Johnston Press PLC
17 March 2004
For Immediate Release 17 March 2004
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003
Johnston Press plc, one of the UK's leading regional newspaper publishers, is
pleased to announce record results for the year ended 31 December 2003.
KEY FINANCIALS
2003 2002 % Change
£m £m
Turnover 491.8 428.4 +15
Operating profit 160.6 129.5 +24
Profit before tax 128.0 92.7 +38
Free cash flow 94.9 86.1 +10
Earnings per share Pence Pence
- headline 32.36 26.75 +21
- basic 31.57 24.65 +28
Dividend per share
- final 4.00 3.60 +11
- total 6.00 5.40 +11
HIGHLIGHTS
• First full-year contribution from RIM - included in 2002 for 37 weeks.
• Like-for-like (including RIM for full year 2002) advertising revenue
growth 3.8%; in the first half 3.0% increasing to 4.6% in second half.
• Operating margins pre-exceptional items increased from 30.6% to 33.1%,
with former RIM businesses advancing from 27.9% to 32.9% and existing
businesses from 31.7% to 33.3%.
• Operating profit, pre-exceptional items, excluding RIM in both years,
up 8.8%.
• Seventh consecutive year of circulation growth for weekly titles.
PROSPECTS
Chairman, Roger Parry said:
'The achievement of continuing organic revenue growth remains central to the
Group's objectives. Of the many financial and commercial measures of a company,
we regard the most important as being free cash flow and earnings per share. We
see continued growth in these coming from further increases in circulation and
advertising revenues coupled with continuing tight control of costs. Given that
the new financial year has started well, with advertising revenues growing at a
similar level to the second half of 2003, the Board is optimistic that we will
be able to achieve this growth in 2004 and beyond.'
For further information please contact:
Tim Bowdler, Chief Executive Tel: 020 7466 5000 (today) or
Stuart Paterson, Finance Director 0131 225 3361 (thereafter)
Buchanan Communications Tel: 020 7466 5000
Richard Oldworth/ Richard Darby/Suzanne Brocks
CHAIRMAN'S STATEMENT
2003 was another superb year for the Group. Cash generation, revenue and profit
have all risen to record levels. Assisted by an excellent first full-year
contribution from Regional Independent Media Holdings Ltd (RIM), as a result of
its highly successful integration into the Group, headline earnings per share
rose strongly by 21%. The focus of the management team has been on strengthening
our existing operations by improving services to readers and advertisers as well
as capturing cost savings. It has been a year of real progress.
The success of Johnston Press is built upon an unwavering commitment to serve
local communities by the provision of news, information and entertainment.
Through our publications and websites, we aim to provide compelling content to
every section of the community: be they young or old, at home or at work and
whatever their range of interests. We aim to be the premium provider of print
and on-line information in all of our chosen local markets.
Investment in 2003 has gone into enhancing our presses, systems, processes and
publishing portfolio. This has been achieved by providing more colour printing,
by using new technology to speed up the process by which our publications get to
our readers and by improving the functionality and content of our websites. We
have been rewarded by an increase in the circulation of our core weekly titles
of 1.3%, which is the seventh consecutive year we have seen circulations rise
and by a very substantial increase in website use.
In addition, we have seen further growth in spending by our advertising
customers in our main classified advertising categories, both in print and
on-line.
RESULTS
In 2003, we achieved a turnover of £492 million, up 15%, profit before tax of
£128 million, up 38%, and free cash flow of £95 million, up 10%. Headline
earnings per share rose from 26.75p to 32.36p.
DIVIDEND
The Board proposes a final dividend of 4p per share, making a total of 6p per
share compared to 5.4p per share last year. This is an increase of 11%.
In the 2003 calendar year, the Group's share price rose by 26%. Whilst this is
very pleasing to all of us as shareholders, the Board recognises that this is no
more than an expression of market opinion and that we must continue to focus on
the real fundamentals of satisfying the needs of our readers and advertisers.
STRATEGY
As we do every year, the Board has conducted a thorough strategic review of our
existing business and explored all the various opportunities open to us for
future investment. Recognising the considerable success of our strategy to date,
we re-affirmed that we are best positioned to achieve growth from continuing to
serve selected local communities with their diverse information needs.
We continue to very actively seek acquisition opportunities that would mesh with
our existing portfolio of businesses and to pursue organic growth through a
range of new in-print and on-line initiatives.
MEDIA OWNERSHIP
All the evidence suggests that the consolidation of ownership in the regional
press in the UK has produced substantial benefits for both readers and
advertisers. It is important, therefore, that the Government and competition
authorities do not stand in the way of future consolidation where there are
demonstrable benefits.
Plurality of editorial voice does not automatically flow from plurality of
ownership. There are many examples where a strong and well resourced local
newspaper company provides excellent and varied editorial products and there is
no evidence to suggest that the quality of local news and information is
diminished in markets where there is only one publisher of local newspapers. It
is certainly our policy to encourage wide editorial diversity.
BOARD
During the past year we have been delighted to welcome two new Non-Executive
Directors to the Johnston Press Board.
Simon Waugh is the Group Marketing Director of Centrica and Martina King is the
Managing Director of Yahoo Europe. Both bring considerable experience of
consumer marketing. As I reported to shareholders last year, Sir Harry Roche
will be stepping down at the AGM in April 2004 on the event of his seventieth
birthday and I would like to record the thanks of the Board for his invaluable
contribution as a director of Johnston Press.
After Sir Harry's retirement, the Board will consist of nine directors. Of
these, four are regarded as independent non-executives. Freddy and Harry
Johnston are not seen as independent, as a result of their length of service on
the Board and significant shareholdings, although the other directors are
unanimous in believing that they always act in the interests of all
shareholders. The rest of the Board is made up of myself, the Chief Executive
and the Finance Director. This Board composition and that of the Board
committees mean that we are in full compliance with best practice in corporate
governance.
