Final Results

Trinity Mirror PLC 01 March 2007 Trinity Mirror plc announces the Group's Preliminary Results for the 52 weeks ended 31 December 2006. Financial highlights Adjusted results* Statutory results 2006 2005 % 2006 2005 % 52 weeks 52 weeks Change 52 weeks 52 weeks Change £m £m £m £m Continuing Continuing operations operations Revenue 1,032.1 1,083.6 (4.8)% 1,053.0 1,089.3 (3.3)% Operating profit/(loss) 207.0 244.4 (15.3)% (46.6) 238.3 (119.6)% Profit/(loss) before tax 185.4 215.1 (13.8)% (73.1) 202.4 (136.1)% Earnings/(loss) per share 43.6p 51.3p (15.0)% (18.3)p 48.7p (137.6)% Dividend per share 21.9p 21.9p Operational highlights • Revenue* fell by 4.8% to £1,032.1 million, as a result of the difficult advertising environment • Net cost savings of £20 million achieved - £5 million above target • Profit before tax* fell by 13.8% to £185.4 million • Launched 240 websites and six new newspaper titles and acquired Email4Property in May 2006 for £4.5 million • Strong cash flow generation - net debt fell by £51.6 million • Board's confidence in future reflected in the final dividend being maintained at 15.5 pence per share • Implementation of the conclusions of the Business Review underway - disposals expected to be completed on schedule during the second and third quarter Commenting on the results, Sly Bailey, Chief Executive of Trinity Mirror plc said: 'We performed creditably throughout 2006 in a harsh climate across the media industry. We have reduced costs significantly in response to the industry-wide decline in advertising volumes with the result that we have limited the inevitable impact on our profitability. In addition we have completed a fundamental business review and come out of that with a clear road map for the Group's future. Looking ahead our strategy is clear. We will harness the strong cash flows from our first class portfolio of newspaper assets to build Trinity Mirror, both organically and by acquisition, into a multi-platform media group with strong growth potential. We witnessed an encouraging finish to 2006. Although the current environment remains challenging and volatile we continue to expect advertising market conditions to stabilise during the year with the rate of decline slowing. The combination of this stabilisation and continued focus on cost reduction underpins the Board's confidence in the future, with 2007 performance in line with expectations.' * Excluding disposed businesses (Magazines and Exhibitions division and traditional recruitment consultancy business), non recurring items (including a £250 million impairment of Regional newspaper titles), reduction in the charge for share-based payments relating to 2004 and 2005, the amortisation of intangible assets and the impact of IAS 39. A reconcilliation between the adjusted and the statutory numbers is provided in note 16 on page 21. Enquiries: Trinity Mirror Vijay Vaghela, Group Finance Director 020 7293 3000 Nick Fullagar, Director Corporate Communications 020 7293 3622 Maitland Neil Bennett 020 7379 5151 Within the following Chairman and Chief Executive Statement and Review of Operations, all figures are presented on an adjusted basis (excluding disposed businesses (Magazines and Exhibitions division and traditional recruitment consultancy business), non recurring items (including a £250 million impairment of Regional newspaper titles), reduction in the charge for share-based payments relating to 2004 and 2005, the amortisation of intangible assets and the impact of IAS 39) unless otherwise stated. A reconciliation between the adjusted and the statutory numbers is provided in note 16 on page 21. Chairman and Chief Executive Statement Overview Throughout 2006 Trinity Mirror faced a difficult advertising marketplace due to the volatile retail sales environment, the effect of rising unemployment and the impact of rising interest rates on consumer confidence. However, the end of the fourth quarter showed some encouraging improvement in the advertising markets, although it is still too early to call the turn in the cycle. In the face of these conditions our performance was creditable. Whilst Group revenues fell by £51.5 million to £1,032.1 million, the impact on profit was partially mitigated through tight cost management which contributed to operating profits falling by only £37.4 million to £207.0 million. The benefit of a £9.9 million IAS 19 finance credit limited the fall in profit before tax which fell by £29.7 million to £185.4 million. We exceeded our target of £15 million net cost savings announced in December 2005 and delivered £20 million. As a result operating costs, excluding acquisitions, fell by £23.3 million in the year despite significant inflationary pressures. Our strategy, to build a multi-platform media business, remained on course throughout 2006. We continued to further segment and layer our portfolio by geography and target segments, across both print and on-line, deepening our penetration in our core markets. This activity saw us launch both companion web sites to many of our print titles, micro sites serving local communities and sites serving key advertising markets in recruitment, property and motors. In addition we launched six new newspapers and continued to acquire digital assets. We continued to generate strong cash flows with net debt falling during the year from £492.5 million to £440.9 million. This figure takes into account the payment of £63.7 million for dividends and £72.8 million net capital expenditure which has been partially offset by the proceeds from the disposal of the Magazines and Exhibitions division and the traditional recruitment consultancy business acquired with hotgroup plc. The Board remains confident in the strong cash flow and the long term growth potential of our business and therefore proposes to maintain the final dividend at 15.5 pence per share even though earnings have fallen during the year. Throughout 2006, our staff, across all areas of our business, have demonstrated their talent, tenacity and enthusiasm in rising to the challenges we have faced. On behalf of the Board, we would like to thank them for their commitment and hard work over the course of the year. We also undertook a thorough review of our businesses and concluded that to take the Group forward we should rationalise our portfolio and concentrate on those assets in Wales, the North East, the North West, Scotland and our national newspaper titles. At the same time we will streamline and modernise the Group through the implementation of a new technology-led operating model which will further drive efficiencies and performance. These changes are expected to deliver revenue benefits and we have already identified a further £20 million of annualised cost savings by 2008. Our approach is one of continuous improvement to ensure we are best positioned to take advantage of all changes in market conditions. Our Regional businesses in the Midlands and London and the South East do not offer the same opportunities for the Group and are likely to be more attractive to other owners. The Board, therefore, concluded that it should seek to dispose of these businesses. In addition it concluded that the Racing Post, which operates as a standalone business within the Group, should also be divested. The disposals do not affect any part of the Group's manufacturing network. The disposals will focus the Group on a streamlined portfolio of high quality media assets, offering growth in revenues, margins and earnings. Strong cash flow generation will support this growth through continued investment and selected acquisitions and will provide continuing rewards to shareholders. We intend to optimise our capital structure following the disposals and we are intending to return the cash proceeds, net of related taxes and payments into the pension funds, to shareholders. Looking further ahead we are confident that the reorganisation we have started following the business review, the strength of our portfolio and our growing success at building and acquiring digital assets will all contribute to growth once the current cyclical advertising downturn comes to an end. Publishing activities Our portfolio of businesses delivered a creditable performance in a depressed advertising market through our continued focus on improving revenues and driving efficiencies to partially mitigate the impact on profits. Our Regionals division, in line with our strategy, continued to drive forward with launching new titles and websites and in doing so deepening our penetration of core markets. Coupled with this we have been maximising revenues through the rejuvenation of our brands and through optimising our pricing and packaging of advertising across our portfolio of products and platforms. These activities have partially off-set the impact of the advertising market. In addition, our little and often cover pricing policy has enabled us to continue to increase circulation revenues despite volume declines. Our National titles achieved a strong profit performance despite a difficult advertising market and an extremely competitive circulation environment characterised by substantial increases in promotional activity and price cutting by all our competitor daily newspapers. While circulation volumes remain under pressure as a result of this activity, management continues to believe that excessive marketing