5th Mar 2008 07:00
Johnston Press PLC05 March 2008 For Immediate Release 5 March 2008 Johnston Press plc RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Johnston Press plc, one of the leading multi-platform community media groups inthe UK and Ireland, announces results for the year ended 31 December 2007. KEY FINANCIALS 2007 2006 %Change £'m £'m Revenue 607.5 602.2 +0.9Operating profit before non-recurring 178.1 186.8 -4.6items*Profit before tax and non-recurring items* 137.4 146.7 -6.3 Earnings per share pence pence- Underlying* 34.15 36.66 -6.8 Dividend per share- Final 6.70 6.20 +8.1- Total 10.00 9.30 +7.5 • Rate of advertising decline slowed during the year • Digital revenues continued strong growth - up 34% to £15.1m • Growing online audience with unique users up 24% and page impressions up 53% • New press programme completed - Portsmouth now fully operational • External printing revenues up 28% to £35.0m with full year benefit of Dinnington • UK like-for-like operating margin 29.6% in 2007 - see page 14 • Net debt reduced by £54m • Full year dividend up 7.5% to 10 pence per share • Total UK advertising in the early weeks of 2008 down by 4.2%. * see page 17 PROSPECTS Chairman, Roger Parry said: "In the early weeks of 2008, print advertising revenues were down on the sameperiod in 2007 and have been volatile week to week. During the same perioddigital revenues continued to grow strongly. With the new presses in Dinningtonand Portsmouth now fully operational, we will benefit from increased contractprint revenues. Economic growth in the UK and Ireland for 2008 is expected to be slower thanthat achieved last year. We will have the benefit of reduced newsprint pricesduring the year and expect to maintain a tight control over the other costs ofthe business, in part as a result of continued investment in IT systems to drivefurther operating efficiencies. However, although we expect continued stronggrowth from our digital activities, the main factor influencing 2008 is expectedto be a continued general lack of confidence which suggests that advertisingmarkets will remain challenging". For further information please contact:Johnston Press 020 7466 5000 (today) orTim Bowdler, Chief Executive Officer 0131 225 3361 (thereafter)Stuart Paterson, Chief Financial OfficerBuchanan Communications 020 7466 5000Richard Oldworth/Suzanne Brocks/Susanna Gale Johnston Press plc CHAIRMAN'S STATEMENT The fact that our results for 2007 exceeded City analysts' expectations istestament to the strength of our management team and the resilience of our localmedia franchises in what was a very difficult trading year for all local mediacompanies. As one of the largest and leading local media companies in the UK and Ireland wecannot avoid the macro-economic factors which have a direct influence on ourperformance. Whilst we have experienced an improvement in trends as the yearprogressed, over the entire 12 months we have seen comparative revenue declinesin all categories of advertising other than for property. This reflects economicuncertainty throughout the period, a drop in consumer confidence and a reductionin the growth of employment in both the private and particularly the publicsector. Results Against this background total revenues were £608 million, 0.9% up on 2006. Thisincrease was entirely driven by revenues from acquisitions in the year, digitalrevenues and contract print sales. At £178 million, operating profit beforenon-recurring items was 4.6% down, with the operating margin only 1.7% lower at29.3%. This shows how well the business, at all levels, has responded to reducedadvertising demand at a time when we continue to invest in new media channels. Underlying earnings per share were 34.15p compared to 36.66p in 2006, areduction of 6.8%, reflecting the difficult trading conditions. We generated some £54 million of cash during the year and as a result our netdebt at 31 December 2007 reduced from £746 million in 2006 to £692 million. In total, non-recurring items before tax were £12.7 million. The majorityrelated to a fundamental restructuring of some of our businesses to reduce thecost base of the backroom activities of the Group in the longer term, togetherwith a goodwill adjustment of £5.9 million, which was purely an accounting entryto comply with International Financial Reporting Standards. The balance relatedto the loss on sale of non-core businesses, which was more than offset by theprofit arising from the sale of some surplus properties. Dividend The Board proposes a final dividend of 6.7p per share, making a total of 10.0pper share for the year. This represents a 7.5% increase, providing continueddividend growth within a policy of maintaining a realistic but prudent level ofcover. Our Business During 2007 we made only one modest acquisition so our trading closely reflectsthe organic operations of the business. Our new printing facilities inDinnington and Portsmouth are working well and have resulted in significantimprovements in operating efficiency as well as generating additional contractprinting revenues, primarily from News International. To maintain and expand our audience reach, we launched a number of newpublications. These are generally targeted at specific geographic anddemographic market niches, with the overwhelming majority being monthlycommunity newsletters serving small rural areas and well defined districtswithin larger urban and metropolitan communities. The primary purpose of theselaunches is to layer our local markets with a range of complementarypublications, which together are able to provide advertisers with high levels ofaudience reach. Given that 73% of our revenues come from advertisers, this formsa fundamental and continuing part of our publishing strategy. We have also continued to invest heavily in content to ensure that ourpublications remain closely relevant to their local markets. Part of thisstrategy has included the roll-out of the converged newsroom template which wasdeveloped in our Preston publishing centre. This has enabled our newsrooms tobenefit from greatly increased audience interaction, which has in turn helped toprovide an even clearer focus on content of the greatest relevance and interestto our communities. Our efforts in this regard have been rewarded through a number of awards for ourpublications, both in print and online. Alongside our investments in print, we doubled ongoing annual expenditure ondeveloping our digital channels to £9 million. The increased expenditure allowedus to substantially increase the size of our digital development team inPeterborough, open a digital-only sales operation in London and devote greaterresources to promoting our online brands. During the year many of our sites wereenhanced and a number of new revenue generating services were launched. The paceof growth remained strong with digital revenues increasing by 34% and uniqueusers by 24%. Strategy The business of Johnston Press is to provide the local communities we serve withnews, information and entertainment, and to create a local marketplace forbusinesses and individuals to trade in goods and services. We have been doingthis for many generations and now, like other local publishers around the world,we are managing a transition from being solely a print medium to a combinedprint, online and mobile media business. This is enabling us to reach an evengreater audience than hitherto and provides advertisers with enhanced reach. We are committed to the continued expansion of our digital media offering but wechoose to do this primarily by organic investment rather than acquisition. Thisdoes not mean that we are totally opposed to the idea of acquiring an internetbusiness should we consider that it would accelerate the development of ourdigital activities and provide added shareholder value. However, we areconfident that our organic approach will achieve continued and rapid profitablegrowth. We now operate 323 websites with a clear local focus and which arebuilding on our core strength of local news resources and local advertisingsales teams. Across our numerous local markets we now have more than 8 millionunique monthly users of whom a number are also amongst the 13 million readers wereach each week. We estimate that our combined audience is in excess of 16million. We will continue to launch innovative new print products into our markets whilstin parallel building our digital capabilities. Although acquisitive growth toexpand our publishing footprint in the UK and Ireland remains a strategicobjective, this will not be pursued unless we are convinced that it will add tolong term shareholder value. At the present time, the market valuation ofnewspaper publishing companies is at a level which is unlikely to encouragepotential vendors to consider selling, particularly given the continuingprofitable and cash generative nature of these businesses. Board Changes In December Non-Executive Director Les Hinton resigned following his move to theUSA as Chairman of The Dow Jones Company. Les joined us in 2005 and has broughtto Johnston Press extremely valuable insights into the likely future of mediabusinesses. The Board wishes him well with his new American challenge. At the AGM in April 2009, Peter Cawdron will stand down after ten years on theBoard. His role as Senior Independent Director will be taken over by SimonWaugh. He handed over the Chairmanship of the Audit Committee to Ian Russell inAugust 2007. As has already been announced, Chief Executive Tim Bowdler plans to retire in2009 and during 2008 we will start the process of seeking his successor, as wellas identifying new non-executives to replace those mentioned above. Employees As mentioned earlier, 2007 was a challenging year. The results achieved and theprogress made in the business across a number of fronts owes a great deal to thecommitment of our staff throughout the Group. Their efforts are greatlyappreciated. Prospects In the early weeks of 2008, print advertising revenues were down on the same period in 2007 and have been volatile week to week. During the same period digital revenues continued to grow strongly. With the new presses in Dinnington and Portsmouth now fully operational, we will benefit from increased contract print revenues. Economic growth in the UK and Ireland for 2008 is expected to be slower thanthat achieved last year. We will have the benefit of reduced newsprint pricesduring the year and expect to maintain a tight control over the other costs ofthe business, in part as a result of continued investment in IT systems to drivefurther operating efficiencies. However, although we expect continued stronggrowth from our digital activities, the main factor influencing 2008 is expectedto be a continued general lack of confidence which suggests that advertisingmarkets will remain challenging. ROGER PARRYChairman5 March 2008 BUSINESS REVIEW Our mission statement "Serving communities - first for news, information andadvertising" provides a succinct summary of our purpose as a business. But,behind this simple statement lie a number of important initiatives and changeswhich together will shape Johnston Press in the years ahead. Whilst we envisage local and regional newspapers remaining at the heart of ouractivities for an indefinite period, our mission statement is quite deliberatein making no mention of specific media channels. However, as now, we doanticipate that our newspapers will be read by millions of people for many yearsto come and, in turn, that they will continue to provide advertisers with arobust and effective means of promoting their goods and services in the numerouslocal markets which our publications serve. This fundamental belief in the importance and resilience of print is, of course,only part of the story. Already today, the means by which we meet the news,information and advertising needs of our local marketplaces extend well beyondour considerable portfolio of newspapers and related print publications. Greatprogress has been made throughout the organisation during the last year in fullyembracing and developing the use of digital channels, both fixed and mobile, tocomplement the already high levels of audience reach which we have achieved inprint for many generations past. In every one of our local markets, digital channels are an embedded component ofour media mix with our local websites being regarded with equal importance byour editorial and advertising staff alike. We continue to place considerable emphasis on the fundamental importance ofbeing focussed on local markets and their respective communities. "Life isLocal" still evokes a powerful sense of direction and purpose throughout theorganisation. However, our mission statement does not confine the description ofcommunity to being local. Although our efforts to create wider "communities ofinterest" remain at an embryonic stage, the growth of our digital channels hasopened up the potential to develop new revenue streams based on the creation ofnew communities bound by a common interest but dispersed across an extendedgeographic footprint. The bedrock of our publishing business continues to be in our long establishedand highly respected print publications. The shape of our local publishing operations is, however, in the process of afundamental transformation, changing from being newspaper publishers to becomingcommunity media companies. This change does not mean a reduction in theimportance we place on our print publications, rather it extends our horizons byembracing and placing equal emphasis on a range of digital channels. Coupled with this transformation is an equally far reaching change in the focusof our publishing operations, from one which has placed primary emphasis onproduct and process, to one which is customer facing as its priority. Thischange will in no way diminish the efforts we put into the continual improvementof business efficiency but, through a better knowledge of our local markets,including the creation of customer and reader databases, we aim to improve andextend the service we provide to readers, online users and advertisers alike andalso to create new revenue generating opportunities by capitalising on theextensive information we have within our organisation. Underlying Strategy The aim of our strategic plans is the successful delivery of the business visionwhich is described in the foregoing section of this report. These plans have sixcomponent parts. 1. Maintaining the core strength of our newspaper publishing activities by •placing a clear organisational focus on what remains the principal revenue and profit generator for the business; •investing in modern full colour printing capacity to produce high quality publications in the most cost efficient and environmentally friendly manner possible. The completion of the £110 million investment in the press projects at Dinnington and Portsmouth provides clear evidence of this commitment and has enabled us to drive a significant increase in contract printing revenues, in addition to securing further printing efficiencies; •rolling out common IT platforms and working practices across the Group to facilitate maximum operational efficiency in newspaper production, whilst also optimising revenue generating opportunities and customer service; •maintaining a strong local journalistic and advertising presence in all of our markets, whilst continuing to streamline the "backroom" functions of the business to maximise operational efficiencies; •fostering the highest editorial standards with commensurately strong newspaper content which is presented, marketed and distributed in a manner which optimises the market reach of all of our titles. 2. Developing a fully integrated multi-media publishing capability by •increasing investment in digital resources at a pace which reflects the Group's aspirations to maintain a high rate of growth in digital revenues, the digital audience and online usage; •embedding digital channels in every one of our local publishing centres as an integral part of their media mix and ensuring that they are accorded an emphasis equal to our core print publications; •restructuring our organisation to ensure that it is equipped to deliver on our digital aspirations. The "newsroom of the future" project, which was initiated in Preston in 2006, and its subsequent roll-out across the Group demonstrates our commitment to such changes; •introducing new digital channels such as the recent extension of our mobile phone services offering and exploring ways in which our digital platforms could be strengthened through initiatives such as partnering or acquisition. 3. Extending our audience reach and advertiser response through a process of market layering and a combination of print and digital channels by •launching new print publications to supplement the market reach of our main newspaper titles and to penetrate demographic and geographic market niches where current newspaper readership is weaker than the norm. Over the past two years, we have launched over 200 new print publications in pursuit of this strategy; •extending marketing initiatives throughout the Group based on the development of successful models at the local level which build on the strong brands and community links of our newspaper titles. Examples include such activities as local exhibitions and reader holidays; •proposing attractive advertising packages that combine print and digital platforms in a manner which maximises local market reach and provides additional online services to extend the overall effectiveness of our offering. A typical example is online CV matching which provides recruiters with access to a pool of job seekers to supplement those who respond to an advertisement placed in paper and on our Jobs Today website. 4. Investing in the creation of marketing databases across the organisation to improve the delivery of our services to advertisers, readers and online users, thereby establishing opportunities for new revenue streams by •requiring all companies to collect, register and maintain customer and reader data in a prescribed format; •creating a data warehouse to store such data in a form that is readily searchable and usable for both internal and external purposes; •establishing external marketing initiatives which can be adopted around the Group to capitalise on the revenue opportunities which such data provides; •ensuring that we build a more complete understanding of our markets including the needs and interests of our users, viewers and advertisers. 5. Continuing to review the potential for acquisitive growth thereby extending our publishing footprint within the UK and Ireland in a manner which creates increased shareholder value by •maintaining contact with key industry players to ensure that we remain aware of possible ownership changes; •reviewing all potential acquisition opportunities within the local and regional newspaper publishing sector in the UK and Ireland. 6. Ensuring that we have the organisational capability and competence to deliver our strategy and vision by •keeping the organisation under continuous review to ensure that it is structured in a manner which is best placed to deliver our strategic objectives; •ensuring that our succession planning processes recognise and respond to the evolving needs of the business; •providing progressive training and development programmes to equip our staff in all areas of the business such that they are well equipped to meet the changing needs of our markets and to operate effectively across the full range of publishing channels including the new digital platforms. Market Position Our publishing operations are spread across large parts of the United Kingdomand the Republic of Ireland. The geographic focus of our numerous publishingcentres is local or regional, with each aiming to meet a wide range of news,information and advertising needs for the communities they serve. In each of our markets, we are generally the leading provider of suchinformation, attracting a large audience as a consequence. In the vast majorityof our markets, we achieve high levels of audience reach and, in so doing, weprovide advertisers with an extremely effective means of promoting their goodsand services to those communities. The marketplaces in which we publish vary considerably in their size, structureand nature but, with very few exceptions, they have a well-defined localgeographic focus. Our publishing operations span widely varied communitiesranging from rural areas, villages and small towns to larger urban andmetropolitan centres. With our portfolio of print and digital channels, we havethe ability to reach extensively throughout the communities we serve, across therange of ages and demographics. Publishing Channels In the vast majority of our markets, we publish the leading local or regionalnewspaper. These are generally paid-for daily or weekly titles with the dailiestypically being located in the larger metropolitan areas and the weeklies in thesmaller urban and rural markets. The leading title, which almost invariablycarries the principal newspaper brand in the area, is supplemented by a range ofpublications with the foremost secondary title most often being a freedistribution newspaper. Depending on the size of the local market, there may beother supporting paid-for and free newspapers. Together these provide acomprehensive coverage of the local area with resulting high levels of householdpenetration. In total, we publish 318 newspaper titles of which 18 are paid-for dailies.Amongst those, 3 are morning papers with a regional footprint including TheScotsman, The Yorkshire Post and the Newsletter in Northern Ireland. We publish2 Sunday newspapers with Scotland on Sunday being the most important. Of theremainder, 164 are paid-for weeklies and 134 free weeklies. Supplementing