2nd Mar 2006 07:03
Trinity Mirror PLC02 March 2006 Trinity Mirror plc 2005 Preliminary Results for 52 weeks ended 1st January 2006 2 March 2006 Trinity Mirror plc announces the Group's Preliminary Results for the 52 weeksended 1 January 2006. Financial highlights Like-for-like* Statutory 2005 2004 % 2005 2004 % 52 weeks 52 weeks Change 52 weeks 53 weeks Change £m £m £m £m Revenue 1,112.8 1,127.5 (1.3)% 1,122.0 1,141.7 (1.7)%Operatingprofit 250.2 246.1 1.7% 245.4 242.8 1.1%Profit beforetax 220.9 208.5 5.9% 209.5 207.1 1.2% Earnings pershare 52.6p 49.3p 6.7% 50.3p 49.2p 2.2%Dividend pershare 21.9p 20.2p 8.4% Net debt 492.5 454.9(1) Operational highlights - 'Stabilise Revitalise Grow' continues to deliver positive results- Improved performance despite challenging advertising revenue environment. Operating profit* and profit before tax* up 1.7% and 5.9% respectively- Incremental cost savings of £12 million. Exceeded annualised net cost savings target of £35 million by £5 million. Further targeted net savings of £15 million in 2006- Continued improvement in Group margin* from 21.8% to 22.5%, and margin growth for both Regionals and Nationals division despite advertising revenue declines- Completed four on-line acquisitions which complement and extend our core recruitment and property advertising presence- £52.7 million returned to shareholders through share buy-back programme- Strong cash flows resulting in net debt increasing by only £37.6 million despite share buy-back and £87.2 million acquisitions expenditure- Annual dividend (interim paid and final proposed) increased by 8.4% to 21.9 pence per share ---------------------(1) After adoption of IAS 39 on 3 January 2005 * Before acquisitions, non-recurring items, IAS 39 and for 2004 excludes theadditional week's trading. See reconciliation between statutory and like-for-like results in note 20. Within the following Chairman's Statement, Chief Executive's Statement andReview of Operations, all figures are presented on a like-for-like basis (whichis excluding the impact of acquisitions, non-recurring items, IAS 39 and theextra week's trading in 2004), unless otherwise stated, and reflect the impactof implementing International Financial Reporting Standards (IFRS) for both 2005and 2004. A reconciliation between the like-for-like and statutory numbers isprovided in Note 20. A full reconciliation of the performance from IFRS to UKGAAP applicable at 2 January 2005 is shown in Note 21. Chairman's Statement Trinity Mirror delivered a positive performance in 2005. Operating profit*increased by 1.7% to £250.2 million and profit before tax* improved by 5.9% to£220.9 million. Although on a like-for-like basis revenue declined by 1.3%, weagain improved Group operating margin*, from 21.8% to 22.5%. Seen in the context of our marketplace, these are good results. The year startedwith an encouraging advertising market but, as the economy slowed, reducingconsumer confidence, 2005 became increasingly challenging, particularly for ourindustry. The weakening economy impacted most advertising categories, withespecially difficult conditions for display and recruitment advertising. Furthervolatility was created by the General Election and the consequential impact onpublic sector advertising. Against this background, Trinity Mirror continues to reap the benefit of our'Stabilise Revitalise Grow' strategy. The market conditions resulted inmanagement taking immediate and decisive action from the first quarter tomitigate the effects of the economic downturn and to manage the business on theassumption that trading would not improve and might indeed worsen. That actionproved timely and our full-year results include the benefit of exceeding our £35million cost savings target by £5 million. Further net cost savings of at least£15 million have been targeted for 2006. At the same time, we actively pursued our digital strategy. We acquired fourcomplementary on-line advertising businesses and a small traditional recruitmentconsultancy business for £92.7 million, including deferred consideration of £5.5million. Despite this cash outflow, and the return of £52.7 million toshareholders under our share buy-back programme, the strong cash flows from ourbusinesses ensured that our net debt for the year rose by merely £37.6 millionto £492.5 million. The pressure on earnings continues as there is as yet no sign of improvement inour traditional advertising markets. But the Board remains confident with thestrong cash flow characteristics of our businesses and in the light of a goodperformance in 2005 proposes to increase the final dividend by 8.4% to 15.5p pershare. This means that our dividend for the year increased to 21.9p per sharefrom 20.2p last year. However, in order to maintain financial headroom forfurther investment in our businesses and any prospective acquisitions identifiedin pursuit of our strategy, the Board will continue the suspension of our £250million share buy-back programme. Our industry remains challenged by changing patterns of behaviour, but webelieve we have the right strategy to develop opportunities for growth boththrough acquisition and organically within our existing businesses. The Board isconfident that the talent and resources of the Group will enable us to deliver asatisfactory outcome for 2006. The strength of our businesses lies in the talent, the commitment and thecreativity of our people at all levels, both in management, in operations and insupport functions. They have performed wonderfully well in difficult conditionsthroughout 2005 and I know that they remain very committed to the success ofthis Group. On behalf of the Board, and our shareholders, I would like to thankthem for their dedication and enthusiasm. Against this background, and on a personal note, it is with mixed feelings thatI will step down from the Board of Trinity Mirror at the Annual General Meeting.My time with the company has been hugely enjoyable, not least because of thetremendous spirit and talent of the people I have had the pleasure to work with.However, one of the most important jobs of the Chairman is to encouragesuccession planning, including for their own position, and I believe that now isthe right time to go. There is a solid foundation for the future management ofthe business, and the Group is well placed to meet the challenges that lieahead. So, while I will be very sad to leave my colleagues, I will do so with immenseconfidence in their ability to deliver the very best for the Group and itsshareholders. ---------------------* Before acquisitions, non-recurring items, IAS 39 and for 2004 excludes theadditional week's trading. See reconciliation between statutory and like-for-like results in note 20. Chief Executive's Statement Our three-phase performance-based strategy 'Stabilise Revitalise Grow' forms thecornerstone of our success in achieving strong results in the face of the UK'sadvertising slowdown. It will continue to provide the foundation for futuregrowth and stability across the Group as we create a sustainable andvalue-enhancing media business. The core portfolio performed well during 2005 despite the difficult advertisingenvironment. Our Regionals division improved both operating profit* and margin*,despite extremely difficult revenue conditions which saw a sharp decline inrecruitment advertising, our most profitable advertising category. Despite theadverse revenue environment we continued to invest in the portfolio,revitalising and relaunching existing titles to ensure they remain relevant,compelling propositions for both readers and advertisers. Our commitment to excellence in journalism and marketing saw us conduct the UK'sbiggest ever regional press survey during 2005. The findings will help shapefurther product development across the Regionals portfolio and ensure ourproducts deliver to the needs of our readers and advertisers during 2006 andbeyond. While circulation volumes continue to be challenging the division's ABCperformance remains in line with or ahead of the market. Our National titles were also impacted by the advertising downturn. However,management mitigated the effects of reduced revenues through cost initiatives,and the division saw circulation revenue* growth, profit* growth and margin*progression. In Scotland we continued the development of The One Directory and doubled thenumber of editions from two to four during the year. Scotcareers, launched in2004, moved to break-even and has now become the number two on-line recruitmentsite in Scotland. Our Sports division delivered improved revenues* and profit* despite theadvertising slowdown. It is well advanced in plans to maintain the Racing Post'sleadership in the racing and sports betting markets. We have continued our investment programme in colour presses, in July announcingan £83 million investment over three years in new printing presses. Thisinvestment will provide our Nationals print sites with full colour capability bythe start of 2008. Coupled with previous investment this provides full colouracross the Group's manufacturing network with the exception of Liverpool andNewcastle. We do not envisage repressing these sites in the medium term. We arealso pleased with the progress made on the joint press investment with GMGRegionals at our Oldham press site. Production using the new equipment began inJanuary 2006. During 2005, in addition to strengthening our core portfolio, we have focused ondriving real growth from new initiatives, deepening our presence in our coremarkets and geographies, both in print and on-line. Further segmentation of ourmarkets through product layering - targeting different products at differentconsumer and advertiser segments - is allowing us to pursue new opportunitiesvia launch and acquisition, while ensuring our existing market-leading positionsare maintained in a changing media landscape. Any decision to launch or acquire is carefully considered against a range offactors. Consideration is given to the importance of the sector, our existingbrand or market strength and expertise, the competitive nature of the market,the time needed to build a strong position, the scarcity of assets and ourreturn on investment. Strong media businesses build a track record of innovation as a means of drivinggrowth, resulting in successful new products that build new revenues andprofits. During 2005 we launched a total of 36 new products and services,including weekly paid-for and free newspapers, on-line brands, directories andshows. These investments continue to be funded from our existing resources. In our Regional business continuing to renew and grow our core portfolio throughlaunch is a key element of the Regionals business strategy. 2005 saw the launchof five weekly newspapers, both paid-for and free, achieving our aims ofstrengthening our position within existing marketplaces and expanding ourpublishing footprint. These are all profitable in their first year. 2006 willsee the launch of two new Metros in Liverpool and Cardiff, building on thesuccess of the Group's three existing Metro titles. 2005 also saw continuing development of our digital activities, both via launchand acquisition. Our initial launch focus has been in the key classifiedcategory of recruitment advertising and during the year we launched a total ofnine local recruitment sites. Our aim is to win strong, profitable positionson-line that complement our print brands. Revenues are being driven fromup-selling print to local on-line sites. This complements our national positionwith Fish4. The launches also enable us to capture local on-line only revenues.We also launched ten local community sites focusing on low-end classified "forsale" and "wanted" advertising, a further example of our market-layeringapproach. Initially revenues are expected to be minimal for these digitallaunches however more importantly they establish a foothold in new markets andrevenues will build over time. Progress continues in 2006 with the launch of tenlocal property sites and five motor sites. During the year we successfully completed the acquisition of four market-leadingdigital businesses: the hotgroup, GAAPweb and Secsinthecity in the recruitmentclassified sector and Smartnewhomes in the property sector. Each acquisitionadds scale in key markets and is complementary to our existing print portfolio,enabling us to expand nationally beyond our existing regional footprint. Theyalso allow us to build upon our print strengths, as is the case withSmartnewhomes, or provide access to new market segments where we are less strongin print, as is the case with financial jobs site GAAPweb. Significant progress has been made with the integration of these assets whichnow benefit from the scale and reach the Group provides. We have strengthenedtheir management structures, including the appointment of a Head of DigitalRecruitment. Smartnewhomes is now fully integrated into the activities of ourRegionals division. Overall, across the businesses, despite the difficult trading conditions, theyear has been characterised by strong development of the portfolio via bothlaunch and acquisition, coupled with a continued tight focus on cost management.Our strategy remains on course and we believe that our actions during 2005 haveresulted in a stronger business, which is well equipped to meet the challengesof the future. Board changes In January 2006 Sir Victor Blank, the Chairman of the Group, announced he willbe retiring from the Board at the Company's Annual General Meeting in May 2006. Sir Victor has made a significant contribution over a number of years duringwhich he oversaw the creation of the UK's largest newspaper group when MirrorGroup merged with Trinity in 1999. The Board would like to thank him for hisenthusiasm and dedication and for the support he has given the management teamto help develop our business. The process to recruit a new Chairman is well advanced. Outlook 2006 will see the continuation of the 'Stabilise Revitalise Grow' strategy withthe aim to drive further improvements through continued investment and drivingefficiencies. The advertising market is expected to remain difficult, and wealso anticipate significant cost pressure from newsprint price increases of 7%,increasing energy costs, increased labour costs and other inflationary costincreases. However, we have already taken steps to partially mitigate the impactof these difficult trading conditions with the targeted cost savings of £15million for 