expenditure does not drive longer term value and its focus is to ensure sustainable returns on all investment in our titles. We appointed a new managing director for the UK Nationals at the beginning of 2006 and further strengthened the team with the appointment of a new advertising director. In Scotland the marketplace saw heavy cover price cutting activity by all national tabloids and in particular the Sun newspaper which cut its price to 10 pence. In order to preserve the Daily Record's market leadership, we promoted and rewarded reader loyalty through the use of discount vouchers for a limited period. Whilst this activity has impacted profits it has provided a firmer platform for the business with which to grow future profitability. In August we launched Record PM, in Glasgow and Edinburgh, as a paid for evening edition of the Daily Record, to increase reach and response for our advertisers. To optimise our market penetration we moved the title to a free distribution model and extended its distribution to Aberdeen and Dundee in January 2007. The Sports division delivered a robust performance in 2006 despite the impact of a new nationally distributed daily betting title (The Sportsman) which launched in March 2006. The division rose to the competitive challenge by introducing further improvements to both the editorial content of the Racing Post and the availability of the paper within the news trade. These enhancements were supported by a strong marketing campaign. Just five months after launch, The Sportsman ceased publication. New initiatives We continue to focus on driving growth from new initiatives, deepening our presence in our core markets and geographies, both in print and online. During the year we have launched 245 websites, six new newspaper titles - including Metros in Cardiff and Liverpool - and six Buysell editions covering the North West and North Wales. 2007 will see the Group continue this launch pipeline. To strengthen our online presence in property we acquired Email4Property in May 2006. This business is now fully integrated within the operations of Smartnewhomes and achieved revenues of £0.7 million in the period since acquisition. The development of our digital assets continues with significant momentum. Whilst the hotgroup's development was temporarily slowed by management changes made during the first half, the remainder of our acquired digital business are exceeding expectations. We have appointed a senior manager with responsibility for seeking out new opportunities and accelerating the development of our acquired online recruitment businesses. Our aim is to substantially increase digital revenues as a proportion of total revenues. We are progressing with the implementation of our new technology led operating model thereby modernising and streamlining our processes. This programme will enable us to drive revenues by better serving our advertisers and readers through: • On-line booking of adverts across print and digital platforms • Advert creation functionality that will enable customers to create their own adverts on-line • Consolidation of call centres to drive best in class customer service • A new multi platform editorial system • Transformation of our newspaper sales operations for both paid for and free titles In addition to transforming the way we do business the new operating model is expected to drive significant efficiencies, further cost savings and drive incremental revenues. Disposals During June and July 2006 we disposed of our non core Magazines and Exhibitions division through a number of transactions generating gross disposal proceeds of £42.6 million. In August 2006 we also disposed of our traditional recruitment consultancy business which was acquired as part of hotgroup plc in 2005, for a consideration of £11.2 million. We have commenced the disposal of our Regional businesses in the Midlands and London and the South East, and the Sports division. We have strong interest from both trade buyers and private equity and expect to complete these transactions during the second and third quarters of 2007. Capital expenditure Our programme of investment in colour presses is progressing to plan with the Nationals Oldham site repressing programme completed on schedule in July 2006. The repressing of our other Nationals print sites in Scotland and Watford is scheduled to complete in early 2007 and 2008 respectively. 2006 also saw the completion of a complex network upgrade and rationalisation project which moved all our operations onto a single integrated group network operating on new technology. The business will benefit significantly through the enablement of new initiatives dependent on the provision of world class, resilient, networking technology. Board changes On 4 May 2006, at the Group's Annual General Meeting, Sir Victor Blank retired from the Board. On the same date, Sir Ian Gibson was appointed as Chairman to the Board. Sir Victor made a significant contribution over a number of years during which he oversaw the creation of the UK's largest newspaper group when Mirror Group merged with Trinity in 1999. The Board would like to thank him for his enthusiasm and dedication and for the support he gave the management team to help develop our business. Laura Wade-Gery joined the Board as a Non-executive Director on 4 August 2006. Outlook We witnessed an encouraging finish to 2006. Although the current environment remains challenging and volatile we continue to expect advertising market conditions to stabilise during the year with the rate of decline slowing. The combination of this stabilisation and continued focus on cost reduction underpins the Board's confidence in the future, with 2007 performance in line with expectations. Review of Operations Group revenues fell by £51.5 million (4.8%) from £1,083.6 million to £1,032.1 million and excluding acquisitions fell by £63.4 million (5.9%) from £1080.1 million to £1,016.7 million. On a statutory basis Group revenues fell by £36.3 million (3.3%) from £1,089.3 million to £1,053.0 million. Group operating profit fell by £37.4 million (15.3%) from £244.4 million to £207.0 million and excluding acquisitions fell by £40.1 million (16.5%) from £243.3 million to £203.2 million. On a statutory basis Group operating profit fell by £284.9 million (119.6%) from £238.3 million to a loss of £46.6 million. The statutory operating loss reflects the non-cash charges of £250.0 million for the impairment of the carrying value of intangibles and £10.6 million amortisation offset by £2.0 million of other non recurring items. As announced at the time of our interim results, an impairment review of the carrying value of intangible assets in accordance with IAS 36 indicated that an impairment charge of £250.0 million (£175.0 million after tax) was required. The impairment charge reduced the carrying value of the Group's Regional newspaper titles. Total operating costs, excluding acquisitions, have fallen by £23.3 million (2.8%) from £836.8 million to £813.5 million despite a 7% increase in the price of newsprint and labour and cost inflation. We exceeded our target of cost savings of £15 million announced in December by £5 million. The Group's share of profits from associates was £1.3 million (2005: £0.8 million) and reflects the Group's share of profits in The Press Association (PA), net of taxation payable thereon. The share of profits is higher than expected as it includes the one-off benefit of £0.7 million reflecting the profit on disposal of TwoTen Communications by PA. During the period dividends of £0.5 million (2005: £0.6 million) were received from PA. For 2006 the IAS 19 'Employee Benefits' defined benefit operating profit charge and finance credit were £30.4 million (2005: £28.6 million) and £9.9 million (2005: £1.7 million) respectively. For 2007, the IAS 19 defined benefit operating charge is estimated to fall by £2.9 million to £27.5 million with the finance credit estimated to increase to £12.3 million. The IAS 19 pension deficit has fallen from £305.6 million to £213.0 million during the year reflecting the benefit of increasing assets values due to the improved performance of the equity markets and deficit funding payments, and a reduction in liabilities due to a marginal increase in the real discount rate applied to liabilities from 1.95% to 2.10%. Finance costs, excluding the impact of IAS 19 and IAS 39 'Financial Instruments: Recognition and Measurement', increased by £0.5 million from £31.0 million to £31.5 million. The increase in finance costs between the years reflects the phasing of actual debt levels and interest rates applying during each year. The absolute debt levels fell substantially during the year. The IAS 39 impact during the year, in relation to the US$ private placement and related cross currency interest rate swaps, was a £4.9 million charge (2005: £6.6 million). The IAS 39 impact reflects the fair value, exchange rate and amortisation adjustments on borrowings and associated financial instruments accounted for under IAS 39. Group profit before tax fell by £29.7 million (13.8%) from £215.1 million to £185.4 million. On a statutory basis Group profit before tax fell by £275.5 million (136.1%) from £202.4 million to a loss of £73.1 million. The tax credit for the period of £19.9 million represents 27.2% (2005: 29.9%) of statutory loss before tax. Excluding the impact