our mainstream newspaper titles is a growing range of targetedpublications which address specific market niches, both geographic anddemographic. Virtually all of these have been developed and launched by our variouspublishing centres. Over the past two years, we have launched over 200 suchpublications with 126 of these being Community Newsletters which are typicallyfree monthly pick-up titles addressing communities of around 3,000-5,000 homes.They carry very local news and advertising content and have been launched inboth rural and metropolitan areas. Other such publications include a growing portfolio of high quality lifestylemagazines which carry aspirational content and advertising to reflect that. Thisenables us to attract advertisers who are less likely to appear in ourmainstream newspapers. Most of our markets now include a lifestyle magazine intheir publishing portfolio. Over the past two years, we have also launched anumber of free newspapers which target specific demographics such as youngprofessionals in city centres or rail commuters travelling from outlying townsaround London and Birmingham. Again as a result of a programme of launches, we now have 323 websites whichsupplement our print publications in each of our local markets. These carrynews, information and advertising relevant to each local market, including anincreasing amount of user-generated content and contributed audio visualmaterial. Embedded within each of our local websites, which are typicallybranded to reflect the leading local newspaper title in the area, is a range ofclassified advertising websites commonly branded across the entire Group. It isa key objective of the Group for each of our local websites to be the leadinglocal online portal in their area and for the classified sites to provide therichest content available for that community with functionality and brandawareness to match that. Building on the strength of our local publishing operations and utilising themarket leading brands of our newspaper titles, we have also developed a range ofcomplementary promotional platforms which in themselves provide furtheropportunities to generate additional revenue streams. These activities include arange of local exhibitions such as wedding fairs, motor shows, jobs fairs andfashion shows. We also utilise our newspaper distribution organisation todeliver advertising leaflets door-to-door. Advertising Base 73% of our total revenues is derived from advertising. Of this, the vastmajority still comes from our print publications though our digital revenues aregrowing strongly, up 34% in 2007, albeit from a low base. Revenues from the newadvertising platforms launched in 2007 described above exceeded £1 million. Accounting for 29% of total advertising revenues, our most important advertisingcategory is display advertising which encompasses both local and nationalcustomers, with around three quarters being derived from local clients. Thiscategory is influenced by High Street activity and, in turn, consumerconfidence. The difficulties experienced in this category over the past 12months are a broad reflection of the challenges being faced by the retailsector. We are making considerable efforts to create new display advertisingplatforms to attract revenues from outside our traditional areas of businessincluding enterprises engaged in activities such as travel, leisure, health andeducation. Employment advertising, which represented 23% of our advertising revenues in2007, is the second most important category. Around 15% of this is received frompublic sector employers at both national and local levels. For several years,recruitment in the public sector has been weak, reflecting Government spendingconstraints. This has been an important factor behind the recent lacklustreperformance of this category although as the year progressed, relativeperformance improved against weaker comparatives with growth in the South ofEngland resuming in the second half. Apart from public sector spending plans,the key driver of employment advertising is the overall level of unemployment. 20% of total advertising revenues comes from property advertising which has beenour most successful category for several years. Growth continued during 2007though at a slowing rate as the year progressed partly due to the year-on-yearcomparatives becoming increasingly challenging. Despite the increasingavailability of online alternatives, property print advertising has remainedrobust from both estate agents and house builders. For estate agents, thisreflects the value of brand advertising in print which acts as a powerful meansof attracting new instructions. It also confirms our own market research whichindicates the high value that vendors place on having their propertiesadvertised in their local newspaper. Motors advertising, which accounts for 10% of our advertising mix, has been ourmost difficult category for several years with the main cause being continuedindustry consolidation. This has created larger players who command a greateradvertising spend which, in part, has been diverted to other media. The use ofwebsites, both generic and those operated by the industry itself, has also beena factor behind declining print revenues but not to the same extent as theprocess of industry consolidation. Motor dealers themselves have alsoexperienced difficult market conditions and, though new car sales have recentlyimproved after several years of decline, their profit margins continue to beunder pressure. The other classifieds category represented 18% of total advertising in 2007 andin performance was close to the previous year. This category is made up of anumber of different elements including entertainments, births marriages anddeaths, public notices and trade services advertising. The disparate nature ofthis category tends to mean that it is less volatile on a year-to-year basis.The Group has initiatives in place to grow various parts of this category andthe iAnnounce website launched in late 2007 should drive a significant increasein the births, marriages and deaths section. Challenges are being experienced incinema advertising which has moved online to a significant extent and therecould potentially be downward pressure on public notices as the Government seeksto trim its spending. The industry is lobbying Government regarding itsobligation to adequately publicise such things as planning notices and to ensurethat it does not rely on websites alone which would reduce public access to suchvital information. Audience Reach Our newspapers continue to achieve high levels of household penetration in thenumerous areas of the UK and Ireland in which they circulate. Whilst penetrationlevels are enhanced by the fact that we publish a range of paid-for and freenewspapers in almost all of our circulation areas, paid-for newspapers alonestill achieve significant reach in their markets. Taking our paid-for daily newspapers, excluding our 3 morning titles whichcirculate across wide regions and therefore achieve lower penetration, typicallywe achieve household penetrations of around 25% with the best figures generallycoming from those which circulate in smaller urban communities. Whilst, ingeneral, daily circulations have declined for some years, they continue togenerate good advertiser response and in many cases we package advertisingacross a range of platforms, including print and digital, in which the paid-fordaily is just one element. It is also worth noting that the principal reasonsfor circulation declines are to be found in lifestyle changes. People have morechoice for their leisure time pursuits and media sources as well as beingincreasingly time poor. Changing distribution patterns with fewer newsagentsbeing willing to home deliver is another challenge which we are addressing byestablishing our own direct delivery arrangements. These changes have resultedin a tendency to move away from a 6-day home delivered habit to casual purchase.Although this has impacted adversely on circulations, it has had a lesser effecton readership and indeed industry research indicates an increasing trend inreaders per copy. Over the past ten years, our weekly paid-for newspapers have increased sale inseven and only in the past couple of years have we experienced modest declines.In general, our weekly paid-for titles are achieving household penetration ratesin excess of 50%, sometimes much higher. In turn, these titles also continue toprovide advertisers with an excellent response, enhanced further when otherprint and digital channels are also utilised in the overall package. Our websites in contrast are continuing to produce rapid growth in the number ofvisitors they attract, in 2007 increasing by 24% over the previous year. This isa reflection of the considerable investment we have made in our websites overthe past 12 months, coupled with the restructuring of our newsrooms to operateon a multimedia basis. This has resulted in regular updating, several times aday even for our weekly newsrooms, more breaking news and the inclusion of audiovisual content. Our sites have also been upgraded during the year to improvedesign, navigability and functionality. These improvements have also broughtabout a dramatic increase in audience engagement with high response rates tostories appearing online and, in many instances, members of our communitiesactively contributing news items and pictures including video images. We are also making increased use of the cross-promotional opportunities whichare available from the range of our print and digital platforms. Indeed, duringthe year, there have been a number of instances when a strong story brokenonline has translated into an increased sale in the subsequently publishednewspaper. In addition, and of particular relevance to advertisers, the combinedreach of our print and digital channels has resulted in a considerable increasein our local market penetration and, given the ongoing growth of our digitalactivities, this should continue to expand. OPERATIONAL REVIEW Developing existing and new platforms both online and in print has been a keyfocus of the Group's operational activities during 2007. Our aim is to maximiseour market position in print whilst at the same time reaching an increasingnumber of new users of our services through digital channels. Fundamental to this strategy is the effective use of technology and to ensurethat this is achieved, we undertook a strategic review of information technologysystems during the year. This involved meetings with vendors, publishingtechnology experts and other media organisations to understand fully the systemarchitecture necessary for a fully integrated multi-media community publishingoperation. As a result, the main Board approved a series of principles which will, overtime, enable data to be captured in a variety of ways, stored in a common formatand used by all platforms both print and