25th Nov 2010 07:00
Daily Mail and General Trust plc (`DMGT')
Group unaudited preliminary results for the year ended 3rd October, 2010.
Adjusted results* Statutory results~ 2010 2009 Change 2010 2009 (restated)+ (restated) + Revenue £1,984 m £2,118 m -6 % £1,968 m £2,062 m Operating profit / £320 m £273 m +17% £228 m £(161) m(loss) Profit/(loss) £247 m £201 m +23% £146 m £(301) mbefore tax Earnings/(loss) per 50.0p 37.2 p +34% 52.1 p (79.8) pshare Dividend per share 16.0 p 14.7 p +9%
*(before exceptional items and amortisation and impairment of intangible assets; see Consolidated Income Statement and reconciliation in Note 9).
+ restated for the change of presentation of IAS 19 pension financing items from operating profit to net finance costs; see Note 1.
~ These statutory highlights are for continuing operations only (excluding DMG Radio up to 16th December, 2009), other than for earnings / (loss) per share which is the total statutory figure.
STRONG INCREASE IN PROFITS, CONTINUED INVESTMENT AND SIGNIFICANT REDUCTION IN DEBT
* Group underlying# operating profit* up c10%; * Strong B2B underlying# profit* growth of 15%; * Sharp rebound in UK consumer media profits*, up 46%, through growth in national advertising and cost containment; * Net debt to EBITDA ratio of 2.3 times, with net debt down £187m to £862m; * Dividend increased by 9%.
Martin Morgan, Chief Executive, said
"Trading exceeded our expectations throughout the year. Our international business-to-business companies have delivered excellent profit* growth, demonstrating strength across the portfolio. Our UK consumer businesses have achieved a sharp improvement in profitability* reflecting the actions taken to reduce costs and to eliminate loss-making activities, and growth in our national advertising.
These results are a testament to our success in meeting our objectives of maintaining a tight focus on execution whilst driving organic growth and innovation across the Group. Although we remain cautious about the medium term outlook, particularly given continuing economic uncertainties, we are well placed to continue investing in our businesses to strengthen their market positions and to take advantage of improving conditions as they materialise.
DMGT has always been a first mover in the media and information industry. We recognise that our future is largely digital, whether it be in the consumer or the B2B markets. Our performance reflects the significant progress made in our digital and online products and we look forward to another year of growth and development in these areas. Our established strategy of creating a leaner, more focused Group with a diversified international portfolio of market-leading businesses leaves us well positioned for 2011 and beyond."
A live webcast of the presentation of the Preliminary Results to City analysts will be available for viewing from 9.30 a.m. on 25th November, 2010 at http:// www.dmgt.co.uk.
Enquiries
Peter Williams, Finance Director Tel: 020 7938 6631
Nicholas Jennings, Company Secretary Tel: 020 7938 6625
Andrew Honnor/ Anastasia Shiach, Tulchan Communications Tel: 020 7353 4200
Notes to Editors
DMGT is a multi media and information company providing essential news, entertainment and information services on both business to business (B2B) and consumer platforms. We operate in many different markets, in over 40 countries providing high-quality content, information, analytics and events.
Our B2B arm comprises Risk Management Solutions (RMS), dmg information (dmgi), dmg events and Euromoney Institutional Investor. Our consumer media division, A &N Media, comprises Mail Newspapers, our free newspaper division, principally Metro, our central European operations, our digital only businesses and Northcliffe Media. We also own 50% of dmg radio Australia, a 50:50 joint venture with an Australian company called Illyria, established in December 2009.
Our strategy is to remain the owner of high-quality, sustainable, market-leading media and information assets across both the B2B and consumer sectors and to become a truly global growth company with sustainable earnings and dividend growth.
Daily Mail and General Trust plc
Contents
Management report
Condensed Consolidated Income Statement
Condensed Consolidated Statement of Comprehensive Income
Condensed Consolidated Statement of Changes in Equity
Condensed Consolidated Balance Sheet
Condensed Consolidated Cash Flow Statement
Notes to the Condensed Consolidated Financial Statements
Management report
This management report focuses principally on the adjusted results to give a more comparable indication of the Group's underlying business performance. A discussion of restructuring and impairment charges and other items included in the statutory results is given after the divisional performance review and is set out in the segmental note. In the statutory results, the Group's radio division is shown within discontinued operations for the period to 16th December 2009. The adjusted results are summarised below:
Adjusted results* 2010 2009 Change†£m (restated)+ £m Revenue 1,984 2,118 -6% Operating profit 320 273 +17% Income from joint ventures 2 (1) and associates Net finance costs (75) (71) -5% Profit before tax 247 201 +23% Tax charge (34) (44) +24% Minority interest (22) (16) -35% Group profit 191 141 +36% Adjusted earnings per share 50.0 p 37.2 p +34%
*Adjusted results are stated before amortisation and impairment of intangible assets and exceptional items. For a reconciliation of Group profit to adjusted Group profit, see Note 9. These adjusted results are for total operations, including those treated as discontinued.
