Interim Results

JOHNSTON PRESS PLC

INTERIM RESULTS FOR THE 26 WEEK PERIOD ENDED 2 JULY 2016

Strong circulation performance from the acquisition of the i newspaper, and improving volume trends across regionals, helps partially offset challenging advertising trading conditions.

Johnston Press plc ("the Group"), one of the leading local media groups in the UK, announces its unaudited interim results for the 26 week period ended 2 July 2016. The Group and sector has continued to experience challenging advertising trading conditions during the period, although the second quarter prior to the referendum over membership of the European Union showed signs of improvement.

The Group achieved adjusted EBITDA for the period of £25.5m, with cost savings substantially mitigating revenue declines.

Whilst the Board is encouraged by the improved Q2 performance in several parts of the business, overall performance for the 26 week period ended 2 July 2016 was marginally below the Board's expectations. In light of the added market uncertainty following the referendum vote, the Company is now focused on revenue and cost measures to maintain margins and minimise the impact of a difficult trading environment.

Headlines1:

Strategic:

The company's four strategic priorities are: grow overall audience (strong digital growth and reducing print decline), make a success of the acquisition of the i newspaper, transform the editorial and sales operations to be more efficient, and strengthen the balance sheet through disposals and pension deficit reduction.

• Audience Growth: Digital audience grew by 22.4% to an average monthly audience of 24.4m in H1 16 (H1 15: 19.9m). Print audience decline rates improved from Q1, with Weeklies now down 10.9% year on year (as at July 2) a 1.3% improvement on the ytd run rate, with regional dailies improving their run rate 0.5% to -13.6% (as at 2 July) with key titles i up 10.5% (2 July) year on year, The Yorkshire Post down 9.8% and The Scotsman down 10.9%. Circulation revenue increased £0.9m (2.3%) to £38.4m following the acquisition of the i newspaper during the period.

• Acquisition of the i newspaper: Acquired on 10 April for £24.0m, the average daily circulation of the i grew from 270,182 in the month prior to acquisition to 294,223 in June (ABC audited), an increase of 8.9% with a further increase expected in July. We have grown market share in the quality daily segment from 18.0% to 20%. inews.co.uk launched on 14 April achieved 1.65m weekly page views in the week commencing 26 June and is regularly achieving over 1m page views per week.

• Continued transformation: H1 was focused on the bedding in of the Newsroom of the Future programme and the launch of 19 new fully responsive websites and mobile apps for our priority titles, with encouraging audience results across print and digital. Fundamental changes to our advertising business (the Salesforce of the Future programme) has seen the cessation of some low margin commercial digital product offerings and other low margin accounts moved from the field into the Media Sales Centre (which has shown 0.4% revenue growth year on year in Q2), the broader revenue benefits of which should be seen in H2.

• Disposals: The sale of our titles on the Isle of Man for £4.25m, which we announced on 4 July 2016, and which is the first in our programme of disposals, is nearing completion, with further announcements expected soon (see 'Strategic progress' and 'Disposals' below).

Financial:

• Revenue: Improved underlying revenue decline to 4.7% in Q2 (14.5% Q1), benefiting from the i acquisition and slight improvement in underlying run rate. Total adjusted revenues of £113.9m (H1 15: £126.1m) reflect a decline of 9.7% for the period. Digital publishing advertising excluding classified increased 1.6% to £9.3m.

• Operating profit: Adjusted operating profit of £22.0m declined by £4.0m as cost savings of £8.6m substantially mitigated revenue declines.

• Profit before tax: Adjusted profit before tax of £12.3m; Statutory loss of £183.7m is substantially as a result of a non-cash impairment of £183.6m (£216.9m gross, net of some £40.3m deferred tax) reflecting a change of assumptions on the publishing titles and print assets.

• Debt: Net debt reduced to £137.7m (from £146.1m at 2 January 2016) and includes a mark to market gain on the fair value of the bond of £38.4m. Excluding mark-to-market movements, our net debt has increased from £179.4m at 2 January 2016 to £209.4m at 2 July 2016 following the acquisition of the i newspaper.

• Pensions: The IAS19 pensions deficit reduced to £23.2m with increased liabilities more than offset by improved asset valuations.

Financial Summary

Strategic progress

The Group continues to seek to transform the business in line with the four strategic priorities: grow overall audience (strong digital growth and reducing print decline), make a success of the acquisition of the i newspaper, transform the editorial and sales operations to be more efficient, and strengthen the balance sheet through disposals and pension deficit reduction.