digital. This will be at the heart ofthe Group's traditional and emerging workflows and is central to our longer termdevelopment as a business and the achievement of our strategic objectives. Print Publications 2007 was a year of further progress and continued focus on the Group's corestrength of newspaper publishing. New publications provided furtheropportunities for our advertisers to expand their audience in their localcommunities. An example is the launch of City Lite editions in Leeds andSheffield. These weekly newspapers contain a review of the week's news togetherwith comprehensive entertainment information and are distributed free to citycentre apartments, targeting younger professional and affluent readers who aretypically less likely to purchase a daily newspaper. We have also launchedweekly newspapers in towns such as Aylesbury and Peterborough, targeted at thelarge numbers of railway commuters in these communities, again creating anopportunity for advertisers to connect with different types of readers and alarger audience. Our programme of new launches and developing existing community newsletters iscontinuing, with these publications now covering a range of towns and villages.Typical examples include Lewes Today in East Sussex, Hampton News, a monthlynewsletter for a modern housing development near Peterborough, and Ashton News,covering a rural community in Lancashire. We now publish over 200 communitynewsletters, 35 lifestyle magazines and numerous niche publications. The latterinclude our now well established advertising platforms such as Parent & Child,Food & Drink and The Good Life with common editorial, targeting new advertisersat both local and national level. Our portfolio of lifestyle magazines increased during the year with new launchesin Sussex and Edinburgh, the latter providing a platform for entertainments andadvertising targeted at the younger metropolitan reader. These product launchesand developments in print and online continue the process of layering themarket, improving opportunities to reach a targeted audience and providingenhanced advertising response. Another area of development during the year came through the use of our stronglocal newspaper brands to grow new revenues. Good examples are activities suchas hosting business awards and exhibitions such as those successfully held onthe Isle of Man and in Yorkshire. With the sharing of best practice across theGroup, it is expected that this business will grow further. Digital Publishing Investment has continued in the Group's digital activities with total staffingin the central digital team reaching 63 during the year, an increase of 66%, andwith plans to enlarge the team further during 2008. Total investment in ourdigital operation amounted to £9 million, more than double the level in 2006.Resources at the local publishing centre level have also been increased withadditional advertising and editorial staff dedicated to our digital publishingstrategy. Each subsidiary company is now able to provide a regularly updateddaily news service on its local website. The newsroom of the future concepttrialled in Preston, which places the digital platform as a news mediumalongside the traditional printed product, has now been rolled out across theGroup. Its impact is evident in the 53% rise in website page views and the 24%increase in the number of viewers now reached by Group products. Extensive market research was undertaken during the year to ensure our editorialpages provide the best possible experience, and as a result further improvementof the sites is planned in 2008. Our Property and Jobs Today classified search engines, which were also subjectto functionality improvements, were supported by extensive marketing campaigns. We continue to work closely with the University of Central Lancashire which hashosted the majority of our editors on a week-long training programme to givethem a thorough understanding of the Internet, both as a means of reaching a newaudience and as an investigative tool to support journalists. The Group has alsobenefited from the research undertaken by the Johnston Press sponsored Chair inDigital Journalism at the university, whose research into participants in onlineforums has given an insight into how local newspapers should engage withcommunities in online activities. An example of the growing trend in viewerengagement can be found at scotsman.com, where on average over a thousand peoplecomment online every day about stories that have appeared in paper and on ourwebsite. The Chair in Digital Journalism has been a positive association,helping to break new ground in these channels. By utilising digital channels,local centres have been able to break news ahead of other media: the tragic airshow crash in Sussex, freak weather conditions in Peterborough when a tornadohit part of the town and a chemical explosion beside the M6 which brought travelchaos to the Preston area are examples. Digital advertising revenue continued to grow rapidly, by 34% in the year,supported by further progress in added value services for existing advertiserswhilst also attracting new customers at the national level such as BritishAirways, Shell, Renault and Mercedes. Mediaforce, our independently ownednational sales operation, has continued to invest in their digital salesresource and revenue performance exceeded our expectations. Our own nationalsales team for Jobs Today, created in 2007, is now attracting new advertisers toour Jobs Today portal. Jobs Today in particular benefited from a CV database of 23,000 active jobseekers, an increase of 62% over 2006, which in turn improved revenues from thatservice by 32%. The Group's online business directory, Local Pages, alsoperformed strongly with revenues 38% up on 2006. With additional investments infunctionality and content, this is expected to rise further in 2008. The launchof iAnnounce, a digital platform providing people with an interactive site forposting personal announcements such as births, deaths and marriages, has added anew dimension to newspapers' traditional notices and has been well received byour readers and viewers. It allows them to share memories, pictures and messagesrelating to loved ones on happy family occasions or in the event of bereavement.Early indications are that this will be a successful revenue stream for 2008. Advertising Performance In this section all references to Group businesses are on a like-for-like basisand exclude the former Archant Scottish titles acquired in April 2007, Farm Weekwhich was disposed of in 2006 and Best Asian Media which was sold in August2007. The table below shows the total like-for-like advertising performance for 2007compared with 2006 broken down by category. Advertising Revenue 2007 2006 % vs £'m £'m Last Year Employment 93.9 97.2 -3.3Property 79.7 75.6 5.4Motors 40.2 43.7 -8.2Other Classified 70.6 71.4 -1.1Display 117.1 122.0 -4.0Total Ad Revenue - In Print 401.5 409.9 -2.1Digital 15.1 11.3 33.8Total UK 416.6 421.2 -1.1Republic of Ireland 20.7 19.8 4.5Total Group Advertising 437.3 441.0 -0.8 A significant proportion of the Group's advertising revenue is generated fromthe UK and the next table analyses UK advertising revenue between the two halfyears. This demonstrates an improving position in the year-on-year comparison asthe year progressed. This was largely as a result of weaker comparatives ratherthan any noticeable upward trend in revenues. Advertising Revenue UK - January to June UK - July to December 2007 2006 Change 2007 2006 Change £'m £'m % £'m £'m % Employment 51.1 53.4 -4.3 42.8 43.8 -2.1Property 43.0 40.2 6.8 36.7 35.4 3.9Motors 21.4 23.3 -8.4 18.8 20.4 -8.0Other 36.2 37.0 -2.0 34.4 34.4 -0.1ClassifiedDisplay 58.8 62.8 -6.4 58.3 59.2 -1.5 Total Ad revenue - In print 210.5 216.7 -2.9 191.0 193.2 -1.1 Digital 7.3 5.5 33.5 7.8 5.8 34.5 Total UK Advertising 217.8 222.2 -2.0 198.8 199.0 -0.1 This review of advertising performance reports on our businesses in the UnitedKingdom that traded throughout 2006 and 2007 and comments separately on theGroup's Republic of Ireland operation. Looking at the main individual categories, recruitment advertising was 3% downoverall with a reduction in public sector advertising particularly affecting theGroup's Scottish division. The Scottish division was 16% down and accounted formore than 80% of the total Group recruitment decline, partly because of highercomparatives in 2006 when titles north of the border performed better than theEnglish divisions. Recruitment advertising in Scotland was adversely affected bythe Scottish parliamentary elections, when no government advertising is allowedfor a specified period, then subsequently by the Scottish Government's policy toexercise tight control over spending and by the change in general economicmarket conditions. In contrast Northern Ireland successfully maintained itspublic sector recruitment advertising and, in conjunction with more favourabletrading conditions, this led to a 3% improvement in job advertising over 2006.The South and Midlands divisions also enjoyed a return to better employmentmarkets and were 5% and 2% up on the previous year. The North of Englandexperienced more difficult market conditions, particularly in Yorkshire wherethere was a reduction in higher salary vacancies; and both North and Northwestdivisions traded at levels lower than previous years. Typically, the Group'snewspapers carry local job advertising for the extensive blue and white-collarsectors and along with improvements to our online jobs site, Jobs Today, thisprovides some resilience against the market changes taking place. Unique usersand page impressions for Jobs Today grew by 62% and 55% respectively and thereare now on average 14,000 jobs on the site every day. Property advertising remained the one category where growth was achieved inevery division despite high comparatives against 2006 and the fact that themarket slowed towards the year end. The overall increase of 5% was broadlyconsistent across all divisions except in Northern Ireland where new initiativesbased on our Property Today online and in print branding led to a 47% increasein revenue, albeit from a small base. The Group has enjoyed more than 10 yearsof continued growth in the property sector but it is evident that the market isbecoming more difficult. We have therefore taken a number of steps to minimisethe impact on our overall volumes in anticipation of the more challenging marketconditions that may well lie ahead. That said, we expect our newspapers tocontinue to be the main source of promotional and marketing activity for themajority of estate agents, complementing our in print supplements with ourProperty Today online search engine. Whilst the rate of decline in motors advertising slowed compared with that in2006, advertising volumes continued to face pressure, not only as a result ofpoor car sales, but also due to industry consolidation with the