PROSPECTS
The achievement of continuing organic revenue growth remains central to the
Group's objectives. Of the many financial and commercial measures of a company,
we regard the most important as being free cash flow and earnings per share. We
see continued growth in these coming from further increases in circulation and
advertising revenues coupled with continuing tight control of costs. The Board
is optimistic that we will be able to achieve this growth in 2004 and beyond.
ROGER PARRY
Chairman
17 March 2004
CHIEF EXECUTIVE'S REVIEW
2003 was another excellent year for Johnston Press. The integration of Regional
Independent Media Holdings Limited (RIM) was substantially completed, well ahead
of our original expectations in terms of progress, performance and payback. Our
continued focus on organic revenue growth and tight cost control, coupled with
reduced newsprint prices, enabled the Group to achieve record profits and
industry-leading operating margins.
STRATEGIC REVIEW
The theme of this report once again illustrates the local nature of our business
and the markets in which we operate. Recent market research carried out by the
Future Foundation on behalf of the Newspaper Society, the industry's trade
association, demonstrates the growing importance of local communities within
the social fabric of the United Kingdom. Their 'myuk' report illustrates the
considerable extent to which people's lives and daily affairs are concentrated
in an area close to their homes, whether for work, shopping, leisure or social
activities.
It is this feature of the way that people live their lives which provides local
newspapers with their basic purpose. Local newspapers continue to be the
principal media in meeting the needs of local communities for locally focused
news and information.
They also provide advertisers with high levels of local market penetration and
response. Local newspapers remain a vital and integral part of local communities
throughout the UK.
As a publisher of 241 local and regional newspaper titles, together with
numerous related print publications and more than 160 community based websites,
Johnston Press is totally focused on this vitally important market. Through a
combination of organic and acquisitive growth, the Group is now one of the four
leading publishers of regional newspapers in the UK with a total market share of
14.4% in terms of numbers of copies sold and distributed.
The Group's publishing activities span a large area of the UK and, in the
overwhelming majority of our marketplaces, Johnston Press is the market-leading
publisher of local newspapers. This is achieved through a combination of
paid-for daily and weekly titles, weekly free newspapers, specialist print
publications, such as lifestyle magazines, local business directories and
classified advertising products complemented by local websites.
The Group's strategic focus remains firmly fixed on print and electronic
publishing in local markets around the UK. We continue to place a high emphasis
on the achievement of organic revenue growth and constantly review our existing
publications to ensure that they respond to changing market needs. We
continually seek opportunities to launch new locally based print publications
and, as a result, the number of specialist products published by the Group has
grown considerably in recent years. We have ongoing initiatives to expand our
business with existing advertisers but also to seek new advertising revenue
opportunities as the shape and business profile of our local marketplaces
change.
We continue to increase the number of websites focused on our local communities,
expanding their content, improving their functionality and promoting their
brands, all part of a concerted strategy to serve this new and growing market
opportunity. We have launched several new initiatives aimed at developing the
potential from building local consumer databases. We have enabled advertisers to
book and pay for advertisements on-line as well as providing all of our sales
staff with access to the best advertisement ideas and designs through our Group
Intranet.
Although no acquisitions were completed during 2003, the Group remains keenly
focused on the achievement of continued acquisitive growth in the UK regional
press. With a market share of less than 15%, we believe that Johnston Press can
expect to grow further, even if over 70% of the sector is now in the ownership
of the four largest regional newspaper publishers. We closely monitor industry
developments but will remain selective in those opportunities which we choose to
pursue. Thus, during the year, we did not participate in the bidding process for
Trinity Mirror's Irish titles or for the London-based regional newspapers being
sold by Independent News & Media. In neither case did we regard the strategic
fit as sufficiently compelling to make an offer.
MEDIA OWNERSHIP
The extent to which further industry consolidation will occur is also dependent
upon the regulation of newspaper transfers. At the end of 2003, the new
Communications Act reached the statute book, significantly changing the
regulatory process. The need for prior ministerial consent to newspaper
transfers and related criminal sanctions has been removed.
Whilst, at first glance, this may seem to represent an easing of the
regulations, we do not believe that this will be the case in practice. This is
in part due to uncertainty as to how the OFT, DTI and OFCOM will treat newspaper
transfers and also reflects the unhelpful conclusions of recent Competition
Commission inquiries. It is the opinion of Johnston Press that the Commission
has tended to take an overly narrow view of market definition which considerably
underestimates the extent to which local newspapers are subject to competition
from alternative media. We believe that they have also misjudged the ease of new
market entry and underestimated its impact on publisher behaviour.
However, we do not believe that the introduction of the Communications Act 2003
will deter further sensible industry consolidation and we are confident that
over time the regulators will reach a clearer understanding of the ways in which
our markets operate. We continue to harbour hopes that the Government's promises
of genuine deregulation and a lighter touch approach will be delivered.
TRADING PERFORMANCE
Whilst market conditions during 2003 were by no means buoyant, the Group
succeeded in growing like-for-like advertising revenues by 3.8%, comprising 3.0%
in the first half increasing to 4.6% in the second. When compared with the media
industry in general, this represents a strong performance and reflects the fact
that consumer confidence in local markets remained positive throughout the year.
This, coupled with the related factors of rising house prices and low levels of
unemployment, is the principal determinant of the health of advertising revenues
in the regional press. In the vast majority of our local markets, this ensured a
relatively stable trading environment.
