14th Dec 2006 07:02
Trinity Mirror PLC14 December 2006 Trinity Mirror plc Outcome of the Business Review Highlights • Trinity Mirror plc to focus on National newspaper titles and key Regional titles in Scotland, the North of England and Wales and UK digital assets • Sports division, including Racing Post, and regional titles in the Midlands and London and the South East to be sold • Adoption of new technology led operating model across Group to accelerate growth and reduce costs • Programme will deliver additional annualised cost savings of £20 million by 2008 • The Board intends to at least maintain the current level of annual dividend per share • The Board intends to return to shareholders surplus capital arising from the disposals, net of related tax charges and such pension payments as are necessary Commenting on the results of the comprehensive Business Review Sly Bailey, GroupChief Executive, said: "It has taken a great deal of hard work by everyoneinvolved but I am very pleased we can now present a strategic plan for TrinityMirror that, once delivered, will make us one of the most efficient and modernmedia groups in Europe. "The proposed disposals will enable us to concentrate on the heart of the groupand adopt a new, technology-led operating model that will ensure we serve ouradvertisers and readers better from a significantly lower cost base. The newintegrated model will allow Trinity Mirror plc to develop as a multi-platformmedia business and capitalise on the enormous strengths we have in our coremarkets. Now this review has been completed we can move forward swiftly and turnour vision into a reality." Introduction The Board of Trinity Mirror plc (the "Board") today announces the outcome of thereview of the Group's businesses which was announced on 3 August 2006. Background to the Business Review Since 2003 the Trinity Mirror plc has significantly improved the underlyingperformance of its portfolio of businesses. The Group has been strengthenedthrough a combination of investment, new launches and selected acquisitions anddivestments. These include continuing investment in IT systems and printingpresses, the acquisition of five digital businesses and the launch of more than300 products and services. Non-core assets, including the Irish regionalnewspapers and the Magazines and Exhibitions division, have been divested. Inaddition, performance has been improved by a reduction in operating costs ofover £60 million per annum and new digital revenues (including revenues fromacquisitions) of around £30 million across the Group. As the next logical step to maximise value the Board, in August, initiated anin-depth review of the Group's businesses, operating models and structure. TheReview had two key objectives. Firstly, to determine the best way of maximisingvalue from the Group's existing asset base. Secondly, to ensure the Group isproperly positioned to capture the opportunities available to it in a rapidlychanging media environment. The Review has taken into account the current advertising market conditionsimpacting its Nationals and Regionals businesses, the synergies existing betweendifferent parts of the Group as well as the considerable opportunities availableto the Group through the development of its digital activities. In the course of this comprehensive Review several third parties have expressedan interest in acquiring a number of the Group's assets. These unsolicitedapproaches have naturally been fully considered as part of the Review. Theapproaches included a conditional indicative offer for the Nationals businesseswhich the Board concluded substantially undervalued these assets. In addition, the Review, led by the Chief Executive, examined a full range ofalternative structures for the Group including the separation of the Regionalsand Nationals businesses by way of full demerger. Having thoroughly consideredthe implications the Board has concluded that a separation through de-mergerwould adversely impact shareholder value. The Review demonstrated that there is considerable additional value that can bedelivered to shareholders through a new, technology-enabled operating model thatwill generate benefits for advertisers and readers alike. These changes willenable the Group to make a number of cost savings and also offer opportunitiesto generate additional revenue as well as provide a stronger platform forinvestment and long-term growth. Conclusions of Business Review Group Structure The Board sees the future of the Group as a multi-platform publishing andadvertising business based on a combination of market leading newspaper titlesand digital assets offering best-in-class margin potential and significantgrowth potential once advertising market conditions improve. The Review led the Board to conclude that in order to maximise shareholder valuefor the medium to long term it should rationalise its portfolio of titles. TheReview identified that the Group's Regional businesses in Scotland, the North ofEngland, and Wales, complemented by its strong UK wide digital assets andsupported by the strong cash flows of the Nationals, represent the bestopportunities for growth. Our newspaper titles in these regions enjoy leading positions in each of theirwell-defined and concentrated geographic markets. The complementary localdigital businesses and the acquired digital assets provide the platform forstrong growth opportunities and increasing shareholder value. The Board believes that, whilst valuable assets, the Group's Regional businessesin the Midlands and London and the South East, do not offer the sameopportunities for the Group and are likely to be more attractive to otherowners. The Board has, therefore, concluded that it should seek to dispose ofthe Regional businesses in the Midlands and London and the South East. Our National titles, with industry leading margins, generate strong, sustainableand robust cash flows which underpin the financial strength of the Group toenable it invest in and grow the business. The Review also concluded that the Sports division, principally the Racing Post,has minimal overlap in terms of readership, advertising