#Underlying revenue or profit* is revenue or profit* on a like for like basis, adjusted for acquisitions and disposals made in the current and prior year and at constant exchange rates. For A&N Media, the underlying percentage movements compare 52 weeks with 52 weeks and exclude the Evening Standard, London Lite, the discontinued television activities of Teletext, the digital dating and data businesses and the Slovakian print publishing companies.
+ Operating profit* and net finance costs for the prior period have been restated for the transfer of the IAS 19 pensions financing credit of £5 million from corporate costs into net finance costs; see Note 1.
†Percentages are calculated on actual numbers to one decimal place.
Summary
* Group performance: Group revenue for the year was £1,984 million compared with £2,118 million for the prior year, representing a fall of 6% but an underlying# increase of 2%. Operating profit* was up 17% on the equivalent figure for the prior year at £320 million, an underlying# increase of approximately 10%. This increase was due to margin improvements across our portfolio, but particularly in our consumer businesses. Overall operating margin* rose from 13% to 16%.
The Group's B2B companies increased their overall profit* by 12%, an underlying # increase of 15%. Within consumer media, the profits* of A&N Media were significantly higher, up 46%, due to cost efficiencies, the elimination of loss-making activities and national advertising revenue growth. As a consequence, 66% of this year's operating profit* was generated from the Group's B2B operations and 34% from consumer, compared to 71% and 29% last year. More than half of the Group's operating profits* were again derived from outside the UK.
Adjusted profit* before tax rose by 23% to £247 million. The statutory profit before tax for the year was £146 million, after charging £58 million of amortisation charges and impairment losses and £39 million of net exceptional charges.
* Net debt and financing: net debt fell by £187 million to £862 million as the Group focused on debt reduction. At the year end, only £3 million of short term bank loans remained outstanding, with most debt in the form of long-term Eurobonds. The Group's ratio of year end net debt to EBITDA was 2.3 times, comfortably within the Group's target range of 2.0 to 2.5 times. OutlookGroup * Board cautiously optimistic of achieving another year of underlying growth. * Most of our businesses performing well in new financial year; continuing economic uncertainty in the medium term. * Focus to remain on cash generation and debt reduction; objective to recover investment grade credit rating. * Continued drive for sustainable organic growth through new product development and investments; equal focus on maintaining a firm control on costs. * RMS: showing good start to year with a number of contracts booked and a solid sales pipeline; expecting to achieve low double digit growth again this year. * dmgi: combination of continuing investment in core growth initiatives and improving market conditions will drive a modest acceleration of revenue and profits*growth. * dmg events: recent attendance and bookings trends moderately encouraging with continued improvement anticipated in 2011. Forthcoming year will benefit from two of our three major biennial shows taking place, (Adipec in November 2010 and Gastech in March 2011). * Euromoney: expects good second half revenue performance to continue into the first quarter. Furthermore, growth in subscriptions, which account for nearly 50% of its revenues, provides support for further growth in 2011. However, broader outlook for global economic growth remains challenging so outlook beyond December uncertain. Level of spending on technology and new product investment to increase further which, in the short-term, may reduce operating margins*. * Associated: advertising revenue in the first seven weeks of the new year up 9% on last year, continuing recovery seen since January; very difficult to predict future revenue trends and, as expected, newspaper operations facing upward pressure on newsprint prices; continuing strong growth in Mail Online readers. * Northcliffe: facing another tough year; UK advertising revenue in the first seven weeks down 7% on last year, continuing year-on-year trend experienced in September (like-for-like decline of 8%). Outlook for first quarter not expected to improve on this trend; will also be affected by higher newsprint costs; focus remains on reducing costs and new revenue opportunities. Divisional ReviewRisk Management Solutions 2010 2009 Movement £m £m % Revenue 153 137 +12% Operating profit* 47 42 +12% Operating margin* 31% 31%
RMS rebounded from the more difficult trading conditions of 2009 to achieve strong revenue and operating profit* growth of 12%, whilst maintaining profit* margins at 31% and continuing its investments in the Next Generation platform and other growth initiatives in the Data and Life & Health markets.
RMS achieved a balanced performance across its various business units. While nearly 75% of new sales were once again achieved in the core modelling business, more than 25% of new sales came in its newer initiatives such as Emerging Risk Solutions, Capital Markets, and Data Solutions.