Growth was achieved in every advertising category in the second half of the
year. Although all classified categories grew over the year as a whole, display
advertising was marginally down due to the poor performance of national display
advertising in the first half. The growth in advertising revenue reflected a
modest increase in volumes, fuelled by strong growth in property advertising,
and improved yields in all categories as a result of the continued increase in
colour advertising, which is sold at a premium, along with normal rate card
increases.
Recruitment advertising grew strongly in the second half, up 7.7% against weaker
2002 comparatives although performance was patchy. The north of the country,
except for the northeast of England, exhibited good growth whilst trading
continued to be more difficult in the south. This was particularly the case in
the South Midlands where we experienced further declines as a result of the more
difficult economic conditions around the greater London area. However, the
trends improved as the year progressed.
Property advertising demonstrated strong growth throughout the year, up 14.5%.
The second half performance was marginally down on the first half as the
comparatives were more difficult but, nonetheless, remained strong. All areas of
the country saw good growth which was the result of a cooling property market in
which vendors had to work harder to sell their properties. This was especially
true of the new homes market which in 2002 was so buoyant that advertising often
proved unnecessary.
The motors market remained relatively stable with modest growth of 1.4% in the
year and broadly similar levels being achieved in each half. Whilst there were
regional variations, these
did not follow any pattern and fluctuations from the norm were moderate. Other
classifieds grew steadily through the year, achieving 4.6% overall and also
exhibiting similar levels of growth in each half. Again, there were modest
regional variations which did not follow a particular pattern.
After a decline of 1.7% in the first half, display advertising recovered to
record second half growth of 0.2%. This was primarily due to a significant
improvement in national display advertising, driven by recovery post the Iraq
war and increased activity from the supermarkets, but also reflected a
marginally better local performance. Given the relatively volatile nature of
national display advertising, there were significant local variations but, once
more, no clear regional pattern.
Operating margins for the Group, pre-operating exceptional items, were again
ahead of the previous year, with an increase from 30.6% to 33.1%. Every division
increased its operating profit and margin, a creditable performance which
reflected continued excellent control over costs, aided by a reduction in
newsprint prices. This enabled modest revenue growth to be converted into a
significantly greater increase in operating profit.
Performance has also benefited from a continued programme of investment in
updated IT systems with common platforms being introduced across entire
divisions. Having strengthened the co-ordination of such initiatives across the
Group by the appointment of a Head of IT following the acquisition of RIM,
considerable progress has been made in utilising
the benefits that these technological developments offer. In 2004, it is
anticipated that two more publishing divisions will move to an enhanced
division-wide operating platform.
Those businesses which were part of the Group prior to the acquisition of RIM
increased their pre-exceptional operating margins from 31.7% to 33.3%. The
ex-RIM businesses managed a substantial improvement with pre-exceptional
operating margins rising from 27.9% to 32.9% and are now performing very close
to the overall Group average. This achievement reflects the very considerable
progress which has been made since the business was acquired. The initial
integration programme was completed some time ago, ahead of our plans, and we
are now well into the more detailed task of achieving the local operating
synergies which the acquisition offered. There is an expectation of further
benefits during the course of 2004.
In Scotland, where we publish across the middle belt of the country and in large
parts of the Scottish borders, market conditions were less helpful overall than
for many other parts of the Group. The continued increase in profitability
reflects local management's excellent control over costs and realisation of the
anticipated benefits from the integration of the south of Edinburgh-based
Bonnyrigg operation, which was acquired in 2002 as part of RIM. In a
particularly challenging marketplace, Isle of Man Newspapers again performed
well. During the year, they improved the design and content of their three
newspaper titles as well as launching a lifestyle magazine.
Northeast Press, which publishes from Alnwick in the north to Hartlepool in the
south of the region, continues to make good progress with profitability now
close to the Group average. On its acquisition in 1999, this business had
operating margins which were barely into double figures. This improvement has
been achieved through a combination of cost and revenue initiatives, with good
progress being made during 2003 through the introduction of new advertising
platforms such as business and health supplements.
The North of England division is our largest and publishes extensively
throughout many parts of Yorkshire. The division comprises three companies from
RIM, including Yorkshire Post Newspapers, and three which were previously part
of the Group. Across the division, market conditions have generally been
favourable, although the substantial improvement in performance owes much to the
excellent progress made with the integration of the businesses post-acquisition.
Whilst each remains firmly focused on its local markets, opportunities have been
taken to rationalise and improve the efficiency of functions such as pre-press,
distribution, accounts, credit control and printing. A number of new revenue
initiatives have also contributed to the improved performance.
The Northwest division performed extremely well, achieving above average revenue
growth which was converted to a significantly improved bottom line. Excellent
progress has been made in all companies and across all aspects of the business
including initiatives to drive revenue growth and to improve operating
efficiencies. The division comprises five separate companies with publications
covering large parts of an area from Morecambe in the north to St Helens in the
south, and from Fleetwood in the west to Colne in the east. The entire division
formed part of the RIM acquisition and includes two specialist off-road
motorbike magazines which have repaid increased investment with a considerable
improvement in performance.
The South Yorkshire & North Midlands division is based around the ex-RIM centre
of Sheffield, together with three previously owned businesses whose publications
circulate in large parts of South Yorkshire, North Lincolnshire, Derbyshire and
Nottinghamshire. As with the North of England division, considerable progress
was made during the year, assisted by good revenue growth, but reflecting
similar business efficiencies. South Yorkshire Newspapers performed particularly
well and achieved substantial growth in the circulation of its flagship title,
the Doncaster Free Press. North Notts Newspapers also had an excellent year with
a highlight being the conversion of the Ashfield Chad from a free distribution
newspaper to a paid-for title achieving a weekly circulation of over 12,000
copies.
