3rd Aug 2006 07:02
Trinity Mirror PLC03 August 2006 Trinity Mirror plc 2006 Interim Results for the 26 weeks ended 2 July 2006 Trinity Mirror plc announces the Group's Interim Results for the 26 weeks ended2 July 2006. Financial highlights Adjusted results* Statutory results Continuing Continuing operations operations 2006 2005 % 2006 2005 % 26 weeks 26 weeks Change 26 weeks 26 weeks Change £m £m £m £m Revenue 566.6 579.3 (2.2)% 546.5 559.0 (2.2)%Operatingprofit/(loss) 110.0 128.3 (14.3)% (152.8) 122.9 (224.3)%Profit/(loss)before tax 98.1 112.5 (12.8)% (179.6) 107.8 (266.6)% Total TotalEarnings/(loss)per share 23.5p 26.6p (11.7)% (41.9) 26.7p (256.9)%Dividend pershare 6.4p 6.4p - 6.4p 6.4p - Operational highlights • Revenue* fell by 2.2% to £566.6 million, as a result of a challenging advertising environment. Excluding acquisitions, revenue* fell by £38.3 million or 6.6% • Operating profit* and profit before tax* fell by 14.3% and 12.8% respectively • Net cost savings of £9.0 million. On target to achieve at least £15 million in full year • Non-cash impairment of the carrying value of Regional newspaper titles of £250.0 million in accordance with IAS 36 • Completed acquisition of Email4Property which complements the acquisition of Smartnewhomes in 2005 and extends our property advertising reach • Completed divestment of our Magazines and Exhibitions division • Despite net capital expenditure of £38.4 million and dividend payments of £45.1 million, strong cash flows resulted in net debt** increasing by only £22.5 million • Proposed Interim dividend stable at 6.4p per share, reflecting continued confidence in strong cash flows • The Board commences a review of the business to position the Group for future growth • The Board expects performance for the year to be in line with current expectations despite continuing challenges in the advertising environment ------------------------------ * Including discontinued operations and excluding non-recurring items,amortisation and IAS 39. ** Excluding impact of IAS 39. See reconciliation between statutory and adjusted results in note i on page 24. Within the following Chief Executive's Statement and Review of Operations, allfigures are presented on an adjusted basis (which is including discontinuedoperations and excluding non-recurring items, the amortisation of intangibleassets and the impact of IAS 39) unless otherwise stated. A reconciliationbetween the adjusted and the statutory numbers is provided in note i on page 24. Chief Executive's Statement Financial The first half of 2006 proved to be a challenging trading period for the Groupas conditions in the advertising environment remained poor. In this climate thebenefits of the embedded culture of continuous improvement driven by our'Stabilise Revitalise Grow' strategy have partially mitigated the impact onprofits through further reductions in the cost base. Revenue* declines of 2.2% to £566.6 million contributed to operating profits*falling by 14.3% to £110.0 million. Revenues* excluding acquisitions completedin 2005 and 2006 fell by £38.3 million with operating profit* excludingacquisitions falling by £20.7 million to £107.6 million. Profit before tax* fellby £14.4 million to £98.1 million which was marginally better than the fall inoperating profit*, reflecting the benefit of a £4.6 million (2005: £0.2 million)IAS 19 finance credit. On a statutory basis revenue declined by 2.2% to £546.5million, operating profit declined by £275.7 million to a loss of £152.8 millionand profit before tax declined by £287.4 million to a loss of £179.6 million.Statutory loss before tax reflects the adverse impact of the non-cash charges of£250.0 million for the impairment of the carrying value of intangibles, £7.0million amortisation and £14.9 million for IAS 39. Our results should be viewed in the context of a weak advertising environmentwith falling GDP growth, sluggish consumer spending and rising unemployment.These market conditions are impacting all advertising categories with theexception of property advertising, where we continue to achieve marginal growthdespite very tough comparables for 2005. The Group delivered net cost savings of £9.0 million and is on target to deliverat least £15 million in 2006, as announced in December 2005. In addition tothese net cost savings, the Group took further mitigating actions which enabledoperating costs* excluding acquisitions to fall by £16.7 million in the perioddespite significant inflationary pressures. The Group continues to generate strong cash flows with net debt** increasingmarginally during the period from £485.0 million to £507.5 million after paying£45.1 million for the 2005 final dividend and £38.4 million net capitalexpenditure. The Board's confidence in the strong cash flow characteristics ofour business has enabled us to maintain the interim dividend for 2006 at 6.4pence per share. Publishing activities Our Regionals division has faced an increasingly difficult advertisingenvironment in all advertising categories, with the exception of property,recording year-on-year declines. Despite these challenges we have continued todrive operating efficiencies to partially mitigate the impact on profits. Whilecirculation volumes for our Regional newspapers remain challenging, revenuescontinue to increase. The exceptions are our titles in the Midlands. The newmanagement team appointed to the Midlands in 2005 is starting to make inroadsinto improving performance. The National newspaper environment has remained extremely competitive throughoutthe period with substantial increases in promotional activity and price-cuttingby all daily tabloid newspapers with the exception of the Daily Mirror. Whilethis has adversely impacted the circulation volumes of our titles, managementcontinues to run the business with a focus on ensuring that sustainable returnsare achieved on all investment decisions, and believes that excessive marketingexpenditure does not drive longer-term value. Our National titles have also been adversely affected by the advertisingenvironment. The impact of these trading conditions has been partially mitigatedby continued tight management of costs, alongside appropriate levels ofinvestment in our titles. Significant investment has been made in the Daily Record in Scotland. Itsmarketplace continues to be characterised by price-cutting by national tabloids- the Sun in Scotland has been selling at just 10 pence across Scotland sinceMarch. Although the Daily Record has not cut its cover price, it has undertakenvouchering activity designed to reward reader loyalty. While this and otheractivity in Scotland has adversely impacted profit for our Scottish Nationals,this investment provides a firmer platform for the business from which to growprofitability. Scotcareers, launched in 2004, has now established a strong number two positionin the Scottish online recruitment marketplace and moved into profit. In linewith 2005, no editions of The One Directory have been published in the period.We anticipate publishing four editions in the second half of the year andbuilding on this with further new editions in 2007. Within our Sports division the Racing Post continues to be the leading racingand sports betting newspaper and website, despite the launch of a competitivenew title into the marketplace. While profits have been adversely impacted byreduced revenues and increased investment in product and marketing, the divisionstill achieved operating profits of £6.9 million with operating margins of27.8%, a strong performance in the face of a competitive launch. New initiatives In line with our stated strategy, we continued to focus on driving real growthfrom new initiatives, deepening our presence in our core markets andgeographies, both in print and online. In the Regionals division we havecontinued our innovation activity with the launch of 227 websites coveringproperty and motors, five newspaper titles including Metros in Cardiff andLiverpool. The newspaper titles are expected to achieve positive profitcontributions in the first full year while the