consequence thatmore dealerships are covered by composite advertisements and the consolidatedorganisations' buying power strengthens. In Scotland however, performanceremained strong with new advertising platforms lifting revenues to 8% ahead of2006. In a number of divisions initiatives to improve private cars for sale byoffering attractive geographical packages and combined in print and onlinesolutions with our Motors Today search engine have increased volumes but with anegative impact on yields. This can be seen in overall volume which is down 1%with yield minus 7%. The other classified category, which covers family announcements, publicnotices, entertainments and trade services advertising, was down 1%. With abroad spectrum of advertisers, the category remained stable with littlegeographical variances although Scotland and Northern Ireland were the only twodivisions to post positive results. This was partly helped by election noticesin Scotland and good public sector advertising in Northern Ireland. Display advertising suffered a 4% decline, with local advertising falling at agreater rate than national, which benefited from increased activity in thegrocery sector. National display also benefited from the formation of a newdigital sales team which attracted new advertising revenue from brandadvertisers in the travel, technology and financial sectors, businesses whichwould not typically be users of a local advertising medium. Local displaycontinued to be challenging, although the development of our communitynewsletter strategy has helped to attract new smaller advertisers interested inreaching customers in highly targeted local communities. The performance of thiscategory improved in the second half of the year. The impact of increased property advertising and the launch of the growingnumber of targeted publications, both tending to be low yielding, has resultedin an overall decline in the Group's advertising yield. The Republic of Ireland advertising marketplace became more challenging as theyear progressed, with evidence of the previously strong property market slowingin the second half of the year. This had the effect of reducing relatedadvertisers' expenditure in the display category which was marginally below lastyear. Overall, the year was positive with revenues 5% greater than 2006. Thisperformance was supported by strong revenue growth in recruitment advertising,up 42% on the previous year, and full year improvements in property up 12% andmotors up 25%. During 2007, significant improvements were made to the systems and reportingprocedures for our newspaper businesses in the Republic of Ireland. Installationof these systems had a negative impact on short-term performance but long-termwill considerably improve management controls, client services and the Republicof Ireland websites. Acquisition Integration Successful integration of the companies acquired at the end of 2005 (Score PressLimited and The Leinster Leader Limited) and at the beginning of 2006 (TheScotsman Publications Limited) has been accomplished with system installationsand consolidation of backroom activities. In difficult trading conditions, eachcompany has achieved its synergy and operational plan ahead of the objectivesset prior to acquisition. In April 2007, the Group completed the acquisition of eight titles, 3 weeklypaid-for and 5 free, from Archant (Scotland). These newspapers, which complementour established titles at Johnston (Falkirk) Limited and Angus County PressLimited, have been fully integrated and are now part of advertising packagesoffered by these companies. Total synergies anticipated at the time ofacquisition have been exceeded. The commercial printing company, P. ScrogieLimited, which formed part of the acquisition was viewed by the Group as anon-core business and was sold to ScottasPress in August 2007. Printing 2007 saw further investment in the Printing Division with the completion of thenew triple-width press installation at Portsmouth, an extension of theCaledonian Offset plant in Edinburgh, commencement of a new press hall inNorthern Ireland, and additional colour capacity for the Goss Community press atKilkenny in the Republic of Ireland. The new £50 million press installation at Portsmouth is the second stage of theinvestment in triple-width technology. Completion ahead of schedule and onbudget follows the successful opening in 2006 of a similar but slightly largerpress hall in Dinnington, South Yorkshire. Each of the folders, there are fivein total between the two sites, can print a minimum of 120 tabloid pages in fullcolour at over 80,000 copies per hour, with paginations reaching over 200 pagesin full colour when required. It is possible to print a combination ofnewspapers on each press line at any one time at these industry leading speeds.The Portsmouth installation includes modern inserting, stitching and trimmingfacilities similar to Dinnington. These two press halls account for 45% of Groupprinting capacity and, under long-term contracts, also print The Sun and theNews of the World for News International as well as work for other contractprint customers. Caledonian Offset, acquired with The Scotsman Publications Limited in 2006,completed an investment programme inherited as part of the acquisition. Thepublishing area has been refurbished and re-equipped to improve efficiency andadditional units have been added to the existing press to increase colourcapacity from 96 to 160 pages. The refurbishment of the publishing area includedinserting, stitching and trimming and the ability to add gloss produced frontcovers on magazines. The former Archant (Scotland) titles have been integratedinto the press schedule. As a result of the improvements at Caledonian Offset, the Falkirk press hall wasclosed. In June 2007, planning permission was granted for a press hall extensionat Carn, where our Northern Ireland print operation is based. The building willaccommodate a six unit full colour single-width press capable of printing 96pages, in addition to the current press which is undergoing a majorrefurbishment to increase its colour capacity from 24 to 56 pages. This projecthas helped secure a long-term contract to print the Berliner format Guardiannewspaper for Northern Ireland. In the Republic of Ireland, an extension to theexisting press at Kilkenny has increased colour capacity from 32 to 40 pages. Audience Delivery Group audience reach of combined online and in print readers and viewersincreased by 23% over the previous year. This excludes The Scotsman wherescotsman.com, a longer established site, grew by 5.5% and reached over 3.1million viewers in its own right. On average, the Group reaches over 13 millionreaders each week and 8.2 million unique users view our websites every month.This reflects the strength of our existing portfolio of newspapers and nichepublications, the growing attraction of our local websites, and the overallposition of the Group as a community media company. Of central importance to our portfolio mix is the strength of our paid-fornewspapers, and we continue to place a high priority on their development andcirculation performance. Sales continue to be challenging, particularly for ourdaily titles where the trend of readers moving away from six days a weekpurchase to a casual buying pattern continues to have an adverse effect.However, the performance of our daily titles is in line with the industry and,as a result of modest cover price increases, year-on-year revenues remainmarginally ahead. Weekly newspapers continue to be more resilient and examplesof strong sales increases include the Wakefield Express, the Doncaster FreePress and the Boston Standard. We continue to invest in the provision of our ownhome delivered copy service, one of the best ways of retaining readers, with thetotal number of copies delivered to readers' homes increasing over last year aswe approached the year end. Investment in market research also increased with 5 major projects undertakenaround the Group to give a better insight into the behaviour and expectations ofreaders and viewers. The research confirms the importance of our localnewspapers to their communities and the strength of our local newspaper brands,while highlighting areas of opportunity such as 'what's on', more in depth sportand entertainments coverage, as well as design improvements which make it easierfor readers to locate key story points. Additional research resource has beenadded to the central marketing team. Perhaps the most encouraging sign with regard to our total audience is thecomplementary nature and interactivity between online and in print. There arenumerous examples of stories being followed across media, with increasedcomments and participation from the community. Customer Relationship Management (CRM) In order to meet our stated objective of using customer data to improve thedelivery of our services and create new revenue opportunities, during 2007 weundertook a significant rebuild of our CRM database. This involved engaging withexperts from the data management sector and a year-long project to re-create ourCRM system in order that data can be collected and maintained across all areasof our organisation. This information, which is now in a consistent formatbecause of the common systems strategy, is being used for both internal andexternal purposes such as alerting individuals to stories relating to theirparticular interests, engaging potential customers with added-value incentives,and using the data to create sales opportunities for specific advertisers. PERFORMANCE REVIEW 2007 has been a challenging year, with difficult advertising conditions as wellas inflationary cost pressures. What has been pleasing is the business' abilityto respond to these challenges with the result that there has only been a verymodest reduction in margins. In order to assess the underlying like-for-like financial results of the Groupin the UK and Republic of Ireland, the table below summarises the performance ofthe businesses operating at both the beginning and end of 2007. The businessesacquired in 2007 or disposed of during the course of either year are shownseparately. These columns then add to the total reported figure for the year.The middle columns in the border show a like-for-like summary of 2007 comparedto 2006. 