The East Midlands division, which publishes throughout much of Lincolnshire,
Cambridgeshire and parts of East Anglia, operates in markets where revenue
growth was more difficult and below the Group average. Progress was made at
Lincolnshire Newspapers following the earlier re-organisation of its newspaper
portfolio and the launch of a new free newspaper. The overall improvement in
profitability reflected good control over costs and the
results of initiatives such as the launch of an up-market property magazine in
Peterborough and the conversion of the monthly free title, Peterborough on
Sunday, to a weekly publication.
Revenues in the South Midlands were virtually flat year-on-year and, in those
circumstances, the achievement of a modest improvement in profitability was
particularly creditable. Whilst recruitment revenues improved as the year
progressed, the run rate still showed a small deficit at the year-end and a 6%
reduction over the year as a whole. The division publishes throughout
Northamptonshire and Bedfordshire and is present in Hertfordshire, Warwickshire,
Buckinghamshire and Oxfordshire. Improved efficiencies were achieved through the
consolidation of pre-press and finance departments across the division and
several lifestyle magazines were launched.
Revenue growth in the south of England fell marginally short of the Group
average, a reflection of the more difficult economic conditions generally
experienced in the south east of the country. Good control of costs enabled the
division to make further progress. Headquartered in Portsmouth, the division
publishes in the eastern part of Hampshire and extensively throughout East and
West Sussex. We are now benefiting from the successful installation of a new
advertising and sales ledger system, which provides a common platform for the
entire region. This has resulted in improved operational efficiencies and new
revenue opportunities.
CIRCULATIONS
The message from our weekly circulation figures is resoundingly that local news
sells. A 1.3% increase means that we have now achieved seven consecutive years
of circulation growth for our weekly titles. Over the years, we have continued
to invest in content, design and colour availability to ensure that we continue
to appeal to readers and meet advertisers' needs. Approximately half of the
Group's 241 titles are paid-for weekly newspapers, more than are owned by any
other UK publisher.
Despite the evident demand for local news, this has not translated into
increased circulations for our daily newspapers which remain in modest but
stubborn decline. After adjusting for planned reductions in bulk sales,
underlying circulations were down by 2.5%. Within that overall figure, there
were several encouraging performances, notably the continued growth in the sale
of the Blackpool Gazette and real progress towards stability in Wigan and from
our two evening newspapers in Northamptonshire. However, the overall performance
remains disappointing despite considerable efforts around the Group to bring
about an improvement. Through the newly constituted Daily Newspaper Sales Forum
and individually at local level, these efforts have been redoubled to encourage
a reversal in the trend towards casual purchase and away from 6-day home
delivery. Part of this initiative involves a more sophisticated approach to
canvassing, utilising database technology. The Group continues its policy of
gradually reducing the inclusion of bulk sales in published circulation figures.
ELECTRONIC PUBLISHING
The Group now has more than 160 local websites to complement our local
newspapers. Page impressions continue to grow and by the year end were up by 40%
to over 14 million per month. Revenue growth remains strong and increased by 6%
on a like-for-like basis, despite a
reduction in the RIM companies' non-profitable revenue streams. 2003 was the
third successive year in which our electronic publishing activities made an
increased contribution to profit.
Every company now regards its websites as an integral part of its publishing
portfolio. All are based on a common template but which allows extensive
tailoring to local needs in terms of design and content whilst ensuring cost
efficiency and centralised technical support. During the year, our property and
motors sites were substantially upgraded with numerous improvements in design
and functionality. The result is already beginning to show in terms of both
content and revenues, for example, we now carry at any one time around 200,000
cars for sale. A similar upgrade of our jobs site has recently been completed
and we have relaunched our on-line business directory which provides listings
for many thousands of local businesses. Further development plans are in
progress and there is an expectation that revenues and page impressions will
continue to grow strongly.
PRINTING
2003 was a year of real progress for the Printing Division which began to reap
the benefits of earlier investments in new and upgraded capacity. The primary
focus of the Printing Division is to meet the requirements of the Group's
publications. With virtually every Johnston Press title now printed in-house or
under an inherited RIM long term printing contract in the Northwest, there was
also an opportunity to take on additional contract printing from several
national newspaper publishers. Better control over costs and an end to the
disruption which followed the recent extensive programme of press upgrades
resulted in significantly improved profitability.
Further investments were initiated during 2003 to increase the colour capability
of the Leeds and Sunderland presses. An additional colour tower at Leeds will be
commissioned by the end of the first quarter of 2004 and this will be followed
by the installation of digital inking which will result in improved quality and
reduced waste. Computer-to-plate technology was also successfully introduced at
Leeds during the year. At Sunderland, we are installing an additional colour
tower which requires a building extension and we are also upgrading the existing
towers to enable them to print full colour on both sides of the web. Work
continues on the major Sheffield project which was announced with the first half
results and good progress has been made in identifying a suitable site and in
terms of the press specification. We expect this project to be completed by the
end of 2006.
During the year, we benefited from a reduction in the price of newsprint and
prices have remained broadly unchanged for 2004. We have also reduced further
the number of suppliers to the Group. This reflects the reliability now being
achieved in deliveries and quality and will enable us to reap further
efficiencies in our pressrooms due to fewer set-up changes.
ORGANISATION AND PEOPLE
Our senior team remained unchanged throughout the year both at Head Office and
amongst divisional management and key functional heads. The performance of
Johnston Press has undoubtedly benefited from their considerable experience and
high motivation.
