31st Aug 2005 07:00
Johnston Press PLC31 August 2005 For Immediate Release 31 August 2005 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005 Johnston Press plc, one of the UK's leading regional newspaper publishers,announces interim results for the six months ended 30 June 2005. FINANCIAL HIGHLIGHTS 2005 2004 Change £'m £'m Turnover 264.6 261.5 +1.2%Profit before tax 82.2 75.2 +9.3% Underlying earnings per share 20.57p 18.93p +8.7%Interim dividend 2.8p 2.4p +16.7% OPERATIONAL KEY POINTS • Flat advertising revenues in tougher markets. • Excellent cost control delivering record operating margins before non-recurring items of 35.6%. • 30 new product launches since Jan 2005 continue to drive organic revenue growth. • Strong growth in electronic publishing: revenues up 32%, profit contribution up 48%. • Sheffield and Portsmouth press projects proceeding on schedule and to budget. • Acquisition of Score Press for £155m since period end. OUTLOOK Chief Executive, Tim Bowdler, said: "We do not anticipate any improvement in the advertising environment in thesecond half although the year-on-year comparatives do get slightly easier.Therefore, we will continue the tight management of costs and this, togetherwith increased operational efficiency as well as the first contribution fromScore Press, should ensure a satisfactory result for the year as a whole." For further information please contact: Tim Bowdler, Chief Executive Officer orStuart Paterson, Finance Director 020 7466 5000 (today) or 0131 225 3361 (thereafter) Richard Oldworth/Suzanne BrocksBuchanan Communications 020 7466 5000 Chief Executive's Half Year Statement The six months to 30 June 2005 has been a challenging period in a difficulttrading environment. There has only been a marginal increase in advertisingrevenues and this has coincided with an increase in the price of newsprint.Notwithstanding this, through a combination of organic growth initiatives andtight cost control, the Group has managed to increase profit before tax by 9% to£82m. Despite increased levels of capital investment, principally due to the Sheffieldpress project and an additional payment of £15m into the pension fund, net debthas reduced by £67m over the last twelve months. This reduction is reflected in our finance costs of £11m, down 24% onthe same period last year. Underlying earnings per share, excludingnon-recurring items, as shown on page 6, increased from 18.93p to 20.57p, anincrease of 9%. The interim ordinary dividend payable on 4 November 2005 will be 2.8p, anincrease of 17%. Last year the level of dividend increase was 20% as the Boardsought to redress the fact that over recent years earnings had grown in excessof dividends resulting in an increased dividend cover. This year's increase inthe dividend of 17% seeks to progress the reduction in dividend cover commencedlast year. Acquisitions It was announced on 21 June 2005 that the Board of Scottish Radio Holdings plcwas recommending to their shareholders the proposal from Emap plc to acquire theentire issued share capital not already held by Emap. Johnston Press and Emapannounced at the same time that agreement had been reached for Johnston Press toacquire the newspaper interests of SRH (Score Press Ltd) for £155m. Thetransaction completed on 9 August 2005. Score Press owns 35 weekly newspapertitles, with 13 in Scotland, 17 in Northern Ireland and 5 in the Republic ofIreland. Of the 35 titles, 29 are paid for and 6 are free. As well as addinggood quality titles to our portfolio, this acquisition takes the group into thenew territories of Northern Ireland and the Republic of Ireland. It isanticipated that, excluding any non-recurring costs associated with theacquisition, the deal will be earnings enhancing in the first year and valueenhancing in 2-3 years. The Group completed the acquisition of Thorne Gazette on 16 May 2005. This is asmall business distributing 20,000 free newspapers in South Yorkshire as well aspublishing a title for the region's farming community and a visitor guide forLincolnshire. These titles fit well with our current portfolio in these areas. On 3 August 2005, the Group acquired the entire share capital of Best AsianMedia Ltd, a company which distributes a fortnightly free newspaper for theAsian population in the Northwest of England. Trading Review Although advertising revenues increased in the period by 0.7% the truelike-for-like performance, when adjusting for the impact of the 53rd week in2004, was a decrease of 0.8%. This performance was driven by significantlydiffering conditions in our various advertising categories. Employmentadvertising was the most difficult category; it started the year strongly andthen decreased sharply at Easter and stayed this way through the generalelection. The overall decline in the period was 9%, albeit measured againsttough comparatives, and there has not yet been any sign of recovery since thehalf