2007 2006 Republic Acquisitions UK UK Acquisitions Republic Total Of /Disposals Like-for- Like-for- /Disposals of Ireland Total Ireland like like £'m £'m £'m £'m £'m £'m £'m £'m Print 425.8 20.7 3.6 401.5 409.9 0.8 19.8 430.5AdvertisingNewspaper 102.4 6.1 0.2 96.1 95.6 0.4 6.2 102.2salesDigital 15.1 - - 15.1 11.3 - - 11.3Printing 35.0 3.9 0.7 30.4 22.2 - 5.1 27.3Other 29.2 0.3 0.5 28.4 30.7 - 0.2 30.9Total Revenues 607.5 31.0 5.0 571.5 569.7 1.2 31.3 602.2Costs 429.4 22.9 3.9 402.6 391.9 0.9 22.6 415.4Operating Profit * 178.1 8.1 1.1 168.9 177.8 0.3 8.7 186.8Operating Margin * 29.3% 26.1% 22.0% 29.6% 31.2% 25.0% 27.8% 31.0% *Pre non-recurring items In terms of like-for-like performance, the existing Johnston Press businesses,when the higher production costs related to contract revenues, depreciation onthe new presses and the increased digital investment (which totalled £10.7million) are adjusted for, achieved an underlying flat cost base during theyear. This was despite cost of living increases to all staff, increased powercosts and an increase in the price of newsprint over twice the rate ofinflation. There were modest cost savings associated with reduced head count inresponse to lower trading volumes and cost reductions of a structural naturewhich will deliver permanent benefits in coming years. Within the structuralcost savings was the full year effect of the presses closed in 2006, madepossible by our investment in the new press at Dinnington in South Yorkshire.Specific points to note are as follows: a) Despite increased newsprint prices, the Group's newsprint costs wereessentially flat year-on-year. This has been achieved through the closure ofless efficient older presses and the benefits of the new presses which tend toproduce lower wastage. b) A reduction in production costs of £2.5 million was achieved despite anoverall increase in advertising volumes. As mentioned previously, the strengthof property advertising in the year contributed to the increase in volume buthas resulted in a reduction in the overall yield as this tends to be the lowestpriced advertising category. The reduction in production costs was made possibleby the further consolidation of pre-press operations into regional centres wheregreater efficiencies are possible. The other benefits are those referred topreviously being associated with the full year effect of the closure of severalolder inefficient presses in 2006. c) Overhead costs, excluding depreciation, increased by £7.8 million, withsavings in the administration category being more than offset by inflationarypressures on power, editorial costs and distribution and transport, togetherwith the additional £5m expenditure on the digital activities of the Group. The overall operating margin in the existing businesses decreased by 1.6% to29.6%. Those businesses acquired since 2005 delivered varying results dependent ontheir geographic location. As mentioned previously, the advertising environmentin Scotland proved difficult in part as a result of the parliamentary electionin May 2007. However the acquisitions of The Scotsman Publications Limited andthe ex-Scottish Radio Holdings Limited titles have allowed us to build a muchgreater presence in the Scottish market, with the result that we have achievedsignificant cost savings across the enlarged division, as well as providing theGroup with sufficient additional printing capacity to allow the closure of theold press at Falkirk. The creation of this larger division enabled the Archanttitles in Scotland to be integrated very quickly once their purchase wascompleted in April 2007 and resulted in the acquisition being earnings accretivefor the 8 months of Johnston Press ownership during the year. The market conditions in Northern Ireland were more favourable than thoseexperienced in Scotland and work continued to integrate these titles into thelarger Johnston Press family. This process will essentially be completed in 2008with the installation of the ex-Portsmouth refurbished single-width press atCarn. In the Republic of Ireland the advertising environment changed significantlythrough the year and our planned introduction of new systems together with are-structuring and re-organisation was later than originally planned, eventuallytaking place in quarter 4 of 2007. This work was, however, completed prior toyear end and we expect to see the operational and financial benefits of this in2008. In addition to the acquisition of the Archant titles in Scotland mentionedabove, we disposed of several small non-core operations in August 2007. Therewas a net loss of £0.8 million on the disposal of these activities. Non-Recurring Items The Group's results include a non-recurring profit in the year of £15.0 million.It is easiest to break this down into two major components. The first of theserelates to the change in the UK corporation tax rate from 30% to 28%. Includingthe goodwill adjustment of £5.9 million associated with this change in tax rate,the net impact was a profit of £20.3 million. This £20.3 million is, in turn,made up of two elements. The first element relates to the deferred tax balancecreated under the transitional arrangements in place during the implementationof IFRS and IAS 12 in particular. This required that deferred tax be providedagainst the carrying value of our publishing titles as at 1 January 2005, withthe offset being against retained earnings. As the tax rate has been reduced by2% to 28%, this notional deferred tax liability, for which the Board cannotforesee any circumstance under which it might become payable, requires to beadjusted. The impact of this represents a credit to the tax charge of £20.3million. Although the original adjustment in relation to publishing titles wastaken against reserves, IAS 12 requires this reversal to flow through the IncomeStatement. The second element relates to the deferred tax booked on acquisitions made after1 January 2005. Under the IFRS rules, the equal and opposite offset to thenotional deferred tax was to create an intangible goodwill asset. As stated inthe interim accounts, all logic and base accounting principles would dictatethat any reduction in the deferred tax balance because of the tax rate changeshould be mirrored in a reduction of the associated goodwill. However, the rulesof IAS 12 require that this release is also flowed through the Income Statement,the impact being a credit of £5.9 million. This leaves the Group with anunmatched goodwill balance, which was only created by the booking of thedeferred tax, and we have no option but to write this off as a £5.9 millioncharge against operating profit. Although this might appear to be inconsistentwith accepted accounting principles and practice, we had no alternative but tobook the entries noted above in strict compliance with the rules based standard. The balance of the non-recurring items is a net cost after tax of £5.3 millionand relates to either fundamental re-structuring within the business or disposalof certain non-core operations. As mentioned above, there were three operationsdisposed of during the course of the year, with a net loss on disposal of £0.8million. There were also costs totalling £7.9 million relating to the actions wehave taken to fundamentally restructure the business for the future and includethe closure of old presses in Falkirk, Peterhead and Portsmouth, and thepre-press departments in Falkirk, Chesterfield and Scarborough. There was also asignificant cost arising from the fundamental re-organisation which took placein the Republic of Ireland in the last quarter of the year. Offsetting thesecosts were gains of £1.9 million on the disposal of surplus properties. The taxcredit in relation to these items amounted to £1.5 million. If the current proposals for changes to capital allowances on industrialbuildings are enacted, we anticipate another nonrecurring tax adjustment in2008. This adjustment would be a tax charge of £10 million if the legislation isprogressed in line with current proposals. Finance Income/Costs Net finance income on pension assets/liabilities was £4.5 million as theexpected return on our pension fund assets exceeded the interest cost on ourpension liabilities by that amount. The level of expected return in 2007 wasgreater than actual returns for the first time in the last 3 years. With actualreturns being £4.9 million lower, these are recognised in the Group Statement ofRecognised Income and Expense. Finance costs for the year were £45.9 millionwith a blended effective interest rate of 6.4%. These costs were higher thananticipated due to the abnormally high margin between LIBOR (London Inter BankOffer Rate), on which the Group's borrowing costs are based, and base rate inthe second half of 2007. Tax Rate The Group tax rate for the year, excluding non-recurring items, was 28.3%, withthe UK tax rate of 30% being reduced proportionately by the businesses in theRepublic of Ireland and the Isle of Man where the Corporation Tax rates areconsiderably lower at 12.5% and zero respectively. A significant element of thistax charge is in deferred tax as the capital allowances on our recent pressinvestment programme are in excess of depreciation. Earnings Per Share/Dividends Basic earnings per share at 39.36p was well up on 2006 because of thenon-recurring tax adjustments as detailed above. Excluding those non-recurringitems, earnings per share at the basic level was £34.15p, down 6.8% on 2006,reflecting the continuing difficult market environment experienced by the sectorduring 2007. Subject to approval at the Annual General Meeting on 25 April 2008,the total dividend for the year will be 10.0p, an increase of 7.5%. Thisincrease reflects the strength of cash flows within the Group and the Board'scontinued desire to reduce the dividend cover from its current levels. Finance Strategy/Net Debt Due to the strong levels of cash generation within the business, Group policyhas been historically, and continues to be, to finance all investments throughdebt. Over the last year, we have re-examined lease versus buy options,especially where these have associated tax related benefits to determine whetherthere might be any sustainable advantage to be gained without compromising theGroup's overall tax position. As has been the case in prior years, our policy continues to be for borrowingsto be arranged at the lowest possible cost, and with covenants within which theGroup can comfortably operate. The policy requires that a minimum of 50% of thedebt should be hedged against potential movements in interest rates whilst thebalance is kept under constant review. This policy helped to protect us duringthe last quarter of 2007 when there was a significant divergence between LIBORand base rates. The balance of debt that was not hedged was exposed to theincreased LIBOR rates and, in an effort to minimise the cost of this, over thelast quarter of 2007 and into the first quarter of 2008 we have been rollingover that element of our debt on a weekly basis. This has enabled us to mitigatea portion of the costs, because the divergence between weekly LIBOR rates andbase rates was less than the divergence on monthly rates. It is estimated thatthe increase in LIBOR rates from the norm has cost the Group £0.5 million in2007. At 31 December 2007, £350 million of the debt was hedged or fixed for anaverage period of 3.5 years. The only other financial risk the Group faces is in relation to its investmentsin the Republic of Ireland which are Euro denominated. The debt drawn down tofinance