A number of important appointments were made during the year, including several
at company managing director level. Four new managing directors were appointed
in the Printing Division, three from outside our immediate industry sector, an
initiative which is already paying considerable dividends. During the year, a
large number of employees attended in-house training courses covering a wide
range of topics and disciplines. We continually seek to make improvements to our
training programmes to ensure that our employees develop the skills they require
to fulfil their existing roles and develop their careers with the Group. To
increase the depth of potential managerial talent available to the Group, we
have introduced a Commercial Trainee Leadership Programme under which we have
recruited a number of young university graduates who will receive ongoing
training, guidance and workplace experience to develop their talents.
We remain abreast of the continuing stream of new legislation which relates to
employment and in many areas we are ahead of the legislative requirements. For
example, we have already initiated plans to improve communications and
consultation with all of our employees and we are also actively seeking ways of
increasing diversity, especially amongst our journalists so that our editorial
departments more closely reflect the mix of the communities in which they are
based.
As a Group, we recognise the overwhelming importance of our staff to the success
of the business. During the year, with shareholder approval, we introduced a
Share Incentive Plan and, given the performance achieved in 2003, this will
result in all qualifying employees, representing the vast majority of those we
employ, receiving free shares in Johnston Press. To safeguard the funding
position of our defined benefit pension schemes, we injected £12.6 million of
cash and we made significant improvements to our defined contribution pension
schemes and related benefits. We remain committed to being a progressive
employer and will continue to take steps which recognise the importance and
value of all of our staff.
TIM BOWDLER
Chief Executive
17 March 2004
FINANCIAL REVIEW
In 2003, Johnston Press reaped the benefits of the successful integration of
Regional Independent Media Holdings Ltd (RIM) and this, together with continued
organic growth in all of the operating divisions, ensured that 2003 was another
very satisfactory year.
FINANCIAL REVIEW
In comparing performance between 2003 and 2002, it should be noted that the
acquisition of RIM took place on 12 April 2002, with the result that only 37
weeks of trading were consolidated in the 2002 results. Like-for-like references
in this review include the RIM companies for the full year in 2002. The results
for the two years are shown in the table below.
Operating profit
before operating
Turnover exceptionals
2003 2002 2003 2002
£'000 £'000 £'000 £'000
Total per accounts 491,843 428,394 163,033 131,217
Contribution from RIM 174,296 121,993 57,343 34,097
Underlying performance 317,547 306,401 105,690 97,120
This demonstrates that total turnover increased by 14.8%, the turnover from the
ex-RIM business by 42.9%, and for pre-RIM Johnston Press business by 3.6%. At
the operating profit level these increases were 24.2%, 68.2% and 8.8%
respectively.
REVENUES
Advertising revenues for the Group on a like-for-like basis were as follows:
2003 2002
Increase
£m £m %
Enlarged Group
Employment 106.4 101.7 4.7
Property 51.0 44.5 14.5
Motors 46.1 45.5 1.4
Other classified 56.8 54.2 4.6
Total classified 260.3 245.9 5.8
Display 109.8 110.6 (0.7)
Total advertising revenue 370.1 356.5 3.8
The acquired business (RIM) and the existing business experienced like-for-like
advertising revenue growth for the full year of 5.3% and 3.0% respectively. The
higher growth in the acquired business is primarily due to better performance in
the employment category. The markets in Yorkshire and Lancashire, where RIM is
based, did not experience the reduced confidence which tended to influence
markets in the Home Counties and South East of England.
On a like-for-like basis, the advertising revenues for the enlarged group grew
by 3.8%. This was driven by a 1.6% increase in advertising volumes and a 2.2%
increase in yield. This increase in yield was achieved despite the high growth
in property advertising which is our lowest yielding category. Apart from rate
card rises, the increased yield also reflects our recent investments in
additional colour printing capability, as colour advertising commands a price
premium.
The Chief Executive's report provides a summary of advertising performance by
division.
Below is a breakdown of the advertising revenues on a like-for-like basis for
the two half years.
Half year to 31 December Half year to 30 June
2003 2002 Increase 2003 2002 Increase
£m £m % £m £m %
Employment 52.0 48.3 7.7 54.4 53.4 2.0
Property 24.2 21.4 13.0 26.8 23.1 15.8
Motors 22.5 22.3 0.9 23.6 23.2 1.8
Other classified 28.1 26.8 4.7 28.7 27.4 4.6
Total classified 126.8 118.8 6.7 133.5 127.1 5.0
Display 55.7 55.5 0.2 54.1 55.1 (1.7)
Total advertising revenue 182.5 174.3 4.6 187.6 182.2 3.0
The rate of growth in advertising revenues was stronger in the second half of
the year principally due to a recovery in display advertising after the Iraqi
conflict and employment revenue improving across all regions.
Circulation revenues on a like-for-like basis rose by £1.2 million (1.9%)
reflecting increased circulations of our weekly titles and limited cover price
increases more than offsetting reduced circulations of our daily titles.
The like-for-like trend in contract printing revenues showed a slight decrease
of 3.6% reflecting the concentration of the Printing Division on our in-house
titles and the reduction in external capacity available once the titles from the
closed press at Harrogate were absorbed.
Total income from the other revenue categories on a like-for-like basis, which
include new media, leaflets and sundry, increased year-on-year despite the
comparative figures including the full-year turnover of Yorkshire Post Training
which was sold in 2003. New media revenues grew 6.3% even with a reduction in
non-profitable web building and hosting activities performed by the former RIM
companies. The contribution from our new media activities is now £3 million.
Leaflet sales were ahead by 7.4%, with a strong second half performance. Revenue
from reader holidays suffered in the period post the Iraqi conflict, down by
3.4%.