2006. Within the context of a challenging advertising environmentthe Board expects to deliver a satisfactory performance. ---------------------* Before acquisitions, non-recurring items, IAS 39 and for 2004 excludes theadditional week's trading. Review of Operations Regionals division The Regionals division publishes some 240 local and regional newspapers acrossthe UK. In 2005 the division achieved a robust performance in the face of challengingmarket conditions, which impacted the key advertising revenue stream for most ofthe year. Despite the difficult advertising conditions, the division maintained its focuson improving profitability, reducing costs and improving margin. The difficulttrading environment did not inhibit management from investing to grow thebusiness for the future. The division's focus on growth in all areas of the business, coupled with strongmanagement action on cost, has helped mitigate the impact of declines inadvertising revenue on operating profit and margin. The revenue* and operating profit* of the Group's Regionals division are asfollows: 2005 2004 like-for-like* like-for-like* % £m £m ChangeRevenue- Regional newspaper titles 509.5 517.7 (1.6)%- Metros 13.3 11.9 11.8%- Digital media activities 7.6 6.1 24.6% Total revenue 530.4 535.7 (1.0)% Operating Profit- Regional newspaper titles 145.8 146.2 (0.3)%- Metros 1.9 1.3 46.2%- Digital media activities 1.8 0.7 157.1% Total operating profit 149.5 148.2 0.9% Operating Margin 28.2% 27.7% 0.5% The Regionals division improved operating profit* by £1.3 million (0.9%),despite revenue* declines of £5.3 million (1.0%). On an actual basis, includingacquisitions (before amortisation of intangibles of £3.3 million) and the extraweek's trading in 2004, but before non-recurring items, revenues for theRegionals division decreased by £0.5 million (0.1%) from £540.1 million to£539.6 million and operating profit decreased by £0.3 million (0.2%) from £151.0million to £150.7 million. The operating profit* decrease experienced by the core Regional newspaper titleswas offset by continuing improvements from Metros and digital media activities.The division's three Metros achieved a £0.6 million (46.2%) improvement inoperating profit* to £1.9 million. Having shown a profit for the first time in2004, the existing digital business - which includes the partnership in Fish4 -went from strength to strength, delivering further strong profit* growth of157.1% from £0.7 million to £1.8 million. The acquisitions of the hotgroup, GAAPweb, Smartnewhomes and Secsinthecityrapidly added scale and provided access to new on-line revenues in coreclassified categories. The hotgroup provides Trinity Mirror for the first timewith a national footprint in the recruitment market, allowing entry into areaswhere we do not publish newspapers. GAAPweb, a specialist high-end financial andaccountancy jobs site, provides access to a new jobs market not well-served byour print portfolio. Secsinthecity, which serves the secretarial andadministrative jobs market in the South East, will benefit from our scale as webuild the brand beyond its current market penetration. The four acquisitions completed during the year contributed incremental digitalrevenues of £3.5 million and other revenues of £5.7 million in 2005. Beforeamortisation of intangible assets and non-recurring costs the acquisitionscontributed £1.2 million operating profit in 2005. Amortisation relating to theacquisitions was £3.3 million in the year and is expected to be £9.7 million in2006. Due to decisive action on costs during the year, the impact of the advertisingdownturn was contained, with operating margin* improving by 0.5% to 28.2%. On anactual basis before non-recurring items, the operating margin fell by 0.7%reflecting the dilutive impact of acquisitions due to the amortisation ofintangibles and the positive impact on margins in 2004 from the additionalweek's trading. Advertising revenue* for the Regionals division fell by 2.7% from £415.0 millionto £403.7 million reflecting an increase of 1.5% in the first half offset by adecline of 7.0% in the second half. By category Display was down by 0.1%,Recruitment was down by 14.3%, Property was up by 10.4%, Motors was down by 5.7%and other classified categories were up by 4.6%. On an actual basis includingacquisitions and the additional week's trading in 2004, advertising revenuedecreased by 2.5% from £417.8 million to £407.2 million. Metros achieved strong advertising* growth of £1.4 million (11.9%), driven by a16.9% increase in Display, partially offset by an 8.1% decrease in Recruitment. Digital media activities continued their strong growth trajectory withadvertising revenue* increasing by £1.5 million (31.3%) across all categoriesother than property. The four acquisitions completed during the year achievedadvertising revenues of £3.5 million since completion during 2005. On anannualised basis the acquisitions achieved advertising revenues of £13.3 millionfor 2005. Circulation revenue* increased by £3.4 million (4.3%). On an actual basisincluding the additional week's trading in 2004, circulation revenues increasedby £2.1 million (2.6%) from £80.7 million to £82.8 million. The divisioncontinued to drive circulation revenue increases while seeking to improvecirculation volume performance. Increases in circulation revenues were achievedthrough the ongoing policy to sell full-price, value-for-money newspapers and toincrease cover prices on a 'little and often' basis. During the year, the division experienced circulation volume declines of 5.0%for Evening titles, 2.0% for Morning titles, 4.7% for Weekly titles and 6.3% forSunday titles. Improving circulation performance remains a key area of focus formanagement. Other revenue* increased by £2.6 million (6.3%) from £41.3 million to £43.9million as a result of a growth in contract print, sports publications and nicheproducts. Looking ahead, the focus for the Regionals will be on driving improvements inperformance while maintaining tight control of costs. This year will also seefurther progress in developing multi-platform publishing as the divisionmaximises the benefit of recent acquisitions and continues its programme oforganic digital development. In addition, 2006 will see the launch of new Metrotitles in Liverpool and Cardiff, strengthening our position in these markets andbuilding on the success of the Metros presently published in Glasgow, Newcastleand Birmingham. Nationals division The Nationals division publishes three UK National titles (the Daily Mirror, theSunday Mirror and The People), two Scottish Nationals (the Daily Record and theSunday Mail) and The One Directory in Scotland. The Group's National newspaper titles continue to operate in an extremelycompetitive marketplace, characterised by cover price discounting by competitorsand high levels of marketing expenditure. As well as these challenges 2005 sawadditional pressure due to the downturn in advertising markets. Despite these challenges the division delivered a strong performance. Althoughadvertising revenue fell significantly due to substantial declines in totalvolumes across the market, cost initiatives by management enabled operatingprofits* to increase. 2005 2004 actual like-for-like* % £m £m ChangeRevenue- UK Nationals 388.3 400.1 (2.9)%- Scottish Nationals 110.8 110.7 0.1% Total revenue 499.1 510.8 (2.3)% Operating profit pre non-recurringitems- UK Nationals 67.9 66.3 2.4%- Scottish Nationals 23.3 23.5 (0.9)% Total operating profit pre 91.2 89.8 1.6%non-recurring items Margin 18.3% 17.6% 0.7% Despite revenue* declines of 2.3% from £510.8 million to £499.1 million,operating profits* for the Nationals division increased by £1.4 million (1.6%)from £89.8 million to £91.2 million. Revenue* for the UK Nationals declined by 2.9%, however the tight management ofcosts enabled operating profits* to be increased by 2.4% from £66.3 million to£67.9 million. Operating margin* for the UK Nationals increased by 0.9% from16.6% to 17.5%. On an actual basis including the additional week's trading in2004, revenue declined by 4.6% from £407.2 million to £388.3 million andoperating profit fell by 3.7% from £70.5 million to £67.9 million. For the Scottish Nationals revenue* improved by 0.1% while operating profit*declined by 0.9% from £23.5 million to £23.3 million. Operating margin* for theScottish Nationals fell 0.2% from 21.2% to 21.0%, reflecting the investment inThe One Directory. Excluding The One Directory operating margin* increased by0.6% from 21.3% to 21.9%. The impact of declining advertising revenues waspartially mitigated by targeted cover price increases, which led to strongcirculation revenue growth, and the development of Scotcareers - the onlinerecruitment site which broke even in its first full year of trading. On anactual basis including the additional week's trading in 2004, revenue declinedby 1.5% from £112.5 million to £110.8 million and operating profit fell by 5.7%from £24.7 million to £23.3 million. The Nationals division achieved circulation revenue* growth of 0.9% despitedeclining volumes in a very competitive marketplace. This reflects the benefitof cover price increases partially offset by declining volumes. Circulation revenues* for the UK Nationals increased by 0.1% from £219.2 millionto £219.5 million reflecting the annualised benefit of the Daily Mirror coverprice increases in 2004 and cover price increases for both Sunday titles inJanuary 2005. Editorial investment to create a more appealing product coupled with investmentin product availability enabled the Daily Mirror to reduce its rate ofcirculation decline from 7.7% in the first half year to 3.4% in the second. Theannual decline in circulation volumes was 5.5% with the six-monthly market share(excluding sampling) falling by 0.2% from 19.5% in December 2004 to 19.3% inDecember 2005. In an extremely challenging market, heavily influenced by our competitors'substantial expenditure on very short-term promotional activities, the SundayMirror was able to contain its circulation decline to 4.5%, which compares to amarket average decline (excluding sampling) of 4.0%. The paper's six-monthlymarket share of sale to December (excluding sampling) dropped by 0.3% to 15.6%. The year-on-year circulation decline of The People improved from 8.6% in 2004 to7.1% in 2005. However, the substantial short-term marketing spend in the Sundaymarket saw its six-monthly average market share to December (excluding sampling)fall by 0.3% to 9.5%. Throughout the year the management team focused on improving circulation volumeperformance without damaging profitability. Unlike many competitor titles, theGroup's National titles did not chase short-term circulation increases throughprice-cutting and unsustainable levels of marketing spend. In Scotland, circulation revenue* increased by 3.8% from £55.0 million to £57.1million. The increase in circulation revenues reflects the benefit of increasedcover prices partially offset by reduced circulation volumes. On an actual basisincluding the additional week's trading in 2004, circulation revenue increasedby 2.1% from £55.9 million to £57.1 million. The Scottish National newspaper market continues to be challenging with coverprice discounting and substantial spend investment by competitor UK tabloidnewspapers. These challenging market conditions contributed to the Daily Recordand Sunday Mail average circulation volume (Scottish sales only) declining overthe 12-month period by 5.2% (4.3% for 2004) and 5.8% (5.1% for 2004)respectively. Whilst the underlying performance of the Daily Record has improvedyear-on-year, the impact of cover price discounting by the competition hasdriven the weaker circulation performance. The Daily Record six-monthly tabloidmarket share to December fell by 2.0% to 37.1%, and that of the Sunday Mail fell1.0% to 34.8%. In a challenging marketplace advertising revenues* for the Nationals divisionfell by 9.2% from £194.0 million to £176.2 million. Advertising revenues* for the UK Nationals fell by 11.4% from £144.2 million to£127.7 million. Following a first quarter decline of only 0.5% all advertisingmarkets slowed significantly with the second quarter declining by 13.8% and thesecond half by 16.1%. On an actual basis including the additional week's tradingin 2004, advertising revenues for the UK Nationals declined by 13.1%. The market share of advertising volume across 2005 declined marginally for theDaily Mirror, down 0.3% to 19.5%, and for the People, down 0.1% to 9.0%, butincreased marginally for the Sunday Mirror, up 0.1% to 13.6%. While yields cameunder pressure during the year given the lack of supply in the marketplace,management did not materially cut yield to drive volumes and this is reflectedin the fall in volume market share during the year. Advertising revenues* for the Scottish Nationals fell by 2.6% from £49.8 millionto £48.5 million. Following an excellent start to the year, all markets slowedwith declines of 4.9% in the second half compared to declines of only 0.4% inthe first half. Retail activity fell away throughout the year with Nationalclients responding to poor economic activity by cutting marketing expenditure.Classified markets held up well against the UK average with new activities andproduct improvements supporting client spend. The overall performance was supported by our investment in Scotcareers and TheOne Directory. Scotcareers generated £0.5 million of additional revenue in theyear from online recruitment activity and The One Directory increased revenue*from £1.0 million to £1.7 million from four directories in 2005 compared to twoin 2004. Other revenue* increased by £3.7 million (8.7%) from £42.6 million to £46.3million. This has been driven by an increase for the UK Nationals of £4.4million (12.0%) offset by a decline for the Scottish Nationals of £0.7 million(11.9%). The UK Nationals growth has arisen from an increase in contractprinting, telephone and sponsorship revenues, and digital activities. Significant progress was made in digital activities in 2005. The divisionappointed a new Head of Digital in early 2005, resulting in a revitalisedstrategy for the on-line propositions of all five UK and Scottish titles. Thenumber of unique users across the sites increased significantly during the year.The business delivered a profit for the first time, with improved growthprospects for 2006. In 2006 the Nationals division will continue to invest appropriately in our coretitles to