websites have minimal impact interms of costs and we are confident of their ability to drive revenues overtime. All launch activity has been fully funded through cost savings. Prior to committing to acquire businesses we carefully consider a range offactors including options of launching products or services organically, thecompetitive nature of the market, the time needed to build a strong position,the scarcity of assets and our return on investment. Our expectations foracquired businesses are very clear. We would expect all acquisitions to beearnings-enhancing in the first full year of ownership and to achieve a returnat least in line with WACC within a three-year period. To strengthen our online presence in property we acquired Email4Property in May2006. Unlike generalist property sites, Email4Property provides a uniqueoffering to estate agents by driving traffic to their websites, therebypromoting their business. This business is being fully integrated within theoperations of Smartnewhomes. It achieved revenues of £0.2 million for the periodand is expected to deliver full year revenues of £0.6 million in 2006. We have appointed a Group Director of Digital Businesses with responsibility foraccelerating the development of our recently acquired online recruitmentbusinesses. A number of significant changes to management structures across theacquired online recruitment businesses, and in particular hotgroup, have alreadybeen made. Due to the slight disruptive nature of these management changes theperformance of the online business within hotgroup has been below expectations.However, we would expect improvements in performance in the second half of theyear. Disposals During June and July 2006 the Group disposed of its Magazines and Exhibitionsdivision through a number of transactions generating gross disposal proceeds of£42.7 million. The most significant of these transactions, which occurred afterthe period end, was the disposal of Inside Communications Limited for aconsideration of £41.5 million. The Magazines and Exhibitions division wasconsidered non-core due to the differing challenges it faces relative to ourcore portfolio of newspaper and online assets. Having improved the performanceof the division over the past few years it was appropriate to realise value atthis stage. Capital expenditure The Group's programme of investment in colour presses is progressing to planwith the Nationals Oldham site repressing programme completed on schedule inJuly and the repressing of our other Nationals print sites in Scotland andWatford scheduled to complete in early 2007 and 2008 respectively. Board changes On 4 May 2006, at the Group's Annual General Meeting, Sir Victor Blank retiredfrom the Board. On the same date, Sir Ian Gibson was appointed as Chairman tothe Board. On 1 August 2006 the Board announced that Laura Wade-Gery would join the Boardas a non-executive Director on 4 August 2006. Review of the Business Over the last three and a half years, the Group has made great strides inimplementing its 'Stabilise Revitalise Grow' strategy, enhancing profitabilityand performance. Underlying Group operating profit increased by over 30% between2002 and 2005; our broad portfolio of strong brands has been furtherstrengthened through new launches, investment, acquisitions and a focus onoperating efficiency; and the Group has proven more resilient to difficulttrading conditions. Looking forward it is clear that continued change in the media market willcreate increasing challenges for the Group in continuing to build on thisprogress. The Board has therefore initiated a review of our businesses,operating models and structure in order to determine the best way of taking theGroup forward and capturing the opportunities available to us. The outcome of the review and our plans will be reported to the market by theend of the year. Outlook The difficult advertising market is expected to continue into the second half of2006. Despite these challenges, the Board expects performance to be in line withcurrent expectations. Enquiries: Trinity Mirror plc 020 7293 3000Vijay Vaghela, Group Finance DirectorNick Fullagar, Director of Corporate Communications Maitland 020 7379 5151Neil BennettWendy Timmons Review of Operations Group revenues* fell by 2.2% to £566.6 million (2005: £579.3 million) andexcluding acquisitions fell by £38.3 million (6.6%) from £579.3 million to£541.0 million. On a statutory basis Group revenues fell by £12.5 million (2.2%)from £559.0 million to £546.5 million. Group operating profit* fell by 14.3% from £128.3 million to £110.0 million andexcluding acquisitions fell by 16.1% to £107.6 million. On a statutory basisGroup operating profit fell by £275.7 million (224.3%) from £122.9 million to aloss of £152.8 million. The statutory operating loss reflects the non-cashcharges of £250.0 million for the impairment of the carrying value ofintangibles and £7.0 million amortisation. An impairment review of the carrying value of intangible assets in accordancewith IAS 36 indicated that an impairment charge of £250.0 million (£175.0million after tax) was required. The impairment charge reduces the carryingvalue of the Group's Regional newspaper titles. Total operating costs* excluding acquisitions have fallen by £16.7 million from£451.3 million to £434.6 million. This reflects the benefit of £9.0 million oftargeted net cost savings and continued tight management of costs, partiallyoffset by an increase in the IAS 19 operating profit current service pensioncharge of £0.7 million, a 7% increase in the price of newsprint and generallabour and cost inflation. The Group is well on target to deliver at least thetargeted £15 million net cost savings for the year. The Group's share of profits from associates and joint ventures was £1.2 million(2005: £0.3 million) and reflects the Group's share of profits in The PressAssociation (PA) and The Betting Site joint venture, net of taxation payablethereon. The share of profits is higher than expected as it includes the one-offbenefit of £0.7 million reflecting the profit on disposal of Two TenCommunications by PA. During the period dividends of £0.5 million (2005: £0.6million) were received from PA. Finance costs, excluding the impact of IAS 19 "Employee Benefits" and IAS 39"Financial Instruments: Recognition and Measurement", increased by £0.5 millionfrom £16.0 million to £16.5 million. Excluding the IAS 19 finance credit and theimpact of IAS 39, interest is covered 6.7 times by operating profit* beforeamortisation, a fall from 8.0 times in 2005 reflecting the impact of reducedoperating profits. The IAS 39 impact during the period, in relation to the US$private placement and related cross currency interest rate swaps, was £14.9million charge (2005: £0.7 million credit). The IAS 39 finance adjustment cannotbe forecast for the full year at this stage and will depend on prevailinginterest and US$/£Sterling exchange rates at the year end. The IAS 39 impactreflects the fair value, exchange rate and amortisation adjustments onborrowings and associated financial instruments accounted for under IAS 39. TheIAS 19 finance credit for the period was £4.6 million (2006: £0.2 million). For2006 the net IAS 19 finance credit is expected to be £9.9 million. Profit before tax* fell by £14.4 million (12.8%) to £98.1 million. On astatutory basis profit before tax fell by £287.4 million (266.6%) to a loss of£179.6 million. The tax credit for the period of £53.6 million represents 29.8% (2005: 30.7%) ofstatutory loss before tax. Excluding the impact on operating profit and tax of a£250.0 million impairment charge and the related £75.0 million tax credit, thetax charge for the period was £21.4 million representing 30.4% of the profitbefore tax. Earnings per share* were 23.5 pence per share (2005: 26.6 pence per share), adecrease of 11.7%. On a statutory basis earnings per share fell by 256.9% from26.7 pence per share to a loss of 41.9 pence per share. An interim dividend of 6.4p per share (2005: 6.4p per share) will be paid on 31October 2006 to shareholders on the register