1. Grow overall audiences:

Having completed the implementation of Newsroom of the Future, which has improved circulation rates in our primary titles, helped grow traffic to our websites (up 22.4%) and increased social media traffic (up 60% yoy), we have now gone live with the Salesforce of the Future transformation programme which, after an initial period of disruption, aims to increase customer count, forward order book and average order value and improve digital sell through whilst either stopping or reducing the cost to serve of low margin activity. These strategic initiatives, along with the acquisition of the i newspaper in April and the proposed disposals, are part of the Group's plan to rebalance the portfolio in favour of growing audiences, advertisers and geographies, with more stable revenues and greater opportunities for growth, in order to further deleverage the business.

Our digital audience grew by 22.4% to an average monthly audience, excluding the inews.co.uk website, of 24.4m in H1 16 (H1 15: 19.9m) and to 24.8m unique users in June 2016 including inews.co.uk (June '15: 19.8m). Our total audience (across print and digital) in the same month was 32.7m, up 8.0% year on year. 

2. Acquisition of the i

We completed the acquisition of the i newspaper on 10 April 2016. Daily print sales reached 318,189 on 1 July while the audited figures show circulation of 309,990 on Saturday 25 June, a growth of 24% versus the corresponding issue last year, whilst the month as whole was up 7.2% year on year. July audited figures ('ABCs') are expected to show a continued positive trend.

inews.co.uk launched on 14 April, reached 50,000 unique users on average per day in June and achieved 3.4m page views over the month. It continues to see steady growth in audiences, with more than 600,000 unique browsers in its first month, growing to 1.2 million in June and reaching 1.65 million in the last week of June.

3. Transform the Editorial and Sales Operations

Revenue trends - grow digital and rebalance portfolio

Q2 evidenced improved underlying revenue decline rates to 4.7% in Q2 (14.5% Q1), benefiting from the i acquisition and slight improvement in underlying run rate. Total adjusted revenues of £113.9m (H1 15: £126.1m) reflect a decline of 9.7% for the period. Digital publishing advertising excluding classified increased 1.6% to £9.3m with continued growth in 1XL and Google AdWords sales and a better performance in Q2 (+3.3%) than Q1. 

Advertising revenues fell by 17.9% in Q1 but improved marginally with a 15.0% decline in Q2 despite the impact of the run up to, and uncertainty following the result of the EU referendum in June. Relative weakness in digital growth reflects the discontinuation of low margin digital business and the short term disruption resulting from a move to growing profitable digital revenues out of the Media Sales Centre, for example with a new Mobile only digital tele-sales team.

Print advertising revenues excluding classifieds declined 4.4% in Q2 (7.7% excluding the i). For the half year, the decline was 10.3% year on year, (reflecting a 15.6% fall in Q1). Classified advertising including employment, properties, motors and other advertising fell by 28.2%. Total digital advertising now represents 21.2% of total advertising.

In line with the plan to increase the proportion of revenue from circulation, the acquisition of the i newspaper, has resulted in an increase in circulation revenue of £0.9m (2.3%) to £38.4m with its performance offsetting declines in pre-existing titles.

The printing business continues to perform well with revenues for the period up 6.3%.

Operating costs

Adjusted operating costs of £88.3m (excluding depreciation and amortisation) were reduced by £8.6m, including the i newspaper's operating costs, reflecting the need to balance tight cost control with investment in the business.

Profitability

Adjusted profit before tax of £12.3m declined by £4.5m with cost savings substantially mitigating revenue declines. The statutory loss includes an asset impairment charge of £183.6m net of deferred tax (gross £223.9m) on publishing titles and print assets reflecting the current trading performance, reduced long term growth rates, increased discount rate and the requirement to allocate all head office costs to the cash generating units.

4. Strengthen the balance sheet

Disposals

Having announced the intention to sell selected assets including the £4.25m disposal of the Isle of Man operations, the Group is actively exploring opportunities for the disposal of further assets. Further announcements will be made in due course.

Debt

Net debt of £137.7m includes a mark to market valuation gain of £38.4m for the period.

Net debt (excluding mark to market) was £209.4m having acquired the i in April for initial cash consideration of £22.0m. Cash flow from operations for the period before payments for LTIPs and i acquisition costs was £8.6m. Net cash at the period end was £10.6m.

Pensions

The IAS19 pensions deficit has reduced slightly to £23.2m at period end with increased liabilities arising from a reduced discount rate being more than offset by both improved asset valuations particularly on the State Street Liability Driven Investment Portfolio hedged fund and contributions paid.