year. The other categories performed broadly in line with the second half of last yearwith strong growth in property and good growth in other classifieds. Motors wasagain slightly down on the previous year but, despite the weaker retailenvironment and the virtual absence of any Central Office of Informationadvertising during and immediately following the election period, displayadvertising was marginally ahead. Newspaper sales were flat year on year with a number of modest price increasesoffsetting decreases in circulation. We continue our progress in removing bulksales from our reported figures and are pleased to confirm that, after the ABCperiod for the six months to 30 June 2005, there will be no more bulk salesreported for any Johnston Press title. We have also taken steps to address theissue of bad debt on our direct delivery sales in advance of a change in the ABCrules, and this has also had an adverse effect on some of our reportedcirculations. Contract printing revenues were down due to the announcement in February of theclosure of the heatset press at Portsmouth which will enable the construction ofa new press hall to commence. This will house a similar press to that beinginstalled at our new site in Sheffield. Other revenues were well up, +8%, driven by the internet and other organicinitiatives. Internet revenues grew particularly strongly, +32%, despite theweakness in employment advertising. This growth was primarily down to thesuccess of our CV matching service launched last year. Despite increasedinvestment in this area, the contribution to profit increased by 48% to £3.1m. With lower growth on the top line and increased newsprint prices, considerableeffort has been put into controlling the Group's cost base. This has resulted inthe Group's operating margin in the period, before non-recurring items,increasing from 34.6% to 35.6%. All divisions managed to increase operatingprofit in absolute terms and operating margin, despite significant falls inemployment advertising in certain markets. Capital Investment Progress has been made on both of the major capital investment programmes atSheffield and Portsmouth. At Sheffield, construction of the new press hall iswell advanced and is on schedule and budget. Planning permission for the newpress hall on our existing Portsmouth site was received in May 2005, withclosure of the heatset press being completed at the end of June and demolitionof the existing building commencing in July. Both of these significant capitalinvestment programmes are under-pinned by 15 year print contracts with NewsInternational. Banking Associated with the acquisition of Score Press, the Group has re-negotiated itsbanking facilities. The new arrangements will be progressively put in place overthe second half of the year and will result in a lower cost of borrowing and asmaller number of banks operating through bilateral agreements. This change willresult in the write-off of the unamortised fees associated with our existingfacility in the second half, involving a non-recurring interest cost of £1.8m.Net debt at 30 June 2005 was £311m and interest cover was 8.5 times. International Financial Reporting Standards (IFRS) These results have been published under IFRS and, as disclosed in last year'sannual report and accounts, other than presentational differences, the impact onthe full year's Income Statement is not significant for Johnston Press. Thenotable changes in the first half have been share-based awards, at a cost of£506k, and a holiday pay accrual amounting to £1.9m, which will reverse in thesecond half and will have no impact on the full year. In addition, dividends areincluded in the 'reconciliation of shareholders' equity' statement when they areapproved, not proposed as was the previous practice. The impact on the Group balance sheet is more significant with the inclusion ofthe pension deficit on the Group's defined benefit schemes and the writing-offof the previously reported pension prepayment under SSAP 24. Since we prepared the 2004 annual report and accounts another purely technicalimplementation issue under IAS 12 (Income Taxes) has come to light. The standardrequires that, where an asset has a book value in excess of its tax written downvalue, deferred tax must be provided on the difference. This impacts the entirevalue of publishing titles on the Group's opening balance sheet and the value ofproperties that are not eligible for any tax allowances. Compliance with IFRStherefore requires that in our opening balance sheet a deferred tax liability of£284m needs to be booked with a corresponding reduction in reserves. This is anillogical adjustment as we cannot foresee any future tax liability to the Group.Representations have been made to the IASB and we are hopeful that this will bereversed when the standard is reviewed. Outlook We do not anticipate any improvement in the advertising environment in