drive circulation and advertising revenues, while generating new andincremental digital revenues. Alongside this, it will continue to drive costefficiencies to provide the headroom for investment and to improveprofitability. ---------------------* Before acquisitions, non-recurring items, IAS 39 and for 2004 excludes theadditional week's trading. Sports division The Sports division delivered a good performance in 2005 despite a challengingadvertising revenue environment in the second half of the year. Revenues*increased by 5.2% from £48.1 million to £50.6 million and operating profits*increased marginally by 0.6% from £17.3 million to £17.4 million. The minimalincrease in operating profits* was driven by the increase in the price ofnewsprint and increased investment during the year. On an actual basis includingthe additional week's trading in 2004, revenues increased by 3.5% from £48.9million to £50.6 million and operating profits fell by 3.3% from £18.0 millionto £17.4 million. The publication of the Racing Post every Sunday excluding Christmas day (2004:49 issues) and record sales during the Cheltenham and Aintree Festivals,combined with cover price increases, resulted in circulation revenue* growth of6.5% from £30.6 million to £32.6 million. On an actual basis including theadditional week's trading in 2004, circulation revenues grew by 4.5% to £32.6million. Advertising revenues* grew by 0.7% from £14.2 million to £14.3 million. Thismarginal increase was achieved despite consolidation within the bookmaking andgaming industries and a reduction in marketing budgets in the second half of theyear. On an actual basis including the additional week's trading in 2004,advertising revenue fell by 0.7% to £14.3 million. Online activities continued to increase operating profit* as a result ofincreased online revenue generation including advertising, content payment andaffiliate sales. Other revenues* increased by £0.4 million (12.1%) from £3.3 million to £3.7million. The increase was achieved through the joint venture with Racing UK andgrowth in betting shop display revenue. Magazines and Exhibitions division The Magazines and Exhibitions division publishes a number of specialist titlesand operates both consumer and trade shows. The portfolio includes InsideHousing, the leading magazine for the social housing sector, and one of the UK'slargest consumer exhibitions, the National Boat, Caravan and Outdoor Show. Revenue* for the division increased by 3.2% from £31.7 million to £32.7 million,with advertising revenue* declining by £0.7 million (4.8%), circulation revenue*flat at £4.4 million and other revenues* (primarily exhibition revenue) growingby £1.7 million (13.5%). The growth in exhibition revenues reflects the benefitof increased stand sales at existing shows and the launch of the new LondonCaravan and Outdoor Show during the year. On an actual basis including theadditional week's trading in 2004, revenue increased by 2.8% from £31.8 millionto £32.7 million. The challenging revenue environment coupled with investment in new shows andproduct launches contributed to operating profits falling by 4.0% from £7.5million to £7.2 million. Central costs During the year central costs decreased by £0.3 million from £16.2 million to£15.9 million. ---------------------* Before acquisitions, non-recurring items, IAS 39 and for 2004 excludes theadditional week's trading. Financial Summary The Group has prepared its consolidated annual financial statements inaccordance with IFRS adopted for use in the European Union. The adoption of IFRSand the consequent adoption of IAS 39 potentially creates significant volatilityin both the income statement and reported debt levels. To provide clarity movingforward, all adjustments arising from IAS 39 will be identified and underlyingdebt levels excluding the impact of IAS 39 will continue to be disclosed. Netdebt excluding the impact of IAS 39, which reflects the underlying position, isshown in note 22. The key differences between the 2005 reported results preparedin accordance with IFRS and those that would have been reported under UnitedKingdom Generally Accepted Accounting Practice applicable at 2 January 2005 areexplained in Note 21. Group revenues fell by 1.7% to £1,122.0 million (2004: £1,141.7 million). On alike-for-like* basis, Group revenues fell by £14.7 million (1.3%) from £1,127.5million to £1,112.8 million. Group operating profit increased by £2.6 million (1.1%) from £242.8 million to£245.4 million. On a like-for-like* basis Group operating profit increased by1.7% from £246.1 million to £250.2 million. The 2005 results incorporate the benefits of £12.0 million incremental net costsavings, the tight management of costs and a reduced IAS 19 operating profitcurrent service pension charge of £4.0 million. Further net incremental costsavings of at least £15.0 million are targeted for 2006. The IAS 19 operatingprofit current service pension charge for 2006 is expected to be £30.4 million,representing an increase of £1.8 million. The Group's share of profits from associates was £0.8 million (2004: £0.8million) and reflects the Group's share of profits in The Press Association(PA), net of taxation payable thereon. Included within interest receivable is£nil million (2004: £0.1 million) of the Group's share of interest receivable inPA. During the year dividends of £0.6 million (2004: £3.2 million) were receivedfrom PA. Finance costs, excluding the impact of IAS 19 and IAS 39, fell by £4.3 millionfrom £35.3 million to £31.0 million. Excluding the additional week's interestcharge in 2004, net interest payable fell by £3.7 million from £34.7 million to£31.0 million. In a largely stable interest rate environment during 2005, thisreflects the benefit of lower average debt levels. Excluding the IAS 19 financecredit of £1.7 million (2004: £2.9 million charge) and the impact of IAS 39,interest is covered 8.0 times by operating profit before non-recurring items, animprovement from 7.2 times in 2004. The IAS 39 impact in 2005 was a charge of£6.6 million (2004: £nil million). This reflects the fair value, exchange rateand amortisation adjustments on borrowings and associated financial instrumentsaccounted for under IAS 39. For 2006 a net IAS 19 finance credit of £9.9 millionis expected. Non-recurring items before tax of £2.7 million (2004: £9.7 million) wereincurred during the year. Non-recurring items include restructuring severancecosts in 2005 of £7.9 million incurred in delivery of the £15 million targetedcost reduction measures for 2006, severance costs of £1.0 million arising on theacquisition of the hotgroup plc, the disposal of surplus land and buildingsrealising a profit of £3.5 million and the disposal of the shareholding inScottish Radio Holdings realising a profit of £2.7 million. Further details areprovided in note 4 to the summary financial information attached to thispreliminary results statement. A continuing focus on driving through costsavings may result in additional non-recurring items in 2006, but will besupported by incremental cost benefits. The cash outflow in relation to therestructuring costs will arise in 2006 together with further estimated costs of£4.0 million. Excluding amortisation of intangibles and the impact of IAS 39, profit beforetax and non-recurring items increased by £5.3 million (2.4%) from £216.8 millionto £222.1 million. On a like-for-like* basis profit before tax increased by£12.4 million (5.9%) from £208.5 million to £220.9 million. The tax charge for 2005 of £62.6 million represents 29.9% (2004: 29.9%) ofprofit before tax. Earnings per share increased by 2.2% from 49.2 pence to 50.3 pence. Underlyingearnings per share, before non-recurring items, were 50.5 pence per share (2004:51.2 pence per share) a decrease of 1.4%. On a like-for-like basis* underlyingearnings per share increased by 6.7% from 49.3 pence per share to 52.6 pence pershare. Subject to the approval of the shareholders at the Annual General Meeting, thedirectors propose a final dividend of 15.5 pence per share to be paid on 9 June2006 to shareholders on the register at 5 May 2006. This increase will bring thetotal dividend for the year to 21.9 pence per share, an increase of 8.4%. Thedividend is covered 2.3 times by earnings before non-recurring items and will befully funded from operating cash flow. Acquisitions During the 52 weeks ended 1 January 2006, four acquisitions were completed for atotal expenditure of £92.7million, including net borrowings of £5.3 million,fees of £3.1 million and deferred consideration of £5.5 million. The acquiredbusinesses achieved revenue of £9.2 million and operating profit of £1.2 millionbefore amortisation of intangibles and non-recurring items. Further details areprovided in note 16 to the summary financial information attached to thispreliminary results statement. Share buy-back As part of a three-year share buy-back programme which commenced in March 2005,the Group acquired 8.2 million shares for a total consideration of £52.7million. In consideration of the cash expended on acquiring shares andexpenditure on acquisitions, the Company suspended the share buy-back programmein October 2005 and no further buy back of shares is planned. IAS 19 During the year the IAS 19 retirement benefit obligation has decreased from£321.9 million to £305.6 million (before the provision of deferred tax). Thisreflects an increase in asset values partially offset by an increase inliabilities. The increase in liabilities is driven by a fall in the realdiscount rate from 2.55% to 1.95%. Total contributions to defined benefitpension schemes to fund ongoing accrual of benefits and past service deficitsincreased by £10.4 million from £36.5 million to £46.9 million. Contributions todefined contribution pension schemes increased from £0.5 million to £0.8million. For 2006, we currently expect defined benefit funding to increase by afurther estimated £5.0 million (excluding Pension Protection Fund levy). The IAS19 defined benefit operating profit charge, before past service costs (£1.3million), was £28.6 million in 2005 and is expected to be £30.4 million in 2006.The net IAS 19 finance credit is expected to increase by £8.2 million from £1.7million in 2005 to £9.9 million in 2006. Cash flow and net debt Net operating cash flow decreased by £12.0 million from £288.8 million to £276.8million, principally reflecting the additional pension contributions during theperiod. Net debt only increased by £37.6 million from £454.9 million after theadoption of IAS 39 on 3 January 2005 to £492.5 million. This was despite thepayment of increased equity dividends of £60.2 million, net capital expenditureof £37.0 million, £86.5 million expended on acquisitions, the purchase of 8.2million shares for £52.7 million under the share buy-back programme and thepurchase of shares for £5.7 million to provide for the possible awards under theLong Term Incentive Plan launched in 2004, partially offset by the £17.6 millionproceeds on the issue of new share capital following the exercise of shareoptions under various schemes. Capital expenditure in 2005 was £37.0 million net of disposal proceeds (2004:£35.5 million) against a depreciation charge of £40.1 million (2004: £41.3million). Capital expenditure for 2006 is expected to be £80.0 million,including a further £60.0 million in respect of the press investment project.The Group is still on target for capital expenditure of £180.0 million,including the press investment programme over three years to 2007. All capitalexpenditure is forecast to be financed from operating cash flows. At 1 January 2006 committed facilities of £730.7 million were available to theGroup, of which £219.5 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 £18.4 million and £0.8 million of acquisition loan notes. With the exceptionof £0.6 million loan notes issued as part consideration for acquisitions, no newfinancing facilities were procured in 2005 and no debt facilities were repaidother than in accordance with their normal maturity date. Net assets At 1 January 2006 net assets were £753.7 million, an increase of £48.1 millionfrom £705.6 million at 2 January 2005. This includes the total carrying value ofthe Group's acquired publishing rights and newspaper titles of £1,579.9 million(excluding deferred tax on intangible assets of £484.8 million), customerrelationships and domain names arising on the acquired businesses of £36.2million, goodwill of £72.8 million (of which £66.8 million arose on the acquiredbusinesses), property, plant and equipment of £387.3 million, net debt of £492.5million, net deferred tax liabilities of £449.3 million and the IAS 19retirement benefit obligation of £305.6 million before the provision of deferredtax. ---------------------* Before acquisitions, non-recurring items, IAS 39 and for 2004 excludes theadditional week's trading. See reconciliation between statutory and like-for-like results in note 20. Enquiries:Trinity Mirror plc 020 7293 3000Vijay Vaghela, Group Finance DirectorNick Fullagar, Director of Corporate Communications Finsbury 020 7251 3801Rupert YoungerJames Leviton Consolidated income statementfor the 52 weeks ended 1 January 2006 (53 weeks ended 2 January 2005) Notes 2005 2004 £m £m------------------------------ ------ --------- ---------- Revenue 3 1,122.0 1,141.7Cost of sales (538.8) (533.6)------------------------------ ------ --------- ----------Gross Profit 583.2 608.1Distribution costs (126.5) (140.5)Administrative expenses:Non-recurring 4 (2.7) (12.2)Amortisation of intangibles (3.3) -Other (206.1) (213.4)Share of results of associates 0.8 0.8------------------------------ ------ --------- ----------Operating Profit 3 245.4 242.8 IAS 19 finance credit/(charge) 5 1.7 (2.9)IAS 39 impact* 5 (6.6) -Other finance costs 5 (31.0) (35.3)Profit on disposal of subsidiary undertakings 4 - 2.5------------------------------ ------ --------- ----------Profit before tax 209.5 207.1Tax 6 (62.6) (62.0)------------------------------ ------ --------- ----------Profit for the period 146.9 145.1------------------------------ ------ --------- ----------Attributable to:Equity holders of the parent 146.9 145.0Minority interest 0.1------------------------------ ------ --------- ---------- 146.9 145.1------------------------------ ------ --------- ---------- Earnings per share (pence) 8 Pence PenceExcluding amortisation of intangibles and IAS39 impact*Underlying earning per share 52.9 51.2Non-recurring items (0.2) (2.0)------------------------------ ------ --------- ----------Adjusted earnings per share - basic 52.7 49.2------------------------------ ------ --------- ----------Adjusted earnings per share - diluted 52.5 48.7------------------------------ ------ --------- ---------- Including amortisation of intangibles and IAS39 impact*Underlying earning per share 50.5 51.2------------------------------ ------ --------- ----------Non recurring items (0.2) (2.0)------------------------------ ------ --------- ----------Earnings per share - basic 50.3 49.2------------------------------ ------ --------- ----------Earnings per share - diluted 50.1 48.7------------------------------ ------ --------- ---------- All revenue and results arose from continuing operations * Impact of fair value, exchange rate, and amortisation adjustments onborrowings and associated financial instruments accounted for under IAS 39.References to IAS 39 throughout this document shall have the same meaning. Consolidated statement of recognised income and expensefor the 52 weeks ended 1 January 2006 (53 weeks ended 2 January 2005) 2005 2004 £m £m Actuarial (losses)/ gains on defined benefitpension schemes (net of tax) (1.7) 24.9Gain on revaluation of available-for-saleinvestments taken to equity 0.3 -Tax on revaluation of available-for-saleinvestments taken to equity (0.1) ------------------------------- --------- ----------Net income recognised directly in equity (1.5) 24.9------------------------------ --------- ----------Transferred to profit or loss on sale ofavailable-for-sale investments (2.7) -Tax on items transferred from equity 0.8 ------------------------------- --------- ----------Transfers from equity to the income statement (1.9) ------------------------------- --------- ----------Profit for the period 146.9 145.1------------------------------ --------- ----------Total recognised income and expense for the period 143.5 170.0------------------------------ --------- ----------Attributable to: Equity holders of the parent 143.5 169.9Minority interest - 0.1------------------------------ --------- ---------- 143.5 170.0------------------------------ --------- ---------- Consolidated balance sheetat 1 January 2006 (2 January 2005) notes 1 January 2 January 2006 2005 £m £m --------- ---------Non-current assetsGoodwill 72.8 6.0Other intangible assets 1,616.1 1,579.9Property, plant and equipment 387.3 387.8Investments in associates 8.6 7.5Deferred tax asset 97.9 106.5----------------------- ------ --------- --------- 2,182.7 2,087.7----------------------- ------ --------- ---------Current assetsInventories 7.2 6.7Available-for-sale financialassets 9 0.5 1.3Trade and other receivables 150.9 147.7Cash and cash equivalents 33.2 43.4----------------------- ------ --------- --------- 191.8 199.1----------------------- ------ --------- ---------Total assets 2,374.5 2,286.8----------------------- ------ --------- ---------Non-current liabilitiesBorrowings 12 (392.0) (440.8)Obligations under finance leases 12 (15.6) (17.7)Retirement benefit obligation 14 (305.6) (321.9)Deferred tax liabilities (547.2) (540.9)Long term provisions (12.2) (8.1)Derivative financial instruments 10 (56.6) ------------------------ ------ --------- --------- (1,329.2) (1,329.4)----------------------- ------ --------- ---------Current liabilitiesBorrowings (58.7) (36.4)Trade and other payables (183.0) (175.0)Current tax liabilities (37.5) (33.2)Obligations under finance leases 12 (2.8) (2.5)Short term provisions (9.6) (4.7)----------------------- ------ --------- --------- (291.6) (251.8)----------------------- ------ --------- ---------Total liabilities (1,620.8) (1,581.2)----------------------- ------ --------- ---------Net assets 753.7 705.6----------------------- ------ --------- ---------EquityShare capital (29.3) (29.7)Share premium account (1,118.9) (1,101.7)Revaluation reserve (4.9) (4.9)Capital redemption reserve (0.8) -Retained earnings and otherreserves 400.2 430.7----------------------- ------ --------- ---------Total equity (753.7) (705.6)----------------------- ------ --------- --------- Consolidated cash flow statementfor the 52 weeks ended 1 January 2006 (53 weeks ended 2 January 2005) notes 2005 2004 £m £m------------------------ ------ ---------- ----------Cash flows from operatingactivitiesCash generated from operations 11 276.8 288.8Income tax paid (55.5) (55.6)------------------------ ------ ---------- ----------Net cash from operating activities 221.3 233.2------------------------ ------ ---------- ----------Investing activitiesInterest received 1.2 0.8Dividends received from associated undertakings 0.6 3.2Purchase of shares from minority interests - (4.5)Proceeds on disposal ofavailable-for-sale financial assets 2.9 -Proceeds on disposal of land 2.9 -Net cash balances disposed of withsubsidiary undertaking - (2.1)Proceeds from sales of subsidiary undertakings - 44.7Proceeds on disposal of property,plant and equipment 4.0 1.8Purchases of property, plant and equipment (41.0) (37.3)Proceeds from sale of motor cycle show business - 0.2Acquisition of subsidiaries 16 (86.5) ------------------------- ------ ---------- ----------Net cash (used in)/from investing (115.9) 6.8activities ------------------------ ------ ---------- ----------Financing activitiesDividends paid (60.2) (55.1)Dividend paid to minority shareholders - (0.1)Interest paid (33.9) (33.8)Interest paid on finance leases (1.2) (2.2)Increase in borrowings 45.0 -Repayment of borrowings (18.1) (138.2)Principal payments under finance leases (1.8) (11.0)Purchase of shares under share buy-back programme (52.7) -Issue of ordinary share capital 17.6 12.5Purchase of own shares under LongTerm Incentive Plan (5.7) (6.2)(Decrease)/increase in bank overdrafts (4.6) 3.2------------------------ ------ ---------- ----------Net cash used in financing activities (115.6) (230.9)------------------------ ------ ---------- ----------Net (decrease)/increase in cash and cash equivalents (10.2) 9.1Cash and cash equivalents at the beginning of period 43.4 34.3------------------------ ------ ---------- ----------Cash and cash equivalents at the end of period 33.2 43.4------------------------ ------ ---------- ---------- Notes to the 2005 preliminary statement 1. General information The financial information in respect of the 53 weeks ended 2 January 2005 hasbeen produced using extracts from the statutory accounts under UK GAAP for thisperiod and amended by adjustments arising from the implementation ofInternational Financial Reporting Standards (IFRS). The financial informationpresented on pages 13 to 35 has been prepared based on the adoption of IFRS,including International Accounting Standards (IAS) and interpretations issued bythe International Accounting Standards Board (IASB) and its committees, asinterpreted by any regulatory bodies relevant to the Group. These are subject toongoing amendment by the IASB and subsequent endorsement by the EuropeanCommission and are therefore subject to change. 2. Accounting policies The policies set out below have been consistently applied to all the yearspresented except for those relating to the classification and measurement offinancial instruments. Trinity Mirror plc consolidated financial statements were prepared in accordancewith United Kingdom Generally Accepted Accounting Practice (UK GAAP) until 2January 2005. UK GAAP differs in some areas from IFRS. In preparing the TrinityMirror plc 2005 consolidated financial statements, management has amendedcertain accounting, valuation and consolidation methods applied in the UK GAAPfinancial statements to comply with the recognition and measurement criteria ofIFRS. The comparative figures in respect of 2004 are restated to reflect theseadjustments. The Group has made use of the exemption available under IFRS 1 to only applyIAS32 "Financial Instruments: Disclosure and Presentation" (IAS 32) and IAS 39"Financial Instruments: Recognition and Measurement" (IAS 39) from 3 January2005. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Group's equity and its net income and cash flows are provided innote 18. Basis of consolidation The consolidated financial statements incorporate the financial statements ofTrinity Mirror plc and all entities controlled by it for the 52 weeks ended 1January 2006. Control is achieved where the Company has the power to govern thefinancial and operating policies of an entity so as to obtain benefits from itsactivities. On the acquisition of a business, including an interest in an associatedundertaking or a joint venture, fair values are attributed to the Group's shareof the identifiable assets and liabilities of the business existing at the dateof acquisition and reflecting the conditions as at that date. Results of businesses are included in the consolidated income statement from theeffective date of acquisition or up to the effective date of relinquishingcontrol as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring their accounting policies into line with those used in thepreparation of the Group consolidated financial statements. All intra-grouptransactions, balances, income and expenses are eliminated on consolidation. Investment in associates Associates are all entities over which the Group has significant influence butnot control and are accounted for by the equity method of accounting, initiallyrecognised at cost. The Group's share of its associates' post-acquisition profits or losses isrecognised in the income statement, and its share of post-acquisition movementsin reserves is recognised in reserves. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in the income statement andis not subsequently reversed. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Notes to the 2005 preliminary statement (continued) 2. Accounting policies (continued) Other intangible assets Other intangible assets comprise acquired publishing rights and titles inrespect of print publishing activities, and customer relationships and domainnames in respect of online activities. On the acquisition of a business the costof the investment is allocated between categories of assets and liabilities on afair value basis. The fair value of other intangible assets is assessed based ondiscounted cash flows. Publishing rights and titles are initially recognised as an asset at fair valuewith an indefinite economic life and subsequently measured at fair value lessany accumulated impairment losses. They are not subject to amortisation and aretested for impairment. For the purpose of impairment testing, publishing rightsand titles are tested annually, or more frequently when there is an indicationthat the recoverable amount is less than the carrying amount. An impairment lossis recognised in the income statement in the period it occurs and is notreversed in subsequent periods. Customer relationships and domain names are amortised over the expected lifeover which the assets will generate revenues and profits for the Group. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of completion, of assets acquired, liabilities incurred or assumed, andequity instruments issued by the Group in exchange for control of the acquiree,plus any costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognised at their fair values atthe acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the acquiree's identifiable assets(including intangible assets other than goodwill), liabilities and contingentliabilities. If, after reassessment, the Group's interest in the net fair valueof the acquiree's identifiable assets, liabilities and contingent liabilitiesexceeds the cost of the business combination, the excess is recognisedimmediately in the income statement. Revenue recognition Revenue is measured at the fair value of Group sales, net of applicablediscounts and value added tax. Advertising revenue is recognised uponpublication and circulation revenue is recognised at the time of sale. Otherrevenue is recognised at the time of sale or provision of service. Property, plant and equipment Property, plant and equipment are stated in the balance sheet at cost less anysubsequent accumulated depreciation and subsequent accumulated impairmentlosses. Cost includes purchase price and all directly attributable costs of bringing theasset to its location and condition necessary to operate as intended. Assets in the course of construction are carried at cost, less any recognisedimpairment loss. Depreciation commences when the assets are ready for theirintended use. Depreciation is charged so as to write off the cost, other than assets underconstruction, using the straight-line method over the estimated useful livesdetailed below: Property 15 - 67 yearsPlant and equipment 3 - 25 years Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. Investments Current investments have been classified as available-for-sale financial assets,and are measured at fair value. Gains and losses arising from changes in fairvalue are recognised directly in equity net of deferred tax, until theinvestment is disposed of or is determined to be impaired, at which time thecumulative gain or loss previously recognised in equity is included in theincome statement for the period. Borrowings Interest-bearing loans and bank overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis to the income statement using the effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. Notes to the 2005 preliminary statement (continued) 2. Accounting policies (continued) Trade payables Trade payables are not interest-bearing and are stated at their nominal value. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Derivative financial instruments The Group uses derivative financial instruments, including cross-currencyinterest rate swaps, interest rate swaps and other hedging instruments, tominimise exposure to the financial risks of changes in foreign currency exchangerates and interest rates. The Group does not use derivative financialinstruments for speculative purposes. Since 3 January 2005 derivative financial instruments are now separatelyrecognised at fair value in the financial statements. Changes in the fair valueof derivative financial instruments are recognised immediately in the incomestatement. Derivatives embedded in commercial contracts are treated as separate derivativeswhen their risks and characteristics are not closely related to those of theunderlying contracts, with unrealised gains or losses reported in the incomestatement. Tax The tax expense represents the sum of the corporation tax currently payable anddeferred tax. The corporation tax currently payable is based on taxable profit for the year.Taxable profit differs from profit before tax as reported in the incomestatement because it excludes items of income or expense that are taxable ordeductible in other years and it further excludes items that are not taxable ordeductible. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is possible that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Employee benefits - retirement benefits The Group operates a number of funded defined benefit (final salary pension)schemes, all of which have been set up under Trusts that hold their financialassets separately from those of the Group and are controlled by the Trustees. Inaddition, a number of defined contribution arrangements are currently operated. Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor unrecognised actuarial gains or losses and past service costs. The definedbenefit obligation is calculated annually by independent actuaries using theprojected unit credit method. The present value of the defined benefitobligation is determined by discounting the estimated future cash outflows usinginterest rates of high-quality corporate bonds approximating to the terms of therelated pension liability. Unrealised gains and losses are recognised in theStatement of Recognised Income and Expense. Employee benefits - share-based payments The Group has applied the requirements of IFRS 2, Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that had not vested as of 3January 2005. The Group issues equity-settled benefits to certainemployees.These equity-settled share-based payments are measured at fair value(excluding the effect of non-market-based vesting conditions) at the date ofgrant. The fair value is determined at the grant date and is expensed on astraight-line basis over the vesting period, based on the Group's estimate ofshares that will eventually vest and annually adjusted for the effect ofnon-market-based vesting conditions). Fair value is measured by use of a stochastic (Monte-Carlo binomial) model. Theexpected life used in the model has been adjusted, based on management's bestestimate, for the effects of non-transferability, exercise restrictions, andbehavioural considerations. Notes to the 2005 preliminary statement (continued) 2. Accounting policies (continued) Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved. Application of IFRS 1 The Group's financial statements for the period ended 1 January 2006 are thefirst annual financial statements that comply with IFRS. These financialstatements have been prepared as described in note 1 including the principlesset out in IFRS 1. IFRS 1 sets out the procedures to be followed when adopting IFRS for the firsttime as the basis for preparing the Group's consolidated financial statements.The Group is required to establish its IFRS accounting policies and, in general,apply these retrospectively to determine the IFRS opening balance sheet at thedate of transition, 29 December 2003. IFRS 1 provides a number of optionalexemptions to this general principle. The most significant of these are set outbelow, together with a description, in each case, of the exemption adopted bythe Group. • Business combinations - IFRS 3, Business Combinations The Group has elected not to restate the accounting for business combinationscompleted before the date of transition. • Fair value as 'deemed' cost - IAS 16, Property, Plant andEquipment The Group has elected, where appropriate, to use fair value as the 'deemed' costof plant, property and equipment on adoption of IFRS. • Employee Benefits - IAS 19, Employee Benefits The Group has elected to recognise all cumulative actuarial gains and losses inrelation to employee benefit schemes at the date of transition. In subsequentperiods all actuarial gains and losses will be recognised in full in the periodin which they occur in the Statement of Recognised Income and Expense inaccordance with the amendment to IAS 19, issued on 16 December 2004. • Financial Instruments - IAS 32, Financial Instruments:Disclosure and Presentation and IAS 39, Financial Instruments: Recognition andMeasurement The Group has elected to adopt IAS 32 and IAS 39 from 3 January 2005. Thereforethe comparative financial information in respect of financial instruments ispresented in accordance with UK GAAP. • Share-based Payments - IFRS 2, Share-Based Payments The Group has elected to apply IFRS 2 to all share-based awards and optionsgranted post 7 November 2002 but not vested at 3 January 2005. 3. Business and geographical segments For management purposes, the Group is currently organised into the followingdivisions: Regionals, Nationals, Sports, Magazines & Exhibitions and Centralcosts. These divisions are the basis on which the Group reports its primarysegment information. The secondary reporting segment is a geographicaldestination analysis of revenue. Principal activities are as follows: The Regionals division publishes a large portfolio of newspaper and onlinebrands across the UK. The National division, comprising the UK and ScottishNationals, publishes five daily and Sunday newspapers. The Sports division is asupplier of racing and sports betting information, with four sports newspapersand related online activities. The Magazines & Exhibitions division operates arange of magazines, consumer and trade shows. Central costs include costs notattributed to specific divisions and TM Interactive, which was reportedseparately up until the end of 2004. Notes to the 2005 preliminary statement (continued) 3. Business segments (continued) Segment information for these activities is presented below. Primary segments - business and geographical segment analysis Magazines 52 weeks ended and Central1 January 2006 Regionals Nationals Sports Exhibitions costs Consolidated 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m----------------- -------- -------- -------- -------- -------- -------- RevenueSegment sales 542.3 510.7 50.6 32.7 - 1,136.3Inter-segmentsales (2.7) (11.6) - - - (14.3)Total revenue 539.6 499.1 50.6 32.7 - 1,122.0----------------- -------- -------- -------- -------- -------- -------- ResultSegment result 147.4 91.2 17.4 7.2 (15.9) 247.3----------------- -------- -------- -------- -------- --------Non-recurringitems (2.7)Share ofresults ofassociates 0.8 --------Operatingprofit 245.4 -------- Central costs and Magazines TM53 weeks ended and inter2 January 2005 Regionals Nationals Sports Exhibitions active Consolidated 2004 2004 2004 2004 2004 2004 £m £m £m £m £m £m----------------- -------- -------- -------- -------- -------- --------RevenueSegment sales 540.6 532.5 48.9 31.8 1.2 1,155.0Inter-segmentsales (0.5) (12.8) - - - (13.3)Total revenue 540.1 519.7 48.9 31.8 1.2 1,141.7---------------- -------- -------- -------- -------- -------- -------- ResultSegment result 151.0 95.2 18.0 7.5 (17.5) 254.2---------------- -------- -------- -------- -------- --------Non-recurringitems (12.2)Share ofresults ofassociates 0.8 --------Operatingprofit 242.8 -------- Secondary segments - geographical destination segment analysis The Group's operations are located in the United Kingdom. The following tableprovides an analysis of the Group's revenue by geographical market. Revenue analysis 52 weeks to 53 weeks to 1 January 2 January 2006 2005 £m £m--------------------------- ------------ -------- United Kingdom andRepublic ofIreland 1,115.5 1,135.5Continental Europe 6.2 6.1Rest of world 0.3 0.1--------------------------- ------------ --------Total 1,122.0 1,141.7--------------------------- ------------ -------- Circulation 396.4 395.4Advertising 611.7 644.4Other 113.9 101.9--------------------------- ------------ --------Total 1,122.0 1,141.7--------------------------- ------------ -------- Notes to the 2005 preliminary statement (continued) 4. Non-recurring items and profit on sale of subsidiary undertakings Non-recurring items 2005 2004 £m £m---------------------------------- ---------- --------Restructuring costs (a) 7.9 11.0Severance costs following the acquisition of the hotgroup plc (b) 1.0 -Profit on disposal of land and buildings (c) (3.5) (1.0)Profit on disposal of available-for-sale investments (d) (2.7) -Maxwell related recoveries (e) - (1.3)Write down of presses in Chester and Oldham (f) - 7.0Release of old accruals for which no further costsare expected (g) - (3.5)---------------------------------- ---------- --------Non-recurring items 2.7 12.2---------------------------------- ---------- -------- a) Restructuring severance costs of £7.9 million have been incurred in deliveryof cost reduction measures. The 2004 charge of £11.0 million includes £0.9million relating to the restructure of the TM Interactive division which hasbeen refocused on driving revenues for the Group and is not reported separatelyin 2005. b) Severance costs of £1.0 million were incurred following the acquisition ofthe hotgroup plc (2004: £nil million) c) In 2005 the Group disposed of surplus land and buildings realising a profiton disposal of £3.5 million (2004: £1.0 million). d) In 2005 the Group disposed of its shareholding in Scottish Radio Holdings plcrealising a profit of on disposal of £2.7 million (2004: £nil million). e) In 2004 the Group recovered £1.3 million from the liquidators of Maxwellrelated companies for claims outstanding since 1992. f) In 2004 costs of £7.0 million were incurred in the write-down of press plantfrom the closure of the Chester print site and the re-pressing project at Oldhamas part of the Manufacturing Project which was announced in February 2004. g)In 2004 the Group released old sundry accruals of £3.5 million for which nofurther costs were expected. Profit on sale of subsidiary undertakings 2005 2004 £m £m Profit on sale of subsidiary undertakings - (2.5)------------------------------- ---------- --------Profit on sale of subsidiary undertakings - (2.5)------------------------------- ---------- -------- In January 2004 the Group disposed of its Irish subsidiaries for a considerationof £46.1 million, realising a profit of £2.5 million and its Motorcycle Showbusiness for a consideration of £0.2 million, realising a profit of £nilmillion. 5. Finance costs IAS 19 (1) IAS 39 (2) Other (3) Total £m £m £m £m------------------------ -------- -------- -------- --------52 weeks ended 1 January 2006Income 72.9 - 1.2 74.1Expense (71.2) (6.6) (32.2) (110.0)------------------------ -------- -------- -------- --------Total finance costs 1.7 (6.6) (31.0) (35.9)------------------------ -------- -------- -------- -------- 53 weeks ended 2 January 2005Income 67.4 - 0.8 68.2Expense (70.3) - (36.1) (106.4)------------------------ -------- -------- -------- --------Total finance costs (2.9) - (35.3) (38.2)------------------------ -------- -------- -------- -------- (1) IAS 19 finance income represents expected return on scheme assets net of expected expenses, and IAS 19 finance expense represents the interest cost on scheme liabilities. (2) Impact of fair value, exchange rate, and amortisation adjustments on borrowings and associated financial instruments accounted for under IAS 39. (3) Other finance costs in 2005 include interest on obligations under finance leases of £1.2 million (2004: £0.8 million). Notes to the 2005 preliminary statement (continued) 6. Tax 2005 2004 £m £m---------------------------------- ---------- --------Current TaxCorporation tax charge for the period (56.8) (60.9)Prior year adjustment (2.0) (2.0)---------------------------------- ---------- --------Current tax charge (58.8) (62.9)---------------------------------- ---------- --------Deferred TaxTax charge for the period (5.3) (2.2)Prior year adjustment 1.5 3.1---------------------------------- ---------- --------Deferred tax charge (3.8) 0.9---------------------------------- ---------- --------Total tax charge (62.6) (62.0)---------------------------------- ---------- -------- Reconciliation of tax charge % %Standard rate of corporate tax 30.0 30.0Tax effect of items that are not deductible or nottaxable in determining taxable profit 0.2 0.9Tax effect of share results of associate (0.3) (0.1)Tax effect of rolled over and revaluation gains (0.2) (0.3)Prior year adjustment to corporation tax 0.2 (0.6)---------------------------------- ---------- --------Total tax charge rate 29.9 29.9---------------------------------- ---------- -------- The standard rate of corporation tax is the UK prevailing rate of 30% (2004:30%). In addition to the amount charged to the income statement, deferred tax relatingto the actuarial losses on defined benefit pension schemes of £0.7 million hasbeen credited directly to equity. 