at 6 October 2006. Acquisitions During the 26 weeks ended 2 July 2006, the Group completed the acquisition ofEmail4Property Limited for a total consideration of £4.5 million. Furtherdetails are provided in note 14 on page 22. During the period, the businessesacquired in 2005 and in 2006 achieved revenues of £25.6 million and operatingprofit of £2.4 million before amortisation of intangibles. Cash flow and net debt Net cash from operating activities decreased by £21.9 million to £78.9 million,reflecting the reduced operating profit and additional pension contributionsduring the period. Excluding the impact of IAS 39, net debt** only increased by£22.5 million from £485.0 million on 1 January 2006 to £507.5 million. This wasdespite the payment of the 2005 final dividend of £45.1 million and net capitalexpenditure of £38.4 million. Capital expenditure in the period was £38.4 million net of disposal proceeds(2005: £12.3 million) against a depreciation charge of £19.7 million (2005:£19.8 million). Capital expenditure for the full year is expected to be £80.0million. The Group is still on target for capital expenditure of £180.0 millionover the three years to 2007. All capital expenditure is forecast to be financedfrom operating cash flows. At 2 July 2006 committed facilities of £728.6 million (1 January 2006: £730.7million) were available to the Group, of which £219.5 million (1 January 2006:£219.5 million) were undrawn. The committed facilities include a £269.0 millionsyndicated bank facility, US$602.0 million and £26.0 million unsecured fixedrate loan notes and £6.0 million floating rate loan notes (representing thetotal obligations under a series of private placement US dollar and sterlingloan notes respectively), obligations under finance leases of £16.3 million and£0.8 million of acquisition loan notes. No new financing facilities wereprocured during the period and no debt facilities were repaid other than inaccordance with their normal maturity date. Regionals division The Regionals division publishes some 240 local and regional newspapers acrossthe UK. The performance of the Regionals division has been adversely impacted bydifficult advertising market conditions throughout the period. The revenue and operating profit of the Group's Regionals division, excludingnon-recurring items and amortisation, are as follows: 2006 2005 % £m £m ChangeRevenue- Regional core 261.3 266.5 (2.0)%- Metros 8.3 6.7 23.9%- Digital media activities 11.8 4.1 187.8% Total revenue 281.4 277.3 1.5% Operating Profit- Regional core 62.1 76.9 (19.2)%- Metros 1.3 1.0 30.0%- Digital media activities 3.2 0.9 255.6% Total operating profit 66.6 78.8 (15.5)% Operating Margin 23.7% 28.4% (4.7)% Operating profit fell by £12.2 million (15.5%) despite revenue increasing by£4.1 million (1.5%). The increase in revenue is driven by acquisitions whichcontributed £25.6 million during the period. Excluding acquisitions, revenue forthe Regionals division fell by £21.5 million (7.8%) from £277.3 million to£255.8 million and operating profit decreased by £14.6 million (18.5%) from£78.8 million to £64.2 million. Whilst operating profit excluding acquisitions decreased for the core Regionalnewspaper titles this has been partially offset by the continuing improvementsfor Metros and digital media activities. The division's five Metros achieved a£0.3 million (30.0%) improvement in operating profit to £1.3 million includingthe Cardiff and Liverpool Metros launched in March this year, which both brokeeven for the period. The division's digital media activities, excludingacquisitions completed in 2005 and 2006, continued to deliver furtherimprovements with revenues increasing by 9.8% and operating profits increasingby 88.9%. The acquisitions of hotgroup, GAAPweb, Smartnewhomes and Secsinthecity completedin 2005 and Email4Property completed in May 2006 achieved revenues and operatingprofits before amortisation of intangible assets of £25.6 million and £2.4million respectively. Online revenues of £7.3 million and traditionalrecruitment consultancy revenues of £18.3 million were achieved in the period.The operating margin achieved for the online and traditional recruitmentconsultancy businesses were 20.5% and 4.9% respectively. Advertising revenue for the Regionals division fell by 6.3% from £214.1 millionto £200.6 million reflecting the impact of the difficult advertising tradingenvironment. Excluding acquisitions, advertising revenue for the Regionalsdivision fell by 9.7% from £214.1 million to £193.3 million. Beforeacquisitions, by category Display was down by 6.8%, Recruitment was down by21.0%, Motors was down by 13.1% and other classified categories were down by3.1%, while Property increased by 1.9%. Metros achieved strong advertising growth of £1.7 million (25.8%), driven by anincrease in core advertising revenues and the benefit of an additional two Metrotitles launched in March 2006. Excluding the two new launches, advertisingrevenues for Metros increased by 10.6%. Digital media activities excluding acquisitions continued their growthtrajectory with advertising revenue increasing by 14.7%. The four acquisitionscompleted in 2005 and the acquisition of Email4Property completed in 2006achieved advertising revenues of £7.3 million. Circulation revenue increased by £0.6 million (1.4%). The division continued todrive circulation revenue through the ongoing policy to sell full-price,value-for-money newspapers and to increase cover prices on a 'little and often'basis. During the period, the division experienced circulation volume declines of 7.8%for Evening titles, 6.4% for Morning titles, 4.8% for Weekly titles and 11.1%for Sunday titles. Other revenue excluding acquisitions fell by £1.3 million (6.0%) from £21.6million to £20.3 million as a result of a fall in leaflet revenues of £0.7million. The implications of the adverse revenue environment have been partiallymitigated by the targeted cost savings and continued tight cost management inthe face of significant inflationary cost pressures. Excluding acquisitions,costs have fallen by £6.9 million to £191.6 million, contributing to operatingprofits falling by £14.6 million, despite revenue declines of £21.5 million. Thedeclining revenues have, however, impacted operating margins, excludingacquisitions, which fell by 3.3% to 25.1%. 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, and also includes theScotcareers website. The revenue and operating profit of the Group's Nationals division are asfollows: 2006 2005 Actual Actual % £m £m Change Revenue 240.3 255.5 (5.9)%Operating profit 37.4 42.9 (12.8)%Margin 15.6% 16.8% (1.2)% Operating profits for the Nationals division fell by £5.5 million (12.8%) from£42.9 million to £37.4 million despite revenue declines of £15.2 million from£255.5 million to £240.3 million. Revenue declined by 9.0% for the Scottish Nationals and by 5.1% for the UKNationals. Despite the significant revenue declines, operating margin for thedivision only fell by 1.2% from 16.8% to 15.6%, due to continued cost controland savings. Circulation revenues for the Nationals division fell by 1.4% reflecting adecline of 7.5% for the Scottish Nationals partially mitigated by an increase of0.3% for the UK Nationals. The circulation revenue performance for the ScottishNationals reflects the impact of vouchering activity for the Monday to FridayDaily Record in response to a 10p Sun across Scotland. The cover price increasesimplemented during the period were a 3p increase for the Daily Mirror from 35pto 38p in February and a 10p increase from 90p to £1.00 for the Sunday Mail inScotland in January. The year-on-year change in circulation volumes and the market share for ourNationals titles were as follows: yoy circulation Market share volume change % %Daily Mirror (4.9)% 19.0%Sunday Mirror (5.0)% 15.6%People (10.9)% 9.1%Daily Record (Scotland only) (5.5)% 36.5%Sunday Mail (Scotland only) (5.4)% 35.4% The circulation volume performance reflects, unlike many competitor titles, ourpolicy of not chasing short-term circulation increases through price-cutting