Operating achievements for the year included the release of RiskLink version 10.0 and the launch of the first of RMS's Next Generation platform capabilities, in the form of Enterprise Grid Computing (EGC). There was continued sales momentum for growth initiatives such as RMS's Data Quality Analytics, ('Miu') software for managing portfolios of catastrophe (`cat') bonds, and the successful completion of the first excess mortality cat bond in the Life & Health market. RMS took advantage of the strong rebound in capital market conditions to execute 15 cat bond deals this year and maintained its leading market position.
The strength of RMS's business model has preserved margins whilst maintaining a strong investment programme in initiatives designed to generate future growth. RMS continues to develop products and services to fulfil demand for catastrophe models, expand along the `decision sciences' value chain and devise solutions in adjacent insurance market segments, such as in Life and Health.
dmg::information 2010 2009 Movement £m £m % Revenue 231 230 0% Operating profit* 53 46 +14% Operating margin* 23% 20%
In a year that saw a fragile recovery in some markets, reported revenue was up £1 million at £231 million. Underlying# revenues grew by 4%, with strong performances in the property, financial, energy and education sectors which in aggregate grew by 8%. This was in part mitigated by a decline in geo-spatial revenues.
dmgi achieved another year of record operating profit*, with underlying# growth of 16%. Margins improved by 3% to 23% as a consequence of good expense control.
Property Information
Operating profit* from the property information companies increased by 20% to £ 20 million, with revenues up 10% at £83 million. Underlying revenues and operating profits* grew by 10% and 28% respectively due to strong product performance and a slight improvement in residential and commercial property activity.
In the U.S., Environmental Data Resources (`EDR`), benefited from a slight improvement in commercial property transactions enhancing revenue and this, together with the full effect of cost saving initiatives made in 2009, led to a significant improvement in operating profit*. EDR continues to enhance its position in the lender market and also introduced a property monitoring product during the year.
Landmark Information Group increased its revenues and underlying# operating profits despite the continuing difficulties in the UK housing market. We saw some improvement in the early part of the year, enhanced by the stamp duty holiday that expired on 31st December, 2009, but, throughout the remainder of the year, housing transaction volumes remained similar to the prior year levels, hovering around half of the long-term average.
Other markets
64% of dmgi's revenue was generated by companies operating in the financial, education, energy and geospatial markets. In total, revenue was up 2% at £148 million and operating profits* up 11% at £36 million. The underlying# revenue and operating profits* were higher by 1% and 9% respectively. Pleasing growth was experienced in all of our businesses with the exception of Sanborn where there was a reduction in revenues as a result of the continuation of tough geospatial market conditions, driven by tight US state and federal budgets.
* Financial:
Trepp again grew its revenue and operating profit* strongly. It successfully acted as the collateral monitor for Commercial Mortgage-Backed Securities for the Federal Reserve Bank of New York as part of the US federal governments Term Asset-Backed Securities Loan Facility (TALF). Trepp also developed its core CMBS products significantly during the year and started to expand into adjacent areas.
Lewtan, offering products to both investors and issuers in the Asset-Backed securities market, also enjoyed a good year with record profits* buoyed by the successful launch of its ABS Loan product line. A major upgrade of its ABSNet product is to be launched in early 2011.
* Education:
Hobsons increased underlying revenues by 7% and continues to gain market share. In the year almost 200 new clients of its core products were added, pushing the customer base to in excess of a thousand colleges in the US. Naviance, which provides solutions to US high schools, enjoyed an outstanding year adding 890 additional high schools to its client list, taking the total to 4,370 across the US.
* Energy:
The energy trading markets have remained turbulent, with customer consolidation and lower energy price volatility reducing activity. Despite this backdrop, Genscape was able to increase revenues by 8%. Genscape's product range continues to expand and of particular note was the success of its new oil product line.
dmg::events (formerly dmg world media)
2010 2009 Movement £m £m % Revenue 110 175 -37% Operating profit* 30 37 -19% Operating margin* 27% 21%
dmg events' revenue and operating profit* were down 37% and 19% respectively, due in large part to the divestment of businesses last year and, to a lesser extent, the late-cycle nature of exhibitions. These results also reflect the inclusion of one large biennial event in June, the Global Petroleum Show in Calgary, but the absence of two others, Gastech and ADIPEC.
While underlying# revenue reduced by 9% in the year, the most significant reductions were experienced early in the year and by the final quarter we were seeing year-on-year increases. Underlying operating profit* fell by only 7% due to cost saving initiatives, despite the high operating leverage of exhibitions. Margins* have significantly improved by 6% to 27% as a consequence of reducing central costs, simplifying operations and focusing on market leading B2B events.
During the year, the restructuring of the division was completed, which is now organised into five operating units, covering Retail, Energy, Leadership Conferences, Digital Marketing sectors and a regional unit in the Middle East.