7. Dividends 2005 2004 £m £m----------------------------- ---------- --------Amounts recognised as distributions toequity holders in the period:Dividend paid (a) 60.2 55.1----------------------------- ---------- -------- Pence Pence----------------------------- ---------- --------Dividend paid per share (a) 20.7 18.7----------------------------- ---------- -------- £m £m----------------------------- ---------- -------- Dividend proposed but not paid nor includedin the accounting records (b) 45.4 42.4----------------------------- ---------- -------- Pence Pence----------------------------- ---------- --------Dividend proposed per share (c) 15.5 14.3----------------------------- ---------- -------- (a) The amount of £60.2 million is in respect of the final dividend for the 53weeks ended 2 January 2005 of 14.3 pence per share and the interim dividend forthe 52 weeks ended 1 January 2006 of 6.4 pence per share; the amount of £55.1million is in respect of the final dividend for the 52 weeks ended 29 December2003 of 12.8 pence per share and the interim dividend for the 53 weeks ended 2January 2005 of 5.9 pence per share. (b) The amount of £45.4 million represents the proposed final dividend for the52 weeks ended 1 January 2006, which is subject to approval by shareholders atthe Annual General Meeting and as such is not reflected as a liability in thesefinancial statements; the amount of £42.4 million represents the proposed finaldividend for the 53 weeks ended 2 January 2005. (c) The proposed final dividend for the 52 weeks ended 2 January 2006 of 15.5pence per share (2004: 14.3 pence per share) is an addition to the interimdividend of 6.4 pence per share (2004: 5.9 pence per share), bringing the totalannual dividend for the 52 weeks ended 1 January 2006 to 21.9 pence per share(2004: 20.2 pence per share). Notes to the 2005 preliminary statement (continued) 8.Earnings per share Earnings 2005 2004 £m £m------------------------------- ------ ---------Profit after tax before non-recurring items,amortisation of intangibles and IAS39 impact (underlying) 154.4 151.0Non-recurring items (after tax)* (0.6) (6.0)------------------------------- ------ ---------Profit after tax before amortisation ofintangibles and IAS 39 impact 153.8 145.0Amortisation of intangibles (after tax) (2.3) -IAS 39 impact (after tax) (4.6) -------------------------------- ------ ---------Basic EPS earnings (profit attributable to equity holders) 146.9 145.0 ------------------------------- ------ --------- Number of shares ('000) ('000)------------------------------- ------ ---------Weighted average number of ordinary shares forthe purpose of basic EPS 291,900 294,787Effect of dilutive potential ordinary shares -share options 1,274 3,149------------------------------- ------ ---------Weighted average number of ordinary shares forthe purpose of diluted EPS 293,174 297,936------------------------------- ------ --------- Basic profit per share is calculated by dividing profit attributable to equityholders by the weighted average number of ordinary shares during the year. Diluted profit per share is calculated by adjusting the weighted average numberof ordinary shares in issue on the assumption of conversion of all potentiallydilutive ordinary shares. Earnings per share - pence Pence Pence-------------------------------- --------- ---------Excluding amortisation of intangibles and IAS 39impact:Underlying earnings per share 52.9 51.2Non-recurring items* (0.2) (2.0)-------------------------------- --------- ---------Adjusted earnings per share - basic 52.7 49.2-------------------------------- --------- ---------Adjusted earnings per share - diluted 52.5 48.7-------------------------------- --------- --------- Including amortisation of intangibles and IAS 39impact:Underlying earnings per share 50.5 51.2Non-recurring items* (0.2) (2.0)-------------------------------- --------- ---------Earnings per share - basic 50.3 49.2-------------------------------- --------- ---------Earnings per share - diluted 50.1 48.7-------------------------------- --------- --------- Underlying earnings per share is stated Pence Penceinclusive of the following item: -------------------------------- --------- ---------Amortisation of intangibles (0.8) --------------------------------- --------- --------- The earnings per share for each category of non-recurring items and profit onsale of subsidiary undertakings disclosed in note 4 is as follows: Pence PenceRestructuring costs (1.8) (2.5)Severance costs following acquisition of the hotgroup plc (0.3) -Profit on disposal of land and buildings 1.2 0.2Profit on disposal of available-for-sale investments 0.7 -Maxwell related recoveries - 0.4Write down of presses in Chester and Oldham - (1.9)Release of old accruals for which no furthercosts are expected - 1.0Profit on sale of subsidiary undertakings - 0.8-------------------------------- ---- --------- ---------Earnings per share - non-recurring items* (0.2) (2.0)-------------------------------- ---- --------- --------- * Non-recurring items includes profit on disposal of subsidiary undertakings in 2004. Notes to the 2005 preliminary statement (continued) 9.Available-for-sale financial assets Adoption of IAS 32 & 39 As a result of the adoption of IAS 32 & 39 certain assets have been classifiedas available-for-sale financialassets and valued at fair value with changes inthe fair value being recorded as an equity movement. 2005 2004 £m £m------------------------ -------- -------Opening balance - cost 1.3 1.2Fair value impact of IAS 32 and 39 adoption on transition 2.4 ------------------------- -------- -------Adjusted opening position 3.7 1.2Movement in period (3.2) 0.1------------------------ -------- -------Closing balance 0.5 1.3------------------------ -------- -------Within current assets 0.5 1.3------------------------ -------- -------Movement in period:Increase in fair value of 0.3 -available-for-sale assetsDisposal of available-for-sale assets (3.5) ------------------------- -------- ------- (3.2) ------------------------- -------- ------- Dealt with in Equity:Impact of IAS 32 and 39 adoption 2.4 -Movement in period 0.3 -Deferred tax (0.8) ------------------------- -------- ------- 1.9 ------------------------- -------- ------- 10. Derivative financial instruments Adoption of IAS 32 & 39 IAS 32 & 39 were adopted as accounting standards on 3 January 2005. Theadjustment separated the foreign exchange component of the cross-currencyinterest rate swaps from the value of the private placement loans which werepreviously recorded at the swap contract exchange rate under UK GAAP. Under exemption permitted within IFRS1 the comparative periods have not beenrestated. Comparative periods are disclosed and measured based on UK GAAP as at2 January 2005. Under UK GAAP at 2 January 2005 the swaps and their underlyingloan notes were accounted for using hedge accounting whereas under IFRS they aredisclosed separately at fair value. 2005 £mCross-currency interest rate swaps - fair value Liabilities------------------------------------- --------------Closing balance at 2 January 2005 -Impact of IAS 32 & 39 (87.2)------------------------------------- --------------Restated closing balance at 2 January 2005 after the impactof IAS 32 & 39 (87.2)------------------------------------- --------------Movement in fair value during the period including exchange movements 30.6------------------------------------- --------------Closing balance at 1 January 2006 (56.6)------------------------------------- --------------Current -Non-current (56.6)------------------------------------- -------------- The Group uses cross-currency interest rate swaps to manage its exposure toforeign exchange movements and interest rate movements on its private placementsby swapping these borrowings from US dollar fixed rates to sterling floatingrates. The fair value of cross-currency interest rate swaps at 1 January 2006 isestimated at £56.6 million (2 January 2005: £87.2 million). These amounts havebeen calculated using an industry-standard financial instrument model. The Groupdoes not currently designate its cross-currency interest rate swaps as hedginginstruments and changes in the fair values of the swaps have been charged to theincome statement in the year. Notes to the 2005 preliminary statement (continued) 11. Notes to the cash flow statement 2005 2004 £m £m----------------------------- ----------- ------Operating profit 245.4 242.8Adjustments for:Depreciation of property, plant and equipment 40.1 49.0Amortisation of intangible assets 3.3 -Share of result of associate (0.8) (0.8)Cost of Long Term Incentive Plan (LTIP benefits) 4.4 1.9Profit on disposal of property, plant and equipment (3.5) (1.0)Profit on disposal of available-for-sale investments (2.7) -Adjustment for IAS 19 pension funding (17.7) (3.1)----------------------------- ----------- ------Operating cash flows before movements in working capital 268.5 288.8(Increase)/decrease in inventories (0.5) 0.1Decrease in receivables 16.6 10.1Decrease in payables (7.8) (10.2)----------------------------- ----------- ------Cash generated by operations 276.8 288.8----------------------------- ----------- ------ Cash and cash equivalents represent the sum of the Group's bank balances andcash in hand at the balance sheet date as disclosed on the face of balancesheet. 12. Net Debt 3 January 2005 Loans Other 1 2 January adoption of IAS 39* drawn/ non-cash January 2005 IFRS IAS 39* Cash Flow impact repaid changes 2006 £m £m £m £m £m £m £m---------------- ------- ------- -------- ------- ------ ------ ------Non-currentLoan notes (440.8) 86.3 - (37.2) - (0.3) (392.0) Derivativefinancialinstruments - (87.2) - 30.6 - - (56.6)Obligationsunder financeleases (17.7) - - - 2.1 - (15.6)---------------- ------- ------- -------- ------- ------ ------ ------ (458.5) (0.9) - (6.6) 2.1 (0.3) (464.2)---------------- ------- ------- -------- ------- ------ ------ ------CurrentBank overdrafts (22.5) - 4.6 - - - (17.9)Short termloans - - - - (40.0) - (40.0)Loan notes (13.9) - - - 13.1 - (0.8)Obligationsunder financeleases (2.5) - - - (0.3) - (2.8)---------------- ------- ------- -------- ------- ------ ------ ------ (38.9) - 4.6 - (27.2) - (61.5)---------------- ------- ------- -------- ------- ------ ------ ------ Cash and cashequivalents 43.4 - (10.2) - - - 33.2---------------- ------- ------- -------- ------- ------ ------ ------Net debt (454.0) (0.9) (5.6) (6.6) (25.1) (0.3) (492.5)---------------- ------- ------- -------- ------- ------ ------ ------ * The US and UK private placement loan notes totalling US$602 million and £32million were issued in 2001 and 2002. The fixed rate interest and capitalrepayments on the US$ denominated loan notes have been swapped into floatingrate sterling through the use of cross-currency interest rate swaps. As hedgeaccounting under IAS 39 has not been applied, the loan notes and cross-currencyswaps are shown separately under IAS 39. The loan notes are disclosed atamortised cost and translated into sterling at the prevailing period-endexchange rate and the cross-currency swaps are disclosed at fair value at theperiod-end date. These values do not represent the amounts required to repay theloan notes or cancel the related cross-currency interest rate swaps. Notes to the 2005 preliminary statement (continued) 12. Net debt (continued) Opening position reconciled to UK GAAP as at 2 January 2005 UK GAAP at Adjustment IFRS at 2 January on transition 2 January 2005 to IFRS 2005 (audited)Net Debt £m £m £m------------------------------- -------- -------- --------Non-current Loan notes (440.8) - (440.8)Obligationsunder financeleases (14.9) (2.8) (17.7)------------------------------- -------- -------- -------- (455.7) (2.8) (458.5) ------------------------------- -------- -------- --------CurrentBank overdrafts (22.5) - (22.5)Loan notes (13.9) - (13.9)Obligationsunder financeleases (1.7) (0.8) (2.5)------------------------------- -------- -------- -------- (38.1) (0.8) (38.9) ------------------------------- -------- -------- -------- Cash and cashequivalents 43.4 - 43.4------------------------------- -------- -------- --------Net debt (450.4) (3.6) (454.0)------------------------------- -------- -------- -------- 13. Share-based payments During the 52 weeks to 1 January 2006, 1,002,919 (2004: 1,244,340) share optionswere granted to senior managers on a discretionary basis under the 2004 LongTerm Incentive Plan (LTIP). The exercise price of the granted options is £1 foreach block of options granted. The options vest after three years, subject tothe continued employment of the participant and satisfaction of certain earningsper share and total shareholder return performance conditions. 14. Retirement benefit schemes Defined benefit schemes The Group operates a number of pension schemes. Two of the schemes, namely theMirror Group Pension Scheme (the "Old Scheme") and the MGN Past Service PensionScheme (the "Past Service Scheme") cover the liabilities in respect of serviceup to 13 February 1992, the date when the Old Scheme was closed. The PastService Scheme was established to meet the liabilities for service up to 13February 1992 for employees and former employees, who worked regularly on theproduction and distribution of Mirror Group's newspapers, which are notsatisfied by payments from the Old Scheme and the Maxwell Communications PensionPlan or by the State.These Schemes have formal actuarial valuations carried outregularly. The actuarial methods and assumptions used to calculate their assetsand liabilities vary according to actuarial and funding policies adjusted by theTrustees.The last formal valuation was carried out as at 31 December 2004 andshowed that the Schemes have insufficient assets to meet their liabilities formembers' benefits. In anticipation of this, agreement was reached with theTrustees to pay £9.0 million in the Past Service Scheme in 2005 (2004: £3.5million). For 2006, agreement has been reached with the Trustees to pay £12.5million. The next full actuarial valuation is due to be carried out as at 31December 2007. In addition to the above schemes, the Group operates a further eight finalsalary schemes. Formal valuations of schemes are carried out regularly, theactuarial methods and assumptions used to calculate each scheme's assets andliabilities varying according to the actuarial and funding policies adopted bytheir respective trustees. Notes to the 2005 preliminary statement (continued) 14. Retirement benefit schemes (continued) The most significant of the schemes are the Trinity Retirement BenefitScheme (the "Trinity Scheme"), the MGN Pension Scheme (the "MGN Scheme") and theMidland Independent Newspapers Pension Scheme (the " MIN Scheme"), whichtogether with the Old Scheme and the Past Service Scheme represent over 95% ofthe aggregate market value. The last formal valuation of these schemes wasundertaken on 30 June 2003 for the Trinity Scheme, 31 March 2004 for the MINScheme and 31 December 2004 for the MGN Scheme. These valuations showed deficitsof £25.1 million, £30.8 million and £55.9 million respectively. All of theschemes are being funded in accordance with the recommendations of therespective actuaries. In 2005, the employer's contribution rate to the MGNScheme was 11.1%. However, this will increase in 2006 to 12%. The employer'scontribution rate to the Trinity Scheme remained at 14% in 2005. The employer'scontribution rate to the MIN Scheme increased by 1% to 15% in 2005. During 2002, the decision was taken to close entry to these three definedbenefit (final salary pension) schemes to new employees with effect from 1January 2003. All new employees are entitled to participate in a definedcontribution plan, the Trinity Mirror Pension Plan. Valuations have been performed in accordance with the requirements of IAS 19with scheme liabilities calculated using a consistent projected unit valuationmethod and compared to the market value of the schemes' assets at30 December2005, the last day prior to the period end for which such values were available. Based on actuarial advice, the financial assumptions used in calculating theschemes' liabilities and the total value of those liabilities under IAS 19 are: Principal annual actuarial