andunsustainable levels of marketing spend. In a challenging marketplace advertising revenues for the Nationals divisionfell by 12.2% with declines of 12.8% for the UK Nationals and 10.4% for theScottish Nationals. The performance reflects the impact of the difficult advertising environmentexperienced throughout the period, which has been adversely impacted by asluggish retail environment and low growth in the economy. Areas of improvement have been Scotcareers and other National digitalactivities, where combined revenues have increased four-fold to £0.8 million.The Scotcareers brand has achieved a strong position in the recruitment marketin Scotland and will continue to improve share in this marketplace. The growthin other digital activities, whilst from a low base, reflects the benefit offocused investment to drive incremental revenues in addition to the corecirculation and print advertising revenues. Other revenue decreased by £1.9 million (8.8%) from £21.7 million to £19.8million with declines of 8.3% for the UK Nationals and 12.5% for the ScottishNationals. This has been driven by a fall in external contract print revenuesdue to repressing. The tight management of costs contributed to operating costs falling by £9.7million, partially mitigating the impact of revenues falling by £15.2 millionand therefore limiting the operating profit declines to 12.8%, with operatingmargins falling by 1.2%. Sports division The Sports division delivered a satisfactory performance despite the difficultadvertising markets and the impact of a new title launched into the marketplace.Revenues during the period fell by 5.3% from £26.2 million to £24.8 million andoperating profits fell by 26.6% from £9.4 million to £6.9 million. Advertising revenues fell by 16.9% from £7.7 million to £6.4 million reflectingthe impact of a general slowdown in advertising markets and the impact ofconsolidation within the bookmaking and gaming industries. Circulation revenues during the period fell by £0.6 million reflecting theimpact of a fall in circulation volumes of the Racing Post of 3.6% compared tothe same period in 2005, partially offset by cover price increases for theMonday to Friday editions. Other revenues increased by £0.5 million (33.3%) from £1.5 million to £2.0million. The impact of additional investment in marketing and product enhancementresulted in operating costs for the division increasing by £1.1 million,contributing to operating profits falling by £2.5 million to £6.9 million.Operating margins for the division fell by 8.1% to 27.8%. Magazines and Exhibitions division During June and July 2006 the Group disposed of its Magazines and Exhibitionsdivision through a number of transactions generating gross disposal proceeds of£42.7 million. The most significant of these transactions was the disposal ofInside Communications Limited for a consideration of £41.5 million. TheMagazines and Exhibitions division published a number of specialist titles andoperated consumer and trade shows. However it was considered non-core due to thediffering challenges it faced relative to our core portfolio of newspaper andonline assets. Having improved the performance of the division over the past fewyears it was appropriate to realise value at this stage. During the period, revenue for the division fell by 1.0% from £20.3 million to£20.1 million with operating profits increasing by 7.4% from £5.4 million to£5.8 million. Central costs During the period central costs decreased by £0.6 million from £8.5 million to£7.9 million. Consolidated income statement (unaudited)for the 26 week period to 2 July 2006 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) notes £m £m £mContinuing operations Revenue 3 546.5 559.0 1,089.3Cost of sales (272.7) (265.6) (518.8) ------ ---------- ----------- ----------Gross profit 273.8 293.4 570.5 Distribution costs (60.4) (68.4) (125.4)Administrative expenses:Non-recurring 4Impairment of intangible assets (250.0) - -Other - - (2.6)Amortisation of intangibles (7.0) - (3.3)Other (110.4) (102.4) (201.7)Share of results of associatesand joint ventures 1.2 0.3 0.8 ------ ---------- ----------- ----------Operating (loss)/profit 3 (152.8) 122.9 238.3 IAS 19 finance credit 5 4.6 0.2 1.7IAS 39 impact* 5 (14.9) 0.7 (6.6)Other finance costs 5 (16.5) (16.0) (31.0) ------ ---------- ----------- ----------(Loss)/profit before tax (179.6) 107.8 202.4 Tax 6 53.6 (33.1) (60.3) ------ ---------- ----------- ----------(Loss)/profit for the period fromcontinuing operations (126.0) 74.7 142.1 Discontinued operations Profit for the period fromdiscontinued operations 15 4.0 3.8 4.8 ------ ---------- ----------- ----------(Loss)/profit for the periodattributable to Equity holders ofthe parent (122.0) 78.5 146.9 ------ ---------- ----------- ---------- Earnings per share (pence) 8 Pence Pence PenceExcluding amortisation ofintangibles and IAS 39 impact*: Underlying earnings per share 23.5 26.6 52.9Non-recurring items (60.1) - (0.2) ------ ---------- ----------- ----------Adjusted (loss)/earnings pershare (36.6) 26.6 52.7- basic ------ ---------- ----------- ----------Adjusted (loss)/earnings pershare (36.5) 26.3 52.5- diluted ------ ---------- ----------- ---------- Including amortisation ofintangibles and IAS 39 impact*: Underlying earnings per share 18.2 26.7 50.5Non recurring items (60.1) - (0.2) ------ ---------- ----------- ----------(Loss)/earnings per share - basic (41.9) 26.7 50.3 ------ ---------- ----------- ----------(Loss)/earnings per share - (41.7) 26.4 50.1diluted ------ ---------- ----------- ---------- *Impact of fair value, exchange rate, and amortisation adjustments on borrowingsand associated financial instruments accounted for under IAS 39. References toIAS 39 throughout this document shall have the same meaning. Consolidated statement of recognised income and expense (unaudited)for the 26 week period to 2 July 2006 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) £m £m £m Actuarial gains/ (losses) on definedbenefit pension schemes (net of tax) 39.1 (13.9) (1.7)Associates gains recognised directlyin equity related to pension schemeactuarial gains and currency gains 1.3 - -Gain/(losses) on revaluation ofavailable-for-sale investments takento equity - (2.8) 0.3Tax on revaluation ofavailable-for-sale investments takento equity - 0.8 (0.1) -------- ----------- ---------Net income recognised directly inequity 40.4 (15.9) (1.5) -------- ----------- ---------Transferred to profit or loss on saleof available-for-sale investments - - (2.7)Tax on items transferred from equity - - 0.8 -------- ----------- ---------Transfers from equity to the incomestatement - - (1.9) -------- ----------- --------- (Loss)/profit for the period (122.0) 78.5 146.9 -------- ----------- ---------Total recognised income and expensefor the period attributable to Equityholders of the parent (81.6) 62.6 143.5 -------- ----------- --------- Consolidated balance sheet (unaudited)at 2 July 2006 1 January 2 July 3 July 2006 2006 2005 (audited) notes £m £m £mNon-current assets Goodwill 69.6 6.0 72.8Other intangible assets 1,367.9 1,579.9 1,616.1Property, plant and equipment 405.9 380.4 387.3 Investments in associates 10.1 7.2 8.6Deferred tax asset 76.5 109.1 97.9 ---------- ----------- ---------- 1,930.0 2,082.6 2,182.7 ---------- ----------- ----------Current assets Inventories 7.3 6.5 7.2Available-for-sale financial assets 0.5 4.1 0.5Trade and other receivables 160.7 159.3 150.9Cash and cash equivalents 27.2 29.2 33.2 ---------- ----------- ---------- 195.7 199.1 191.8 ---------- ----------- ----------Held for sale assets 11.6 - - ---------- ----------- ----------Total assets 2,137.3 2,281.7 2,374.5 ---------- ----------- ----------Non-current liabilities Borrowings 10 (365.7) (382.2) (392.0)Obligations under finance leases 10 (13.6) (16.1) (15.6) Retirement benefit obligation 12 (232.8) (330.8) (305.6)Deferred tax liabilities (470.5) (538.0) (547.2) Long term provisions (13.2) (9.9) (12.2)Derivative financial instruments 10 (97.9) (59.0) (56.6) ---------- ----------- ---------- (1,193.7) (1,336.0) (1,329.2) ---------- ----------- ----------Current