected to be £28.6 million in 2005. The FRS 17 finance charge is expectedto decrease by £4.5 million from a £2.7 million charge in 2004 to a credit of£1.8 million in 2005. Cash flow and net debt The Group continued to generate strong cash flows, with net operating cash flowincreasing by £41.6 million from £246.2 million to £287.8 million. The strongoperating cash flows, coupled with the net proceeds of £42.6 million from thedisposal of the regional newspaper titles in Ireland and £12.5 million proceedsfrom the issues of additional shares following the exercise of share options,contributed to a reduction in net debt of £154.7 million, from £605.1 million to£450.4 million. The reduction in net debt has been achieved despite the paymentof increased dividends of £55.1 million, capital expenditure of £35.5 million,the buy-out of the minority interest in The Adscene Group Limited at a cost of£4.5 million and the purchase of shares for £6.2 million to provide for thepossible awards under the new Long Term Incentive Plan launched in 2004. Capital expenditure in 2004 was £35.5 million (net) (2003: £55.2 million)against a depreciation charge of £41.0 million (2003: £43.3 million). Thecapital expenditure included a further £23.7 million in respect of the regionalpress replacement project. Planned capital expenditure for 2005 is approximately£65.0 million, including £22.0 million for completing the installation of theinserting equipment in Birmingham and the Oldham re-pressing. All capitalexpenditure is expected to be financed from operating cash flows. At 2 January 2005 committed facilities of £742.0 million were available to theGroup, of which £259.5 million were undrawn. The committed facilities include a£269.0 million syndicated bank facility, US$602.0 million and £26.0 millionunsecured fixed rate loan notes and £6.0 million floating rate loan notes(representing the total obligations under a series of private placement USdollar and sterling loan notes respectively), obligations under finance leasesof £16.6 million and £13.9 million of acquisition loan notes. Net assets At 2 January 2005 net assets were £1,143.7 million, an increase of £117.8million. This includes the total carrying value of the Group's acquiredpublishing and newspaper titles of £1,579.9 million, goodwill of £5.6 million,tangible fixed assets of £385.7 million, net debt of £450.4 million and the FRS17 pension deficit of £222.5 million. The FRS 17 pension deficit decreased from£248.1 million to £222.5 million during the year, reflecting general marketconditions. International Accounting Standards The Group has completed its review in advance of adopting InternationalAccounting Standards in 2005. The key differences between the 2004 reportedresults and those that would have been reported under International AccountingStandards are explained in Note 10 on pages 21 to 25. *On a like-for-like basis, pre exceptional items basis as defined in footnotes(1) and (2) on page 1. Consolidated profit and loss accountfor the 53 weeks ended 2 January 2005 (52 weeks ended 28 December 2003) notes Before Exceptional Total Before Exceptional Total Exceptional items 2004 exceptional items 2003 items (note 4) items (note 4) £m £m £m £m £m £m------------------- ----- -------- -------- ------ ------- ------- -------Turnover 2 1,141.7 - 1,141.7 1,095.1 - 1,095.1------------------- ----- -------- -------- ------ ------- ------- -------Group operatingprofit 3 253.1 (12.2) 240.9 212.5 (112.0) 100.5Share of results ofassociatedundertakings 1.3 - 1.3 1.2 - 1.2------------------- ----- -------- -------- ------ ------- ------- -------Total operatingprofit 254.4 (12.2) 242.2 213.7 (112.0) 101.7Profit on disposal of subsidiaryundertakings/motorcycleshow business 4 - 2.5 2.5 - 0.1 0.1------------------- ----- -------- -------- ------ ------- ------- -------Profit on ordinaryactivities beforeinterest 254.4 (9.7) 244.7 213.7 (111.9) 101.8Net interest payable (34.9) - (34.9) (38.3) - (38.3)Other finance(charges)/income (2.7) - (2.7) (2.9) - (2.9)------------------- ----- -------- -------- ------ ------- ------- -------Profit on ordinaryactivities beforetaxation 216.8 (9.7) 207.1 172.5 (111.9) 60.6Tax on profiton ordinaryactivities 5 (66.7) 3.7 (63.0) (52.1) 5.2 (46.9)------------------- ----- -------- -------- ------ ------- ------- -------Profit on ordinaryactivitiesafter taxation 150.1 (6.0) 144.1 120.4 (106.7) 13.7Non-equity minorityinterest (0.1) - (0.1) (0.3) - (0.3)------------------- --- -------- -------- ------ ------- ------- -------Profit for thefinancial year 150.0 (6.0) 144.0 120.1 (106.7) 13.4Ordinarydividends onequity shares (59.8) (53.7)------------------- ----- -------- -------- ------ ------- ------- -------Retainedprofit/(loss)for thefinancial year 84.2 (40.3)------------------- ----- -------- -------- ------ ------- ------- ------- Earnings pershare (pence) 6Underlyingearnings pershare 50.9 41.1Exceptional items (2.0) (36.5)------------------- ----- -------- -------- ------ ------- ------- -------Earnings pershare - basic 48.9 4.6------------------- ----- -------- -------- ------ ------- ------- -------Earnings pershare - diluted 48.3 4.6------------------- ----- -------- -------- ------ ------- ------- ------- Turnover and operating profit include the results of Wheatley Dyson & SonLimited which was disposed of in February 2003 and the Irish regional newspapertitles in Belfast, Derry and Donegal which were disposed of in January 2004.During the 53 weeks ended 2 January 2005 these businesses achieved turnover of£nil million (2003: £16.2 million) and operating profit of £nil million (2003:£3.1million). All turnover and results arose from continuing operations. Consolidated statement of total recognised gains and lossesfor the 53 weeks ended 2 January 2005 (52 weeks ended 28 December 2003) 2004 2003 £m £m------------------------------------------------------------ ------- ------Profit for the financial year 144.0 13.4Difference between actual and expected returnon pension schemes' assets 24.7 55.1Experience gains/(losses) arising on pensionschemes' liabilities 5.0 (18.0)Effects of changes in assumptions underlyingthe present value of pension schemes' liabilities 6.4 (154.7)Deferred tax (liability)/asset associatedwith movement on pension schemes' deficits (10.8) 35.3------------------------------------------------------------ ------- ------Total recognised gains and losses in the year 169.3 (68.9)------------------------------------------------------------ ------- ------ Consolidated balance sheetat 2 January 2005 (28 December 2003) notes 2004 2003 £m £m---------------------------------------------- ----- --------- ---------Fixed assetsIntangible assets 1,585.5 1,622.4Tangible assets 385.7 401.0Investments 7.7 9.9---------------------------------------------- ----- --------- --------- 1,978.9 2,033.3---------------------------------------------- ----- --------- ---------Current assetsStocks 6.7 7.0Debtors 148.8 160.8Cash at bank and in hand 43.4 34.3---------------------------------------------- ----- --------- --------- 198.9 202.1---------------------------------------------- ----- --------- ---------Creditors: amounts falling due within oneyearBank loans, loan notes and overdrafts (36.4) (57.3)Obligations under finance leases (1.7) (4.4)Other creditors (250.0) (249.5)---------------------------------------------- ----- --------- --------- (288.1) (311.2)---------------------------------------------- ----- --------- ---------Net current liabilities (89.2) (109.1)---------------------------------------------- ----- --------- ---------Total assets less current liabilities 1,889.7 1,924.2 Creditors: amounts falling due after morethan one yearBank loans and loan notes (440.8) (554.9)Obligations under finance leases (14.9) (22.8)---------------------------------------------- ----- --------- --------- (455.7) (577.7)---------------------------------------------- ----- --------- ---------Provisions for liabilities and charges (67.8) (68.8)Non equity minority interest - (3.7)---------------------------------------------- ----- --------- ---------Net assets excluding pension schemes' 1,366.2 1,274.0liabilities ---------------------------------------------- ----- --------- --------- Pension schemes' liabilities 7 (222.5) (248.1)---------------------------------------------- ----- --------- ---------Net assets including pension schemes' 1,143.7 1,025.9liabilities ---------------------------------------------- ----- --------- ---------Equity capital and reservesCalled up share capital 29.7 29.4Share premium account 1,101.7 1,089.5Revaluation reserve 4.9 5.0Profit and loss account 7.4 (98.0)---------------------------------------------- ----- --------- ---------Equity shareholders' funds 1,143.7 1,025.9---------------------------------------------- ----- --------- --------- Consolidated cash flow statementfor the 53 weeks ended 2 January 2005 (52 weeks ended 28 December 2003) 2004 2003 £m £mNet cash inflow from