MARGINS
With the increase in organic revenues detailed above, a continued focus on all
elements of cost in the business and ongoing efficiency-led investment, every
operating division delivered an improved margin for the year. For the existing
Johnston Press companies, the operating margin improved from 31.7% to 33.3% and,
for the acquired business, the margins improved from 27.9% to 32.9%. This
increase provides clear evidence that the synergies, now well in excess of £10
million, identified prior to the acquisition have been delivered. The Group
operating profit margin increased from 30.2% to 32.6%. After two years of
newsprint price reductions, it is anticipated that in 2004 prices will be flat.
CASH FLOW/NET DEBT
Free Cash Flow increased by 10% over 2002. The operating cash flow and cash
conversion of the business continues to be strong. Net debt closed the year at
£423 million, down some £80 million. The reduction has been affected by a number
of factors: capital expenditure at £18 million was lower than anticipated as the
press room expansion at Sunderland, although committed and underway, has not yet
generated significant outflows and, in September 2003, a one-off payment of
£12.6 million was made into the defined benefit pension funds to help address
funding deficits (see below).
Cash flows have also benefited from part of the interest on the Private
Placement funding for the second half of 2003 not being payable until January
2004. The Private Placement of 10-year Senior Notes was made in January 2003 to
replace the £100 million 364-day portion of the Group's debt together with an
additional £33 million of the amortising facility. Over the course of the year,
the Group has invested in new advertising systems and this has resulted in an
opportunity to regionalise our credit control and cash collection activities.
These projects have only recently been implemented and have resulted in slightly
higher debtor levels than we would have desired. However, we expect them to
deliver longer-term benefits.
Interest cover for the year was 5.0 times.
FINANCIAL INVESTMENTS
As the Group is entirely UK-based, our financial risk exposures are mainly
associated with interest rates. With the £133 million private placement, there
is a dollar component of US$115 million but this has been swapped back into
floating rate sterling to ensure the Group only has a potential exposure to UK
interest rates.
The Group's policy is to arrange borrowings at the lowest possible cost whilst
continuing to operate within covenants it is comfortable with. The policy states
that a minimum of 50% of the debt should be hedged against interest rate
movements with the balance being kept under continuous review. As at 31 December
2003, £360 million of the debt was hedged or placed at an effective fixed rate
of 5.3% for an average period of 5 years.
At the end of the year, the directors reviewed the carrying value of the Group's
investments. The listed investments are carried at their stock market value at
31 December 2003 and the unlisted investment in Mirago plc, the UK, French and
German search engine, was written down by 20% (£0.7 million) based on the
directors' valuation.
PENSION FUNDS/FRS17
2003 was again a very busy year on the pensions front. Both of the Group's
defined benefit schemes were subject to actuarial valuations at 31 December
2002. In order to start addressing the deficits reported in the valuations and
to meet the Group's obligations under the MFR rules, a one-off contribution to
the schemes of £12.6 million was paid in September 2003 and this, combined with
the recovery in stock markets, has resulted in the deficits being reduced at 31
December 2003 by approximately £10 million gross of taxation. The reduction in
the ongoing deficits over the same period was £30 million. The Group also agreed
with the pension fund trustees of both schemes that any approved future
additional funding requirement would be met by increased contributions from both
employer and employees.
In April 2003, the defined contribution Johnston Press Lifestyle Pension Plan
(JPLPP) was contracted back into the state scheme and company contribution rates
were increased in order to increase the pension provision to members of this
scheme. The cost to the Group of these changes is £1.3 million per annum. In
June 2003, the defined contribution section of the RIM pension scheme was closed
to new entrants with all new Group employees being offered membership of the
JPLPP. Subsequently, in October 2003, the defined benefit Johnston Press Pension
Scheme, which is closed to new members, was merged into the JPLPP and the merged
scheme was named the Johnston Press Pension Plan. All of the above changes were
made in an effort to reduce administration costs of the Group schemes. During
the course of the year, full asset/liability studies were performed for the
defined benefit schemes and, as a result, new asset allocations and investment
strategies were put in place. Following on from this, there was a review of
investment managers, with new managers being appointed across all of the Group's
pension schemes. The Group is still reporting under the transitional
arrangements of FRS17 pending full implementation or the publication of the
International Financial Reporting Standard on Pensions.
The Group also carries accruals for unfunded ex-gratia pension arrangements for
certain former employees. This liability is subject to an annual actuarial
valuation and this resulted in an increase in the provision of £0.3 million.
ACCOUNTING STANDARDS
The Group, in conjunction with the auditors, is reviewing the impact on the
Group of implementing the proposed International Financial Reporting Standards
from 2005. This process is ongoing and has yet to identify any significant
impact on accounting policies or matters that would require a re-statement of
the Group accounts. The review will continue as the Standards covering areas
such as pensions and share based payments have yet to be confirmed.
During 2004, the provisions of UITF 17 (Revised 2003), 'Employee Share Schemes',
will be effective. The requirement of these provisions is that a charge is
recognised in the financial statements of the Group to reflect the difference
between the 'fair value' of shares awarded through options or Save as you Earn
schemes and their option price. It is currently estimated that the impact of
this accounting change on the Group's statements for 2004 will be a cost of
approximately £0.5 million.
As mentioned in the Chief Executive's Report, the Group implemented a Share
Incentive Plan in January 2003 for all qualifying employees. This plan provides
free shares for those employees based on financial performance targets
determined by the Board of Directors. As the Group has exceeded the maximum
performance level in 2003, shares to the value of £1.5 million will be
distributed to participating employees based on their contracted hours of
employment.
DIVIDENDS AND EARNINGS PER SHARE
Headline earnings per share at 32.36p were 21% up on 2002. Subject to approval
at the Annual General Meeting on 30 April 2004, the total dividend per share for
the year will be 6p, an increase of 11.1%.