liabilities Borrowings (79.5) (27.2) (58.7)Trade and other payables (189.0) (173.9) (183.0)Current tax liabilities (33.1) (39.3) (37.5) Obligations under finance leases 10 (2.7) (2.3) (2.8)Short term provisions (1.1) (4.5) (9.6) ---------- ----------- ---------- (305.4) (247.2) (291.6) ---------- ----------- ----------Held for sale liabilities (8.7) - - ---------- ----------- ----------Total liabilities (1,507.8) (1,583.2) (1,620.8) ---------- ----------- ----------Net assets 629.5 698.5 753.7 ---------- ----------- ----------Equity Share capital (29.3) (29.8) (29.3)Share premium account (1,120.0) (1,105.9) (1,118.9)Revaluation reserve (4.9) (4.9) (4.9)Capital redemption reserve (0.8) 0.5 (0.8)Retained losses and other reserves 525.5 441.6 400.2 ---------- ----------- ----------Total equity (629.5) (698.5) (753.7) ---------- ----------- ---------- Consolidated cash flow statement (unaudited)for the 26 week period to 2 July 2006 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) note £m £m £m Cash flows from operating activities Cash generated from operations 9 105.2 129.9 276.8Income tax paid (26.3) (29.1) (55.5) ----- ---------- ----------- ---------Net cash from operating activities 78.9 100.8 221.3 ----- ---------- ----------- --------- Investing activitiesInterest received 0.1 0.8 1.2Dividends received from associatedundertakings 0.5 0.6 0.6Proceeds on disposal ofavailable-for-sale financialassets - - 2.9 Proceeds on disposal of land - - 2.9Proceeds on disposal of property,plant and equipment 0.3 0.9 4.0Proceeds on disposal of magazinetitles 0.5 - -Purchases of property, plant andequipment (38.7) (13.2) (41.0) Acquisition of subsidiaries 14 (4.2) - (86.5) ----- ---------- ----------- ---------Net cash (used in)/from investingactivities (41.5) (10.9) (115.9) ----- ---------- ----------- ---------Financing activities Dividends paid (45.1) (41.7) (60.2)Interest paid (15.7) (16.9) (33.9) Interest paid on finance leases (0.1) (0.6) (1.2)Increase in borrowings - - 45.0 Repayment of borrowings - (13.7) (18.1)Principal payments under financeleases (2.1) (1.8) (1.8) Purchase of shares under sharebuy-back programmes - (32.5) (52.7)Issue of ordinary share capital 1.1 4.3 17.6Purchase of own shares under LongTerm Incentive Plan - (5.7) (5.7) (Decrease)/increase in bankoverdrafts 20.8 4.5 (4.6) ----- ---------- ----------- ---------Net cash used in financingactivities (41.1) (104.1) (115.6) ----- ---------- ----------- ---------Net (decrease)/increase in cashand cash equivalents (3.7) (14.2) (10.2) Cash and cash equivalents at thebeginning of period 33.2 43.4 43.4 ----- ---------- ----------- ---------Cash and cash equivalents at theend of period-Group 29.5 29.2 33.2 ----------- ---------Cash and cash equivalents held forsale (2.3) ----- ----------Cash and cash equivalents-continuing operations 27.2 ----- ---------- Notes to the interim financial report (unaudited) 1. General information The condensed financial statements for the 26 weeks to 2 July 2006 do notconstitute statutory accounts for the purposes of Section 240 of the CompaniesAct 1985 and have not been audited. No statutory accounts for the period havebeen delivered to the Registrar of Companies. The financial information in respect of the 52 weeks ended 1 January 2006 hasbeen produced using extracts from the statutory accounts for this period. Thestatutory accounts for this period have been filed with the Registrar ofCompanies. The auditors' report on these accounts was unqualified and did notcontain a statement under Sections 237 (2) or (3) of the Companies Act 1985which deal respectively with the maintaining of proper accounting books andrecords and the availability of information to the auditors. The next annual financial statements of the Group will be prepared in accordancewith International Financial Reporting Standards as adopted for use in the EU.Accordingly, the interim report has been prepared in accordance with therecognition and measurement criteria of IFRS and the disclosure requirements ofthe Listing Rules. The auditors have carried out a review of the interim report and their report isset out on page 26. The interim report was approved by the directors on 3 August 2006. Thisannouncement is being sent to shareholders and will be made available at thecompany's registered office at One Canada Square, Canary Wharf, London, E14 5AP. 2. Basis of preparation The accounting policies used in the preparation of the interim financialstatements for the 26 weeks to 2 July 2006 have been consistently applied to allthe periods presented and are as set out in the Group's financial statements forthe 52 weeks to 1 January 2006. 3. Business and geographical segments For management purposes, the Group is currently organised into the followingdivisions: Regionals, Nationals, Sports and Central costs. The Magazines &Exhibitions division is held for sale. These divisions are the basis on whichthe Group reports its primary segment information. The secondary reportingsegment is a geographical destination analysis of revenue. Principal Activities are as follows: The Regionals division publishes a large portfolio of newspaper and onlinebrands across the UK. The Nationals division publishes five daily and Sundaynewspapers together with related online activity. The Sports division is asupplier of racing and sports betting information, with four sports newspapersand related online activities. The Magazines & Exhibitions division , which isheld for sale, operated a range of magazines, consumer and trade shows. Centralcosts include costs not attributed to specific divisions. 3. Business segments (continued) Segment information for these activities is presented below. Primary segments - business segment analysis 26 weeks to 2 July 2006 Central Continuing Discontinued Regionals Nationals Sports costs Operations operations 2006 2006 2006 2006 2006 2006 £m £m £m £m £m £m Revenue Segment sales 283.6 247.5 24.8 - 555.9 20.1Inter-segmentsales (2.2) (7.2) - - (9.4) -Total revenue 281.4 240.3 24.8 - 546.5 20.1 -------- -------- -------- -------- -------- --------ResultSegment 59.6 37.4 6.9 (7.9) 96.0 5.8result -------- -------- -------- --------Non-recurringitems (a) (250.0) -Share ofresults ofassociates 1.2 - -------- -------Operating(Loss)/profit (152.8) 5.8 -------- ------- a) These relate entirely to the Regionals segment as detailed in note 4(a). 26 weeks to 3 July 2005 Central Continuing Discontinued Regionals Nationals Sports costs Operations operations 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m RevenueSegment sales 277.7 262.8 26.2 - 566.7 20.3Inter-segmentsales (0.4) (7.3) - - (7.7) -Total revenue 277.3 255.5 26.2 - 559.0 20.3 -------- -------- -------- -------- -------- --------Result Segment 78.8 42.9 9.4 (8.5) 122.6 5.4result -------- -------- -------- -------- -------- --------Share ofresults ofassociates 0.3 - -------- --------OperatingProfit 122.9 5.4 -------- -------- 52 weeks to 1 January 2005(unaudited) Central Continuing Discontinued Regionals Nationals Sports costs Operations operations 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m -------- -------- -------- -------- -------- --------RevenueSegment sales 542.3 510.7 50.6 - 1,103.6 32.7Inter-segmentsales (2.7) (11.6) - - (14.3) -Total revenue 539.6 499.1 50.6 - 1,089.3 32.7 -------- -------- -------- -------- -------- --------ResultSegment result 147.4 91.2 17.4 (15.9) 240.1 7.2 -------- -------- -------- -------- -------- --------Non-recurringitems (2.6) (0.1)Share ofresults ofassociates 0.8 - -------- --------OperatingProfit 238.3 7.1 -------- -------- Secondary segments - geographical destination and source segment analysis The Group's operations are located in the United Kingdom. The following tablesprovide an analysis of the Group's revenue by geographical market and source. 