Other matters

Board changes

On 26 April 2016 we announced Mark Pain's intention to step down as a Non-Executive Director. He will leave the Board on 31 August 2016. From 1 September 2016 Camilla Rhodes will become Senior Independent Director and Mike Butterworth will become Chairman of the Audit Committee.

Outlook

The Group is making strong strategic progress in what continues to be a challenging advertising trading environment. It is too early to assess the impact of the vote to leave the European Union on revenues, with local display advertising outside London showing resilience in some markets and weakness in others. The classified advertising markets (increasingly a less significant part of the portfolio), especially jobs and property, is looking challenged. Offsetting this is strong circulation performance from the i, and improved run rates from the rest of the portfolio, especially within the priority titles focused on more ABC1 audiences.

Overall audience growth is encouraging and our new 'We Are Digital' initiative to drive greater social and mobile traffic is the first step to greater monetisation in these areas. The i has, under our ownership increased circulation significantly and advertising revenue run rates are improving (following an initial dip during the transition). Sharing of content and ideas between the i and the rest of the JP portfolio is increasing.

The implementation of Salesforce of the Future is our priority for H2. Having transferred low yielding accounts to a more efficient cost-to-serve telesales model, being handled out of our Media Sales Centre, our field sales staff have now been comprehensively trained in new products, equipped with new hardware and software, allocated new territories, supported with new marketing collateral and incentivised to grow higher-yielding customer accounts.

In addition to this top-line Salesforce of the Future drive to improve revenue performance and the We Are Digital drive to increase monetisable traffic, we will continue to keep a tight control on costs through H2.

Ashley Highfield, Chief Executive, commented:

"The acquisition of the i newspaper in April was transformational for Johnston Press. Since the acquisition we have increased circulation considerably, using the extensive JP distribution network, and continued to grow market share. Perhaps more significantly, owning the i newspaper is enabling us to present the whole JP portfolio, and the 1XL digital advertising network, to media buying agencies and clients afresh. Further, we have started to see significant content sharing between the i and the rest of the portfolio.

The market continues to be challenging and uncertainty surrounding the outcome of the Brexit negotiations has caused further softness in some segments of the advertising market, in June and July.

Nevertheless, we are focused on our strategy of increasing overall audiences, maximising opportunities for the i, maintaining tight cost control and rebalancing our portfolio. In that respect, we are nearing completion of the disposal of our Isle of Man newspaper group for £4.25 million and are well advanced in negotiations for further divestments.

The divestment plans, alongside the strategic implementation of key initiatives such as Salesforce of the Future, will put Johnston Press on a stronger footing for the future, focusing on key geographies, audiences segments and higher yielding advertisers, and will enable us to continue to reduce debt levels and cut financing costs further and prepare the business for refinancing due by 2019." 

For further information please contact:

Investor presentation and audio/webcast: A presentation for analysts and live audio/webcast will be held at 9.00am on Thursday 4 August 2016 at Bell Pottinger, Holborn Gate, 330 High Holborn, London, WC1V 7QD.

Webcast link: https://secure.emincote.com/client/johnston_press/johnston005

A replay will be available after 2.00pm on the Group website www.johnstonpress.co.uk 

Please see the conference call dial in details below:

Number: +44 20 3059 8125 (no password required)

The announcement for the 26 week period ended 2 July 2016 will be available at www.johnstonpress.co.uk/investors.

Statutory and adjusted basis

In the Interim Management Report, performance is stated on a continuing adjusted basis to provide a more meaningful comparison of the Group's performance taking account of the closure of businesses and other non-trading items. The adjusted results aim to demonstrate the performance of the Group without the volatility created by non-recurring items, restructuring charges in respect of cost reduction measures and accounting items such as the impairment of intangible assets, pension finance and administrative expenses, the impact of fair value changes on the value of the bond and the impact of tax legislation changes. A reconciliation between the statutory and the adjusted results is provided under Non-GAAP measures within this financial information.

Forward-looking statements

The report contains forward looking statements. Although the Group believes that the expectation reflected in these forward- looking statements are reasonable, it can give no assurance that the expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. 

Market abuse regulation

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Interim management report for the 26 week period ended 2 July 2016

Introduction

This Financial Review provides commentary on the Group's adjusted performance for the 26 week period ended 2 July 2016 (2015: 26 weeks). Unless otherwise stated, all figures and growth rates presented are adjusted. A reconciliation of statutory to adjusted figures is detailed in Non-GAAP measures.