the acquisition of the Leinster Leader Group in December 2005 was madein Euros which provides a hedge against foreign currency fluctuations in the netinvestment in the foreign operations, whilst at the same time minimising ourborrowing costs. The Group's borrowings at 31 December were impacted by thesterling/euro exchange rate. The average exchange rate for the whole of 2007 was1.46206 but the rate fell sharply in the last quarter to 1.3571 at the year end.This unexpected movement increased borrowings by £10 million. From the date of the acquisition of the Group's Irish businesses up to the endof September 2007, the exchange rate had not moved in any material way. However,the sharp fall in the last quarter has resulted in the retranslation of theGroup's valuation of publishing titles and goodwill in the Republic of Irelandat 31 December 2007. This has also resulted in an adjustment to deferred tax atthe Irish rate of 20%. The increase in borrowings of £10 million is offset byincreases in goodwill and publishing titles with the balances recorded in thehedging and translation reserve. At 31 December 2007, the Group's largest investment in working capital was intrade debtors. Levels of inventory were run down at the year end in anticipationof the reduction in newsprint prices in 2008. The management of trade debtors istherefore seen as a key task and is subject both to Executive and localmanagement reviews. Local incentive arrangements are also in place to ensuretimely collection of all debts. Net debt at the end of the year, reflecting the fixed rate of our currencyhedges and the £10 million adverse impact of the sterling/euro exchange rate,was £692 million, a reduction of £54 million over the course of the year. Thisreduction was achieved in a year when capital expenditure was still well abovedepreciation. Capital expenditure payments in the year totalled £31.0 million,this was £6.0 million lower than we had anticipated as some of the finalpayments on the Portsmouth press project were not made until early 2008. TheGroup continues to be financed through 5 year bank facilities put in placeduring 2005 and private placement loan notes which have outstanding termsbetween 5 and 9 years. Pensions Despite the volatile market conditions, the pension trustees' investmentstrategy and the Group's efforts in recent years to address the pension funddeficit continue to bear fruit and this has seen a reduction in the overallpension deficit of £32.3 million in the year. The Executive Directors 5 March 2008 Group Income StatementFor the year ended 31 December 2007 2007 2006 Before Before non- Non- non- Non- recurring recurring recurring recurring items items Total items items Total Notes £'000 £'000 £'000 £'000 £'000 £'000 Revenue 2a 607,504 - 607,504 602,221 - 602,221Cost of sales (311,756) - (311,756) (304,806) - (304,806)Gross profit 295,748 - 295,748 297,415 - 297,415 Operating expenses 2c (117,606) (6,829) (124,435) (110,642) (15,143) (125,785)Goodwill adjustment - (5,874) (5,874) - - -Total operating (117,606) (12,703) (130,309) (110,642) (15,143 (125,785)expenses Operating profit 2b 178,142 (12,703) 165,439 186,773 (15,143) 171,630Investment income 4 607 - 607 583 - 583Net finance income on pension assets/liabilities 5a 4,514 - 4,514 3,382 - 3,382Finance costs 5b (45,922) - (45,922) (44,101) (44,101)Share of results of associates 76 - 76 60 - 60Profit before tax 137,417 (12,703) 124,714 146,697 (15,143) 131,554Tax 6 (38,876) 27,717 (11,159) (41,204) 5,305 (35,899) Profit for the year 98,541 15,014 113,555 105,493 (9,838) 95,655 Earnings per share (p)Earnings per share 8 34.15 5.21 39.36 36.66 (3.42) 33.24- BasicEarnings per share - Diluted 8 34.09 5.20 39.29 36.54 (3.41) 33.13 All of the above revenue and profit is derived from continuing operations. Group Statement of Recognised Income and ExpenseFor the year ended 31 December 2007 Hedging and Revaluation Translation Retained Reserve Reserve Earnings Total £'000 £'000 £'000 £'000 Profit for the year - - 113,555 113,555Actuarial gain on definedbenefit pension schemes (net of - - 16,063 16,063taxRevaluation adjustment (63) - 63 -Exchange differences ontranslation of foreign operations - 2,245 - 2,245Change in fair value of interest - (2,406) - (2,406)rate swapsChange in fair value of cross - 4,691 - 4,691currency swapsDeferred taxation - (686) - (686)Change in deferred tax rate to 28% - 175 (338) (163) Total recognised income and expense (63) 4,019 129,343 133,299 For the year ended 31 December 2006 Profit for the year - - 95,655 95,655Actuarial loss on definedbenefit pension schemes (net of tax) - - 8,778 8,778Revaluation adjustment (65) - 65 -Exchange differences on translation of foreign operations - (374) - (374)Change in fair value of interest rate swaps - 8,266 - 8,266Change in fair value of cross currency swaps - 1,483 - 1,483Deferred taxation - (1,941) - (1,941) Total recognised income and expense (65) 7,434 104,498 111,867 Group Reconciliation of Shareholders' EquityFor the year ended 31 December 2007 Share-based Hedging and Share Share Payments Revaluation Own Translation Retained Capital Premium Reserve Reserve Shares Reserve Earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening balances 29,893 331,289 4,265 2,522 (1,628) 4,112 203,36 573,813 Total recognisedIncome and expense - - - (63) - 4,019 129,343 133,299 Recogniseddirectly in equityDividends (note 7) - - - - - - (27,456)(27,456)New share capital 51 1,461 - - - - - 1,512subscribedProvision forshare-basedpayments - - 2,607 - - - - 2,607Reclassification - - 1,807 - (1,807) - - - Net changes 51 1,461 4,414 - (1,807) - (27,456)(23,337)directly in equity Total movements 51 1,461 4,414 (63) (1,807) 4,019 101,887 109,962 Equity at the end of the year 29,944 332,750 8,679 2,459 (3,435) 8,131 305,247 683,775 For the year ended 31 December 2006 Opening balances 29,772 327,437 2,770 2,587 (749) (3,322) 123,975 482,470 Total recognisedIncome and expense - - - (65) - 7,434 104,498 111,867 Recognised directlyin equityDividends (note 7) - - - - - - (25,113)(25,113)New share capital subscribed 121 3,852 - - - - - 3,973Own shares purchased - - - - (1,665) - - (1,665)Amounts written off - - - - 786 - - 786Provision forshare-basedpayments - - 1,495 - - - - 1,495 Net changes 121 3,852 1,495 - (879) - (25,113)(20,524)directly in equity Total movements 121 3,852 1,495 (65) (879) 7,434 79,385 91,343 Equity at the endof the year 29,893 331,289 4,265 2,522 (1,628) 4,112 203,360 573,813 Group Balance SheetAt 31 December 2007 2007 2006 Notes £'000 £'000Non-current assetsGoodwill 130,010 130,271Other intangible assets 1,373,614 1,353,462Property, plant and equipment 273,381 268,342Available for sale investments 2,712 2,712Interests in associates 39 33Trade and other receivables 31 467Derivative financial instruments 4,192 6,598 1,783,979 1,761,885 Current assetsInventories 4,334 5,776Trade and other receivables 89,533 81,877Cash and cash equivalents 17,470 24,636 111,337 112,289 Total assets 1,895,316 1,874,174 Current liabilitiesTrade and other payables 77,120 73,670Tax liabilities 17,612 7,993Obligations under finance leases - 5Retirement benefit obligation 3,300 4,272Borrowings 9 15,714 2,290 113,746 88,230 Non-current liabilitiesBorrowings 9 672,834 750,753Derivative financial instruments 16,082 18,137Retirement benefit obligation 9,843 41,167Deferred tax liabilities 395,320 399,174Trade and other payables 2,094 431Long term provisions 1,622 2,469 1,097,795 1,212,131 Total liabilities 1,211,541 1,300,361 Net assets 683,775 573,813 EquityShare capital 29,944 29,893Share premium account 332,750 331,289Share-based payments reserve 8,679 4,265Revaluation reserve 2,459 2,522Own shares (3,435) (1,628)Hedging and translation reserve 8,131 4,112Retained earnings 305,247 203,360 Total equity 683,775 573,813 Group Cash Flow StatementFor the year ended 31 December 2007 2007 2006 £'000 £'000 Cash generated from operations 193,846 187,140Income tax paid (20,211) (37,489) Net cash from operating activities 173,635 149,651 Investing activitiesInterest received 607 583Dividends received from associated 70 75undertakingsProceeds on disposal of property, plant and 5,461 8,738equipmentProceeds on disposal of business 114 3,277Purchases of property, plant and equipment (31,027) (65,040)Acquisition of businesses (11,413) (165,535)Net cash in businesses acquired 1 5,225Net cash in subsidiaries sold (10) - Net cash used in investing activities (36,197) (212,677) Financing activities Dividends paid (27,456) (25,113)Interest paid (46,538) (42,918)Interest paid on finance leases (5) (15)Repayments of borrowings (77,830) (29,685)Repayment of loan notes (8,272) -New borrowings - 163,043Arrangement fees on new borrowings - (548)Principal payments under finance leases - (52)Issue of shares 1,512 3,973Purchase of own shares - (1,665)Increase/(decrease) in bank overdrafts 13,985 (4,472) Net cash (used in)/ from financing (144,604) 62,548activities Net decrease in cash and cash equivalents (7,166) (478)Cash and cash equivalents at the beginning 24,636 25,114of the year Cash and cash equivalents at the end of the year 17,470 24,636 Notes to the Financial Information 1. Basis of Preparation These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) and with those parts of the Companies Act1985 applicable to Groups reporting under IFRS. These are subject to ongoingamendment by the International Accounting Standards Board (IASB) and subsequentendorsement by the European Union and are therefore subject to change. As aresult, information contained herein will need to be updated for any subsequentamendment to IFRS or any new standards that the Group may elect to adopt early.The financial statements have been prepared under the historical cost conventionas modified by the revaluation of freehold properties, which on transition toIFRS were deemed to be the cost of the asset, and financial instruments. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2007 or 2006, but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s237(2) or(3) Companies Act 1985. While the financial information included in this preliminary announcement hasbeen computed in accordance with IFRS, this announcement does not itself containsufficient information to comply with IFRSs. The Company expects to publish itsfull financial statements for the year ended 31 December 2007 in March 2008. 