assumptions 2005 2004used: % %-------------------------- -------- ---------Discount rate 4.75 5.30Inflation rate 2.80 2.75Expected return on scheme assets 4.00 to 5.10 to 7.30 7.80Expected rate of salary increases 4.10 4.00Pension increases:Pre 6 April 1997 pensions 2.80 to 2.75 to 5.00 5.00Post 6 April 1997 pensions 2.80 to 2.75 to 3.30 3.25 Actual return on scheme assets £179.7m £91.6m 2005 2004Defined benefit schemes £m £m-------------------------- -------- ---------Net scheme liabilities: Present value of funded obligations (1,535.5) (1,371.6)Fair value of schemes' assets 1,233.0 1,049.7Effect of asset ceiling (3.1) --------------------------- -------- ---------Schemes' deficits (305.6) (321.9)-------------------------- -------- --------- This amount is presented as follows: Current liabilities - -Non-current liabilities (305.6) (321.9)-------------------------- -------- --------- (305.6) (321.9)-------------------------- -------- --------- Pension scheme assets include direct investments in the Company's ordinary shares with a fair value of: £nil £nil-------------------------- -------- --------- Notes to the 2005 preliminary statement (continued) 14.Retirement benefit schemes (continued) 2005 2004Amounts recognised in the income statement £m £m---------------------------- -------- ---------Current service cost (28.6) (32.6)Past service cost (1.3) (0.6)---------------------------- -------- ---------Total included in staff costs (29.9) (33.2)---------------------------- -------- --------- Expected return on scheme assets 72.9 67.4Interest cost on pension schemes' (71.2) (70.3)liabilities -------- -------------------------------------Net finance credit/(charge) 1.7 (2.9)---------------------------- -------- ---------Total included in the income statement (28.2) (36.1)---------------------------- -------- --------- Movement in deficits during the period:Opening deficits (321.9) (357.9)Contributions 46.9 36.5Total charge to income statement (28.2) (36.1)Actuarial gains 0.7 35.6Effect of asset ceiling (3.1) ----------------------------- -------- ---------Closing deficits (305.6) (321.9)---------------------------- -------- ---------Movement not recognised in incomestatement:Actuarial gains 0.7 35.6Effect of asset ceiling (3.1) ----------------------------- -------- ---------Total included in statement of recognisedincome and expense (before tax) (2.4) 35.6---------------------------- -------- --------- 2005 2004Defined contribution schemes £m £m---------------------------- -------- ---------Amounts recognised in the income statement:Current service cost (0.8) (0.5)---------------------------- -------- --------- 15. Long Term Incentive Plan (LTIP) share purchases Purchases of shares for LTIP are included in retained earnings and otherreserves at £11.9 million (2 January 2005: £6.2 million) and under IFRS are nowclassified as Treasury Shares, and are included in other reserves on the balancesheet. Notes to the 2005 preliminary statement (continued) 16. Acquisitions of subsidiaries During the 52 weeks to 1 January 2006, the Group acquired Smart Media ServicesLimited, Financial Jobs Online Limited, the hotgroup plc and PaldonsayLimited.The results of the acquisitions have been included in continuingoperations. The net assets acquired in the transactions, and the goodwill arising, are asfollows: Acquirees' carrying amount before Fair value combination adjustments £m £m Fair value -------- -------- --------Net assets acquiredProperty,plant andequipment 1.8 (0.5) 1.3Current assets 12.2 (1.0) 11.2Cash and cashequivalents (0.9) - (0.9)Currentliabilities (9.8) (2.9) (12.7)Obligationsunder financeleases - (0.1) (0.1)Borrowings (4.5) 0.1 (4.4)Non-currentliabilities (1.2) (12.1) (13.3)-------------------- ------------ -------- -------- -------- (2.4) (16.5) (18.9)Intangibleassets 39.5Goodwill 66.8-------------------- ------------ -------- -------- --------Totalconsideration 87.4-------------------- ------------ -------- -------- -------- These acquisitions have been aggregated as they are considered individuallyimmaterial to the Group's results. Fair value adjustments reflect the alignment of the acquirees' accounting policies with those of the Group. £m------------------------------------------- -------- Satisfied by:Cashconsiderationpaid (78.1)Directlyattributableacquisitioncosts(1) (3.1)-------------------- ------------ -------- -------- --------Total cash paid (81.2)Deferredconsideration (5.5)Loan notes (0.7)-------------------- ------------ -------- -------- --------Totalconsideration (87.4)-------------------- ------------ -------- -------- --------(1) Directly attributable acquisition costs included in the cost of acquisitionare the direct legal and accounting costs incurred in developing the acquisitioncontracts and performing due diligence activities. Total expenditure on acquisitions of £92.7 million comprises £87.4 million totalconsideration detailed above, acquired borrowings of £4.4 million and cash andcash equivalents of £0.9 million. The goodwill arising on the acquisitions is attributed to the anticipatedprofitability and market share of the acquirees in their new markets and theanticipated synergies with other acquisitions. Net cash outflow arising onacquisition: Cashconsiderationpaid (81.2)Cash and cashequivalents (0.9)Borrowingsacquired (4.4)-------------------- ---------- ---------- --------- ------ (86.5)-------------------- ---------- ---------- --------- ------ The revenue and operating loss post acquisition of subsidiaries is as follows: Revenue and profit impact Contribution to Group post(included in continuing acquisitionoperations) £m Revenue 9.2-------------------- ---------- ---------- ----- -----------Operating loss(2) (3.1)-------------------- ---------- ---------- ----- -----------(2) Operating loss is stated after amortisation costs of £3.3 million andnon-recurring severance costs of £1.0 million. If the acquisitions had been completed on the first day of the financial period,Group revenues for the period would have been £1,170.4 million and Groupoperating profit would have been £249.1 million. The initial accounting for acquisitions has not been finalised, due touncertainties regarding the valuation of acquired liabilities and provisions atthe acquisition date. These uncertainties are expected to be resolved within oneyear of the date of each acquisition. Notes to the 2005 preliminary statement (continued) 17. Issue of Annual Report and Accounts The 2005 Annual Report and Accounts will be posted to shareholders on 31 March2006. Copies may be obtained after 31 March 2006 from the Company Secretary,Trinity Mirror plc at One Canada Square, Canary Wharf, London E14 5AP. The financial information set out above does not constitute the Company'sstatutory accounts for the periods ended 1 January 2006 or 2 January 2005, butis derived from those accounts. Statutory accounts for 2004 have been deliveredto the Registrar of Companies and those for the period ended 1 January 2006 willbe delivered following the Company's Annual General Meeting on 4 May 2006. Theauditors have reported on those accounts; their reports were unqualified and didnot contain statements under section 237(2) or (3) of the Companies Act 1985. 18. Explanation of transition to IFRS Differences between IFRS and UK GAAP Presentation - IAS 1, Presentation of Financial Statements The presentation format of IFRS is different from UK GAAP and the illustrativefinancial information herein is designed to assist the reader to understandthese changes. Dividends - IAS 10, Events After the Balance Sheet Date Dividends proposed will be disclosed as a 'Non-adjusting Event after the BalanceSheet Date' under IAS 10, Events after the Balance Sheet Date. Under IFRSdividends are not recognised as liabilities (IAS 37, Provisions, ContingentLiabilities and Contingent Assets) until they are appropriately approved and areno longer at the discretion of the directors. Accordingly the 2004 proposeddividend amount under UK GAAP is removed from the IFRS accounts. Capitalised Leases - IAS 17, Leases This standard has a wider scope than UK GAAP and has resulted in a small numberof short leasehold buildings being capitalised on the Balance Sheet. Employee Option and Performance Share Schemes - IFRS 2, Share-based Payments All transactions within the scope of IFRS 2 are valued based on the fair valueof the option or award at grant date and expensed to the Income Statement overthe vesting period of the scheme. Pension costs - IAS 19, Employee Benefits The main difference between IFRS and UK GAAP is the measurement of schemeassets. The IFRS valuation is determined at bid rather than mid market pricethus increasing the Group's pension scheme liabilities. In addition, there is apresentational difference with the pension scheme liability now being showngross of its deferred tax asset. Holiday pay - IAS 19, Employee benefits IAS 19 requires the recording of a holiday pay accrual. This has been includedin the opening IFRS Balance Sheet at 29 December 2003. Although it is expectedthat this adjustment will be relatively stable in magnitude from one year toanother, when comparing the year end and interim periods there is a balancesheet movement and income statement impact. Goodwill - IAS 38, Intangible Assets Under IAS 38 goodwill is not amortised. Instead it is subject to an annualimpairment review.An adjustment has been made to remove the goodwillamortisation charge. Associates - IAS 28, Investments in Associates IFRS requires the share of profit of Associates to be shown post tax (IAS 1).Under UK GAAP this amount is shown before tax with the tax charge included aspart of the Group tax charge. Deferred Tax - IAS 12, Income Taxes IAS 12 requires a deferred tax liability to be recognised on all temporarytiming differences. A potential liability arises from the difference between thefair value attributed to publishing rights and titles from previousacquisitions.As the group has elected, under IFRS 1, not to restate prioracquisitions at transition date to an IFRS 3 basis then recognition is againstequity reserves rather than against goodwill.Also included in this adjustment isthe liability for gains deferred by rollover and held-over relief. Cash flow The differences between UK GAAP and IFRS cash flows relate to thereclassification of some of the Group's UK GAAP operating lease payments asfinance lease payments under IFRS and the IAS 19 finance costs not charged tothe Group's income statement under UK GAAP. There is no impact on the final cashposition nor the movement in the period.The IFRS cash flow with comparativeinformation is presented on page 15. The reconciliations of equity and profit below, together with the explanationsof the changes, are provided to facilitate the understanding of changes arisingfrom the adoption of IFRS. Notes to the 2005 preliminary statement (continued) 18.Explanation of transition to IFRS (continued) Reconciliation of profit for the 53 weeks ended 2 January 2005 UK GAAP Effect of in IFRS transition format to IFRS IFRS £m £m £m Revenue 1,141.7 - 1,141.7Cost of sales (533.6) - (533.6)-------------------------- -------- -------- --------Gross profit 608.1 - 608.1Distributioncosts (140.5) - (140.5)Administrative expenses:Non-recurring (12.2) - (12.2)Amortisationof intangibles (0.4) 0.4 -Other (214.1) 0.7 (213.4)Share ofresults ofassociates 1.3 (0.5) 0.8-------------------------- -------- -------- --------Operatingprofit 242.2 0.6 242.8IAS 19 financecharge (2.7) (0.2) (2.9)Other financecosts (34.9) (0.4) (35.3)Profit ondisposal ofsubsidiaryundertakings 2.5 - 2.5-------------------------- -------- -------- --------Profit beforetax 207.1 - 207.1Tax (63.0) 1.0 (62.0)-------------------------- -------- -------- --------Profit for theperiod 144.1 1.0 145.1-------------------------- -------- -------- --------Attributable to:Equity holdersof the parent 144.0 1.0 145.0Minorityinterests 0.1 - 0.1-------------------------- -------- -------- -------- 144.1 1.0 145.1-------------------------- -------- -------- -------- Notes to the 2005 preliminary statement (continued) 18.Explanation of transition to IFRS (continued) Reconciliation of equity at 29 December 2003 (date of transition to IFRS) UK GAAP Effect of in IFRS transition format to IFRS IFRS £m £m £mNon-current assetsGoodwill 6.2 - 6.2Otherintangibleassets 1,616.2 - 1,616.2Property,plant andequipment 401.0 2.5 403.5Investments inassociates 9.8 - 9.8Deferred taxasset 11.4 107.8 119.2-------------------------- -------- -------- -------- 2,044.6 110.3 2,154.9-------------------------- -------- -------- --------Current assetsInventories 7.0 - 7.0Available-for-sale financialassets 1.1 - 1.1Trade andotherreceivables 159.8 - 159.8Cash and cashequivalents 34.3 - 34.3-------------------------- -------- -------- -------- 202.2 - 202.2-------------------------- -------- -------- --------Total assets 2,246.8 110.3 2,357.1-------------------------- -------- -------- --------Non-current liabilitiesBorrowings (554.9) - (554.9)Obligationsunder financeleases (22.8) (3.2) (26.0)Retirementbenefitobligation (248.1) (109.8) (357.9)Deferred taxliabilities (67.5) (476.6) (544.1)Long termprovisions (12.7) (0.3) (13.0)-------------------------- -------- -------- -------- (906.0) (589.9) (1,495.9)-------------------------- -------- -------- --------Current liabilitiesBorrowings (57.3) - (57.3)Trade andother payables (222.6) 37.1 (185.5)Current taxliabilities (26.9) - (26.9)Obligationsunder financeleases (4.4) (0.7) (5.1)-------------------------- -------- -------- -------- (311.2) 36.4 (274.8)-------------------------- -------- -------- --------Totalliabilities (1,217.2) (553.5) (1,770.7)-------------------------- -------- -------- --------Net assets 1,029.6 (443.2) 586.4-------------------------- -------- -------- --------EquityShare capital (29.4) - (29.4)Share premiumaccount (1,089.5) - (1,089.5)Revaluationreserve (5.0) - (5.0)Retainedearnings andother reserves 98.0 443.2 541.2-------------------------- -------- -------- --------Equityattributableto equityholders of theparent (1,025.9) 443.2 (582.7)Minorityinterest (3.7) - (3.7)-------------------------- -------- -------- --------Total equity (1,029.6) 443.2 (586.4)-------------------------- -------- -------- -------- Notes to the 2005 preliminary statement (continued) 18.Explanation of transition to IFRS (continued) Reconciliation of equity at 2 January 2005 (date of last UK GAAP financialstatements) UK GAAP Effect of in