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited)Revenue analysis £m £m £mUnited Kingdom and Republic of Ireland 543.8 556.7 1,083.7 Continental Europe 2.7 2.3 5.5Rest of World - - 0.1 -------- -------- --------Total 546.5 559.0 1,089.3 -------- -------- -------- Circulation 196.8 198.7 392.0Advertising 289.3 315.5 597.7Other 60.4 44.8 99.6 -------- -------- --------Total 546.5 559.0 1,089.3 -------- -------- -------- 4. Non-recurring items 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) £m £m £mNon recurring items Impairment of carrying value ofintangibles (a) (250.0) - - Restructuring costs (b) - - 7.8 Severance costs following theacquisition of the hotgroup plc (c) - - 1.0Profit on disposal of land andbuildings (d) - - (3.5)Profit on disposal ofavailable-for-sale investments (e) - - (2.7) -------- -------- --------Non recurring items (250.0) - 2.6 -------- -------- -------- a) An impairment review of the carrying value of the Group's intangibleassets undertaken in accordance with IAS 36 "Impairment of Assets" indicatedthat an impairment charge was required. The impairment charge reduces thecarrying value of the Regional newspaper titles on a value in use basis by£250.0 million (26 weeks to 3 July 2005 £nil and 52 weeks to 1 January 2006£nil) before tax, to the net present value of future cash flows to be derivedfrom those assets discounted at 7.63% (2005: 6.95%). Net of tax, the impairmentreduces the carrying value of the Regional newspaper titles by £175.0 million(26 weeks to 3 July 2005 £nil and 52 weeks to 1 January 2006 £nil). b) In 2005 restructuring severance costs of £7.8 million (excludingdiscontinued operations) were incurred in delivery of cost reduction measures. c) In 2005 severance costs of £1.0 million were incurred following theacquisition of the hotgroup plc. d) In 2005 the Group disposed of surplus land and buildings realising aprofit on disposal of £3.5 million. e) In 2005 the Group disposed of its shareholding in Scottish RadioHoldings plc realising a profit on disposal of £2.7 million. 5. Finance costs IAS 19(1) IAS 39(2) Other(3) Total £m £m £m £m26 weeks to 2 July 2006Income 40.5 0.6 0.1 41.2Expense (35.9) (15.5) (16.6) (68.0) -------- -------- -------- --------Total finance costs 4.6 (14.9) (16.5) (26.8) -------- -------- -------- -------- 26 weeks to 3 July 2005 Income 36.0 0.7 0.6 37.3Expense (35.8) - (16.6) (52.4) -------- -------- -------- --------Total finance costs 0.2 0.7 (16.0) (15.1) -------- -------- -------- --------52 weeks to 1 January 2006 (audited) Income 72.9 1.2 1.2 75.3Expense (71.2) (7.8) (32.2) (111.2) -------- -------- -------- --------Total finance costs 1.7 (6.6) (31.0) (35.9) -------- -------- -------- -------- (1) IAS 19 finance income represents expected return on scheme assets net ofexpected expenses, and IAS 19 finance expense represents the interest cost onscheme liabilities. (2) Impact of fair value, exchange rate, and amortisation adjustments onborrowings and associated financial instruments accounted for under IAS 39. (3) Other finance costs represents interest costs for Group borrowings andinclude interest on obligations under finance leases of £0.5 million (26 weeksto 3 July 2005 £0.5 million and 52 weeks to 1 January 2006 £1.2 million.) 6. Tax Tax on profit from continuing operations, as shown in the income statement is asfollows: 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) £m £m £m Current Tax Corporation tax charge for the period (21.2) (33.3) (54.5)Prior year adjustment - (3.7) (2.0) -------- -------- --------Current tax charge (21.2) (37.0) (56.5) -------- -------- --------Deferred Tax Tax credit/(charge) for the period 74.8 0.2 (5.3) Prior year adjustment - 3.7 1.5 -------- -------- --------Deferred tax credit/(charge) 74.8 3.9 (3.8) -------- -------- --------Total tax credit/(charge) -continuing operations 53.6 (33.1) (60.3) Tax charge - discontinued operations (1.8) (1.6) (2.3) -------- -------- -------- Reconciliation of tax charge - continuing % % %operations Standard rate of corporation tax 30.0 30.0 30.0 Tax effect of items that are notdeductible or not taxable indetermining taxable profit (0.4) 0.9 0.1 Tax effect of share of results ofassociate 0.1 (0.1) (0.3) Tax effect of rolled over andrevaluation gains 0.1 (0.1) (0.2) Prior year adjustment - - 0.2 -------- -------- --------Tax charge rate - continuingoperations 29.8 30.7 29.8 -------- -------- -------- The standard rate of corporation tax is the UK prevailing rate of 30% (2005:30%) Corporation tax for the interim period is charged at 29.8% (2005: 30.7%),representing the best estimate of the weighted average annual corporation taxrate expected for the full financial year. The deferred tax credit includes an amount of £75.0 million in relation to theimpairment charge as detailed in note 4. In addition to the amount charged to the income statement, deferred tax relatingto the actuarial gains on defined benefit pension schemes of £16.8 million hasbeen debited directly to equity. 7. Dividends 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) £m £m £mAmounts recognised as distributions toequity holders in the period: Dividend paid (a) 45.1 41.7 60.2 -------- -------- -------- Pence Pence Pence -------- -------- --------Dividend paid per share (a) 15.5 14.3 20.7 -------- -------- -------- £m £m £m -------- -------- --------Dividend proposed but not paid norincluded in the accounting records (b) 18.8 18.7 45.4 -------- -------- -------- Pence Pence Pence -------- -------- --------Dividend proposed per share (b) 6.4 6.4 15.5 -------- -------- -------- (a) The amount of £45.1 million is in respect of the final dividend for the52 weeks ended 1 January 2006 of 15.5 pence per share; the amount of £41.7million is in respect of the final dividend for the 53 weeks ended 2 January2005 of 14.3 pence per share; the amount of £60.2 million is in respect of thefinal dividend for the 53 weeks ended 2 January 2005 of 14.3 pence per share andthe interim dividend for the 52 weeks ended 1 January 2006 of 6.4 pence pershare. (b) The amount of £18.8 million represents the proposed interim dividend forthe 26 weeks to 2 July 2006 of 6.4 p per share, which had not been approved bythe Board and as such is not reflected as a liability in this interim financialreport; the amount of £18.7 million represents the proposed interim dividend forthe 26 weeks to 3 July 2005 of 6.4p per share; the amount of £45.4 millionrepresents the proposed final dividend for the 52 weeks to 1 January 2006 of15.5p per share. 8. Earnings per share 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited)Earnings £m £m £m Profit after tax before non-recurringitems, amortisation of intangiblesand IAS 39 impact: Underlying 68.4 78.0 154.4 Non-recurring items (after tax) (175.0) - (0.6) -------- -------- --------Profit after tax before amortisationof intangibles and IAS39 impact (106.6) 78.0 153.8 Amortisation of intangibles (aftertax) (4.9) - (2.3) IAS 39 impact (after tax) (10.5) 0.5 (4.6) -------- -------- --------Basic EPS earnings (profitattributable to equity holders) (122.0) 78.5 146.9 -------- -------- -------- Number of shares ('000) ('000) ('000) -------- -------- --------Weighted average number of ordinaryshares for the purpose of basic EPS 291,143 293,793 291,900 Effect of dilutive potential ordinaryshares - share options 1,201 3,325 1,274 -------- -------- --------Weighted average number of ordinaryshares for the purpose of diluted EPS 292,344 297,118 293,174 -------- -------- -------- Earnings per share - pence Pence Pence Pence Excluding amortisation of intangibles and IAS 39impact: Underlying earnings per share 23.5 26.6 52.9 Non-recurring items (60.1) - (0.2) -------- -------- --------Adjusted (loss)/earnings per share - basic (36.6) 26.6 52.7 -------- -------- --------Adjusted (loss)/earnings per share - diluted (36.5) 26.3 52.5 -------- -------- -------- Including amortisation of intangibles and IAS 39impact: Underlying earnings per share 18.2 26.7 50.5 Non-recurring items (60.1) - (0.2) -------- -------- --------(Loss)/earnings per share - basic (41.9) 26.7 50.3 -------- -------- --------(Loss)/earnings per share - diluted (41.7) 26.4 50.1 -------- -------- -------- Underlying earnings per share is stated inclusiveof the following item: Pence Pence Pence -------- -------- --------Amortisation