Results for the 26 week period ended 2 July 2016

¹ Includes local and national display, transactional revenues, DKB and Enterprise revenues

² Includes the former classified advertising categories of employment, property, motors, features, entertainment and other classified.

³ Operating costs include cost of sales and are stated before depreciation and amortisation.

4 EBITDA is earnings before interest, tax, depreciation and amortisation. Figure is based on unrounded numbers.

5 The % change variance has been calculated based on unrounded numbers.

6 Operating profit figures are based on unrounded numbers.

Revenue

Total adjusted revenues of £113.9 million (4 July 2015: £126.1 million) reflect a decline of 9.7% for the period with a 14.5% decline in Q1 and, benefiting from the i acquisition and a slightly reduced underlying decline, 4.7% in Q2. Excluding the i, Q2 revenues were down 13.5% (Q1 down 14.4%).

The table below provides a break-down of advertising by category including performance by quarter:

¹ Includes Public Notices, Births, Marriages & Deaths & i Announce.

² Enterprise includes partnership revenues, readers holidays and other B2B services.

3 Advertising revenue figures are based on unrounded numbers.

Advertising revenues fell by 16.6%, following a 18.0% decline in Q1 and 15.0% in Q2. Digital publishing advertising (excluding classified) grew 1.6% to £9.3 million with continued strong growth in 1XL and Google AdWords sales. Print revenues excluding classifieds declined 10.3% year on year, 15.6% in Q1 and 4.4% in Q2. Classified advertising including employment, properties, motors and other fell by 28.4%. Total digital advertising now represents 21.2% of total advertising.

Newspaper sales

Newspaper sales revenues have improved by 2.3% year-on-year, after including revenues generated from the recently acquired i newspaper title.

Contract printing

Contract print revenues were £6.6 million in the first half of the year, a slightly improved performance on the prior year. The Group has benefited from the additional revenues generated from the four-title print contract with Express Newspapers, which the Group commenced printing in July 2015.

Leaflets, syndication and other revenues

Leaflets, syndication and other revenues (which include events, reader offers and waste sales) declined £0.5 million period on period, which can be attributed a reduction in a number of events and other non-core activities.

Gross margin and operating profit

The Group achieved operating profit of £22.0 million in the first half (4 July 2015: £26.0 million), a reduction of 15.5% on the prior period. The trading conditions have remained difficult, with cost mitigations going some way to reduce the overall operating profit decline.

The Group continues to balance the need for investment in digital and journalism with cost savings. Operating costs (excluding depreciation and amortisation) but including the additional costs of the i, were reduced to £88.3 million, a £8.6 million year-on-year reduction. The depreciation charge rose to £3.7 million, increasing by £0.7 million year-on-year. Savings were made across all parts of the business including production, editorial, sales and overheads.

The tight management of costs has allowed us to maintain a robust underlying operating margin for the first half at 19.3% (4 July 2015: 20.6%).

Taxation

Corporation tax for the interim period is credited at 19.7% (4 July 2015: charged at 21.5%, 2 January 2016: credited at 295.2%), including deferred tax. In the prior periods, the effective tax rate is higher than the nominal rate, due to the timing of deferred tax movements (Note 6).

The tax credit of £35.7 million in the period includes £39.1 million of deferred tax credit arising on the impairment of the Group's publishing titles in the period, of £216.9 million, calculated at an 18% tax rate (Note 9).

Earnings per share and dividends

A reconciliation of statutory to adjusted earnings per share is detailed within adjusting items.

The provisions of the Group's bond restrict the Company's ability to pay dividends on the Company's ordinary shares until certain conditions, including that net leverage is below 2.25x EBITDA, are met. Although the Board wishes to resume dividend payments as soon as is appropriate, no ordinary dividend is declared for the period.

Preference share dividends of £0.1 million were approved on 18 May 2016 and paid on 30 June 2016 based on the directors consideration of distributable reserves available at the time. Following continued difficult trading conditions and Brexit impacting discount rates, a further review of the valuation of intangibles has been undertaken resulting in a significant impairment and the extinguishment of distributable reserves. As a result, unless distributable reserves are created, preference share dividends will not be payable at the year end.

Reconciliation of statutory and adjusted results

Adjusted operating profit of £22.0 million (4 July 2015: £26.0 million, 2 January 2016: £49.0 million) has been calculated after adjusting for revenue and cost of sales for closed titles and digital brands. Adjustments made to operating costs include restructuring, impairment and other non-trading related costs. The prior year interim included an adjustment to remove Letterbox direct delivery operation which was outsourced during 2015, this adjustment is no longer required.