The largest show, the bi-annual New York International Gift Fair, had a good year with the summer show experiencing year-on-year increases in both revenue and visitor attendance. The other major shows in the year were Big 5, held in Dubai and serving the region's construction sector, which grew strongly, and the Global Petroleum Show. These four shows generated 45% of our underlying# revenue in the year.
Elsewhere in the division we have continued to expand aggressively the programme of successful sponsorship-driven leadership conferences under the Evanta brand and now have events for financial and human resource professionals, in addition to Chief Information Officers initially served.
Euromoney Institutional Investor
2010 2009 Movement £m £m % Revenue 330 318 +4% Operating profit* 96 77 +25% Operating margin* 29% 24%
Euromoney released its preliminary results on 11th November, increasing its operating profit* by 25% to a record £96 million on revenues up 4% to £330 million. Coming so soon after some of the toughest and most volatile financial markets in many years, these results underline the success of its strategy to build a more robust and higher quality information business.
Whilst the results in the first half of the year were driven largely by the benefit of cost cuts made the year before, the second half brought a return to revenue growth earlier and faster than expected. This better than expected revenue performance helped to offset Euromoney's significant investment in new products and the online migration of its print businesses.
While tight cost management was maintained throughout the year, the strategic focus has shifted to driving revenue growth, both from existing products as markets recover, and from investment in technology platforms and new products as part of the migration to an online information business.
The faster than expected recovery of subscription revenues was the most encouraging trading sign during the second half. The pick up in subscription renewal rates began in the summer of 2009, and has been followed by a recovery in sales of new subscriptions. This reflects a combination of stronger markets, increased investment in marketing and electronic publishing, as well as many new customers identified in the aftermath of the credit crisis. Subscriptions continue to account for nearly 50% of revenues. Most of Euromoney's biggest subscription businesses have seen revenues and renewal rates return to pre-credit crisis levels earlier than expected.
Advertising revenues were the first to suffer during the credit crisis, and the first to recover as global financial institutions became more confident about the outlook for financial markets. In addition, the financial year closed with a particularly strong September, the key month of the year for many of Euromoney's advertising-led businesses.
Revenues from events, which comprise both sponsorship and paying delegates, experienced the most rapid recovery in 2010. Event revenues were hit hard during the credit crisis as customers exercised tight controls over training, event attendance and travel. At the same time Euromoney cut event volumes by eliminating many of its smaller, low margin events, and continued to invest to enhance the market leading positions of its annual conferences and meetings. The majority of its largest events are held in the second half of the financial year and as markets have recovered, so attendance at these events has returned rapidly to pre-credit crisis levels or better.
Emerging markets, which account for more than a third of revenue, continued to hold up reasonably well, with Asia and Latin America providing the main sources of growth.
After a strong recovery and return to revenue growth in 2010, Euromoney will continue to pursue its successful strategy in 2011, with an emphasis on investing in technology and new subscription-based electronic information services, supplemented with small strategic acquisitions.
Consumer media
Revenues from the Group's consumer operations for the year totalled £1,160 million, an underlying# increase of 1%, though 8% lower on a reported basis, reflecting various portfolio changes and one less week's trading. Higher national advertising revenues, together with A&N Media's focus on cost control, led to an increase in its operating profits* of £39 million (46%) to £125 million. A&N Media's margins* rose from 7% to 11%.
The results of Associated and Northcliffe included one fewer week's trading, as the prior year was a 53 week year, but all underlying# year on year comparisons are on a like-for-like basis, comparing 52 weeks with 52 weeks and exclude discontinued operations.
Management of our Central European operations now report directly to Associated and its results will be reported there, rather than within Northcliffe, with effect from 4th October, 2010.
Associated Newspapers 2010 2009 Movement £m £m % Revenue 850 876 -3% Operating profit* 95 62 +54% Operating margin* 11% 7%
The results include losses* made by London Lite and the discontinued television activities of Teletext prior to their closure.
Associated's results benefited from higher advertising revenues, further operating efficiencies and from the actions taken to eliminate loss-making activities. This resulted in a significant improvement in operating profit* up by £33 million to £95 million with operating margins* growing by 4% to 11%.
Total revenues were down £26 million mainly due to the impact of closed or sold businesses and the extra week's revenue in last year. Underlying revenues were up 5% or £39 million with improved revenues in display advertising, digital and developing revenue streams offsetting decreases in circulation and classified advertising. Total underlying# advertising revenues rose by 6% to £442 million.
Newspaper operations
Underlying# circulation revenues fell by 2% to £351 million. Whilst circulation of the Daily Mail fell by 2% and that of The Mail on Sunday by 4%, both titles increased their market share to respective new highs of 21% and 19%.