on operating profit and tax of the £250.0 million impairment charge and the related £75.0 million tax credit, the tax charge for the year was £55.1 million representing 31.1% of the profit before tax. Earnings per share were 43.6 pence per share (2005: 51.3 pence per share), a decrease of 15.0%. On a statutory continuing operations basis earnings per share fell by 137.6% from 48.7 pence per share to a loss of 18.3 pence per share. Subject to approval by shareholders at the Annual General Meeting, the directors propose a final dividend of 15.5 pence per share to be paid on 8 June 2007 to shareholders on the register at 5 May 2007. This will bring the total dividend for the year to 21.9 pence per share. This is at the same level as 2005 even though earnings have fallen during the year reflecting continued confidence in strong cash flows. The dividend is covered 2.0 times by earnings before non recurring items and will be fully funded from operating cash flow. An interim dividend of 6.4p per share (2005: 6.4p per share) was paid on 31 October 2006 to shareholders on the register at 6 October 2006. Regionals division The Regionals division publishes over 200 local and regional newspapers which are complemented by more than 300 websites offering news, information and advertising. The revenue and operating profit of the Group's Regionals division, including acquisitions, are as follows: 2006 2005 % £m £m Change Revenue - Regional core 468.4 509.5 (8.1)% - Metros 17.3 13.3 30.1% - Digital media activities 24.5 11.1 120.7% Total revenue 510.2 533.9 (4.4)% Operating Profit - Regional core 115.8 145.8 (20.6)% - Metros 2.7 1.9 42.1% - Digital media activities 7.9 3.2 146.9% Total operating profit 126.4 150.9 (16.2)% Operating Margin 24.8% 28.3% (3.5)% Revenue fell by £23.7 million (4.4%) and operating profit fell by £24.5 million (16.2%). Excluding acquisitions, revenue for the Regionals division fell by £35.6 million (6.7%) from £530.4 million to £494.8 million and operating profit decreased by £27.2 million (18.2%) from £149.8 million to £122.6 million. Whilst operating profit excluding acquisitions decreased for the core Regional newspaper titles, this has been partially offset by the continuing improvements for Metros and digital media activities. The division's five Metros achieved a £0.8 million (42.1%) improvement in operating profit to £2.7 million. The division's organic digital media activities, excluding acquisitions completed in 2005 and 2006, continued to deliver further improvements with revenues increasing by 19.7% and operating profits increasing by 95.2%. The acquisitions of hotgroup online, GAAPweb, Smartnewhomes and Secsinthecity completed in 2005 and Email4Property completed in May 2006 achieved revenues and operating profits before amortisation of intangible assets of £15.4 million and £3.8 million respectively. Advertising revenue for the Regionals division fell by 5.7% from £407.2 million to £383.9 million. Excluding acquisitions, advertising revenue for the Regionals division fell by 8.7% from £403.7 million to £368.5 million. Excluding acquisitions, by category, Display was down by 5.8%, Recruitment was down by 17.3%, Motors was down by 11.6% and other classified categories were down by 7.5%, while Property increased by 1.4%. Metros achieved strong advertising growth of £4.0 million (30.3%), driven by an increase in core advertising revenues and the benefit of an additional two Metro titles launched in March 2006. Excluding the two new launches, advertising revenues for Metros increased by 11.4%. Digital media activities, excluding acquisitions, continued their growth trajectory with advertising revenue increasing by 22.2%. The four acquisitions completed in 2005 and the acquisition of Email4Property completed in 2006 achieved advertising revenues of £15.4 million. Circulation revenue increased by £0.7 million (0.8%). The division continued to drive circulation revenue through the ongoing policy to increase cover prices on a 'little and often' basis. During the year, the division experienced circulation volume declines of 7.7% for Evening titles, 6.3% for Morning titles, 4.8% for Weekly titles and 8.7% for Sunday titles. Other revenue, excluding acquisitions, fell by £1.1 million (2.5%) from £43.9 million to £42.8 million reflecting a fall in leaflets revenues driven by the difficult advertising marketplace. The implications of the adverse revenue environment have been partially mitigated by the targeted cost savings and continued tight cost management in the face of significant inflationary cost pressures. Excluding acquisitions, costs have fallen by £8.4 million from £380.6 million to £372.2 million, contributing to operating profits falling by only £27.2 million, despite revenue declines of £35.6 million. The declining revenues have impacted operating margins which, excluding acquisitions, fell by 3.4% to 24.8% and including acquisitions fell by 3.5% to 24.8%. Nationals division The Nationals division publishes three UK National titles (the Daily Mirror, the Sunday Mirror and The People), two Scottish Nationals (the Daily Record and the Sunday Mail) complemented by a portfolio of digital assets. The revenue and operating profit of the Group's Nationals division are as follows: 2006 2005 % £m £m Change Revenue 472.4 499.1 (5.3)% Operating profit 80.2 91.2 (12.1)% Margin 17.0% 18.3% (1.3)% Operating profits for the Nationals division fell by £11.0 million (12.1%) from £91.2 million to £80.2 million despite revenue declines of £26.7 million from £499.1 million to £472.4 million. Revenue declined by 4.8% for the UK Nationals and 7.1% for the Scottish Nationals. Despite the significant revenue declines, operating margin for the division only fell by 1.3% from 18.3% to 17.0%, due to continued cost control and savings. Circulation revenues for the Nationals division fell by 0.5% reflecting an increase of 0.5% for the UK Nationals offset by a decline of 4.7% for the Scottish Nationals. The circulation revenue performance for the Scottish Nationals reflects the impact of discount vouchering activity for the Monday to Friday Daily Record in response to a 10p Sun across Scotland for the majority of 2006. During the year a number of cover price increases were implemented with the Monday to Friday Daily Mirror increasing by 5 pence in two stages to 40 pence, the Saturday editions of the Daily Mirror and Daily Record increasing by 5 pence to 55 pence, the Sunday Mail in Scotland increasing by 20 pence in two stages to £1.10 and The People increasing by 5 pence to 85 pence. The six monthly year-on-year change in circulation volumes and the six monthly market share for our Nationals titles were as follows: six monthly circulation six monthly volume change market share % % Daily Mirror (6.3)% 18.7% Sunday Mirror (6.8)% 15.4% The People (12.0)% 8.9% Daily Record (Scotland only) (7.2)% 34.2% Sunday Mail (Scotland only) (4.8)% 35.7% The circulation volume performance of our National titles reflects, unlike many competitor titles, our policy of not chasing short-term circulation increases through price-cutting and levels of marketing spend which do not provide a return on investment. In a challenging marketplace advertising revenues for the Nationals division fell by 10.2% with declines of 10.6% for the UK Nationals and 9.1% for the Scottish Nationals. The performance reflects the continuation of the difficult advertising conditions experienced in 2005. Whilst we have seen a marginal improvement in the rate of decline in advertising revenues in the last quarter of the year with a particularly buoyant December, the market remains unpredictable. Scotcareers and other National digital activities have achieved a significant improvement in performance with combined advertising revenues increasing three-fold to £1.8 million. The Scotcareers brand has achieved a strong position in the recruitment market in Scotland and will drive to further improve share in this marketplace. This has provided a firm base for the launch of Scotwheels in 2006 and Scotthelot during 2007. Other digital activities have also seen a significant improvement in performance reflecting the benefit of focused investment to drive incremental revenues to supplement the core circulation and print advertising revenues. Other revenue decreased by £7.3 million (15.8%) from £46.3 million to £39.0 million with declines of 15.8% for the UK Nationals and 15.4% for the Scottish Nationals. The fall in other revenues reflects a reduction in rental income from surplus office accommodation and a marginal reduction in external contract print revenues due to the current re-pressing programme. The tight management of costs contributed to operating costs falling by £15.7 million, partially mitigating the impact of revenues falling by £26.7 million and therefore limiting the operating profit declines to £11.0 million, with operating margins falling by 1.3%. Sports division The Sports division delivered a robust performance in 2006 despite the impact of a nationally-distributed daily betting title (The Sportsman) launched into the marketplace from March 2006 to September 2006. Revenues during the year fell by 2.2% from £50.6 million to £49.5 million and operating profits fell by 12.6% from £17.4 million to £15.2 million. Advertising revenues fell by 7.0% from £14.3 million to £13.3 million reflecting the impact of a general