of intangibles (1.7) - (0.8) -------- -------- -------- The earnings per share for each category of non-recurring items and profit onsale of discontinued operations disclosed in note 4 is as follows: Pence Pence Pence Impairment of carrying value of intangibles (60.1) - - Restructuring costs - - (1.8) Severance costs following acquisition of thehotgroup - - (0.3)plc Profit on disposal of land and buildings - - 1.2 Profit on disposal of available-for-sale - - 0.7investments -------- -------- -------- Earnings per share - non-recurring items (60.1) - (0.2) -------- -------- -------- 9. Notes to the cash flow statement 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) £m £m £m Operating (loss)/ profit fromcontinuing operations (152.8) 122.9 238.3 Operating profit from discontinuedoperations 5.8 5.4 7.1Adjustments for:Depreciation of property, plant andequipment 19.7 19.8 40.1 Impairment of carrying value ofintangibles 250.0 - - Amortisation of intangible assets 7.0 - 3.3 Share of result of associate (1.2) (0.3) (0.8) Cost of Long Term Incentive Plan(LTIP benefits) 1.4 2.2 4.4 Profit on disposal of property, plantand equipment - - (3.5) Profit on disposal ofavailable-for-sale investments - - (2.7) Adjustment for IAS 19 pension funding (12.3) (10.8) (17.7) -------- -------- --------Operating cash flows before movementsin working capital 117.6 139.2 268.5 (Increase)/decrease in inventories (0.1) 0.2 (0.5) (Increase)/decrease in receivables (17.2) (14.2) 16.6 Increase/(decrease) in payables 4.9 4.7 (7.8) -------- -------- --------Cash generated by operations 105.2 129.9 276.8 -------- -------- -------- 10. Net Debt Other 1 January Cash IAS 39* non-cash 2 July 2006 Flow Impact charges 2006 £m £m £m £m £mNon-current Loan notes (392.0) - 26.4 (0.1) (365.7)Derivative financialinstruments (56.6) - (41.3) - (97.9)Obligations under financeleases (15.6) 2.0 - - (13.6) -------- -------- -------- -------- -------- (464.2) 2.0 (14.9) (0.1) (477.2) -------- -------- -------- -------- --------Current Bank overdrafts (17.9) (20.8) - - (38.7)Short term loans (40.0) - - - (40.0)Loan notes (0.8) - - - (0.8)Obligations under financeleases (2.8) 0.1 - - (2.7) -------- -------- -------- -------- -------- (61.5) (20.7) - - (82.2) -------- -------- -------- -------- --------Cash and cash equivalents 33.2 (3.7) - - 29.5 -------- -------- -------- -------- --------Net Debt (492.5) (22.4) (14.9) (0.1) (529.9) -------- -------- -------- -------- -------- Cash and cash equivalents at 2 July 2006 include £2.3 million of held for salecash. * 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. 11. Share-based payments During the 26 weeks to 2 July 2006, performance share awards and deferred shareawards were made to senior managers on a discretionary basis under the 2004 LongTerm Incentive Plan and 2006 Deferred Share Plan. Both sets of awards are in theform of "nil-cost options" with an exercise price of £1 for each block ofoptions granted. The performance share awards vest after three years, subject tothe continued employment of the participant and satisfaction of totalshareholder return performance conditions. The deferred shares vest after threeyears subject to continuing employment. 12. Retirement benefit obligation 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 ("Past Service Scheme") cover the liabilities in respect of service up to13 February 1992, the date when the Old Scheme was closed. The Past ServiceScheme was established to meet the liabilities for service up to 13 February1992 for employees and former employees, who worked regularly on the productionand distribution of Mirror Group's newspapers, which are not satisfied bypayments from the Old Scheme and the Maxwell Communications Pension Plan or bythe State. These Schemes have formal actuarial valuations carried out regularly.The actuarial methods and assumptions used to calculate their assets andliabilities 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. For 2006, agreement has therefore been reached with theTrustees to pay £12.5 million (2005: £9.0 million). The next full actuarialvaluation is due to be carried out as at 31 December 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. 12. Retirement benefit obligation (continued) The most significant of the schemes are the Trinity Retirement Scheme (the"Trinity Scheme"), the MGN Pension Scheme (the "MGN Scheme") and the MidlandIndependent Newspapers Pension Scheme (the "MIN Scheme"), which together withthe Old Scheme and the Past Service Scheme represent over 97% of the aggregatemarket value. The last formal valuation of these schemes was undertaken on 30June 2003 for the Trinity Scheme, 31 March 2004 for the MIN Scheme and 31December 2004 for the MGN Scheme. These valuations showed deficits of £25.1million, £30.8 million and £55.9 million respectively. All of the schemes arebeing funded in accordance with the recommendations of the respective actuaries.In 2006, the employer's contribution rate to the MGN Scheme has increased from11.1% to 12%. The employer's contribution rate to the Trinity Scheme is 14%. Theemployer's contribution rate to the MIN Scheme is 15%. 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 at 30 June 2006,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: 2 July 3 July 1 January 2006 2005 2006Principal annual actuarial assumptions % % %used: Discount rate 5.25 5.00 4.75 Inflation rate 3.00 2.65 2.80Expected return on scheme assets 4.00 to 7.30 5.10 to 7.80 4.00 to 7.30 Expected rate of salary increases 4.30 3.90 4.10 Pension increases: Pre 6 April 1997 pensions 3.00 to 5.00 2.65 to 5.00 2.80 to 5.00 Post 6 April 1997 pensions 3.00 to 3.50 2.65 to 3.15 2.80 to 3.30 Actual return on scheme assets £14.2m £69.7m £179.7m 1 January 2 July 3 July 2006 2006 2005 (audited)Defined benefit schemes £m £m £m Net scheme liabilities: Present value of funded obligations (1,478.9) (1,450.6) (1,535.5)Fair value of schemes' assets 1,250.2 1,122.5 1,233.0 Effect of asset ceiling (4.1) (2.7) (3.1) -------- -------- --------Schemes' deficits (232.8) (330.8) (305.6) -------- -------- --------This amount is presented as follows: Current liabilities - - - Non-current liabilities (232.8) (330.8) (305.6) -------- -------- -------- (232.8) (330.8) (305.6) -------- -------- --------Pension scheme assets include direct £nil £nil £nilinvestments in the Company's ordinary shares with a fair value of: -------- -------- -------- 12. Retirement benefit obligation (continued) 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited)Amounts recognised in the income £m £m £mstatement Current service cost (14.8) (14.1) (28.6) Past service cost - (0.8) (1.3) -------- -------- --------Total included in staff costs (14.8) (14.9) (29.9) -------- -------- -------- Expected return on scheme assets 40.5 36.0 72.9 Interest cost on pension schemes'liabilities (35.9) (35.8) (71.2) -------- -------- --------Net finance credit 4.6 0.2 1.7 -------- -------- --------Total included in the income statement (10.2) (14.7) (28.2) -------- -------- -------- Movement in deficits during the period: Opening deficits (305.6) (321.9) (321.9) Contributions 27.1 25.7 46.9 Total charge to income statement (10.2) (14.7) (28.2) Actuarial (losses)/gains 56.9 (17.2) 0.7 Effect of asset ceiling (1.0) (2.7) (3.1) -------- -------- --------Closing deficits (232.8) (330.8) (305.6) -------- -------- --------Movement not recognised in incomestatement: Actuarial (losses)/gains 55.9 (17.2) 0.7 Effect of asset ceiling (1.0) (2.7) (3.1) -------- -------- --------Total included in statement ofrecognised income and expense (beforetax) 54.9 (19.9) (2.4) -------- -------- -------- 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited)Defined contribution schemes £m £m £m Amounts recognised in the incomestatement: Current service cost (0.4) (0.4) (0.8) -------- -------- -------- 13. Share capital and reserves Retained Capital losses and Share redemption Share Revaluation other Capital Reserve premium Reserve Reserves Total £m £m £m £m £m £m At 1 January (29.3) (0.8) (1118.9) (4.9) 400.2 (753.7)2006 