Underlying# advertising revenues were up 7% at £347 million, driven by a strong performance from Metro in particular. Underlying# display advertising was up 7% to £283 million. Retail, our largest category, performed particularly strongly, up 14%, but there was good growth from most other categories. Underlying# classified advertising fell by just 1% to £52 million. Underlying# digital revenue from the newspaper titles' companion sites increased by 54% to £12 million due to the growing success of its primary website, Mail Online, where traffic increased year on year by more than 70% to 47 million unique users in September.
Both the Daily Mail and Metro recorded their highest ever operating profit*.
Digital only businesses (formerly Associated Northcliffe Digital: `AND')
Revenue across the portfolio of digital companies, focused on the verticals of Jobs, Property, Motors and Travel rose by 1% to £95 million with particularly strong growth from the Digital Property Group (TDPG).
In total, the digital only businesses grew profit* by £5 million to £6 million and improved their margin. This was due mainly to lower marketing costs at Jobsite compared to the first half of last year, when a significant brand-building campaign took place. During the final quarter, AND's central functions were integrated with A&N Media producing significant cost savings.
During the year we have disposed of the dating and data businesses as well asacquiring Globrix for TDPG. In addition, we continue to invest across all ourverticals, in their products and marketing and supporting internationalexpansion of Jobsite.Northcliffe Media 2010 2009 Movement £m £m % Revenue 294 328 -10% Operating profit* 30 24 +24% Operating margin* 10% 7% UK
In a continued weak advertising market, Northcliffe increased its UK operating profits* by £6.7 million (34%) to £26.5 million. Underlying# revenues were down £16 million or 6% and reported revenues by 8% to £262 million, with advertising revenues down by 7% to £186 million. Within this, digital advertising revenues of £17 million grew by an underlying# 13%. The company continued its programme of restructuring and process innovation and delivered year-on-year underlying cost savings of £26 million.
By category, recruitment revenues declined by an underlying# 19%. Although the increase in unemployment levels showed some early signs of slowing, recent Budget cut announcements have, as expected, had a heavy impact on our private and public sector recruitment spend. In the property category, revenues grew by 5% with year-on-year growth recorded each month since quarter two. Residential advertising has been robust despite recent market intelligence indicating a reduction in the level of mortgage approvals. Motors advertising was down just 3%, benefiting from a strong digital performance. Retail advertising, Northcliffe's largest category this year, fell by 4% in the full year and in the final quarter. All other categories combined contracted by 8%.
Newspaper circulation revenues fell on an underlying# basis by 6% or £4 million. Modest cover price increases were implemented in the year on specific titles. For the January to June 2010 ABC period, circulation of our dailies was down 7.7% compared with an industry average of 6.7%. The weekly titles recorded a fall of 4.4%, a result which outperformed the industry average by 1.5 percentage points.
Despite the fall in revenues, Northcliffe has continued to innovate to improve the quality and quantity of its newspaper content. Furthermore LocalPeople, a hyperlocal initiative, launched by A&N Media in the prior year was transferred into the Northcliffe portfolio at the year end. Aimed at communities of up to 60,000 people where there is a strong independent retail presence, its portfolio of websites reached 120 by September.
Northcliffe has continued to innovate and change processes to drive down operational costs which have been reduced by £26 million or 10%. Staff costs fell by an underlying# £14 million as headcount was reduced by 242 or 7% since September 2009. Greater efficiency has been delivered across all departments.
Central Europe
A&N International's operating profits* of £3.3 million were down £0.6 million on revenues down 24% to £33 million. Trading conditions continued to be challenging and underlying# revenues were down 7% with print and digital advertising revenues respectively 30% and 12% lower. The year-on-year decline in print revenues slowed towards the end of the year. The performance of digital revenues has improved significantly and unique visitor engagement with all of our digital businesses continues to grow. Two loss making print publishing companies in Slovakia were disposed of in February. Headcount has been reduced and significant cost savings were made.
Other income statement items * Net finance costs 2010 2009 Movement £m (restated) % £m Net interest (73) (76) +4%payable and similar charges Pension finance (2) 5 %item Total (75) (71) -5%
Net interest payable and similar charges (including deemed finance charges and interest receivable) fell by £3 million to £73 million due to lower average debt.
As reported at the half year, the IAS 19 pension net financing charge has been reported within net finance costs, rather than within Group operations as in previous reporting periods. The prior year comparative has been restated. The pension financing item increased by £7 million due to the movement in the pension fund deficit and the discount rate used.
* Other items
The Group's share of the results* of its joint ventures and associates improved by £3 million to £2 million. It includes income, net of interest costs, from DMG Radio Australia (DMGRA) since it became a 50% joint venture on 16th December 2009. This was offset by our share of the losses of Mail Today in India. The results of DMGRA have been reported in our statutory accounts as discontinued operations up to 16th December, 2009, as required by IFRS 5, but we have reinstated them in arriving at adjusted numbers.