slowdown in advertising markets and consolidation within the bookmaking and gaming industries. Circulation revenues fell by £0.8 million reflecting the impact of a fall in circulation volumes of the Racing Post partially offset by cover price increases for the Monday to Friday editions. Other revenues increased by £0.7 million (18.9%) from £3.7 million to £4.4 million. The impact of additional investment in marketing and product enhancement during a period when the Sportsman was in the marketplace resulted in operating costs for the division increasing by £1.1 million, contributing to operating profits falling by £2.2 million to £15.2 million. Operating margins for the division fell by 3.7% to 30.7%. As announced in December 2006, the division is expected to be disposed of during 2007. Magazines and Exhibitions division During June and July 2006 the Group disposed of its Magazines and Exhibitions division through a number of transactions generating gross disposal proceeds of £42.6 million. The most significant of these transactions was the disposal of Inside Communications Limited for a consideration of £41.5 million. The Magazines and Exhibitions division published a number of specialist titles and operated consumer and trade shows. However it was considered non-core due to the differing challenges it faced relative to our core portfolio of newspaper and online assets. Having improved the performance of the division over the past few years it was appropriate to realise value at this stage. Prior to disposal, the division generated revenue of £20.1 million and operating profit of £5.8 million. Central costs During the year central costs increased by £0.2 million from £15.9 million to £16.1 million reflecting the costs associated with the Business Review substantially mitigated through cost savings. Acquisitions During the year, the Group completed the acquisition of Email4Property Limited for a total consideration of £4.5 million. Excluding the traditional recruitment consultancy business acquired in 2005 (as part of hotgroup plc) and disposed in 2006, acquisitions completed in 2005 and 2006, achieved revenues of £15.4 million (2005: £3.5 million) and operating profit before amortisation of £3.8 million (2005: £1.1 million). Disposals During the year the Group disposed of its Magazines and Exhibition division through a number of transactions generating gross disposal proceeds of £42.6 million and its traditional recruitment consultancy business for a consideration of £11.2 million. Further details are provided in note 15 on page 21. The disposed businesses achieved revenues of £41.0 million (2005: £38.4 million) and operating profit before amortisation of £6.6 million (2005: £6.9 million) up to the date of disposal. Cash flow and net debt Net cash from operating activities decreased by £51.5 million to £225.3 million, reflecting the reduced operating profit. Net debt fell by £51.6 million from £492.5 million to £440.9 million. The reduction in debt reflects the benefit of the net cash proceeds from disposals of £47.7 million and is after paying dividends of £63.7 million and net capital expenditure of £72.8 million. Capital expenditure in the year was £72.8 million net of disposal proceeds (2005: £37.0 million) against a depreciation charge of £39.8 million (2005: £40.1 million). The Group is still on target for capital expenditure of £180.0 million over the three years to 2007 with forecast spend for 2007 of an estimated £65 million. All capital expenditure is forecast to be financed from operating cash flows. At 31 December 2006 committed facilities of £728.2 million (2005: £730.7 million) were available to the Group, of which £259.5 million (2005: £219.5 million) was available for draw down. The committed facilities include a £269.0 million syndicated bank facility, US$602.0 million and £26.0 million unsecured fixed rate loan notes and £6.0 million floating rate loan notes (representing the total obligations under a series of private placement US dollar and sterling loan notes respectively), obligations under finance leases of £16.0 million and £0.7 million of acquisition loan notes. No new financing facilities were procured during the year and no debt facilities were repaid other than in accordance with their normal maturity date. Consolidated income statement for the 52 weeks ended 31 December 2006 (52 weeks ended 1 January 2006) ------------------------------------------------------------------------------------------ Notes 2006 2005 £m £m ------------------------------------------------------------------------------------------ Continuing operations Revenue 2 1,053.0 1,089.3 Cost of sales (528.2) (518.8) ------------------------------------------------------------------------------------------ Gross profit 524.8 570.5 Distribution costs (114.8) (125.4) Administrative expenses: Non recurring Impairment of intangible assets 3 (250.0) - Other 3 2.0 (2.6) Amortisation of intangible assets (10.6) (3.3) Other (199.3) (201.7) Share of results of associates 1.3 0.8 ------------------------------------------------------------------------------------------ Operating (loss)/profit 2 (46.6) 238.3 IAS 19 finance credit 4 9.9 1.7 IAS 39 impact 4 (4.9) (6.6) Other finance costs 4 (31.5) (31.0) ------------------------------------------------------------------------------------------ (Loss)/profit before tax (73.1) 202.4 Tax credit/(charge) 5 19.9 (60.3) ------------------------------------------------------------------------------------------ (Loss)/profit for the period from continuing operations (53.2) 142.1 Discontinued operations Profit for the period from discontinued operations 6 4.0 4.8 Profit on sale of discontinued operations 15 37.7 - ------------------------------------------------------------------------------------------ (Loss)/profit for the period attributable to equity holders of the parent (11.5) 146.9 ------------------------------------------------------------------------------------------ Earnings per share (pence) Pence Pence Adjusted earning per share* - basic 8 43.6 51.3 Adjusted earnings per share* - diluted 8 43.5 51.0 (Loss)/earnings per share - continuing operations - basic 8 (18.3) 48.7 (Loss)/earnings per share - continuing operations - diluted 8 (18.3) 48.5 (Loss)/earnings per share - total operations - basic 8 (4.0) 50.3 (Loss)/earnings per share - total operations - diluted 8 (4.0) 50.1 ------------------------------------------------------------------------------------------ * Adjusted earnings exclude disposed businesses, non recurring items (including a £250 million impairment of Regional newspaper titles), reduction in charge for share-based payments relating to 2004 and 2005, the amortisation of intangible assets and the impact of IAS 39. A reconciliation between the adjusted and the statutory results is provided in note 16 on page 21. Consolidated statement of recognised income and expense for the 52 weeks ended 31 December 2006 (52 weeks ended 1 January 2006) 2006 2005 £m £m Actuarial gains/(losses) on defined benefit pension schemes taken to equity 62.7 (2.4) Tax on actuarial gains/(losses) on defined benefit pension schemes taken to equity (18.8) 0.7 Share of pension scheme actuarial gains and currency gains recognised in equity by associates 1.3 - Gain on revaluation of available-for-sale financial assets taken to equity - 0.3 Tax on revaluation of available-for-sale financial assets taken to equity - (0.1) ------------------------------------------------------------------------------------------ Net income/(expense) recognised directly in equity 45.2 (1.5) ------------------------------------------------------------------------------------------ Transferred to profit or loss on sale of available-for-sale financial assets - (2.7) Tax on items transferred from equity - 0.8 ------------------------------------------------------------------------------------------ Transfers from equity to the income statement - (1.9) ------------------------------------------------------------------------------------------- (Loss)/profit for the period (11.5) 146.9 ------------------------------------------------------------------------------------------ Total recognised income and expense for the period attributable to equity holders of the parent 33.7 143.5 ------------------------------------------------------------------------------------------ Consolidated balance sheet at 31 December 2006 (1 January 2006) Notes 2006 2005 £m £m ------------------------------------------------------------------------------------------ Non-current assets Goodwill 61.1 72.8 Other intangible assets 1,357.3 1,616.1 Property, plant and equipment 420.5 387.3 Investment in associates 10.2 8.6 Deferred tax assets 74.3 97.9 ------------------------------------------------------------------------------------------ 1,923.4 2,182.7 ------------------------------------------------------------------------------------------ Current assets Inventories 7.0 7.2 Available-for-sale financial assets - 0.5 Trade and other receivables 134.9 150.9 Cash and cash equivalents 32.8 33.2 ------------------------------------------------------------------------------------------ 174.7 191.8 ------------------------------------------------------------------------------------------ Total assets 2,098.1 2,374.5 ------------------------------------------------------------------------------------------ Non-current liabilities Borrowings 11 (346.3) (392.0) Obligations under finance leases 11 (13.2) (15.6) Retirement benefit obligation 13 (213.0) (305.6) Deferred tax liabilities (482.4) (547.2) Provisions (8.9) (12.2) Derivative financial instruments 9 (107.4) (56.6) ------------------------------------------------------------------------------------------ (1,171.2) (1,329.2) ------------------------------------------------------------------------------------------ Current liabilities Borrowings 11 (4.0) (58.7) Trade and other payables (163.3) (183.0) Current tax liabilities (31.1) (37.5) Obligations under finance leases 11 (2.8) (2.8) Provisions (2.5) (9.6) ------------------------------------------------------------------------------------------ (203.7) (291.6) ------------------------------------------------------------------------------------------ Total liabilities (1,374.9) (1,620.8) ------------------------------------------------------------------------------------------ Net assets 723.2 753.7 ------------------------------------------------------------------------------------------ Equity Share capital (29.3) (29.3) Share premium account (1,120.0) (1,118.9) Revaluation reserve (4.9) (4.9) Capital redemption reserve (0.8) (0.8) Retained earnings and other reserves 431.8 400.2 ------------------------------------------------------------------------------------------ Equity attributable to equity holders of the parent (723.2) (753.7) ------------------------------------------------------------------------------------------ Total equity (723.2) (753.7) ------------------------------------------------------------------------------------------ Consolidated cash flow statement for the 52 weeks ended 31 December 2006 (52 weeks ended 1 January 2006) Notes 2006 2005 £m £m ------------------------------------------------------------------------------------------ Cash flows from operating activities Cash generated from operations 10 225.3 276.8 Income tax paid (47.5) (55.5) ------------------------------------------------------------------------------------------ Net cash inflow from operating activities 177.8 221.3 ------------------------------------------------------------------------------------------ Investing activities Interest received 0.3 1.2 Dividends received from associated undertakings 0.5 0.6 Proceeds on disposal of available-for-sale financial assets 2.1 2.9 Proceeds on disposal of land - 2.9 Proceeds on disposal of subsidiary undertakings 15 47.7 - Proceeds on disposal of property, plant and equipment 2.1 4.0 Purchases of property, plant and equipment (75.0) (41.0) Acquisition of subsidiary undertaking 14 (4.2) (86.5) ------------------------------------------------------------------------------------------ Net cash used in investing activities (26.5) (115.9) ------------------------------------------------------------------------------------------ Financing activities Dividends paid (63.7) (60.2) Interest paid on borrowings (31.0) (33.9) Interest paid on finance leases (1.0) (1.2) Increase in borrowings - 45.0 Repayment of borrowings 11 (40.1) (18.1) Repayment of obligations under finance leases 11 (2.4) (1.8) Purchase of shares under share buy-back programme - (52.7) Issue of ordinary share capital 1.1 17.6 Purchase of own shares - (5.7) Decrease in bank overdrafts 11 (14.6) (4.6) ------------------------------------------------------------------------------------------ Net cash used in financing activities (151.7) (115.6) ------------------------------------------------------------------------------------------ Net decrease in cash and cash equivalents 11 (0.4) (10.2) Cash and cash equivalents at the beginning of period 11 33.2 43.4 ------------------------------------------------------------------------------------------ Cash and cash equivalents at the end of period 11 32.8 33.2 ------------------------------------------------------------------------------------------ Notes to the 2006 preliminary statement for the 52 weeks ended 31 December 2006 (52 weeks ended 1 January 2006) 1. Basis of preparation Following European regulation issued in 2002, the Group now presents its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and which have been prepared using accounting policies consistant with those in the Group's last published financial statements for the period ended 1 January 2006. The information contained in this preliminary announcement for the 52 weeks ended 31 December 2006 does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 but has been extracted from those accounts. The statutory financial statements for the 52 weeks ended 1 January 2006 have been filed with the Registrar of Companies and those for the 52 weeks ended 31 December 2006 will be filed following the Group's Annual General Meeting. The auditors' report on those accounts was unqualified and did not contain statements under section 237 (2) or 237(3) of the Companies Act 1985. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish its full IFRS financial statements for the 52 weeks ended 31 December 2006 on 22 March 2007. 2. Business and geographical segments For management purposes, the Group is currently organised into the following divisions: Regionals, Nationals, Sports and Central costs. These divisions are the basis on which the Group reports its primary segment information. In 2005 the Group operated a Magazines and Exhibitions division which it disposed of during 2006. Since its disposal, the Magazines and Exhibitions division is disclosed as discontinued operations. The secondary reporting segment is a geographical destination analysis of revenue. The Regionals division publishes a large portfolio of newspaper and on-line brands across the UK. The Nationals division, comprising the UK and Scottish Nationals, publishes five daily and Sunday newspapers. The Sports division is a supplier of racing and sports betting information, with four sports newspapers and related on-line activities. Central costs include costs not attributed to specific divisions. The revenues and costs of each segment are clearly identifiable and allocated according to where they arise. Segment information for these principal activities is presented below. Primary segments - business segment analysis Continuing Discontinued Regionals Nationals Sports Central costs operations operations 2006 2006 2006 2006 2006 2006 £m £m £m £m £m £m Revenue Segment sales 535.9 486.4 49.5 - 1,071.8 20.1 Inter-segment sales (4.8) (14.0) - - (18.8) - -------------------------------------------------------------------------------------------------------------- Total revenue 531.1 472.4 49.5 - 1,053.0 20.1 -------------------------------------------------------------------------------------------------------------- Result Segment result 118.1 80.9 15.8 (14.7) 200.1 5.8 --------------------------------------------------------------------------------- Non recurring items (248.0) 37.7 Share of results of associates 1.3 - ----------------------------- Operating (loss)/profit (46.6) 43.5 IAS 19 finance credit 9.9 - IAS 39 impact (4.9) - Other finance costs (31.5) - ----------------------------- (Loss)/profit before tax (73.1) 43.5 Tax 19.9 (1.8) -------------------------------------------------------------------------------------------------------------- (Loss)/profit for the period (53.2) 41.7 -------------------------------------------------------------------------------------------------------------- Continuing Discontinued Regionals Nationals Sports Central costs operations operations 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m Revenue Segment sales 542.3 510.7 50.6 - 1,103.6 32.7 Inter-segment sales (2.7) (11.6) - - (14.3) - -------------------------------------------------------------------------------------------------------------- Total revenue 539.6 499.1 50.6 - 1,089.3 32.7 -------------------------------------------------------------------------------------------------------------- Result Segment result 147.4 91.2 17.4 (15.9) 240.1 7.2 --------------------------------------------------------------------------------- Non recurring items (2.6) (0.1) Share of results of associates 0.8 - ----------------------------- Operating profit 238.3 7.1 IAS 19 finance credit 1.7 - IAS 39 impact (6.6) - Other finance costs (31.0) - ----------------------------- Profit before tax 202.4 7.1 Tax (60.3) (2.3) -------------------------------------------------------------------------------------------------------------- Profit for the period 142.1 4.8 -------------------------------------------------------------------------------------------------------------- Secondary segments - geographical and source segment analysis 2006 2005 Revenue analysis £m £m -------------------------------------------------------------------------------------------------------------- United Kingdom and Republic of Ireland 1,046.5 1,083.7 Continental Europe 6.0 5.5 Rest of world 0.5 0.1 -------------------------------------------------------------------------------------------------------------- Total - continuing operations 1,053.0 1,089.3 -------------------------------------------------------------------------------------------------------------- The source of all revenue relating to discontinued operations was in the United Kingdom and Republic of Ireland 3. Non recurring items 2006 2005 £m £m -------------------------------------------------------------------------------------------------------------- Non recurring items Impairment of intangible assets (a) (250.0) - Restructuring costs (b) (2.4) (7.8) Profit on disposal of land and buildings (c) 0.8 3.5 Loss on disposal of subsidiary (d) (1.8) - Release of accruals for which no further costs are expected (e) 3.8 - Severance costs following acquisition of the hotgroup plc (f) - (1.0) Profit on disposal of available-for-sale financial assets (g) 1.6 2.7 -------------------------------------------------------------------------------------------------------------- Non recurring items (248.0) (2.6) -------------------------------------------------------------------------------------------------------------- (a) An impairment review of the carrying value of the Group's intangible assets undertaken in accordance with IAS 36 Impairment of Assets indicated that an impairment charge was required. The impairment charge reduces the carrying value of the regional newspaper titles by £250.0 million (2005: £nil) before tax. Net of tax, the impairment reduces the carrying value of the regional newspaper titles by £175.0 million (2005: £nil). (b) Restructuring costs of £2.4 million (2005: £7.8 million) have been incurred in delivery of cost reduction measures. (c) The Group disposed of surplus land and buildings realising a profit on disposal of £0.8 million (2005: £3.5 million). (d) In 2006 the Group disposed of the hotgroup traditional recruitment consultancy business realising a loss on disposal of £1.8 million. (e) In 2006 the Group released accruals of £3.8 million for which no further costs are expected. (f) In 2005 severance costs of £1.0 million were incurred following the acquisition of hotgroup plc. (g) In 2006 the Group disposed of an asset realising a profit on disposal of £1.6 million and in 2005 the Group disposed of its shareholding in Scottish Radio Holdings plc realising a profit on disposal of £2.7 million. 4. Finance costs IAS 19 (a) IAS 39 (b) Other (c) Total 2006 £m £m £m £m -------------------------------------------------------------------------------------------------------------- Income 81.6 - 0.3 81.9 Expense (71.7) (4.9) (31.8) (108.4) -------------------------------------------------------------------------------------------------------------- Total finance income/(cost) 9.9 (4.9) (31.5) (26.5) -------------------------------------------------------------------------------------------------------------- 2005 -------------------------------------------------------------------------------------------------------------- Income 72.9 - 1.2 74.1 Expense (71.2) (6.6) (32.2) (110.0) -------------------------------------------------------------------------------------------------------------- Total finance income/(cost) 1.7 (6.6) (31.0) (35.9) -------------------------------------------------------------------------------------------------------------- (a) IAS 19 finance income represents expected return on scheme assets net of expected expenses and IAS 19 finance expense represents the interest cost on scheme liabilities. (b) Impact of fair value, exchange rate and amortisation adjustments on borrowings and associated financial instruments accounted for under IAS 39. (c) Other finance costs in 2006 include interest on obligations under finance leases of £1.0 million (2005: £1.2million) 5. Tax 2006 2005 £m £m -------------------------------------------------------------------------------------------------------------- Current tax Corporation tax charge for the period (39.8) (54.6) Prior period adjustment (0.9) (2.0) -------------------------------------------------------------------------------------------------------------- Current tax charge (40.7) (56.6) -------------------------------------------------------------------------------------------------------------- Deferred tax Tax credit/(charge) for the period 60.8 (5.2) Prior period adjustment (0.2) 1.5 -------------------------------------------------------------------------------------------------------------- Deferred tax credit/ (charge) 60.6 (3.7) -------------------------------------------------------------------------------------------------------------- Total tax credit/(charge) - continuing operations 19.9 (60.3) -------------------------------------------------------------------------------------------------------------- Tax charge on discontinued operations £m £m Tax on profit from operations (1.8) (2.2) Tax on sale profit - - Deferred tax charge - (0.1) -------------------------------------------------------------------------------------------------------------- Total tax charge - discontinued operations (1.8) (2.3) -------------------------------------------------------------------------------------------------------------- Reconciliation of tax charge - continuing operations 2006 2005 % % Standard rate of corporation tax 30.0 30.0 Tax effect of items that are not deductible in determining taxable profit/(loss) (3.5) 0.1 Tax effect of items that are not taxable in determining taxable (profit)/loss 0.2 - Tax effect of utilisation of tax losses not previously recognised in determining taxable loss 0.8 - Tax effect of share of results of associate 0.5 (0.3) Tax effect of rolled over and revaluation gains 0.7 (0.2) Prior period adjustment (1.5) 0.2 -------------------------------------------------------------------------------------------------------------- Total effective rate of tax 27.2 29.8 -------------------------------------------------------------------------------------------------------------- The standard rate of corporation tax is the UK prevailing rate of 30% (2005: 30%). The deferred tax credit for the period includes an amount of £75.0 million (2005:£nil million) in relation to the impairment charge with respect to intangible assets as detailed in note 3. In addition to the amount charged to the income statement, deferred tax of £18.8 million relating to the actuarial gains on the defined benefit pension schemes has been debited directly to equity (2005: credit of £0.7 million). 6. Discontinued operations On 2 July 2006 the Group discontinued its Magazines and Exhibitions operations. The results of the discontinued operations which have been included in the consolidated income statement, were as follows: 2006 2005 £m £m -------------------------------------------------------------------------------------------------------------- Revenue 20.1 32.7 Cost of sales (11.5) (20.0) -------------------------------------------------------------------------------------------------------------- Gross profit 8.6 12.7 Distribution costs (0.5) (1.1) Administrative expenses: Non recurring - (0.1) Other (2.3) (4.4) -------------------------------------------------------------------------------------------------------------- Operating profit 5.8 7.1 Tax (1.8) (2.3) -------------------------------------------------------------------------------------------------------------- Profit for the period 4.0 4.8 -------------------------------------------------------------------------------------------------------------- 7. Dividends 2006 2005 £m £m -------------------------------------------------------------------------------------------------------------- Amounts recognised as distributions to equity holders in the period: Dividend paid (a) 63.7 60.2 -------------------------------------------------------------------------------------------------------------- Pence Pence -------------------------------------------------------------------------------------------------------------- Dividend paid per share 21.9 20.7 -------------------------------------------------------------------------------------------------------------- £m £m -------------------------------------------------------------------------------------------------------------- Dividend proposed but not paid nor included in the accounting records (b) 45.4 45.4 -------------------------------------------------------------------------------------------------------------- Pence Pence -------------------------------------------------------------------------------------------------------------- Dividend proposed per share 15.5 15.5 -------------------------------------------------------------------------------------------------------------- (a) The amount of £63.7 million is in respect of the final dividend for the 52 weeks ended 1 January 2006 of 15.5 pence per share and the interim dividend for the 52 weeks ended 31 December 2006 of 6.4 pence per share; the amount of £60.2 million is in respect of the final dividend for the 53 weeks ended 2 January 2005 of 14.3 pence per share and the interim dividend for the 52 weeks ended 1 January 2006 of 6.4 pence per share. (b) The amount of £45.4 million for 2006 represents the proposed final dividend for the 52 weeks ended 31 December 2006, which is subject to approval by shareholders at the Annual General Meeting and as such is not reflected as a liability in these financial statements; the amount of £45.4 million for 2005 represents the proposed final dividend for the 52 weeks ended 1 January 2006. 