operating activities 287.8 246.2Dividends received from associated undertakings 3.2 0.9Net cash outflow from returns on investments and servicingof finance (34.7) (42.4)Taxation paid (55.6) (44.9)Net cash outflow from capital expenditure and financialinvestment (35.5) (55.2)Net cash inflow/(outflow) from acquisitions and disposals 38.3 (0.3)Dividends paid (55.1) (52.0)----------------------------------------------------------- ------ -----Net cash inflow before financing 148.4 52.3Net cash outflow from financing (142.5) (53.5)----------------------------------------------------------- ------ -----Increase/(decrease) in cash 5.9 (1.2)----------------------------------------------------------- ------ ----- Reconciliation of net cash flow to movement in net debtfor the 53 weeks ended 2 January 2005 (52 weeks ended 28 December 2003) 2004 2003 £m £mIncrease/(decrease) in cash in the year 5.9 (1.2)Cash outflow from movement in debt and leasing finance 148.8 62.2----------------------------------------------------------- ------ -----Change in net debt resulting from cash flows 154.7 61.0----------------------------------------------------------- ------ -----Movement in net debt in the year 154.7 61.0Net debt at 28 December 2003 (605.1) (666.1)----------------------------------------------------------- ------ -----Net debt at 2 January 2005 (450.4) (605.1)----------------------------------------------------------- ------ ----- Analysis of net debtfor the 53 weeks ended 2 January 2005 (52 weeks ended 28 December 2003) At 28 Cash flow Loans repaid At 2 December £m £m January 2003 2005 £m £m Cash at bank and in hand 34.3 9.1 - 43.4Bank overdrafts (19.3) (3.2) - (22.5)------------------ -------- -------- -------- --------Net cash balances 15.0 5.9 - 20.9------------------ -------- -------- -------- --------Debt due within one year (38.0) - 24.1 (13.9)Debt due after one year (554.9) - 114.1 (440.8)Finance leases (27.2) 10.6 - (16.6)------------------ -------- -------- -------- --------Bank loans, loan notes andfinance leases (620.1) 10.6 138.2 (471.3)------------------ -------- -------- -------- --------Net debt (605.1) 16.5 138.2 (450.4)------------------ -------- -------- -------- -------- Notes to the 2004 preliminary statement 1. Change in accounting policies There were no changes to the Group's accounting policies during the 53 weeks to2 January 2005. 2. Turnover The analysis of the Group's turnover is as follows: 2004 2003 £m £m Regionals division* 540.1 525.3Nationals division 519.7 492.2Sports division 48.9 43.4Magazines and exhibitions 31.8 30.5Arrow Interactive 1.2 3.7------------------------------- ----------- -----------Group turnover by division 1,141.7 1,095.1------------------------------- ----------- ----------- * Regionals division includes turnover relating to Wheatley Dyson & Son Limitedwhich was disposed of in February 2003 and the Irish regional newspaper titlesin Belfast, Derry and Donegal which were disposed of in January 2004. During the53 weeks ended 2 January 2005 these businesses achieved turnover of £nil million(2003: £16.2 million) 3. Group operating profit before exceptional items The analysis of the Group's operating profit before exceptional items is asfollows: 2004 2003 £m £m Regionals division* 150.6 123.9Nationals division 95.1 85.8Sports division 18.0 14.2Magazines and exhibitions 7.1 4.8Arrow Interactive (1.3) (0.3)Central costs (16.4) (15.9)-------------------------------------------------- ----------- -----------Group operating profit before exceptional items by division 253.1 212.5-------------------------------------------------- ----------- ----------- * Regionals division includes operating profit relating to Wheatley Dyson & SonLimited which was disposed of in February 2003 and the Irish regional newspapertitles in Belfast, Derry and Donegal which were disposed of in January 2004.During the 53 weeks ended 2 January 2005 these businesses achieved operatingprofit of £nil million (2003: £3.1 million) Details of operating exceptional items totalling £12.2 million (2003: £112.0million) are set out in note 4, with the resultant Group operating profit afterexceptional items being £240.9 million (2003: £100.5 million). Group operating profit by geographical destination has not been presented as theelement of Group operating profit arising outside of the United Kingdom andRepublic of Ireland is immaterial. Notes to the 2004 preliminary statement (continued) 4. Exceptional itemsRelated Shares:
Reach Plc