For the purpose of reconciling to the Group's previous revenue reporting, the table presents the historic revenue presentation.

Finance income and costs

Net finance costs were £9.7 million in the period, an increase of £0.5 million year-on-year. The prior year net finance costs, included the benefit of a £0.7m dividend income from the Press Association, which has not been repeated in the current period. Cash finance costs excluding investment income and exceptionals have reduced by £0.2 million year-on-year following the Group's bond buy-back (Note 5).

¹ Finance costs exclude the bond mark to market, pension finance costs and exceptional finance charges.

In the period, an adjustment to the value of the bond resulted in a fair value gain to the income statement of £38.4 million compared to a £9.3 million fair value loss in the comparative period (Note 5b).

Reconciliation of statutory net debt to net debt excluding mark-to-market

1 Mark-to-market on bond represents movement in valuation from inception. The fair value gain for the period from 2 January 2016 to 2 July 2016 amounted to £38.4m (26 weeks 2015: £9.3 million loss, 52 weeks 2015: £23.9 million gain).

2 Statutory net debt is calculated on unrounded numbers.

Cash flow/Net debt

The Group's net debt was £209.4 million on 2 July 2016 reflecting the acquisition of the i on 10 April 2016, and excludes mark-to-market on the bond and bond discounts totalling £71.7 million. In the period, a £38.4 million fair value movement gain has been recognised. The net debt after mark-to-market adjustments was £137.7 million. Refer table above for a reconciliation between Statutory net debt and net debt excluding mark-to-market (Note 12).

Cash generated from operations of £3.2 million is after payment of a £3.9 million LTIP payment to senior managers, (excluding executive Directors), the cash for which was raised in 2014, £1.5 million of i acquisition costs and pension contributions of £4.7 million.

Cash held at 2 July 2016 was £10.6 million, with the reduction from the year end largely due to the acquisition of the i and weaker cash flow from the underlying trading performance. The Group continues to maintain tight control of working capital and capital expenditure with £3.2 million having been spent on asset purchases (4 July 2015: £4.3 million, 2 January 2016: £7.8 million) offset by £1.8 million received from non-essential asset sales (4 July 2015: £0.7 million, 2 January 2016: £2.3 million) (Note 16).

Cash interest paid in the first half was £9.7 million (4 July 2015: £9.9 million, 2 January 2016: £19.7 million).

In addition to the agreement for the disposal of the Group's assets in the Isle of Man announced on 4 July 2016, the group is actively exploring opportunities for the disposal of further assets, with the aim of reducing net debt. We will consider opportunities to repurchase bonds as they arise where financially attractive to do so.

Net asset position

At the period end, the Group had net assets of £112 million, a decrease of £147 million on the prior year due to a significant impairment charge at the interim period offset in part by movements in the market value of the bond (£38.4 million).

Liquidity and going concern

At the period end, the Group had gross debt of £220 million, cash on balance sheet of £10.6 million, and the Group has access to a £25 million revolving credit facility (RCF) which was undrawn at the half-year, and remains undrawn. The Group's bond (Senior Secured notes) has a five year maturity due 1 June 2019, and the Group's RCF matures on 23 December 2018.

The Group's policy is to ensure it has committed funding in place sufficient to meet foreseeable peak borrowing requirements. With this in mind, following the acquisition of the i and in anticipation of future assets disposals, the Group will seek to review the Revolving Credit Facility (Super Senior facility) with its lenders, to ensure it continues to meet the needs of the business.

Based on its review, and after considering reasonably possible downside sensitivities, the Board is of the opinion that the Group has adequate financial resources to meet operational needs for the foreseeable future, and have concluded that it is appropriate to prepare the financial statements on a going concern basis.

Asset impairment

The carrying value of assets is reviewed for impairment at least annually or more frequently if there are indications that they might be impaired. In light of the difficult trading conditions that have continued into the first half of 2016, and the resulting fall in adjusted operating profit of £4.1 million, the Group has determined that it is prudent to write-down the carrying value of certain assets by c.£224 million. The impairment charge on publishing titles and print assets reflects the current trading performance, reduced long term growth rates, increased discount rate and the requirement to allocate central costs to all cash generating units. The write-down reduces the asset carrying value of publishing units to £259 million (excluding the i) and print assets to £20 million. Refer to Note 9 and 11 in the financial statements.