8. Earnings per share 2006 2005 Earnings £m £m -------------------------------------------------------------------------------------------------------------- Profit after tax before adjusted items* 127.1 149.7 Adjusted items*: Non recurring items (after tax) (173.0) (0.6) Disposed businesses profit/(loss) (after tax) 0.6 (0.1) Reduction in charge for share-based payments relating to 2004 and 2005 (after tax) 2.9 - Amortisation of intangibles (after tax) (7.4) (2.3) IAS 39 impact (after tax) (3.4) (4.6) -------------------------------------------------------------------------------------------------------------- Basic EPS earnings (loss)/profit - continuing operations (53.2) 142.1 Discontinued operations (after tax) 41.7 4.8 -------------------------------------------------------------------------------------------------------------- Basic EPS earnings (loss)/profit attributable to equity holders (11.5) 146.9 -------------------------------------------------------------------------------------------------------------- * Adjusted earnings exclude disposed businesses (Magazines and Exhibitions division and traditional recruitment consultancy business), non recurring items (including a £250 million impairment of Regional newspaper titles), reduction in the charge for share-based payments relating to 2004 and 2005, the amortisation of intangible assets and the impact of IAS 39. A reconciliation between the adjusted and the statutory numbers is provided in note 16 on page 21. Number of shares ('000) ('000) -------------------------------------------------------------------------------------------------------------- Weighted average number of ordinary shares for the purpose of basic EPS 291,207 291,900 Effect of dilutive potential ordinary shares - share options 711 1,274 -------------------------------------------------------------------------------------------------------------- Weighted average number of ordinary shares for the purpose of diluted EPS 291,918 293,174 -------------------------------------------------------------------------------------------------------------- Basic profit per share is calculated by dividing profit attributable to equity holders by the weighted average number of ordinary shares during the year. Diluted profit per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. Earnings per share - pence Pence Pence -------------------------------------------------------------------------------------------------------------- Adjusted earnings per share* - basic 43.6 51.3 -------------------------------------------------------------------------------------------------------------- Adjusted earnings per share* - diluted 43.5 51.0 -------------------------------------------------------------------------------------------------------------- (Loss)/earnings per share - continuing operations - basic (18.3) 48.7 -------------------------------------------------------------------------------------------------------------- (Loss)/earnings per share - continuing operations - diluted (18.3) 48.5 -------------------------------------------------------------------------------------------------------------- Earnings per share - discontinued operations - basic 14.3 1.6 -------------------------------------------------------------------------------------------------------------- Earnings per share - discontinued operations - diluted 14.3 1.6 -------------------------------------------------------------------------------------------------------------- The earnings per share for each category of non recurring items disclosed in note 3 is as follows: Pence Pence -------------------------------------------------------------------------------------------------------------- Impairment of intangibles (60.1) - Restructuring costs (0.6) (1.8) Profit on disposal of land and buildings 0.2 1.2 Loss on disposal of subsidiary (0.5) - Release of accruals for which no further costs are expected 1.2 - Severance costs following acquisition of the hotgroup plc - (0.3) Profit on disposal of available-for-sale financial assets 0.4 0.7 -------------------------------------------------------------------------------------------------------------- Earnings per share - non recurring items (59.4) (0.2) -------------------------------------------------------------------------------------------------------------- 9. Derivative financial instruments 2006 2005 £m £m Cross-currency interest rate swaps - fair value Opening balance (56.6) (87.2) Movement in fair value including exchange movements (50.8) 30.6 -------------------------------------------------------------------------------------------------------------- Closing balance (107.4) (56.6) -------------------------------------------------------------------------------------------------------------- Current - - Non-current (107.4) (56.6) -------------------------------------------------------------------------------------------------------------- The Group uses cross-currency interest rate swaps to manage its exposure to foreign exchange movements and interest rate movements on its private placements by swapping these borrowings from US$ fixed rates to sterling floating rates. These amounts have been calculated using an industry-standard financial instrument model. The Group does not currently designate its cross-currency interest rate swaps as hedging instruments and changes in the fair values of the swaps have been charged to income in the year. 10. Notes to the cash flow statement 2006 2005 £m £m -------------------------------------------------------------------------------------------------------------- Operating (loss)/profit from continuing operations (46.6) 238.3 Operating profit from discontinued operations 5.8 7.1 Depreciation of property, plant and equipment 39.8 40.1 Amortisation of other intangible assets 10.6 3.3 Share of result of associate (1.3) (0.8) Impairment of other intangible assets 250.0 - Charge for share-based payments in respect of 2006 2.4 4.4 Credit for share-based payments in respect of 2004 and 2005 (4.2) - Profit on disposal of land and buildings (0.8) (3.5) Profit on disposal of available-for-sale financial assets (1.6) (2.7) Loss on disposal of subsidiary undertakings 1.8 - Adjustment for IAS 19 pension funding (19.3) (17.7) -------------------------------------------------------------------------------------------------------------- Operating cash flows before movements in working capital 236.6 268.5 Decrease/(increase) in inventories 0.2 (0.5) Decrease in receivables 6.7 16.6 Decrease in payables (18.2) (7.8) -------------------------------------------------------------------------------------------------------------- Cash generated from operations 225.3 276.8 -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents represent the sum of the Group's bank balances and cash in hand at the balance sheet date as disclosed on the face of the balance sheet. 11. Net debt Other 1 January Cash IAS39* Loans non-cash 31 December 2006 flow impact repaid charges 2006 Net Debt £m £m £m £m £m £m -------------------------------------------------------------------------------------------------------------- Non-current Loan notes (392.0) - 45.9 - (0.2) (346.3) Derivative financial instruments (56.6) - (50.8) - - (107.4) Obligations under finance leases (15.6) - - 2.4 (13.2) -------------------------------------------------------------------------------------------------------------- (464.2) - (4.9) 2.4 (0.2) (466.9) -------------------------------------------------------------------------------------------------------------- Current Bank overdrafts (17.9) 14.6 - - - (3.3) Short-term loans (40.0) - - 40.0 - - Loan notes (0.8) - - 0.1 - (0.7) Obligations under finance leases (2.8) - - - - (2.8) -------------------------------------------------------------------------------------------------------------- (61.5) 14.6 - 40.1 - (6.8) -------------------------------------------------------------------------------------------------------------- Cash at bank and in hand 33.2 (0.4) - - - 32.8 -------------------------------------------------------------------------------------------------------------- Net debt (492.5) 14.2 (4.9) 42.5 (0.2) (440.9) -------------------------------------------------------------------------------------------------------------- * The US and UK private placement loan notes totalling US$602 million and £32 million were issued in 2001 and 2002. The fixed rate interest and capital repayments on the US$ denominated loan notes have been swapped into floating rate sterling through the use of cross-currency interest rate swaps. As hedge accounting under IAS 39 has not been applied, the loan notes and cross-currency swaps are shown separately in accordance with IAS 39. The loan notes are disclosed at amortised cost and translated into sterling at the prevailing period-end exchange rate and the cross-currency swaps are disclosed at fair value at the period-end date. These values do not represent the amounts required to repay the loan notes or cancel the related cross-currency interest rate swaps. 12. Share-based payments During the period 757,971 (2005: 1,002,919) share awards were granted to senior managers on a discretionary basis under the Long Term Incentive Plan approved in 2004. The exercise price of the granted awards is £1 for each block of awards granted. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions. During the period 206,369 (2005: nil) share awards were granted to senior managers on a discretionary basis under the Deferred Share Award Plan approved in 2006. The exercise price of the granted awards is £1 for each block of awards granted. The awards vest after three years, subject to continued employment of the participant. Shares held for share-based payments are included in retained earnings and other reserves at £11.9 million (1 January 2006: £11.9 million). 