thesecond half although the year-on-year comparatives do get slightly easier.Therefore, we will continue the tight management of costs and this, togetherwith increased operational efficiency as well as the first contribution fromScore Press, should ensure a satisfactory result for the year as a whole. Tim BowdlerChief Executive Officer31 August 2005 Independent Review Report to Johnston Press plc 26 Weeks to 30 June 2005 We have been instructed by the company to review the financial information forthe 26 weeks to 30 June 2005 which comprises the income statement, the balancesheet, the cash flow statement, the statement of recognised income and expenses,the reconciliation of shareholders' equity and related notes 1 to 15. We haveread the other information contained in the Interim Report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe 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 changes,and the reasons for them, are disclosed. International Financial Reporting Standards (IFRS) As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with IFRS as adopted for use in the EU. Accordingly,the Interim Report has been prepared in accordance with the recognition andmeasurement criteria of IFRS and the disclosure requirements of the ListingRules. The accounting policies are consistent with those that the directorsintend to use in the annual financial statements. 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 financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit 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 andIreland) 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 to 30June 2005. DELOITTE & TOUCHE LLPChartered Accountants31 August 2005 Group Income Statement (unaudited)26 Weeks to 30 June 2005 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 Notes £'000 £'000 £'000 Revenue 264,579 261,472 519,299Cost of sales (119,286) (118,465) (239,722) Gross profit 145,293 143,007 279,577Operating expenses Non-recurring 3 (1,273) (1,058) (769) Other (51,033) (52,585) (101,366)Share of results of associates 44 116 174 Operating profit 93,031 89,480 177,616Investment income 8 155 242 122Finance costs 9 (10,968) (14,517) (27,939) Profit before tax 82,218 75,205 149,799Tax 4 (24,167) (22,319) (43,187) Profit for the period 58,051 52,886 106,612 Pence Pence PenceEarnings per share 6Underlying earnings per share 20.57 18.93 37.77Non-recurring items (0.31) (0.35) (0.36) Earnings per share - basic 20.26 18.58 37.41 Earnings per share - diluted 20.10 18.41 37.07 All of the revenue and profit above is derived from continuing operations. Group Balance Sheet (unaudited)At 30 June 2005 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Non-current assets Goodwill 107 - -Other intangible assets 927,914 927,557 927,557Property, plant and equipment 162,299 152,847 156,742Available-for-sale investments 2,713 3,101 2,740Interests in associates 48 518 58Trade and other receivables 49 57 46 1,093,130 1,084,080 1,087,143 Current Assets Inventories 2,699 2,834 4,417Trade and other receivables 73,308 75,920 60,114Cash and cash equivalents 21,871 10,482 10,119 97,878 89,236 74,650 Total assets 1,191,008 1,173,316 1,161,793 Current liabilities Trade and other payables 58,184 60,869 57,492Tax liabilities 28,158 24,467 24,814Obligations under finance leases 16 16 16Bank overdrafts and loans 86,533 73,256 77,210 172,891 158,608 159,532 Non-current liabilities Borrowings 246,153 314,829 260,992Obligations under finance leases 8 37 23Retirement benefit obligation 55,586 56,300 70,586Derivative instruments 11,151 - -Deferred tax liabilites 270,526 278,486 270,572Trade and other payables 2,693 2,683 2,987Long term provisions 3,648 3,543 3,188 589,765 655,878 608,348 Total liabilities 762,656 814,486 767,880 Net assets 428,352 358,830 393,913 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000Equity Share capital 29,688 29,561 29,638Share premium account 325,176 322,045 323,670Revaluation reserves 2,801 2,870 2,836Own shares (1,057) (1,028) (795)Hedging reserve (11,151) - -Retained earnings 82,895 5,382 38,564 Total equity 428,352 358,830 393,913 Group Cash Flow Statement (unaudited)26 Weeks to 30 June 2005 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 Notes £'000 £'000 £'000 Cash flows from operating activities 11 Cash generated from operations 76,544 88,839 193,712Income tax paid (20,975) (11,745) (34,321) Net cash from operating activities 55,569 77,094 159,391 Investing activities Interest received 155 606 848Dividends received from associated undertakings 54 113 498Proceeds on disposal of property, plant and equipment 517 1,089 1,975Proceeds on disposal of available-for-sale 28 - 1,198investmentsPurchases of property, plant and equipment (15,563) (8,502) (24,498)Purchase of publishing titles (357) - - Net cash used in investing activities (15,166) (6,694) (19,979) Financing activities Dividends paid (13,755) (11,442) (18,348)Interest paid (9,667) (13,509) (26,455)Interest paid on finance leases (9) (10) (27)Repayments of borrowings (11,124) (42,278) (93,475)Principal payments under finance leases (15) (13) (27)Issue of shares 1,556 1,543 3,245Purchase of own shares (567) (791) (791)Increase/(decrease) in bank overdrafts 4,930 (3,362) (3,359) Net cash used in financing activities (28,651) (69,862) (139,237) Net increase in cash and cash equivalents 11,752 538 175Cash and cash equivalents at the beginning of period 10,119 9,944 9,944 Cash and cash equivalents at the end of period 21,871 10,482 10,119 Group Statement of Recognised Income and Expenses (unaudited)26 Weeks to 30 June 2005 Share Share Revaluation Hedging Retained Own Capital Premium Reserve Reserve Earnings Shares Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Profit for the period - - - - 58,051 - 58,051Revaluation adjustment - - (35) - 35 - -Movement in hedging reserve - - - 5,118 - - 5,118 Total recognised income and expenses - - (35) 5,118 58,086 - 63,169 Group Reconciliation of Shareholders' Equity (unaudited)26 Weeks to 30 June 2005 Share Share Revaluation Hedging Retained Own Capital Premium Reserve Reserve Earnings Shares Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening balancesPre IAS 39 adjustment 29,638 323,670 2,836 - 38,564 (795) 393,913IAS 39 adjustment - - - (16,269) - - (16,269) Revised opening balances 29,638 323,670 2,836 (16,269) 38,564 (795) 377,644 Total recognised income and expenses - - (35) 5,118 58,086 - 63,169 Recognised directly in equity Dividend - note 5 - - - - (13,755) - (13,755)New share capital Subscribed 50 1,506 - - - - 1,556Own shares purchased - - - - - (567) (567)Amounts written off - - - - - 305 305 Net change directly in equity 50 1,506 - - (13,755) (262) (12,461) Total movements 50 1,506 (35) 5,118 44,331 (262) 50,708 Equity at the end of the period 29,688 325,176 2,801 (11,151) 82,895 (1,057) 428,352 Group Statement of Recognised Income and Expense (unaudited)26 Weeks to 30 June 2004 Share Share Revaluation Retained Own Capital Premium Reserves Earnings Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Profit for the period - - - 52,886 - 52,886Actuarial gain on definedbenefit pension schemes (netof tax) - - - 581 - 581Revaluation adjustment - - (35) 35 - - Total recognised income and expenses - - (35) 53,502 - 53,467 Group Reconciliation of Shareholders' Equity (unaudited)26 Weeks to 30 June 2004 Share Share Revaluation Retained Own Capital Premium Reserves Earnings Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Opening balances 29,505 320,558 2,905 (36,678) (470) 315,820 Total recognised income and expenses - - (35) 53,502 - 53,467 Recognised directly in equity Dividend - note 5 - - - (11,442) - (11,442)New share capital subscribed 56 1,487 - - - 1,543Own shares purchased - - - - (791) (791)Amounts written off - - - - 233 233 Net change directly in equity 56 1,487 - (11,442) (558) (10,457) Total movements 56 1,487 (35) 42,060 (558) 43,010 Equity at the end of the Period 29,561 322,045 2,870 5,382 (1,028) 358,830 Group Statement of Recognised Income and Expense (unaudited)53 Weeks to 31 December 2004 Share Share Revaluation Retained Own Capital Premium Reserves Earnings Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Profit for the period - - - 106,612 - 106,612Actuarial losses on definedbenefit pension schemes (netof tax) - - - (13,091) - (13,091)Revaluation adjustment - - (69) 69 - - Total recognised income and expenses - - (69) 93,590 - 93,521 Group Reconciliation of Shareholders' Equity (unaudited)53 Weeks to 31 December 2004 Share Share Revaluation Retained Own Capital Premium Reserve Earnings Shares Total £'000 £'000 £'000 £'000 £'000 £'000 Opening balances 29,505 320,558 2,905 (36,678) (470) 315,820 Total recognised income and expenses - - (69) 93,590 - 93,521 Recognised directly in equity Dividend - note 5 - - - (18,348) - (18,348)New share capital subscribed 133 3,112 - - - 3,245Own shares purchased - - - - (791) (791)Amounts written off - - - - 466 466 Net change directly in equity 133 3,112 - (18,348) (325) (15,428) Total movements 133 3,112 (69) 75,242 (325) 78,093 Equity at the end of the Period 29,638 323,670 2,836 38,564 (795) 393,913 Notes to the Interim Financial Information(unaudited) 1. Basis of Preparation The financial information for the 26 weeks to 30 June 2005 does not constitutestatutory accounts for the purposes of Section 240 of the Companies Act 1985 andhas not been audited. No statutory accounts for the period have been deliveredto the Registrar of Companies. The financial information in respect of the 53 weeks ended 31 December 2004 hasbeen produced using extracts from the statutory accounts under UK GAAP for thisperiod and amended by adjustments arising from the implementation ofInternational Financial Reporting Standards (IFRS). Consequently, this does notconstitute the statutory information for the 53 weeks ended 31 