STUART PATERSON
Finance Director
17 March 2004
GROUP PROFIT AND LOSS ACCOUNT
Year to 31 December 2003
2003 2002
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Turnover
Continuing operations 491,843 - 491,843 426,815 - 426,815
Discontinued operations - - - 1,579 - 1,579
Total turnover 1 491,843 - 491,843 428,394 - 428,394
Cost of sales (234,225) - (234,225) (204,129) - (204,129)
Gross profit 257,618 - 257,618 224,265 - 224,265
Other operating expenses (net) (94,585) (2,452) (97,037) (93,048) (1,747) (94,795)
Operating profit 163,033 (2,452) 160,581 131,217 (1,747) 129,470
Continuing operations 163,033 (2,452) 160,581 130,983 (1,747) 129,236
Discounted operations - - - 234 - 234
Operating profit 2 163,033 (2,452) 160,581 131,217 (1,747) 129,470
Share of associates' operating 581 - 581 401 - 401
profit
163,614 (2,452) 161,162 131,618 (1,747) 129,871
Exceptional items
- fundamental reorganisation 3 - - - - (4,438) (4,438)
Profit on ordinary activities
before
interest and taxation 163,614 (2,452) 161,162 131,618 (6,185) 125,433
Net interest (32,485) (725) (33,210) (30,901) (1,807) (32,708)
Profit on ordinary activities
before taxation 131,129 (3,177) 127,952 100,717 (7,992) 92,725
Taxation on profit on ordinary (39,217) 953 (38,264) (29,259) 2,398 (26,861)
activities
Profit for the financial year 91,912 (2,224) 89,688 71,458 (5,594) 65,864
Dividends on equity and non-equity 5 (17,173) - (17,173) (15,464) - (15,464)
shares
Retained profit for year 74,739 (2,224) 72,515 55,994 (5,594) 50,400
Earnings per share 4
Headline 32.36p 26.75p
Headline diluted 32.13p 26.61p
Basic 31.57p 24.65p
Diluted 31.35p 24.52p
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year to 31 December 2003
2003 2002
£'000 £'000
Profit for the financial year 89,688 65,864
Revaluation deficit - (57)
Total recognised gains and losses for the financial year 89,688 65,807
GROUP RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year to 31 December 2003
2003 2002
£'000 £'000
Restated
(note 9)
Profit for the financial year 89,688 65,864
Dividends (17,173) (15,464)
Other recognised gains and losses relating to the year (net) - (57)
Movement in own shares 62 -
New share capital subscribed, including share premium 1,390 223,145
Net increase in shareholders' funds 73,967 273,488
Opening shareholders' funds 560,965 287,477
Closing shareholders' funds 634,932 560,965
GROUP NOTE OF HISTORICAL COST PROFITS AND LOSSES
Year to 31 December 2003
2003 2002
£'000 £'000
Reported profit on ordinary activities before taxation 127,952 92,725
Difference between historical cost depreciation charge and the actual
depreciation charge for the year calculated on the revalued amount 85 87
Historical cost profit on ordinary activities before taxation 128,037 92,812
Historical cost profit for the year retained after taxation and dividends 72,600 50,487
GROUP BALANCE SHEET
As at 31 December 2003
2003 2002
£'000 £'000
Restated
(note 9)
Fixed assets
Intangible 927,557 927,557
Tangible 156,972 154,084
Investments 3,980 4,663
1,088,509 1,086,304
Current assets
Stocks 2,961 2,703
Debtors - due within one year 59,734 54,645
- due after more than one year 13,984 7,062
Cash at bank and in hand 9,944 10,735
86,623 75,145
Creditors: amounts falling due within one year (151,123) (121,973)
Net current liabilities (64,500) (46,828)
Total assets less current liabilities 1,024,009 1,039,476
Creditors: amounts falling due after more than one year (372,750) (472,559)
Provisions for liabilities and charges (16,327) (5,952)
Net assets 634,932 560,965
Capital and reserves
Called-up share capital
Equity 28,399 28,339
Non-equity 1,106 1,106
29,505 29,445
Reserves - equity 605,427 531,520
Shareholders' funds 634,932 560,965
GROUP CASH FLOW STATEMENT
Year to 31 December 2003
2003 2002
Note £'000 £'000
Net cash inflow from operating activities 6a 167,573 151,457
Returns on investments and servicing of finance 6b (30,849) (33,466)
Taxation 6c (23,548) (17,713)
Capital expenditure and financial investment 6d (18,291) (14,218)
Free cash flow 94,885 86,060
Acquisitions and disposals 6e 608 (567,726)
Equity dividends paid (15,863) (11,654)
Cash inflow/(outflow) before financing 79,630 (493,320)
Financing 6f (92,241) 497,582
(Decrease)/increase in cash in the year (12,611) 4,262
NOTES TO THE FINANCIAL INFORMATION
1. Turnover/Net Assets Analysis
Turnover Net Assets
2003 2002 2003 2002
£'000 £'000 £'000 £'000
Restated
(note 9)
Continuing operations
Newspapers and contract printing
Continuing operations 491,843 426,815 634,932 560,965
Discontinued operations - 1,579 - -
491,843 428,394 634,932 560,965
2. Operating Profit
2003 2002
£'000 £'000
Continuing operations
Newspapers and contract printing
Continuing operations 160,581 129,236
Discontinued operations - 234
Total operating profit 160,581 129,470
3. Exceptional Items Reported after Operating Profit
2003 2002
£'000 £'000
Fundamental reorganisation following acquisition of new titles - 4,438
The aggregate effect of the exceptional items on the amount charged to the
Profit and Loss Account for taxation was to reduce the 2002 charge by £1,331,000.