Pensions

The Group's defined benefit pension plan deficit has decreased by £3.8 million, from the year-end, to £23.2 million reflecting contributions in the period of £4.7 million. As a result of movements in the discount rate, which worsened post the vote to leave the European Union (Brexit vote), the discount rate has been reduced from 3.75% to 2.85%, increasing liabilities by £57.7 million. However, gains on asset valuations of £61.5 million on the liability driven investment portfolio (LDI) hedged fund were recognised, offsetting the movement in liabilities.

No changes were made to the demographic assumptions which were revised at the 2 January 2016 year-end following its pension study and changes in the Scheme Rules entitling the Group to participate in any surplus when the scheme closes. The Group has committed to annual contributions of £10 million in 2016.

The Pension Framework Agreement and the required level of contributions are subject to review as part of the 31 December 2015 triennial valuation which is currently underway (Note 13).

Acquisition and disposals

On 11 April 2016 the Group completed the acquisition of the business and certain assets of the i newspaper from Independent Print Limited. i is a UK national daily newspaper providing concise quality editorial content, and was named National Newspaper of the Year in 2015 at the industry's News Awards. The total purchase consideration is £24 million, of which £22 million was settled in cash on completion and a further £2 million will be settled in cash on 20 April 2017.

On 4 July 2016 the Group announced it had entered into an agreement for the sale of its titles on the Isle of Man to Tindle Newspapers Ltd, the UK based publisher, for £4.25 million in cash, following a competitive tender process. The disposal comprises the Isle of Man Examiner, Isle of Man Courier, Manx Independent and www.iomtoday.co.im. The disposal will be effected by the sale of the Company's subsidiary Isle of Man Newspapers Limited.

Events after balance sheet date

Refer to Note 19 for details of significant post balance sheet events.

Related party transactions

Related party transactions are disclosed in Note 18.

There have been no material changes in the related party transactions described in the last annual report.

Principal risks and uncertainties

There are a number of potential risks and uncertainties which have been identified by the business that could have a material impact on the Group's long-term performance.

The following significant market risks are important to the overall performance of the Group, and the Group has no control over these risk factors. The Directors consider the most significant market risks include changes in gross domestic product and unemployment rates, levels of property transactions, new car sales and consumer confidence, and public sector spending.

The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the 52 week period ended 2 January 2016. However, the Brexit vote has introduced a further level of uncertainty. This affects risks over which it has no control, and those which it seeks to manage and mitigate. A detailed explanation of the risks summarised below, and information about how the Group seeks to mitigate the risks can be found on pages 21 to 22 of the annual report are available at http://www.johnstonpress.co.uk/investors/reports-results-presentations.

Further reductions in print advertising 

Print advertising revenues could decline at a faster rate due to further migration of customer spending to online media and a lack of consumer confidence in some of the markets in which we operate. Consumer and advertiser confidence may be affected by the Brexit vote.

Newsprint price and supply risk 

Although paper prices have fallen over the course of the past 12 months future price rises represent a risk to the Group in terms of both supply and pricing of newsprint which, after staff costs, is the largest single expense incurred by the business. Sterling has seen a marked reduction in value relative to the Euro and other currencies in recent weeks and paper prices will rise as a result of these currency movements.

Failure to monetise increased readership of our content on websites and mobile devices 

This is an industry issue. On-line advertising rates are lower and it is difficult to charge for accessing news on-line because free alternatives exist.

Pension deficit funding

The Group Defined Benefit pension scheme is currently in deficit leaving the Group responsible for potential shortfalls, in particular driven by sustained low interest rates. Reductions in interest rates following the Brexit vote will cause pension liabilities to rise.

Business opportunities constrained by debt

The Group continues to operate with greater than optimal levels of gearing, hence continued reduction of debt over time remains a priority. However, this focus could lead to missed revenue opportunities if insufficient funds are left available for investment.

Business change

The Group is implementing its new sales model which may cause disruption during the transition, and a reduction in short term revenues.

Adequacy of Human Resources

Like most organisations there is an element of dependency on certain key individuals in the Group.

Lifestyle and technology changes affect newspaper circulations

Newspaper circulations continue to decline due to increased availability of news through alternative media channels and changing reader habits.

Slowdown in rate of digital growth and reduction in advertising rates for mobile

The Group experienced strong growth in its digital income streams in recent years. The rate of growth could slow down if customers seek alternative routes to audiences served. The industry as a whole has seen a shift towards accessing digital content through mobile devices which generally attract lower advertising rates than the rates achieved for desktop devices.