December 2004which was audited. The statutory accounts for this period have been filed withthe Registrar of Companies. The auditors' report on these accounts wasunqualified and did not contain a statement under Sections 237 (2) or (3) of theCompanies Act 1985. The interim financial information has been prepared on thebasis of IFRS and International Accounting Standards (IAS) (with the exceptionof IAS 32 and IAS 39 (as amended) for the 2004 information) as set out in theAccounting Policies section below and, where appropriate, standinginterpretations issued by the International Accounting Standards Board (IASB)and its committees expected to be effective for the year ending 31 December2005. It is possible that the IFRS, IAS and related interpretations will besubject to amendment by the IASB and subsequent endorsement by the EuropeanCommission. As a result the accounting policies used to prepare the interimfinancial information may need to be updated and amended for any subsequentchanges or new standards that are effective or applied by the Group in the yearending 31 December 2005. The Group has opted not to prepare the Interim Financial Information under IAS34, 'Interim Financial Reporting'. The interim financial information has been prepared on the historical costbasis, except for the revaluation of certain properties and financialinstruments. The principal accounting policies are set out below. 2. Accounting Policies The Group's consolidated financial statements were prepared in accordance withUK Generally Accepted Accounting Principles (UK GAAP) until 1 January 2005. UKGAAP differs in some areas from IFRS. In preparing the 2005 consolidated interimfinancial information, management has made certain amendments to the UK GAAPbasis to comply with the recognition and measurement criteria of IFRS. The 2004comparative figures have been restated to reflect these adjustments. Except for the classification and measurement of financial instruments, theaccounting policies set out below have been applied consistently to all of theperiods covered in the interim financial information. In respect of financialinstruments, the Group has made use of the exemption available under IFRS 1 toonly apply IAS32 "Financial Instruments: Disclosure and Presentation" and IAS39"Financial Instruments: Recognition and Measurement" from 1 January 2005. Application of IFRS 1 The Group's financial statements for the year ending 31 December 2005 will bethe first financial statements to be prepared in accordance with IFRS. Theseinterim financial statements have been prepared as described in notes 1 and 2including the principles set out in IFRS 1. Notes to the Interim Financial Information (unaudited) - continued 2. Accounting Policies (continued) Under the first time adoption procedures set out in IFRS 1, the Group isrequired to establish its IFRS accounting policies as at 1 January 2005 and toapply these retrospectively in the determination of prior period comparativesfrom 1 January 2004, the date of transition. There are a number of optionalexemptions to this general principle, the most significant of which are set outbelow. • IFRS 3, Business Combinations The Group has elected not to restate business combinations prior to the date oftransition. • IAS 16, Property, Plant and Equipment The Group has elected, where appropriate, to use book values at the date oftransition as the "deemed" cost of plant, property and equipment. Consequentlyany historic asset revaluations will not be updated. • IAS 19, Employee Benefits The Group has elected to recognise all cumulative actuarial gains and losses inrelation to employee benefit schemes at the date of transition. In subsequentperiods all actuarial gains and losses will be recognised in full in the periodin which they occur in the statement of changes in equity. • IAS 32, Financial Instruments: Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and Measurement The Group has elected to adopt IAS 32 and IAS 39 from 1 January 2005 and not torestate prior period comparatives. Consequently the comparative financialinformation in respect of financial instruments is presented in accordance withUK GAAP. Preference shares are treated as equity with effect from 1 January 2005. • IFRS 2, Share-Based Payments The Group has elected to apply IFRS 2 to all share-based awards and optionsgranted post 7 November 2002 but not vested at 31 December 2004. Tables setting out the reconciliation of opening UK GAAP balances to IFRS,together with the effect on the Group's equity, net income and cash flows, areprovided in note 15. Basis of consolidation The interim financial information incorporates the results, cash flows andfinancial position of the Company and its subsidiaries for the 26 weeks to 30June 2005. On acquisition, the assets and liabilities of a subsidiary, includingidentifiable intangible assets in the form of publishing titles, are measured