Totalrecognisedincome and - - - - 81.6 81.6expensefor theperiodDividends - - - - 45.1 45.1New sharecapital - - (1.1) - - (1.1)subscribed Investmentin - - - - (1.4) (1.4)shares of -------- -------- -------- -------- -------- --------LTIPAt 2 July (29.3) (0.8) (1120.0) (4.9) 525.5 (629.5)2006 -------- -------- -------- -------- -------- -------- Shares held for LTIP are included in retained earnings and other reserves at£11.9 million (3 July 2005 and 1 January 2006: £11.9 million) and under IFRS arenow classified as Treasury Shares, and are included in other reserves on thebalance sheet. Cumulative goodwill written off to reserves in respect of continuing businessesacquired prior to 1998 is £25.9 million (2005: £25.9 million). The capital redemption reserve was created when the Company embarked on theshare buy-back programme in 2005 and represents the nominal value of the sharespurchased and subsequently cancelled. The revaluation reserve relates to therevaluation surplus on property, plant and equipment that has been revalued tofair value from its historical cost. 14. Acquisition of subsidiary On the 9 May 2006, the Group acquired Email4Property Limited. The results of theacquisition have been included in continuing operations. The net assets acquired and the goodwill arising, are as follows: Acquiree's carrying amount Fair before value Fair combination adjustments value £m £m £m Net assets acquired: Cash and cash equivalents 0.3 - 0.3Current liabilities (0.1) (0.3) (0.4)Non-current liabilities - (0.4) (0.4) -------- -------- -------- 0.2 (0.7) (0.5) -------- -------- --------Intangible assets 1.5Goodwill 3.5 -------- -------- --------Total consideration 4.5 -------- -------- -------- Fair value adjustments reflect the alignment of the acquiree's accountingpolicies with those of the Group. The goodwill arising on the acquisition is attributed to the anticipatedprofitability and market share of the acquiree in its new markets and theanticipated synergies with other acquisitions. The initial accounting for the acquisition 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 sixmonths of the date of the acquisition. Net cash outflow arising on acquisition: Cash consideration paid 4.5 Cash and cash equivalents acquired (0.3) -------- 4.2 -------- The revenue and operating profit post acquisition of the subsidiary is notmaterial to the Group's results. Total consideration for the acquisition was satisfied in cash. 15. Discontinued operations On 2 July 2006 the Group discontinued its Magazines and Exhibitions operations. On 14 July 2006 the Group disposed of its Magazines and Exhibitions division,having commenced a disposal process earlier in the year. These operations havebeen classified as a disposal group held for sale and presented separately inthe balance sheet. The operations are included in discontinued operations in thesegmental analysis in note 3. The proceeds of disposal substantially exceededthe book value of the related net assets and accordingly no impairment losseshave been recognised on the classification of these operations as held for sale. The results of the discontinued operations which have been included in theconsolidated income statement, were as follows: 52 weeks to 26 weeks to 26 weeks to 1 January 2 July 3 July 2006 2006 2005 (audited) £m £m £m Revenue 20.1 20.3 32.7 Cost of sales (11.5) (11.8) (20.0) -------- -------- --------Gross Profit 8.6 8.5 12.7Distribution costs (0.5) (0.6) (1.1)Administrative expenses:Non-recurring - - (0.1)Other (2.3) (2.5) (4.4) -------- -------- --------Operating profit 5.8 5.4 7.1Tax (1.8) (1.6) (2.3) -------- -------- --------Profit for the period fromdiscontinued operations 4.0 3.8 4.8 -------- -------- -------- The effect of discontinued operations on segment results is disclosed in note 3. 16. Events after the balance sheet date After having sold Micro Mart in June 2006 for £0.5 million, on 14 July 2006 theGroup disposed of its Magazines and Exhibitions division through a number oftransactions generating gross disposal proceeds of £42.7 million. The mostsignificant of these transactions was the disposal of Inside CommunicationsLimited for a consideration of £41.5 million, realising an estimated profit of£35.0 million. Other information i. Reconciliation of Group statutory results to adjusted results Acquisitions Adjusted Non-recurring Discontinued IAS 39 Excluding result Statutory Items Amortisation Operations Impact Adjusted Amortisation excluding Result (a) (b) (c) (d) Result (b) acquisitions26 weeks to £m £m £m £m £m £m £m £m2 July 2006 Revenue 546.5 - - 20.1 - 566.6 (25.6) 541.0 Operatingprofit (152.8) 250.0 7.0 5.8 - 110.0 (2.4) 107.6Profitbefore (179.6) 250.0 7.0 5.8 14.9 98.1 (2.4) 95.7tax Pence Pence Pence Pence Pence Pence Pence Pence ------- -------- -------- -------- ------ ------- -------- ------- Earnings per share: Underlying 18.2 - 1.7 n/a 3.6 23.5 (0.6) 22.9(e)Non-recurring (60.1) 60.1 - - - - - -itemsBasic (41.9) 60.1 1.7 n/a 3.6 23.5 (0.6) 22.9 Acquisitions Adjusted Non-recurring Discontinued IAS 39 Excluding result Statutory Items Amortisation Operations Impact Adjusted Amortisation excluding Result (a) (b) (c) (d) Result (b) acquisitions26 weeks £m £m £m £m £m £m £m £mto 3 July 2005 Revenue 559.0 - - 20.3 - 579.3 - 579.3 Operatingprofit 122.9 - - 5.4 - 128.3 - 128.3Profitbefore 107.8 - - 5.4 (0.7) 112.5 - 112.5tax Pence Pence Pence Pence Pence Pence Pence Pence ------- -------- -------- -------- ------ ------- -------- -------Earnings per share: Underlying 26.7 - - n/a (0.1) 26.6 - 26.6(e)Basic 26.7 - - n/a (0.1) 26.6 - 26.6 (a) Details of non-recurring items are set out in note 4 and relate to theimpairment of the carrying value of intangible assets. (b) All acquisitions and amortisation relate to the Regionals businesssegment. (c) Details of discontinued operations are set out in note 15. Alldiscontinued operations relate to the Magazines and Exhibitions businesssegment. (d) Impact of fair value, exchange rate, and amortisation adjustments onborrowings and associated financial instruments, accounted for under IAS 39. TheIAS 39 impact is included in central costs and is not allocated to a businesssegment. (e) The earnings per share of the discontinued operations is included in thestatutory result. Other information(continued) ii. Analysis of net debt (excluding IAS 39) 2 July 3 July 1 January 2006 2005 2006 £m £m £mNon-current Loan notes (441.2) (441.0) (441.1) Obligations under finance leases (13.6) (16.1) (15.6) -------- -------- -------- (454.8) (457.1) (456.7) -------- -------- --------Current Bank overdrafts (38.7) (27.0) (17.9)Short term loans (40.0) - (40.0)Loan notes (0.8) (0.2) (0.8)Obligations under finance leases (2.7) (2.3) (2.8) -------- -------- -------- (82.2) (29.5) (61.5)Cash and cash equivalents 29.5 29.2 33.2 -------- -------- --------Net Debt (507.5) (457.4) (485.0) -------- -------- -------- This note summarises net debt on an IFRS comparable basis excluding the impactof IAS 39 fair value, exchange rate and amortisation adjustments, illustrated innote 10. Cash at bank in hand at 2 July 2006 includes £2.3 million of held forsale cash. INDEPENDENT REVIEW REPORT TO TRINITY MIRROR PLC Introduction We have been instructed by the company to review the financial information forthe 26 weeks ended 2 July 2006 which comprises the consolidated incomestatement, the consolidated balance sheet, the consolidated statement ofrecognised income and expense, the consolidated cash flow statement and relatednotes 1 to 16. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by Law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financialdata, and, based thereon, assessing whether the accounting policies andpresentation have been consistently applied unless otherwise disclosed. A reviewexcludes audit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly,we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks ended2 July 2006. Deloitte & Touche LLPChartered Accountants3 August 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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