Responsibility statement

The directors confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board,

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Address of Registered office

Johnston Press plc,

Orchard Brae House

30 Queensferry Road

Edinburgh

EH4 2HS

Group income statement for the 26 week period ended 2 July 2016

1 Republic of Ireland business is reported as a discontinued operation due to its disposal on 1 April 2014.

The accompanying notes are an integral part of these financial statements. The comparative period is for the 26 week period ended 4 July 2015.

Consolidated statement of comprehensive income for the 26 week period ended 2 July 2016

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

Consolidated statement of comprehensive income for the 26 week period ended 4 July 2015

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

Consolidated statement of comprehensive income for the 52 week period ended 2 January 2016

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

Consolidated statement of changes in equity for the 26 week period ended 2 July 2016

1 On lapse of schemes balances are released to distributable reserves.

2 Revaluation of own shares reserve to reflect the weighted average price of shares purchased.

Consolidated statement of changes in equity for the 26 week period ended 4 July 2015

1 During 2015 the Group reduced its share premium by £275,000,000 increasing distributable reserves.

Consolidated statement of changes in equity for the 52 week period ended 2 January 2016

1 During 2015 the Group reduced its share premium by £275,000 increasing distributable reserves.

2 On lapse of schemes balances are released to distributable reserves.

3 Revaluation of own shares reserve to reflect the weighted average price of shares purchased.

Consolidated balance sheet

Consolidated cash flow statement

1 In 2015 the Group settled preference dividends relating to 2014 and 2015. 2014 dividends were accrued at the end of 2014.

Notes to the condensed set of financial statements for the 26 week period ended 2 July 2016

1. General information

The condensed financial information for the 26 weeks to 2 July 2016 does not constitute statutory accounts for the purposes of Section 434 of the Companies Act 2006 and has not been audited. No statutory accounts for the period have been delivered to the Registrar of Companies. This interim financial report (Interim Report) constitutes a dissemination announcement in accordance with Rule 6.3 of the Disclosure and Transparency Rules of the United Kingdom Listing Authority.

The condensed financial information in respect of the 52 weeks ended 2 January 2016 has been produced using extracts from the statutory accounts for this period. Consequently, this does not constitute the statutory information (as defined in section 434 of the Companies Act 2006) for the 52 weeks ended 2 January 2016, which was audited. The statutory accounts for this period have been filed with the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under Sections 498 (2) or 498 (3) of the Companies Act 2006.

The next annual financial statements of the Group for the 52 weeks to 31 December 2016 will be prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). The condensed set of financial statements included in this Interim Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'. The financial information in this Interim Report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules and Disclosure and Transparency Rules. The auditor has reviewed the financial information in this Interim Report and their report is set out after the notes to the consolidated financial statements

The Interim Report was approved by the Directors on 4 August 2016 and is being made available to shareholders on the same date on the Company's website at www.johnstonpress.co.uk.

2. Accounting policies

Basis of preparation

The interim financial information has been prepared on the historical cost basis, except for the revaluation of certain properties, pension balances and financial instruments including borrowings. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this Interim Report. Accordingly, the unaudited condensed consolidated interim financial statements have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost basis except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period.

Basis of accounting

The financial statements have been prepared on the basis of the significant accounting policies set out in the financial statements for the 52 week period ended 2 January 2016 with the exception of the adoption of new or amended standards and interpretations in the current year as follows:

New and amended IFRS's endorsed and adopted for the 26 week period ended 2 July 2016

* Not yet EU endorsed.

There are numerous standards which have a mandatory application date of on or after 1 January 2017 and are not yet EU endorsed. The details of these changes will be further assessed during the course of the year and disclosed in the annual financial statements. The most significant changes include amendments to IAS 12 'Income taxes', 'Recognition of deferred tax assets for unrealised losses' and amendments to IAS 7 'Cashflow statements' Disclosure initiative.

More significant changes are proposed for application in 2018 covering IFRS 9 'Financial Instruments and IFRS 15 'Revenue from contracts with customers' and in 2019, IFRS 16 'Leases. The impacts of the changes in these standards have not yet been assessed. The changes are not yet EU endorsed.

Critical accounting judgements and key sources of estimation uncertainty

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Valuation of publishing titles on acquisition

The Group's policies require that a fair value at the date of acquisition be attributed to the publishing titles owned by each acquired entity. The Group's management uses its judgement to determine the fair value attributable to each acquired publishing title taking into account the consideration paid, the earnings history and potential of the title, any recent similar transactions, industry statistics such as average earnings multiples and any other relevant factors.

The publishing titles are considered to have indefinite economic lives due to the historic longevity of the brands and the ability to evolve the brands in the changing media environment.