attheir fair value at the date of acquisition. Any excess of the cost ofacquisition over the fair value of the identifiable net assets acquired isrecorded as goodwill. Goodwill is reviewed for impairment at least annually andany impairment is recognised immediately in the income statement. Any deficiencyof cost of acquisition below the fair value of the identifiable net assetsacquired is credited to the profit and loss account on acquisition. Goodwillrecorded on business combinations prior to IFRS transition has not been restatedand has either been written off to reserves or capitalised according to the UKGAAP accounting standards then in force. On disposal or closure of a previouslyacquired business, the attributable amount of goodwill previously written off toreserves is not included in determining the profit or loss on disposal. Fixed asset investments Listed investments are shown as available-for-sale, initially recorded at costin the period of acquisition and subsequently measured at fair value. Gains andlosses on the fair value of available- Notes to the Interim Financial Information(unaudited) - continued 2. Accounting Policies (continued) for-sale investments are recognised in equity. On disposal or impairment of theinvestment, all relevant gains and losses are included in the income statement. Other fixed asset investments are shown at cost less provisions for impairment,except for investments in associates. In the Group accounts, investments inassociated undertakings are accounted for using the equity method and thereforethe Group accounts include the Group's share of the profit and net assets ofassociates. Intangibles The Group's principal intangible assets are publishing titles. Titles separatelyacquired after 1 January 1989 are stated at cost and titles owned bysubsidiaries acquired after 1 January 1996 are recorded at directors' valuation.These publishing titles have no finite life and consequently are not amortised.Annual impairment tests are undertaken to determine any diminution in therecoverable amount, being the higher of the fair value less costs to sell andthe value in use based on the net present value of estimated future cash flowsdiscounted at the Group's weighted average cost of capital. An impairment lossis recognised as an expense immediately. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales relatedtaxes. Advertising revenue is recognised on publication and circulation revenueis recognised at the point of sale. Printing revenue is recognised when theservice is provided. Property, plant and equipment Property, plant and equipment are shown at cost, net of depreciation and anyprovision for impairment. Depreciation is provided on all property, plant andequipment at varying rates calculated to write-off cost over the useful lives.The principal rates employed are: Heritable and freehold property (excluding land) 2.5% on written down valueLeasehold land and buildings equal annual instalments over lease termWeb offset presses (excluding press components) 5% straight line basisPre-press systems 20% straight line basisOther plant and machinery 15% on written down value 6.67%, 10%, 20% and 33% straight line basisMotor vehicles 25% straight line basis Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. Assets heldunder finance leases are capitalised within property, plant and equipment andare depreciated over the shorter of the lease terms and their useful lives. Thecapital elements of future lease obligations are recorded as liabilities, whilethe interest elements are charged to the Income Statement over the period of theleases on the effective interest method. All other leases are classified asoperating leases and rentals are charged on a straight line basis over the leaseterm. Development grants Development grants for revenue expenditure are recognised as income over theperiods necessary to match them with the related costs and are deducted inreporting the related expense. Grants relating to Notes to the Interim Financial Information(unaudited) - continued 2. Accounting Policies (continued) property, plant and equipment are treated as deferred income and released to theIncome Statement over the expected useful lives of the related assets. Operating profit Operating profit is stated after charging restructuring or other non-recurringcosts and after the share of the results of associates but before investmentincome and finance costs. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of thatinstrument. The Group's activities and funding structure give rise to some exposure to thefinancial risks of changes in interest rates and foreign currency exchangerates. The Group uses interest rate swaps and cross currency interest rate swapsto hedge these exposures. The Group does not use derivative financialinstruments for speculative purposes. Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows under IAS 39 arerecognised directly in equity and the ineffective portion is recognisedimmediately in the Income Statement. Changes in the fair value of derivativefinancial instruments that do not qualify for hedge accounting are recognised inthe Income Statement as they arise. Derivatives embedded in other financial instruments or other host contracts aretreated as separate derivatives when their risks and characteristics are notclosely related to those of host contracts and the host contracts are notcarried at fair value with unrealised gains or losses reported in the IncomeStatement. Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowance for estimated irrecoverable amounts. Trade payables Trade payables are not interest-bearing and are stated at their nominal value. Borrowings Interest-bearing loans and bank overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premia payableon settlement or redemption and direct issue costs, are accounted for on anaccruals basis to the Income Statement using the effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or Notes to the Interim Financial Information (unaudited) - continued 2. Accounting Policies (continued) deductible in other years and it further excludes items that are never taxableor deductible. The Group's liability for current tax is calculated using taxrates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised forall taxable temporary differences and deferred tax assets are recognised to theextent that it is probable that taxable profits will be available against whichdeductible temporary differences can be utilised. Such assets and liabilitiesare not recognised if the temporary difference arises from goodwill or from theinitial recognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the taxable profit nor theaccounting profit. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the Income Statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. On transition to IFRS, a deferred tax liability has been recorded in respect ofintangible assets and properties that do not qualify for any tax allowances thatwere acquired through a business combination. Given that the Group has elected,under IFRS 1, not to restate pre-transition business combinations under IFRS 3,this has been charged against retained earnings. Any such fair value on futurebusiness combinations will form part of the goodwill on acquisition and both thegoodwill and related deferred tax liability will be included in any impairmenttest in relation to the relevant cash generating unit. Deferred tax assets and liabilities are offset when the relevant requirements ofIAS12 are satisfied. Retirement benefit costs The Group provides pensions to employees through various schemes. Payments to defined contribution retirement benefit schemes are charged to theIncome Statement as an expense as they fall due. Payments made to state-managedretirement benefit schemes are dealt with as payments to defined contributionschemes where the Group's obligations under the schemes are equivalent to thosearising in a defined contribution retirement benefit scheme. For defined benefit retirement benefit schemes, the cost of providing benefitsis determined using the Projected Unit Credit Method, with actuarial valuations being carried out ateach balance sheet date. Actuarial gains and losses are recognised in full inthe period in which they occur. They are recognised outside the Income Statementand presented in the Statement of Recognised Income and Expense. Past servicecost is recognised immediately to the extent that the benefits are alreadyvested, and otherwise is amortised on a straight line basis over the averageperiod until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service cost, and as reduced by the fair value of scheme assets. Any assetresulting from this calculation is limited to past service cost, plus thepresent value of available refunds and reductions in future contributions to thescheme. Notes to the Interim Financial Information(unaudited) - continued Share-based payments The Group issues share-based benefits to certain employees. Subject to thetransition arrangements set out above, these share-based payments are measuredat their fair value at the date of grant and the fair value of expected sharesis expensed to the Income Statement on a straight-line basis over the vestingperiod. Fair value is measured by use of the Black Scholes model, as amended totake account of the Directors' best estimate of probable share vesting andexercise. Dividends payable Dividends payable to the Company's shareholders are recorded as a liability inthe period in which the dividends are approved. 