base or editorialcontent with the Group's other titles and operates as a standalone businesswithin the Group. The Board therefore believes that the growth opportunitiesavailable to this specialist publishing business would be better served underdifferent ownership. It is the intention of the Board that, as part of anydivestment, the Racing Post brand is protected and strengthened. These disposals will result in a Group with increased focus on a streamlinedportfolio of high quality media assets, offering growth in revenues, margins andearnings. Strong cash flow generation will support this growth through continuedinvestment and selected acquisitions and will provide continuing rewards toshareholders. The disposals do not affect any of the Group's Manufacturingnetwork. The Board has appointed Rothschild to advise it on the various disposalprocesses which are expected to be completed during the second and thirdquarters of 2007, subject to it receiving full and attractive offers for each ofthe businesses to be sold. Operating model The Review looked at all elements of our portfolio across print and on-line, ourorganisational structure and the efficiency and effectiveness of our resourcesto drive revenues, manage cost and build profit.We have identified a number of areas to improve the performance of ourbusinesses significantly by further investment in technology. This investmentwill modernise and streamline our processes, drive revenues across print andon-line and allow us to serve our readers better and advertisers moreeffectively. By integrating our print and on-line operations more closely we will be able toremove many of the existing barriers to cross selling opportunities and serveour markets at lower cost whilst sustaining attractive margins. The investmentin IT systems will transform the way we do business by significantly reducinglow value-added administrative tasks thereby freeing up resource to concentrateon revenue generation. We intend to carry out a fundamental upgrade of editorial systems; torestructure our circulation sales support functions and outsource a number ofthem where practicable; and to streamline our advertising and pre-pressfunctions using state-of-the-art technology so they will utilise online andcall-centre sales channels with significant benefits for all. Specifically, the investment in new technologies will enable our regionalbusinesses to:- • Drive revenues by increasing our advertisers' reach through access to our powerful multi-media platforms • Automate the creation of many types of advertising in ways that significantly reduces paper processing and cost • Create call-centres with better capacity utilisation and better conversion rates • Modernise newspaper sales by creating a unified transport and logistics operation and outsource low value-added administration • Streamline our editorial processes to allow more extensive and efficient multimedia publishing Developing these capabilities will support our overall strategy of deepening ourpenetration of our geographies and markets. In our Nationals business, system enhancements in advertising and editorial willresult in efficiencies and streamlined processes. Work is already underway tode-layer management and outsource circulation sales supporting activities inScotland. We aim to build on the total reach and relevance of our Nationalstitles with on-line development being an integral part of our strategy. Our UKNationals on-line digital presence will see new look sites designed to fullyplay to the strengths of the web, focusing on the key content strands of News,Sport and Showbiz. The sites will be easier to navigate featuring a substantialincrease in audio visual and user generated content. Our objective is toincrease substantially unique users and online revenues during 2007. Business Review - financial impact The businesses to be sold, namely Sports and the regional titles in theMidlands, London and the South East, in aggregate reported sales and EBIT of£132 million and £27 million respectively in the 26 weeks to 2nd July 2006.It is the Board's intention to return to shareholders surplus capital arisingfrom the disposals, net of related tax charges and such pension payments as arenecessary. Further guidance will be provided once the disposals have beencompleted. The Board is confident that in the medium-term, the streamlined Regionalsdivision will have the capacity to generate margins amongst those of thebest-in-class operators in the UK regional newspaper publishing sector. Post2007, having completed the investment in colour presses, the Nationals divisionwill require minimal capital expenditure requirements over the medium to longterm, thereby providing ongoing strong cash flow generation for investment andgrowth across the Group. The investment programme required to support the introduction of the newoperating model across the Group will be delivered over the next three years.The associated capital costs will be absorbed within the current £180 millioncapital expenditure programme announced in July 2005. Total Group capitalexpenditure projections beyond 2007 at around £25-30 million per annum aretherefore also unchanged. In addition to capital expenditure it is expected thatfurther non-recurring costs of £10m per annum will be incurred during 2007 and2008. This programme will deliver a further £20 million of annualised cost savings by2008 with incremental revenue benefits expected from 2009. Upon completion of the proposed divestments the Board is committed to ensuringan efficient capital structure and an appropriate dividend policy. In view ofits confidence in the future performance of the Group, the Board intends to atleast maintain the current level of annual dividend per share. Enquiries Trinity Mirror plcSly Bailey, Chief Executive 020 7293 3000Vijay Vaghela, Group Finance Director 020 7293 3000Nick Fullagar, Director of Corporate Communications 020 7293 3622 MaitlandNeil Bennett 020 7379 5151Emma Burdett A conference call for analysts will be held at 8.30am. Please contact Maitlandfor dial-in details. 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