Valuation of share-based payments

The Group estimates the expected value of equity-settled share-based payments and this is charged through the Income Statement over the vesting periods of the relevant awards. The cost is estimated using a Black-Scholes valuation model. The Black-Scholes calculations are based on a number of assumptions that are set out in Note 28 of the 2 January 2016 financial statements, and are amended to take account of estimated levels of share vesting and exercise.

Provisions for onerous leases and dilapidations

Where the Group exits a rented property, an estimate of the anticipated total future cost payable under the terms of the operating lease, including rentals, rates and other related expenses, is charged to the Income Statement at the point of exit as an onerous lease. Where there is a break clause in the contract, rentals are provided for up to that point. In addition, an estimate is made of the likelihood of sub-letting the premises and any rentals that would be receivable from a sub-tenant. Where receipt of sub-lease rentals is considered reasonable, these amounts are deducted from the rentals payable by the Group under the lease and provision charged for the net amount.

Under the terms of a number of property leases, the Group is required to return the property to its original condition at the lease expiry date. The Group has estimated the expected costs of these dilapidations and charged these costs to the Income Statement. No discounting has been applied to the provision as the effect of the discounting is not considered material.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the period end date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of publishing titles, print presses and other intangible assets

Determining whether publishing titles are impaired requires an estimation of the value in use of the cash generating units (CGUs) to which these assets are allocated. Key areas of judgement in the value in use calculation include the identification of appropriate CGUs, estimation of future cash flows expected to arise from each CGU, the long-term growth rates and a suitable discount rate to apply to cash flows in order to calculate present value. The Group has identified its CGUs based on the seven geographic regions in which it operates. This is considered to be the lowest level at which cash inflows generated are largely independent of the cash inflows from other groups of assets and has been consistently applied in the current and prior periods. A £216.9 million impairment loss has been recognised for the period ended 2 July 2016 (2 January 2016: £35.2 million) in relation to publishing titles. The carrying value of publishing titles at 2 July 2016 was £283.5 million (2 January 2016: £476.4 million).

Determining whether print presses are impaired requires an estimation of the value in use of each print site. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the print sites and a suitable discount rate in order to calculate present value (Note 11a).

An impairment charge of £5.4 million has been recognised for the period ended 2 July 2016 (2 January 2016: nil).

A £1.5 million write-down on assets held for sale was charged in the period (2 January 2016: nil) (Note 11b).

Details of the impairment reviews that the Group performs in relation to other intangible assets are provided in Note 9. No additional charge is considered necessary for the interim period (2 January 2016: £1.6 million accelerated depreciation/amortisation charge was taken in relation to digital intangible assets).

Valuation of pension liabilities

The Group records in its Statement of Financial Position a liability equivalent to the deficit on the Group's defined benefit pension schemes. The pension liability is determined with advice from the Group's actuarial advisers each year and can fluctuate based on a number of factors, some of which are outside the control of management. The main factors that can impact the valuation include:

· the discount rate used to discount future liabilities back to the present date, determined each year from the yield on corporate bonds;

· the actual returns on investments experienced as compared to the expected rates used in the previous valuation;

· the actual rates of salary and pension increase as compared to the expected rates used in the previous valuation;

· the forecast inflation rate experienced as compared to the expected rates used in the previous valuation; and

· mortality assumptions based on standard base table adjusted to reflect specific conclusions and conditions based on a study of the actual scheme members.

Details of the assumptions used to determine the liability at 2 July 2016 are set out in Note 13.

3. Business segments

Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance is focused on the two operating segments of Publishing (in print and online) and Contract Printing. These are the only two operating segments of the Group.

a) Segment revenues and results

1Inter segment sales are charged at prevailing market prices.

2 Relates to changes in fair value of hedges.

1Inter segment sales are charged at prevailing market prices.

2 Relates to changes in fair value of hedges.

1Inter segment sales are charged at prevailing market prices.

2Relates to changes in fair value of hedges.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in the Group's annual consolidated financial statements for the 52 weeks to 2 January 2016. Segment result represents the profit earned by each segment, investment income, finance costs (including in relation to pension assets and liabilities) and income tax expense. Publishing and printing business are reported to the Group's Chief Executive for the purposes of resource allocation and assessment of performance.

The Group, in common with the rest of the publishing industry, is subject to the main holiday periods of Easter, summer and Christmas as well as school and bank holidays. Since these fall across both half years, the Group's financial results are not usually subject to significant seasonal variations from year to year.

b) Segment assets