The Group has charged £39 million as exceptional operating costs. This charge comprised impairment of property, plant and equipment of £26 million and reorganisation costs of £13 million principally within A&N Media.
The charge for amortisation of intangible assets fell by £22 million to £75 million due mainly to the disposal of 50% of DMGRA. The Group also made a net impairment credit of £20 million, being a write back of impairments made in dmg events (£27 million), offset by charges totalling £10 million.
The Group recorded other net gains of £0.1 million, compared to net losses of £ 24 million last year. Profit attributable to operations treated as discontinued, principally 50% of DMGRA, amounted to £33 million.
* Taxation
After excluding the effect of exceptional and other items that are not expected to recur, the underlying tax rate fell from 22.1% to 13.7%. The continued low rate reflects tax reductions from tax-efficient financing and tax deductible amortisation in the US that are expected to recur.
There were net exceptional credits of £72 million, including the write back of provisions arising from the agreement of certain prior year open issues with tax authorities (£46 million) and the tax credit on recognition of UK tax losses (£30 million).
Pensions
The Group's defined benefit pension schemes provide retirement benefits for UK staff, largely in A&N Media. The deficit in these schemes fell from £430 million at the beginning of the year to £271 million at 3rd October, 2010 (calculated in accordance with IAS 19). This improvement is due to an increase in the market value of the schemes' assets coupled with a reduction in the value of liabilities arising from changes in the schemes' membership, and despite a further fall in the corporate bond yield used to discount those liabilities.
The Company is continuing its funding discussions with the trustees as part of the process associated with the triennial actuarial valuation of the main schemes as at 31st March, 2010. This valuation and the associated funding agreement are expected to be completed by June 2011, within the statutory period.
Net debt and cash flow
Net debt has fallen by £187 million during the year from £1,049 million to £862 million and by £156 million since the half year. At the year end, only £3 million of short term bank loans remained outstanding, with most debt in the form of long-term Eurobonds. The Group generated trading cash flow of £339 million and disposal proceeds of £81 million. These funded acquisitions of £40 million, capital expenditure of £52 million, taxation of £9 million, interest of £68 million and dividends totalling £64 million.
Acquisitions were largely pre-contracted earn-out payments and other deferred consideration. Disposals were of properties and businesses, principally the sale of 50% of DMG Radio in December 2009.
Most of the Group's debt remains in long-term bonds, the earliest of which, totalling £157 million, is not repayable until 2013. At the year end, the Group had £853 million of Bonds due for repayment in 2013, 2018, 2021 and 2027. It also had £180 million of committed banking facilities available until September 2011 and £240 million until September 2013. Consequently, the Group has sufficient committed debt facilities to meet its foreseeable requirements. It had surplus committed facilities of £355 million at the year end.
The Group's ratio of year end net debt to adjusted profits* before interest, depreciation and amortisation (EBITDA) was 2.3 times, within the Group's target range of 2.0 to 2.5 times and comfortably within the requirements of the Group's bank covenants. During the year, the Group continued to act to increase profitability and reduce cash outflows, in particular by reducing acquisition activity. As a result, it achieved its short-term aim of returning the ratio of net debt to EBITDA to less than 2.5 one year ahead of expectations. The Group's corporate credit ratings are BBB- from Fitch, and BB+ from Standard & Poor's.
Other financing
The Group utilised 2,942,161 `A' Ordinary Non-Voting shares out of treasury in order to meet obligations to provide shares under various incentive plans valued at £10 million. It also acquired 2,862,747 such shares in treasury for £ 7.9 million. Following these transfers, DMGT has 383.0 million shares in issue (excluding shares held in treasury).
DMGT took its share of dividends from Euromoney in the form of a scrip. This enabled it to offset the dilutive effect of the vesting of the final tranche of Euromoney's CAP, thereby maintaining its equity interest at 66%. It is the Board's intention also to take Euromoney's forthcoming final dividend in the form of a scrip.
Dividend
The Board is recommending payment on the issued Ordinary and 'A' Ordinary Non-Voting shares of the Company of a final dividend of 11.0 pence per share for the year ended 3rd October, 2010 (2009 9.9 pence). This will make a total for the year of 16.0 pence (2009 14.7 pence per share). The final dividend will be paid on 11th February 2011 to shareholders on the register at close of business on 3rd December 2010.
Planned restatement of adjusted profit and adjusted earnings per share
The Group has decided to alter the presentation of its adjusted results* from 2010/11 so as to include the charge for amortisation of software and internally generated intangible assets. Under IFRS, software is included within intangible fixed assets which are amortised over their useful lives. The level of software amortisation has grown steadily since our adoption of IFRS in 2006. Henceforth, the Group will add back only the amortisation of intangible assets acquired in a business combination in arriving at its adjusted numbers. This change will bring it into line with the practice of the majority of other companies.