2 Segmental Analysis a) Revenue An analysis of the Group's revenue is as follows: 2007 2006 £'000 £'000 Newspaper publishing 572,488 574,897Contract printing 35,016 27,324 Revenue sub total 607,504 602,221Investment income 607 583Total revenue 608,111 602,804 The printing revenues excludes inter group revenue of £86 million (2006 - £69million). The revenues include £4,082,000 and £1,259,000 relating to theacquisitions and disposals respectively. b) Operating profit An analysis of the Group's operating profit is as follows: 2007 2006 £'000 £'000 Newspaper publishing 158,060 177,494Contract printing 7,379 (5,864) 165,439 171,630 Operating profit above is net of non-recurring items including the goodwilladjustment of £5,874,000. Operating profit includes a profit of £661,000 and aloss of £917,000 relating to the acquisitions and disposals respectively. The 2006 results for contract printing were impacted by a non-recurring writedown of the value of presses amounting to £9 million. c) Cost of sales and operating expenses 2007 2006 £'000 £'000 Cost of sales 311,756 304,806 Operating expensesDistribution costs 46,156 45,580Administrative expenses before non-recurring 71,450 65,062 117,606 110,642Non-recurring - administrative expenses 6,829 15,143- goodwill adjustment 5,874 - 130,309 125,785 d) Other information An analysis of the Balance Sheet and property, plant and equipment informationby segments is as follows: Newspaper Contract Consolidated Newspaper Contract Consolidated Publishing Printing Total Publishing Printing Total 2007 2007 2007 2006 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000 Additions to 5,074 26,341 31,415 16,413 44,826 61,239property, plant andequipmentDepreciation expense 11,793 12,259 24,052 12,718 17,067 29,785 Balance Sheet AssetsIntangibles 1,503,624 - 1,503,624 1,483,733 - 1,483,733Property, plant and 79,538 193,843 273,381 91,490 176,852 268,342equipmentInterests in 39 - 39 33 - 33associatesInventories 525 3,809 4,334 1,170 4,606 5,776Trade and other 83,622 5,942 89,564 77,601 4,743 82,344receivablesCash and cash 17,453 17 17,470 24,573 63 24,636equivalents 1,684,801 203,611 1,888,412 1,678,600 186,264 1,864,864 UnallocatedCorporate AssetsAvailable for sale 2,712 2,712instrumentsDerivative financial 4,192 6,598instrumentsTotal Consolidated 1,895,316 1,874,174Assets LiabilitiesTrade and other 69,425 9,789 79,214 65,903 8,198 74,101payablesObligations under - - - 5 - 5finance leases 69,425 9,789 79,214 65,908 8,198 74,106 UnallocatedCorporateLiabilitiesTax liabilities 17,612 7,993Borrowings 688,548 753,043Derivative financial 16,082 18,137instrumentsRetirement benefit 13,143 45,439obligationsProvisions 1,622 2,469Deferred tax 395,320 399,174liabilityTotal Consolidated 1,211,541 1,300,361Liabilities 3 Non-Recurring Items An analysis of structural changes is as follows: 2007 2006 £'000 £'000 Restructuring costs of acquired businesses 502 2,109Restructuring costs of existing business 7,361 6,717Write down of value of presses in existing - 9,000businessesProfit on sale of property in existing business (1,884) (2,683)Loss on disposal of businesses 850 - 6,829 15,143 4 Investment Income 2007 2006 £'000 £'000 Income from fixed asset investments 53 79Interest receivable 554 504 607 583 5 Finance Costs 2007 2006 £'000 £'000a) Net finance income on pension assets/liabilitiesInterest on pension liabilities 21,303 19,217Expected return on pension assets (25,817) (22,599) (4,514) (3,382)b) Finance costsInterest on bank overdrafts and loans 45,532 43,752Interest on obligations under finance leases 1 15Amortisation of term debt issue costs 389 334 45,922 44,101 6 Tax 2007 2006 £'000 £'000 Current tax 29,849 28,528Deferred taxCharge for year 7,515 7,371Credit relating to change in tax rate on titles (20,331) -held on adoption ofIFRS and other timing differencesCredit relating to change in tax rate on titles (5,874) -acquired since1 January 2005 11,159 35,899 UK corporation tax is calculated at 30% (2006 - 30%) of the estimated assessableprofit for the year. Taxation for other jurisdictions is calculated at the ratesprevailing in the relevant jurisdiction. The tax charge for the year can be reconciled to the profit per the incomestatement as follows: 2007 2006 £'000 % £'000 % Profit before tax 124,714 100.0 131,554 100.0 Tax at 30% 37,414 30.0 39,466 30.0Tax effect of share of results of associate 23 - (18) -Tax effect of expenses that arenon deductible in determining taxable profit 2,085 1.7 137 0.1Tax effect of investment income (16) - (24) -Effect of different tax rates of subsidiaries (1,558) (1.2) (2,677) (2.1)Gain on sale of properties rolled over (565) (0.5) (805) (0.6)Over provision in prior years (19) - (180) (0.1)Effect on reduction in deferred tax rate to 28% (26,205) (21.0) - - Tax expense for the year and 11,159 9.0 35,899 27.3effective rate 7 Dividends 2007 2006 £'000 £'000Amounts recognised as distributionstoequity holders in the period: Final dividend for the year ended31 December 2006 of 6.2p (2005 - 5.6p) 17,818 16,072 Interim dividend for the year ended31 December 2007 of 3.3p (2006 - 3.1p) 9,486 8,889 Preference Dividends13.75% Cumulative Preference Shares 104 10413.75% "A" Preference Shares 48 48 27,456 25,113 The proposed dividend to be considered by shareholders at the Annual GeneralMeeting is 6.7p per share making a total for the year of 10.0p (2006 - 9.3p). Ifapproved by shareholders, the dividend will be paid on 9 May 2008 toshareholders on the register at 25 April 2008. 8 Earnings per Share The calculation of earnings per share is based on the following profits andweighted average number of shares: 2007 2006 £'000 £'000Earnings Profit for the year 113,555 95,655Preference dividend (152) (152) Earnings for the purposes of basic and dilutedearnings per share 113,403 95,503Non-recurring items (after tax) (15,014) 9,838 Earnings for the purposes of underlyingearning per share 98,389 105,341 2007 2006 No. of shares No. of shares Number of sharesWeighted average number of ordinary sharesfor the purpose of basic earnings per share 288,105,346 287,327,428Effect of dilutive potential ordinary shares:- share options 534,146 954,185 Number of shares for the purposes of diluted 288,639,492 288,281,613earnings per share Earnings per share (p)Basic 39.36 33.24Underlying 34.15 36.66Diluted 39.29 33.13 Underlying figures are presented to show the effect of excluding non-recurringitems from earnings per share. The preference shares are considered to be equity under IAS 32. In line with IAS33, the preference dividend and the number of preference shares are excludedfrom the calculation of earnings per share. 9 Borrowings 2007 2006 £'000 £'000 Bank overdrafts 16,104 2,119Bank loans - Sterling 352,000 439,000Bank loans - Euro denominated 126,446 107,408Guaranteed loan stock - 8,2722003 Private placement of 10 year senior notes 117,578 118,7012006 Private placement of 8 and 10 year senior 77,605 79,118notesTerm debt issue costs (1,185) (1,575)Total borrowings 688,548 753,043 The borrowings are disclosed as: 2007 2006 £'000 £'000 Current borrowings 15,714 2,290Non-current borrowings 672,834 750,753 688,548 753,043 The Group's net debt is: 2007 2006 £'000 £'000 Gross borrowings as above 688,548 753,043Finance leases - 5Cash and cash equivalents (17,470) (24,636)Impact of currency hedge contracted rates 20,645 18,009Net debt at currency hedge contracted rates 691,723 746,421 Analysis of borrowings by currency: As at 31 December 2007 Total Sterling Euros US Dollars £'000 £'000 £'000 £'000 Bank overdrafts 16,104 16,104 - -Bank loans 478,446 352,000 126,446 -2003 Private placement of 10 117,578 60,000 - 57,578year senior notes2006 Private placement of 8 and 77,605 - - 77,60510 year senior notesTerm debt issue costs (1,185) (1,185) - - 688,548 426,919 126,446 135,183 As at 31 December 2006 Total Sterling Euros US Dollars £'000 £'000 £'000 £'000 Bank overdrafts 2,119 2,119 - -Bank loans 546,408 439,000 107,408 -Guaranteed loan stock 8,272 171 8,101 -2003 Private placement of 10 118,701 60,000 - 58,701year senior notes2006 Private placement of 8 and 79,118 - - 79,11810 year senior notesTerm debt issue costs (1,575) (1,575) - - 753,043 499,715 115,509 137,819 Bank overdrafts The Group's bank overdraft facility is £30 million and is repayable on demand.Interest payable is determined based on base rate plus 1%. Bank loans The Group has Credit Facilities with a number of banks. The total facility is£630 million (2006: £630 million) of which £152 million is unutilised at thebalance sheet date (2006: £75 million). The initial principal amounts were takenout on 20 October 2005 with additional funding being taken out on 15 June 2006.Repayment of principal amounts is due in full on 30 September 2010. The loanscarry interest at 1% above LIBOR, with adjustments dependent on financialratios. Maturity intervals can be weekly, monthly, quarterly or half yearly. In accordance with the Credit Agreements in place, the Group hedges a portion ofthe bank loans via interest rate swaps exchanging floating rate interest forfixed rate interest. Borrowings of £350 million (2006: £440 million) werearranged at fixed rates and expose the Group to fair value interest rate risk.Further details on all of the Group's hedging arrangements are detailed in theAnnual Report. Guaranteed loan stock All Guaranteed Loan stock has been repaid during the year. In the prior year, the Guaranteed Loan Stock comprised £171,000 due in relationto the acquisition of Best Asian Media Limited with the balance of £8,101,000inherited when the Group acquired Score Press Limited. The interest rates paidon the loan notes were 3.5% in relation to Best Asian Media and 12 months LIBORless a margin (as defined in the agreement which varies over the term of theloan stock) in relation to Score Press Limited. 2003 Private Placement of 10 year senior notes The 2003 Private Placement of 10 year Senior Notes is made up of £60 million ata fixed rate of 6.3% and US $115 million at a fixed rate of 5.75%. The lattertranche has been swapped into floating Sterling to hedge the Group's exposure toUS dollar interest rates. 2006 Private Placement of 8 and 10 year Senior notes The Private Placement of 2006 Senior Notes is made up of $55 million at a fixedrate of 6.18% and $100 million at a fixed rate of 6.28%. The total amount of$155 million has been swapped back into fixed Sterling of £40 million andfloating Sterling of £43 million, again to hedge the Group's exposure to USdollar interest rates. Interest rates: The weighted average interest rates were paid as follows: 2007 2006 % %Bank overdrafts 6.6 5.6Bank loans 6.4 5.8Guaranteed loan stock 5.3 5.32003 Private placement of 10 year senior notes 6.8 6.22006 Private placement of 8 and 10 year senior 6.1 5.6notes 6.4 5.8 10 Notes to Cash Flow Statement 2007 2006 £'000 £'000 Operating profit 165,439 171,630Adjustments for:Depreciation of property, plant and equipment 24,052 29,785Currency differences 473 (328)Cost of share based payments 2,607 2,281Profit on disposal of property, plant and (2,103) (3,175)equipmentMovement on pension provision (2,724) (1,652)Loss on disposal of businesses 850 -Goodwill adjustment 5,874 - Operating cash flows before movements in 194,468 198,541working capital Decrease/(increase) in inventories 1,357 (151)Increase in receivables (6,560) (5,405)Increase/(decrease) in payables 4,581 (5,845) Cash generated by operations 193,846 187,140 Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Johnston Press PLC