NOTES TO THE FINANCIAL INFORMATION
4. Earnings per Share
The calculations of earnings per share are based on the following profits and
weighted average number of shares:
Headline Basic/Diluted
2003 2002 2003 2002
£'000 £'000 £'000 £'000
Profit for the financial year 89,688 65,864 89,688 65,864
Exceptional items 3,177 7,992 - -
Tax effect of exceptional items (953) (2,398) - -
Preference dividends (152) (152) (152) (152)
91,760 71,306 89,536 65,712
2003 2002
No. of shares No. of shares
Weighted average number of shares
For headline/basic earnings per share 283,576,312 266,532,825
Exercise of share options 2,052,389 1,445,334
For diluted earnings per share 285,628,701 267,978,159
Headline figures are presented to show the effect of excluding exceptional items
from earnings per share.
5. Dividends
The Directors recommend a final dividend of 4p per share making a total dividend
of 6p per share for the year. Subject to approval
by members, the final dividend will be paid on 14 May 2004 to those ordinary
shareholders on the register at 23 April 2004.
6. Notes to Cash Flow Statement
2003 2002
£'000 £'000
a) Net cash inflow from operating activities
Operating profit 160,581 129,470
Exceptional items (669) (4,976)
Depreciation charges 18,016 16,718
Development grant amortisation - (14)
Loss on sale of tangible fixed assets 31 81
Profit on sale of business (338) -
Amount written off employee share option trust 287 111
(Increase)/decrease in stocks (258) 56
(Increase)/decrease in debtors (12,281) 9,026
Increase in creditors 1,904 1,279
Increase/(decrease) in unfunded pension provision 300 (294)
Net cash inflow from operating activities 167,573 151,457
NOTES TO THE FINANCIAL INFORMATION
6. Notes to Cash Flow Statement (continued)
2003 2002
£'000 £'000
b) Return on investments and servicing of finance
Income from fixed asset investments 845 850
Interest received 308 423
Dividends received from associated undertakings 352 308
Interest paid (32,202) (28,050)
Preference dividends paid (152) (152)
Term debt issue costs - (6,845)
Net cash outflow (30,849) (33,466)
c) Taxation
UK corporation tax paid (23,548) (17,713)
Net cash outflow (23,548) (17,713)
d) Capital expenditure and financial investment
Purchase of tangible fixed assets (19,103) (15,741)
Sale of tangible fixed assets 1,015 2,165
Purchase of investment - Employee share option trust (238) (643)
Sale of investment 35 1
Net cash outflow (18,291) (14,218)
e) Acquisitions and disposals
Purchase of publishing titles/subsidiary undertakings - (573,330)
Sale of subsidiary undertaking/business 608 5,662
Net cash in subsidiaries sold - (58)
Net cash inflow/(outflow) 608 (567,726)
f) Financing
Proceeds from issue of ordinary share capital 1,390 223,145
Loan stock repaid (1,695) (18,269)
Loans repaid (224,697) (179,881)
New loans 132,785 472,630
Finance leases (24) (43)
Net cash (outflow)/inflow (92,241) 497,582
The business sold in the year had no material impact on the cash inflows or
outflows.
6. Notes to Cash Flow Statement (continued)
g) Analysis and reconciliation of net
debt
Other
1 January non-cash 31 December
2003 Cash flow changes 2003
£'000 £'000 £'000 £'000
Cash at bank and in hand 10,735 (791) - 9,944
Overdrafts (3,212) (11,820) - (15,032)
7,523 (12,611) - (5,088)
Bank loans (472,630) 224,697 - (247,933)
Senior notes - (132,785) - (132,785)
Loan stock (43,473) 1,695 - (41,778)
Finance leases (90) 24 - (66)
Term debt issue costs 5,828 - (1,350) 4,478
(510,365) 93,631 (1,350) (418,084)
Net debt (502,842) 81,020 (1,350) (423,172)
Of the £9,944,000 cash at bank and in hand, £1,532,000 is held on deposit to
guarantee the 1999/2006 Loan Stock interest for one year.
2003 2002
£'000 £'000
(Decrease)/increase in cash in the year (12,611) 4,262
Repayment/(issue) of debt and movement in lease financing 93,631 (267,592)
Change in net debt resulting from cash flows 81,020 (263,330)
Amortisation of term debt issue costs (1,350) (2,644)
Movement in net debt in year 79,670 (265,974)
Net debt at beginning of year (502,842) (236,868)
Net debt at end of year (423,172) (502,842)
7. Statutory Accounts
The financial information set out above does not comprise the Company's
statutory accounts for the years ended 31 December 2002 and 31 December 2003.
The accounts for the year ended 31 December 2002 have been filed and those for
the year ended 31 December 2003 will be filed with the Registrar of Companies
following the Annual General Meeting. The Company's auditors gave unqualified
reports on the accounts for those periods and the reports did not contain a
statement under section 237 (2) or (3) of the Companies Act 1985.
The Directors are responsible in accordance with the Listing Rules and
applicable United Kingdom accounting standards for preparing and issuing this
preliminary announcement.
8. Financial Statements and Annual General Meeting
Audited financial statements and the annual report will be posted to
shareholders on 17 March 2004. The Annual General Meeting will be held on 30
April 2004.
9. Accounting Policies
The accounting policies adopted in this preliminary announcement are consistent
with the 2003 annual accounts, which are themselves consistent with the 2002
annual accounts with the exception of the publication of UITF Abstract 38. This
amended the accounting treatment of shares held in an Employee Share Trust and
the value of the shares held by the Group at 31 December 2002, amounting to
£532,000, has been re-categorised from investments to a reduction from
shareholders' funds.
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