The restatement will reduce the adjusted profit* and adjusted earnings per share numbers reported for the year ended 3rd October, 2010 by the software amortisation charge of £16.5 million to £230 million and 3.7 pence to 46.3 pence respectively. This charge arose within Associated Newspapers (£8.6 million), dmg information (£5.5 million), RMS (£2.0 million) and Euromoney (£ 0.2 million). There is no impact on our statutory figures.
Principal risks and uncertainties
The principal risks and uncertainties the Group faces vary across the different businesses and are the focus of the Risk Committee. These risks are identified in the DMGT Group Risk Register. The materiality of each risk is assessed against a framework to determine its significance and likelihood of occurrence. The Risk Register is used to determine the agenda and activity of the Risk Committee. The most material risks identified in the Risk Register, together with the steps taken to mitigate them, are described below.
The geographic spread and diverse portfolio of businesses within the Group help to dilute the impact of some of the Group's key risks. Certain of these risks are interdependent and should not be considered in isolation.
Exposure to changes in the economy and customer spending patterns
A significant (although decreasing) proportion of our revenue is derived from advertising, largely from the UK newspaper division, A&N Media. This revenue was heavily affected by the downturn in the global economy in the past two years although in recent months we have seen some recovery, especially in our UK national newspaper titles. A similar, although reduced, effect was seen in our businesses that rely on non-advertising revenues, principally in the financial and property markets. A 'double dip` recession gives rise to a risk of not achieving the Group's forecast results. Our experience in the past two years has demonstrated how our long term strategy of diversifying the Group's portfolio, into business information and subscription revenue streams, along with investment in strong brands, which have recovered quickly, puts us in a robust position both now or if growth slows or falls in the future. Further, management of costs over the last two years have reduced the Group's cost base.
The impact of technological and market changes on our competitive advantage
Our businesses operate in highly competitive environments that can be subject to rapid change. Our products and services, and their means of delivery, are affected by technological innovations, competitor activity and changing customer behaviour. This has been seen most obviously in our regional newspapers which have seen revenues, especially in classified advertising, migrate to online portals.
All of our businesses are alert to market changes or emerging technologies that could disrupt their products and brands. The autonomous culture of the Group encourages an entrepreneurial approach to the development of new opportunities in response to these threats and we continue to invest and adapt to remain competitive. Our strategy of diversification and willingness to take a long-term view helps us to react to these challenges and opportunities when they arise. In particular we have developed an internet strategy for each of our main segments of advertising revenue and as such our print and online businesses are working closely together to maximise the synergies that exist between these two formats.
Pension scheme shortfalls
Although closed to new employees in 2009, we continue to operate defined benefit pension schemes for our newspaper divisions and certain senior executives. Reported earnings may be adversely affected by changes in our pension costs and funding requirements due to lower than expected investment returns, changes in bond yields and changes in demographics, particularly longer life expectancy. A funding approach and a revised asset allocation strategy, designed to reduce and diversify the risk inherent in the investment portfolios have been agreed and implemented and a risk management working group has been established to consider all aspects of financial risk and potential solutions. The schemes remain neutral in cash flow terms and so do not currently need to sell assets. The next triennial valuation of the schemes, as at 31st March 2010, will be completed by June 2011.
Impact of a major disaster or outbreak of disease
Any disaster, such as a geopolitical event or outbreak of disease which significantly affects the wider environment or the infrastructure in an area where we have material operations, could adversely affect the Group. The importance of travel to many of our event businesses was highlighted when during the year the eruption of the Eyjafjallaj¶kull volcano in Iceland grounded all European and some international air travel. Although business continuity plans and procedures are in place to mitigate the impact of `disaster' risks, a terrorist attack, a major fire or pandemic might affect our ability to deliver products, reduce the demand for them or increase our cost base.
Reliance on key management and staff retention
We employ successful and talented management and staff across all of our businesses. Although we cannot predict with certainty that we will enjoy continued success in our recruitment and retention of high quality management and creative talent, our Group human resources director works with divisional and executive management across the Group on a formal approach to talent management and succession planning. This includes payment of competitive rewards, employee performance and turnover monitoring and a variety of approaches to staff communication.
Commercial Relationships including volatility of newsprint
We are reliant on a number of commercial relationships with key suppliers and third parties. A significant change to the commercial terms under which we trade, or the loss of any of these key relationships, could have a material impact on the Group's results. In response to this, significant time and resources are committed to developing these relationships to ensure they continue to operate satisfactorily.
An example of this is newsprint which represents a significant proportion of our costs. Newsprint prices are subject to volatility arising from variations in supply and demand. The Group's newsprint requirements are managed by a dedicated newsprint buying team and monitored by the board of Harmsworth Printing. Where possible, long term arrangements are agreed with suppliers to limit the potential for volatility.