3. Non-Recurring Items 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Restructuring costs 1,273 1,058 1,835Profit on sale of investments - - (1,066) Non-recurring items 1,273 1,058 769 4. Tax 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Corporation taxTax charge for the period 24,319 22,178 44,620Prior year adjustment - (40) 441 Corporation tax charge 24,319 22,138 45,061 Deferred taxTax (credit)/charge for the period (152) 181 (1,681)Prior year adjustment - - (193) Deferred tax charge (152) 181 (1,874) Total tax charge 24,167 22,319 43,187 Reconciliation of tax chargeStandard rate of corporation tax 30% 30% 30%Profit before tax at standard corporation tax rate 24,665 22,561 44,940Tax effect of items that are not deductible or not taxable in determining taxable profit 120 120 114Tax effect of share of results of associate (13) (35) (52)Other items (605) (287) (2,063)Prior year adjustment - (40) 248 Total tax charge 24,167 22,319 43,187 Notes to the Interim Financial Information(unaudited) - continued Corporation tax for the interim period is charged at 29.4% (2004: 29.7%),representing the best estimate of the weighted average annual corporation taxrate expected for the full financial year. 5. Dividend 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Amounts recognised as distributions in the periodDividend paid Ordinary 13,679 11,366 18,196 Preference - equity from 1 January 2005 76 76 152 13,755 11,442 18,348 Pence Pence PenceDividend per share Ordinary 4.800 4.000 6.400 Preference 6.875 6.875 13.750 Dividend proposed but not paid or included in the accounting records 8,003 6,829 13,695 Pence Pence Pence Dividend proposed per share 2.8 2.4 4.8 The interim ordinary dividend of 2.8p per share (2004: 2.4p) is payable on 4November 2005 to shareholders on the register at close of business on 14 October2005. Notes to the Interim Financial Information (unaudited) - continued 6. Earnings Per Share 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Profit after tax 58,051 52,886 106,612Preference dividend - (76) (152) Basic EPS earnings 58,051 52,810 106,460Non-recurring items (after tax) - see notes 3 and 8 891 989 1,034 Underlying EPS earnings 58,942 53,799 107,494 Number of SharesWeighted number of ordinary shares for the purpose of basic EPS 285,405 284,213 284,568Weighted number of preference shares for basic EPS calculation 1,106 - - Number of shares - basic earnings per share 286,511 284,213 284,568Effect of dilutive potential ordinary shares- share options 2,282 2,688 2,593 Number of shares - diluted earnings per share 288,793 286,901 287,161 Pence Pence PenceEarnings per shareUnderlying earnings per share 20.57 18.93 37.77Non-recurring items (0.31) (0.35) (0.36) Earnings per share - basic 20.26 18.58 37.41 Earnings per share - diluted 20.10 18.41 37.07 7. Available-For-Sale Financial Assets Adoption of IAS 32 and 39 As a result of adoption of IAS 32 and 39 the assets previously categorised asinvestments have been re-classified as available-for-sale investments andinterests in associates. There has been no impact to the total value of non-current assets. Notes to the Interim Financial Information (unaudited) - continued 8. Investment Income 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Interest on bank deposits 49 92 335Income from available-for-sale investments 106 504 495 155 596 830Non-recurringImpairment of available-for-sale investments - (354) (708) 155 242 122 9. Finance Costs 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Interest on pension liabilities 8,267 7,484 14,969Expected return on pension assets (8,375) (6,998) (13,997) (108) 486 972Interest on bank overdrafts and loans 10,389 13,346 24,954Interest on obligations under finance leases 9 10 27Amortisation of term debt issue costs 678 675 1,986 Total finance costs 10,968 14,517 27,939 10. Derivative Financial Instruments Adoption of IAS 32 & 39 IAS 32 & 39 were adopted as accounting standards on 1 January 2005. The foreignexchange element of the cross-currency interest rate swaps is now presented andmeasured separately from the private placement loans to which they relate. TheGroup has elected not to restate comparative periods and so comparative periodsare disclosed and measured based on UK GAAP. The Group has applied hedge accounting in accordance with the provision of IAS39. Notes to the Interim Financial Information (unaudited) - continued 10. Derivative Financial Instruments (continued) 26 weeks to 30.6.05 £'000 LiabilitiesCross-currency and other interest rate swaps - fair value Closing balance at 31 December 2004 -Impact of IAS 32 & 39 16,269 Opening balance at 1 January 2005 after the impact of IAS 32 & 39 16,269 Movement in fair value during the period including exchange movements (5,118) Closing balance at 30 June 2005 11,151 Current -Non-current 11,151 11. Notes to the Cash Flow Statement 26 weeks to 26 weeks to 53 weeks to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Operating profit 93,031 89,480 177,616 Adjustment for:Non-recurring items (160) (42) (337)Depreciation of property, plant and equipment 10,792 9,374 19,506Share of result of associate (44) (116) (174)Related Shares:
Johnston Press PLC