IFRS transition format to IFRS IFRS £m £m £m Non-current assetsGoodwill 5.6 0.4 6.0Otherintangibleassets 1,579.9 - 1579.9Property,plant andequipment 385.7 2.1 387.8Investments inassociates 7.5 - 7.5Deferred taxasset 9.6 96.9 106.5-------------------------- -------- -------- -------- 1,988.3 99.4 2,087.7-------------------------- -------- -------- --------Current assetsInventories 6.7 - 6.7Available-for-sale financialassets 1.3 - 1.3Trade andotherreceivables 147.7 - 147.7Cash and cashequivalents 43.4 - 43.4-------------------------- -------- -------- -------- 199.1 - 199.1-------------------------- -------- -------- --------Total assets 2,187.4 99.4 2,286.8-------------------------- -------- -------- --------Non-current liabilitiesBorrowings (440.8) - (440.8)Obligationsunder financeleases (14.9) (2.8) (17.7)Retirementbenefitobligation (222.5) (99.4) (321.9)Deferred taxliabilities (64.9) (476.0) (540.9)Long termprovisions (7.8) (0.3) (8.1)-------------------------- -------- -------- -------- (750.9) (578.5) (1,329.4)-------------------------- -------- -------- --------Current liabilitiesBorrowings (36.4) - (36.4)Trade andother payables (216.5) 41.5 (175.0)Current taxliabilities (33.5) 0.3 (33.2)Obligationsunder financeleases (1.7) (0.8) (2.5)Short termprovisions (4.7) - (4.7)-------------------------- -------- -------- -------- (292.8) 41.0 (251.8)-------------------------- -------- -------- --------Totalliabilities (1,043.7) (537.5) (1,581.2)-------------------------- -------- -------- --------Net Assets 1,143.7 (438.1) 705.6-------------------------- -------- -------- --------EquityShare capital (29.7) - (29.7)Share premiumaccount (1,101.7) - (1,101.7)Revaluationreserve (4.9) - (4.9)Retainedearnings andother reserves (7.4) 438.1 430.7-------------------------- -------- -------- --------Equityattributableto equityholders of theparent (1,143.7) 438.1 (705.6)-------------------------- -------- -------- --------Total equity (1,143.7) 438.1 (705.6)-------------------------- -------- -------- -------- Notes to the 2005 preliminary statement (continued) 19. Adoption of IAS 32 and 39 Reconciliation of equity at 3 January 2005 from opening position to post IAS 32& 39 adoption The Group adopted IAS 32 & 39 on 3 January 2005 as permitted under theexemptions of IFRS 1. The impact was limited to the revaluation ofavailable-for-sale financial assets to fair value from historical cost andaccounting for the Group's private placement loan notes and associatedcross-currency interest rate swaps, which are brought onto the balance sheet atfair value. Under UK GAAP these were treated as a hedge and the relatedborrowings were recorded at the future swaps exchange rate. IAS 39 has specific accounting rules for the treatment of hedges previouslyaccounted under UK GAAP, which on adoption of the Standard are not accounted forusing hedge accounting on an ongoing basis under IFRS. The related borrowingsare now recognised at an 'adjusted' amortised cost. This adjustment arises fromthe adoption date recognition rules where the opening position is recognised asan accounting hedge. Subsequent measurements will not be under IAS 39 hedgeaccounting rules but instead will amortise the adjusted cost at the effectiveinterest rate. IFRS Adoption IFRS after before of IAS 32 adoption adoption & 39 of IAS 32 of IAS 32 & 39 & 39 £m £m £mNon-current assetsGoodwill 6.0 - 6.0Otherintangibleassets 1579.9 - 1579.9Property,plant andequipment 387.8 - 387.8Investments inassociates 7.5 - 7.5Deferred taxasset 106.5 - 106.5-------------------------- -------- -------- -------- 2,087.7 - 2,087.7-------------------------- -------- -------- --------Current assetsInventories 6.7 - 6.7Available-for-sale financialassets 1.3 2.4 3.7Trade andotherreceivables 147.7 - 147.7Cash and cashequivalents 43.4 - 43.4-------------------------- -------- -------- -------- 199.1 2.4 201.5-------------------------- -------- -------- --------Total assets 2,286.8 2.4 2,289.2-------------------------- -------- -------- --------Non-current liabilitiesBorrowings (440.8) 86.3 (354.5)Obligationsunder financeleases (17.7) - (17.7)Retirementbenefitobligation (321.9) - (321.9)Deferred taxliabilities (540.9) (0.7) (541.6)Long termprovisions (8.1) - (8.1)Derivativefinancialinstruments - (87.2) (87.2)-------------------------- -------- -------- -------- (1,329.4) (1.6) (1,331.0)-------------------------- -------- -------- --------Current liabilitiesBorrowings (36.4) - (36.4)Trade andother payables (175.0) 0.9 (174.1)Current taxliabilities (33.2) - (33.2)Obligationsunder financeleases (2.5) - (2.5)Short termprovisions (4.7) - (4.7)-------------------------- -------- -------- -------- (251.8) 0.9 (250.9)-------------------------- -------- -------- --------Totalliabilities (1,581.2) (0.7) (1,581.9)-------------------------- -------- -------- --------Net Assets 705.6 1.7 707.3-------------------------- -------- -------- --------Equity Share capital (29.7) - (29.7)Share premiumaccount (1,101.7) - (1,101.7)Revaluationreserve (4.9) - (4.9)Retainedearnings andother reserves 430.7 (1.7) 429.0-------------------------- -------- -------- --------Equityattributableto equityholders of theparent (705.6) (1.7) (707.3)-------------------------- -------- -------- --------Total equity (705.6) (1.7) (707.3)-------------------------- -------- -------- -------- Unaudited other information 20. Reconciliation of Group statutory results to like-for-like results Acquisitions52 weeks ended Statutory Non- 1 January 2006 Result recurring Result Amortisation IAS 39 Like-for items £m £m Impact -like £m £m (b) (b) £m Result (a) (c) £m---------------- ------- -------- ------ ------- ------- ------- Revenue 1,122.0 - (9.2) - - 1,112.8Operatingprofit 245.4 2.7 (1.2) 3.3 - 250.2Profit beforetax 209.5 2.7 (1.2) 3.3 6.6 220.9 pence pence pence pence pence pence Underlyingearnings pershare 50.5 - (0.3) 0.8 1.6 52.6Non-recurringitems (0.2) 0.2 - - - ----------------- ------- -------- ------ ------- ------- -------Earnings pershare - basic 50.3 0.2 (0.3) 0.8 1.6 52.6---------------- ------- -------- ------ ------- ------- ------- Acquisitions53 weeks ended Statutory Non- 2 January 2005 Result recurring Result Amortisation Week 53 Like-for items £m £m effect -like £m £m (b) (b) £m Result (a) (d) £m---------------- ------- -------- ------ ------- ------- ------- Revenue 1,141.7 - - - (14.2) 1,127.5Operatingprofit 242.8 12.2 - - (8.9) 246.1Profit beforetax 207.1 9.7 - - (8.3) 208.5 pence pence pence pence pence pence Underlyingearnings pershare 51.2 - - - (1.9) 49.3Non-recurringitems (2.0) 2.0 - - - ----------------- ------- -------- ------ ------- ------- -------Earnings pershare - basic 49.2 2.0 - - (1.9) 49.3---------------- ------- -------- ------ ------- ------- ------- (a) Details of non-recurring items are set out in note 4 and include the profit on disposal of subsidiary undertakings in 2004. (b) Details of acquisitions are set out in note 16. All acquisitions and amortisation relate to the Regionals business segment. (c) Impact of fair value, exchange rate, and amortisation adjustments on borrowings and associated financial instruments, accounted for under IAS 39. The IAS 39 impact is included in central costs and is not allocated to a business segment. (d) 2004 was a 53-week trading period compared to 52 weeks in 2005. Unaudited other information (continued) 21. Indicative view of UK GAAP* Reconciliation of profit for the 52 weeks to 1 January 2006 from IFRS to UK GAAPapplicable at 2 January 2005 IFRS Adjust Indicative 2004 £m to UK UK £m GAAP GAAP £m £m Revenue 1,122.0 - 1,122.0 1,141.7Cost of sales (538.8) - (538.8) (533.6)------------------------- ------- ------- --- -------- --------Gross profit 583.2 - 583.2 608.1Distributioncosts (126.5) - (126.5) (140.5)Administrative expenses:Non-recurring (2.7) - (2.7) (12.2)Amortisationof intangibleassets (3.3) (0.4) (a) (3.7) (0.4)Other (206.1) - (b) (206.1) (214.1)Share ofresults ofassociates 0.8 0.5 (c) 1.3 1.3------------------------- ------- ------- --- -------- --------Operatingprofit 245.4 0.1 245.5 242.2IAS 19 financecredit/(charge) 1.7 0.1 1.8 (2.7)IAS 39 impact (6.6) 6.6 (d) - -Other financecosts (31.0) 0.3 (e) (30.7) (34.9)Profit ondisposals ofsubsidiaryundertaking - - - 2.5------------------------- ------- ------- --- -------- --------Profit before tax 209.5 7.1 216.6 207.1Tax (62.6) (2.4) (f) (65.0) (63.0)------------------------- ------- ------- --- -------- --------Profit for theperiod 146.9 4.7 151.6 144.1------------------------- ------- ------- --- -------- --------Attributable to:Equity holdersof the parent 146.9 4.7 151.6 144.0Minorityinterest - - - 0.1------------------------- ------- ------- --- -------- -------- 146.9 4.7 151.6 144.1------------------------- ------- ------- --- -------- -------- * United Kingdom Generally Accepted Accounting Practice applicable at 2 January2005. Differences between UK GAAP applicable at 2 January 2005 and UK GAAP as at thedate of this report reflect the implementation of the following standards: • Financial Reporting Standard No. 20 'Share-based payments'; • Financial Reporting Standard No. 21 'Events after the balance sheet date'; • Financial Reporting Standard No. 25 'Financial Instruments: Disclosure and presentation'; and • Financial Reporting Standard No. 26 'Financial Instruments: Measurement'. The principal adjustments arising in the reconciliation from IFRS to UK GAAP areas follows: (a) Amortisation of goodwill not permitted under IFRS. (b) A reduction in the Group's share based payments charge of £0.5 millionunder UK GAAP is offset by an increase in operating lease rentals of £0.5million on property leases capitalised under IFRS but not under UKGAAP. (c) The Group's share of results of associates is shown net of tax underIFRS and gross of tax under UK GAAP. (d) Reverses the IAS 39 impact on borrowings that arises under IFRS. (e) Reflects the interest arising on certain property leases capitalisedunder IFRS but not under UK GAAP. (f) Corporation tax impact of adjustments from IFRS to UK GAAP. Unaudited other information (continued) 21. Indicative view of UK GAAP* (continued) Reconciliation of equity at 1 January 2006 from IFRS to UK GAAP applicable at 2January 2005 IFRS Adjust to Indicative 2004 £m UK GAAP UK GAAP £m £m £mNon-current assetsGoodwill 72.8 (0.8) (a) 72.0 5.6Otherintangibleassets 1,616.1 - 1,616.1 1,579.9Property,plant andequipment 387.3 (1.8) (b) 385.5 385.7Investments inassociates 8.6 - 8.6 7.5Deferred taxasset 97.9 (92.0) (c) 5.9 9.6------------------------ -------- -------- --- -------- -------- 2,182.7 (94.6) 2,088.1 1,988.3------------------------ -------- -------- --- -------- --------Current assetsInventories 7.2 - 7.2 6.7Available-for-sale financialassets 0.5 - 0.5 1.3Trade andotherreceivables 150.9 - 150.9 147.7Cash and cashequivalents 33.2 - 33.2 43.4------------------------ -------- -------- --- -------- -------- 191.8 - 191.8 199.1------------------------ -------- -------- --- -------- --------Total assets 2,374.5 (94.6) 2,279.9 2,187.4------------------------ -------- -------- --- -------- --------Non-current liabilitiesBorrowings (392.0) (49.1) (d) (441.1) (440.8)Obligationsunder financeleases (15.6) 2.3 (e) (13.3) (14.9)Retirementbenefitobligations (305.6) 95.5 (c) (210.1) (222.5)Deferred taxliabilities (547.2) 475.9 (f) (71.3) (64.9)Long termprovisions (12.2) 0.6 (11.6) (7.8)Derivativefinancialinstruments (56.6) 56.6 (d) - ------------------------- -------- -------- --- -------- -------- (1,329.2) 581.8 (747.4) (750.9)------------------------ -------- -------- --- -------- --------Current liabilitiesBorrowings (58.7) - (58.7) (36.4)Trade andother payables (183.0) (45.6) (g) (228.6) (216.5)Current taxliabilities (37.5) (2.1) (39.6) (33.5)Obligationsunder financeleases (2.8) 0.8 (e) (2.0) (1.7)Short termprovisions (9.6) - (9.6) (4.7)------------------------ -------- -------- --- -------- -------- (291.6) (46.9) (338.5) (292.8)------------------------ -------- -------- --- -------- --------Totalliabilities (1,620.8) 534.9 (1,085.9) (1,043.7)------------------------ -------- -------- --- -------- --------Net assets 753.7 440.3 1,194.0 1,143.7------------------------ -------- -------- --- -------- --------EquityShare capital (29.3) - (29.3) (29.7)Share premiumaccount (1,118.9) - (1,118.9) (1,101.7) Revaluationreserve (4.9) - (4.9) (4.9)Capitalredemptionreserve (0.8) - (0.8) -Retainedearnings andother reserves 400.2 (440.3) (40.1) (7.4)------------------------ -------- -------- --- -------- --------Total equity (753.7) (440.3) (1,194.0) (1,143.7)------------------------ -------- -------- --- -------- -------- * United Kingdom Generally Accepted Accounting Practice applicable at 2 January2005. The principal adjustments arising in the reconciliation from IFRS to UK GAAP areas follows: (a) Adjustment for amortisation of goodwill in 2004 and 2005 not permittedunder IFRS. (b) Adjustment for leases capitalised under IFRS but not under UK GAAP,representing leasehold properties. (c) The deferred tax asset arising on retirement benefit obligations isshown separately under IFRS but is netted against the obligations under UK GAAP. (d) Effect of IAS 39 on the fair value of borrowings and derivativefinancial instruments. (e) Adjustment for leasehold properties capitalised under IFRS but not underUK GAAP. (f) Removes the deferred tax liability of £474 million on intangiblesarising under IFRS. (g) Relates principally to the £45.4 million 2005 final dividend, whichunder IFRS is not recognised as a liability until approved by the Board. Unaudited other information (continued) 22. Analysis of net debt (excluding IAS 39) 1 January 2 January 2006 2005 £m £m-------------------------- -------- ---------- Cash at bank in hand 33.2 43.4Bank overdrafts (17.9) (22.5)-------------------------- -------- ----------Net cash balances 15.3 20.9-------------------------- -------- ---------- Debt due within one year (40.8) (13.9)Debt due after one year (441.1) (440.8)Finance leases (18.4) (20.2)-------------------------- -------- ----------Bank loans, bank notes and finance (500.3) (474.9)leases -------- ------------------------------------ Net debt (485.0) (454.0)-------------------------- -------- ---------- This note summarises net debt on an IFRS comparable basis excluding the impactof IAS 39 fair value, exchange rate and amortisation adjustments, illustrated in note 12. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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