Acquisition and disposal risk
As well as launching and building new businesses, an integral part of our success has, and will continue to be, the acquisition of businesses that complement our existing products or expand the scope of our expertise. A number of risks are inherent within any strategy to acquire. The majority of acquisitions are in related markets and are smaller businesses with a high potential for growth. This reduces the size of the risk of each acquisition to the Group.
There are risks to our ability to achieve optimal value from disposals including the incorrect timing of any sale, the inability to identify and agree a deal with a purchaser, the unsuccessful separation of a business and management of any related costs, as well as the failure to realise any other anticipated benefits of a disposal.
Reliance on IT infrastructure
All of our businesses are dependent on technology to some degree, either through internal systems of software products. Disruption to our information technology infrastructure or failure to implement new products systems effectively could result in lost revenue and damage our reputation. Dedicated project management teams are used to manage the risk in any development or change project and business continuity plans are in place and are regularly tested in each division to protect existing systems.
Information security
Information security continues to be an important issue for all businesses across the Group. Losses of data in the past have highlighted the importance of information security. Our divisions manage information security risks locally with the support and oversight from the Risk committee on areas such as policy training and technology. Any future breach in our data security could have a harmful impact on our business and reputation.
Legal and regulatory
Our businesses are subject to varying legislation and regulation in the jurisdictions in which we operate. These typically cover such areas as: competition; data protection; privacy; health and safety; and employment law. The recently enacted UK Bribery Act (which comes into force in April 2011) is notable as having multi-jurisdictional reach i.e. all of our businesses across the globe are required to comply. It also extends beyond the Group's direct subsidiaries, covering associates, joint ventures and sales agents. Additionally we are party to more specific regulations such as from the Office of Fair Trading and the Audit Bureau of Circulation.
We take compliance with laws and regulations seriously throughout the Group. Our DMGT code of conduct (and supporting policies) sets appropriate standards of business behaviour and highlights the key legal and regulatory issues affecting our businesses. It is available to all staff. Training and further guidance is provided where necessary. Controls are also in place surrounding compliance with the Audit Bureau of Circulation regulations and other regulatory bodies to which we adhere.
Treasury Risk
There are a number of risks arising from the Group's Treasury operations including currency exchange rate fluctuations impacting on the Group's reported earnings, liquidity risk, interest rate risk and debt levels. In addition the treasury function within DMGT undertakes high value transactions and therefore there is inherently a risk of treasury fraud or error.
Tax risk
Our operations are global and therefore our earnings are subject to taxation at differing rates across a number of jurisdictions. Whilst we endeavour to manage our tax affairs in an efficient manner, due to an ever more complex international tax environment there will always be a level of uncertainty when provisioning for our tax liabilities. There is also a risk that changing tax laws would have an adverse effect on our financial results. Working with divisional management and external experts we have a team of in-house specialists who review all tax arrangements within the Group and keep abreast of changing legislation.
The Viscount RothermereChairman
*References to operating profit or loss or share of the results of joint ventures and associates in the narrative above are to adjusted operating profit or loss or adjusted share of the results of joint ventures and associates before amortisation and impairment of intangible assets and exceptional items); see notes 2 and 3. These adjusted results are for total operations, including those treated as discontinued.
#Underlying revenue or profit* is revenue or profit* on a like for like basis, adjusted for acquisitions and disposals made in the current and prior year and at constant exchange rates. For A&N Media, the underlying percentage movements compare 52 weeks with 52 weeks and exclude the Evening Standard, London Lite, the discontinued television activities of Teletext, the digital dating and data businesses and the Slovakian print publishing companies and for consumer media as a whole DMG Radio Australia.
+ Operating profit* and net finance costs for the prior year have been restated for the transfer of an IAS 19 pension finance credit of £5 million from corporate costs into net finance costs; see Note 1.
The average £: US$ exchange rate for the year was £1: $1.56 (against £1:$1.55 last year). The rate at the year end was $1.63 (2009 $1.59).
For further information
For analyst and institutional enquiries:
Peter Williams, Finance Director 020 7938 6631
Nicholas Jennings, Company Secretary 020 7938 6625
For media enquiries:
Andrew Honnor/ Anastasia Shiach, Tulchan Communications 020 7353 4200
Analysts' presentation and webcast
A presentation of the Preliminary Results will be given to investors and analysts at 9.30 a.m. on 25th November, 2010 at the offices of JP Morgan, 17th Floor, 125 London Wall, EC2Y 5AJ. There will also be a live webcast available on our website: http://www.dmgt.co.uk.
Next trading update
The Group's next scheduled announcement of financial information will be its first quarter interim management statement on 9th February 2011.
Not for public release until 7am on 25th November, 20101411418
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