13. Retirement benefit schemes Defined benefit schemes The Group operates ten final salary pension schemes. Formal valuations of schemes are carried out regularly, the actuarial methods and assumptions used to calculate each scheme's assets and liabilities varying according to the actuarial and funding policies adopted by their respective trustees. During 2002, the decision was taken to close entry to the three defined benefit (final salary pension) schemes to new employees with effect from 1 January 2003. All new employees are entitled to participate in a defined contribution plan, the Trinity Mirror Pension Plan. Valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the market value of the schemes' assets at 29 December 2006, the last day prior to the period end for which such values were available. Based on actuarial advice, the financial assumptions used in calculating the schemes' liabilities and the total value of those liabilities under IAS 19 are: 2006 2005 Principal annual actuarial assumptions used : % % -------------------------------------------------------------------------------------------------------------- Discount rate 5.10 4.75 Inflation rate 3.00 2.80 Expected return on scheme assets 4.40-7.30 4.00-7.30 Expected rate of salary increases 4.00 4.10 Pension increases: Pre 6 April 1997 pensions 3.00-5.00 2.80-5.00 Post 6 April 1997 pensions 3.00-3.50 2.80-3.30 Actuarial value of scheme liabilities £1,511.0m £1,535.5m Actual return on scheme assets £97.1m £179.7m Post-retirement mortality tables and Future life expectancy (years) for Future life expectancy (years) at future life expectancies at age 65 a pensioner currently age 65 for a non-pensioner currently aged 65 aged 55 Male Female Male Female 16.9-20.4 19.9-23.5 19.4-21.0 22.3-24.0 Average 18.6 21.3 19.6 22.4 The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit retirement scheme is as follows: Defined benefit schemes 2006 2005 £m £m -------------------------------------------------------------------------------------------------------------- Net scheme liabilities: Present value of funded obligations (1,511.0) (1,535.5) Fair value of schemes' assets 1,322.9 1,233.0 Effect of asset ceiling (24.9) (3.1) -------------------------------------------------------------------------------------------------------------- Schemes' deficits (213.0) (305.6) -------------------------------------------------------------------------------------------------------------- This amount is presented as follows: Current liabilities - - Non-current liabilities (213.0) (305.6) -------------------------------------------------------------------------------------------------------------- (213.0) (305.6) -------------------------------------------------------------------------------------------------------------- Amounts recognised in the income statement: 2006 2005 £m £m Current service cost (30.4) (28.6) Past service cost (0.8) (1.3) -------------------------------------------------------------------------------------------------------------- Total included in staff costs (31.2) (29.9) -------------------------------------------------------------------------------------------------------------- Expected return on scheme assets 81.6 72.9 Interest cost on pension schemes' liabilities (71.7) (71.2) -------------------------------------------------------------------------------------------------------------- Net finance credit 9.9 1.7 -------------------------------------------------------------------------------------------------------------- Total included in the income statement (21.3) (28.2) -------------------------------------------------------------------------------------------------------------- Movement in deficits during the period: Opening deficits (305.6) (321.9) Contributions 51.2 46.9 Total charge to income statement (21.3) (28.2) Actuarial gains 84.5 0.7 Effect of asset ceiling (21.8) (3.1) -------------------------------------------------------------------------------------------------------------- Closing deficits (213.0) (305.6) -------------------------------------------------------------------------------------------------------------- Movement not recognised in income statement: Actuarial gains 84.5 0.7 Effect of asset ceiling (21.8) (3.1) -------------------------------------------------------------------------------------------------------------- Total included in statement of recognised income and expense (before tax) 62.7 (2.4) -------------------------------------------------------------------------------------------------------------- Defined contribution schemes 2006 2005 £m £m Amounts recognised in the income statement: Current service cost 1.0 0.8 -------------------------------------------------------------------------------------------------------------- 14. Acquisition of subsidiary undertakings On the 9 May 2006, the Group acquired 100% of Email4Property Limited for a total cash consideration of £4.5 million (£4.2 million net of cash and cash equivalents acquired of £0.3 million). The results of the acquisition have been included in continuing operations. 15. Disposal of subsidiary undertakings During June and July 2006 the Group disposed of its Magazines and Exhibitions division and on 11 August 2006 the Group disposed of its traditional recruitment consultancy business acquired as part of the acquisition of hotgroup plc. The net assets of the business at the date of disposal were as follows: Magazines and hotgroup Exhibitions traditional Total £m £m £m -------------------------------------------------------------------------------------------------------------- Goodwill 1.6 4.1 5.7 Other intangible assets - 6.9 6.9 Property, plant and equipment 0.2 0.3 0.5 Trade and other receivables 6.3 4.5 10.8 Cash and cash equivalents 1.0 0.5 1.5 Long-term provisions - (2.9) (2.9) Trade and other payables (6.9) (2.2) (9.1) -------------------------------------------------------------------------------------------------------------- 2.2 11.2 13.4 Profit/(loss) on disposal 37.7 (1.8) 35.9 -------------------------------------------------------------------------------------------------------------- Total consideration 39.9 9.4 49.3 -------------------------------------------------------------------------------------------------------------- Satisfied by: Cash consideration 41.9 10.8 52.7 Cash disposal costs (1.7) (1.8) (3.5) -------------------------------------------------------------------------------------------------------------- 40.2 9.0 49.2 Deferred consideration 0.7 0.4 1.1 Deferred disposal costs (1.0) - (1.0) -------------------------------------------------------------------------------------------------------------- 39.9 9.4 49.3 -------------------------------------------------------------------------------------------------------------- Net cash flow arising on disposal: Cash consideration 40.2 9.0 49.2 Cash disposed (1.0) (0.5) (1.5) -------------------------------------------------------------------------------------------------------------- 39.2 8.5 47.7 -------------------------------------------------------------------------------------------------------------- 16. Reconciliation of group statutory results to adjusted results (unaudited) Continuing operations Non recurring Disposed Share based IAS 39 statutory items business payments Amortisation Impact Adjusted 52 weeks ended result £m £m £m £m £m result 31 December 2006 £m (b) (c) (d) (e) (f) £m -------------------------------------------------------------------------------------------------------------- Revenue 1,053.0 - (20.9) - - - 1,032.1 Operating profit (46.6) 248.0 (0.8) (4.2) 10.6 - 207.0 (Loss)/ profit (73.1) 248.0 (0.8) (4.2) 10.6 4.9 185.4 before tax Earnings per share Basic pence (18.3)(a) 59.4 (0.2) (1.0) 2.5 1.2 43.6 -------------------------------------------------------------------------------------------------------------- Continuing operations Non recurring Disposed Share based IAS 39 statutory items business payments Amortisation Impact Adjusted 52 weeks ended result £m £m £m £m £m result 1 January 2006 £m (b) (c) (d) (e) (f) £m -------------------------------------------------------------------------------------------------------------- Revenue 1,089.3 - (5.7) - - - 1,083.6 Operating profit 238.3 2.6 0.2 - 3.3 - 244.4 Profit before tax 202.4 2.6 0.2 - 3.3 6.6 215.1 Earnings per share Basic pence 48.7(a) 0.2 - - 0.8 1.6 51.3 -------------------------------------------------------------------------------------------------------------- (a) Earnings per share on continuing operations, excluding impact of discontinued operations (Magazines and Exhibitions division). (b) Details of non recurring items are set out in note 3. (c) Sale of hotgroup traditional recruitment consultancy business. (d) Share-based payments charge for 2004 and 2005 has been adjusted to reflect non-market based performance criteria. (e) Amoritisation of intangible assets. (f) Impact of fair value, exchange rate, and amortisation adjustments on borrowings and associated financial instruments, accounted for under IAS 39. This information is provided by RNS The company news service from the London Stock Exchange

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