ASSOCIATED NEWSPAPERS

ASSOCIATED NEWSPAPERS ACHIEVED RECORD PROFITS* FOR THE THIRD SUCCESSIVE YEAR.

FINANCIAL HIGHLIGHTS
*Adjusted operating profit (before exceptional items and amortisation and impairment of intangible assets).
All references to prior year numbers are to figures prepared under IFRS.


THE PRINTING PLANT AT DIDCOT, PART OF THE NEWLY INTEGRATED HARMSWORTH PRINTING.

This excludes Teletext which became part of the division at the start of the year. This robust result was particularly satisfying as it was achieved despite a further sharp decline in the print advertising market, a newsprint price increase again well ahead of inflation and the launch costs of a new free title, London Lite. It resulted from close attention to costs, particularly at the Evening Standard, and from growth in profits from digital activities. Total costs were £11 million lower than last year, despite spending £7 million more on newsprint.

The Daily Mail average daily circulation of 2,376,000 was down by only 0.4%, despite a 5p Monday to Friday cover price increase in April. This compared favourably to an overall decline in the national daily newspaper market of 2.8%, resulting in the Daily Mail increasing its market share to 19.7%, a rise of 0.5% and the highest market share growth of any national newspaper. During February a new Irish edition was successfully launched, resulting in a sixfold increase in sales in the Republic of Ireland.

The Mail on Sunday circulation averaged 2,312,000, just 1.7% down year on year in an overall market which fell by 4.5%. This small year on year decline was as a result of the first six months, as circulation increased year on year from April to September by 16,000 copies to 2,320,000. Market share grew strongly once again, by 0.5% to a record 17.2%. Live, a lifestyle magazine aimed at men, replaced Night & Day in October and a significant investment was made in the paper quality of YOU magazine. The UK cover price was increased by 10p in September, with no immediate impact on circulation. A new Irish edition was launched on 24th September, incorporating Ireland on Sunday, and circulation figures have so far been very encouraging. Prior to this change Ireland on Sunday once again improved its trading performance and circulation finished the year strongly, up 6,000 copies on last year.

Within the context of a much larger and more complex London afternoon newspaper market, the Evening Standard ceased publishing its free edition, Standard Lite, on 23rd August. It also increased its cover price by 10p to 50p on 29th August, thus differentiating its quality editorial content from the London Lite and the other free afternoon newspaper whose editorial products are targeted at a more populous market. The average circulation for the year, excluding Standard Lite, was 321,000, representing a decline year on year of 7.8%. Substantial cost reductions were again realised during the year. Thisislondon.co.uk was successfully relaunched in August and has subsequently enjoyed a significant increase in the number of unique UK users.

Metro continued to expand its activities during the year, both at home and abroad. In the UK, distribution grew by 5.7%, to an average of over 1,060,000 copies daily and profits* were up 10%. In Ireland, Metro Dublin was launched in a joint venture with the Irish Times and Metro International and is currently distributing 55,000 copies per day. In Dubai, Metro acquired 60% of Catchpole Communications FZ LLC, which provides sales, circulation and management services to 7DAYS, an English language free newspaper similar to Metro. In August, London Lite was launched, adding to Associated’s substantial presence in the free daily newspaper market. Distributed by merchandisers, rather than via public transport outlets, trading performance has so far been ahead of expectation and an audited circulation of nearly 360,000 was recorded in September.

Loot had another challenging year, with advertising down 20% and circulation revenue down 21%. Although disappointing, this was to a great extent in line with the market. The website, Loot.com achieved 15% revenue growth and operating costs were reduced year on year by 12%. The company has undertaken a reorganisation and restructure in order to position the business better in a competitive and challenging marketplace. It is expected to return to profit* growth again next year.

LONDON LITE, A FREE AFTERNOON NEWSPAPER AIMED AT ‘URBANITES’, WAS LAUNCHED IN AUGUST.



TELETEXT IS THE LEADING TEXT SERVICE ON FREEVIEW, AHEAD OF BOTH THE BBC AND SKY.

Teletext saw a 19% decline in overall revenues compared to last year, which was in line with expectations. This reflects the ongoing impact of the structural shift taking place in the television market with the rising household penetration of digital television and the consequent changes in consumer usage in advance of analogue switch-off. The cost base had been reduced in anticipation and, as a result, Teletext remained modestly in profit. Against this background the company has continued to pursue its strategy of developing services across the different distribution platforms of digital television, the internet and mobile devices as part of maintaining market position in key sectors such as Holidays advertising and establishing a basis for developing new business streams. Therefore, whilst analogue-based revenues have reduced by 30% during the course of the year, those from the developing digital activities have increased by 60%. Teletext is already the leading text service on Freeview, ahead of both the BBC and Sky and digital television audiences now account for nearly a third of Teletext’s total weekly audience. During the year Teletext took full responsibility for the development of Associated’s online travel properties, which currently include the teletextholidays.co.uk and thisistravel.co.uk websites. As part of its strategy to develop the business base beyond its current association with the late package market, the division acquired Villarenters, an internet company specialising in villa accommodation.

Print advertising revenues were down 6% to £436 million, with display advertising down 4% and classified down 9%. Metro bucked the trend by achieving an increase of 8.5%, year on year, and the Mail titles outperformed the wider newspaper advertising market. The Daily Mail was down 4.3%, with the Mail on Sunday down 6.0%, the Evening Standard down 15% and Loot was down 20%. Both Ireland on Sunday and Buy and Sell were up – by 4.5% and 15% respectively. By sector, retail advertising across the titles was up 7%, but there were falls in most other categories. Teletext, which became part of the Associated division at the start of the year, saw its television revenues fall by 22%, as the switch of advertisers from analogue to digital TV continued.

During the year Harmsworth Printing was created by merging Harmsworth Quays, the printing arm of Associated with The Northcliffe Press, which controlled the print centres of Northcliffe Newspapers. Going forward this new structure will optimise value for the Group by integrating production management, planning and utilisation of the printing plants nationwide. The construction of the new site at Didcot and the enhancements at Surrey Quays are proceeding well and are on schedule to provide the newspaper titles with increased pagination and full colour by early 2008.

ASSOCIATED NORTHCLIFFE DIGITAL (AND), WHICH CONSISTS OF THE DIGITAL OPERATIONS OF ASSOCIATED NEWSPAPERS AND NORTHCLIFFE NEWSPAPERS, WAS SET UP IN THE SPRING OF 2006 TO LEVERAGE GROUP ASSETS AND EXPAND ITS NETWORK OF SITES, AUDIENCES AND ADVERTISERS.

Expanding the digital operations of our newspaper titles is a high priority for the Group. Associated’s digital operations grew significantly during the last year, both organically and by acquisition. In total, revenues doubled to £55 million; excluding acquisitions, growth was still a healthy 29%. The sites contributed an operating profit* of £13 million. Associated Northcliffe Digital (AND), which consists of the digital operations of Associated Newspapers and Northcliffe Newspapers, was set up in the spring of 2006 to leverage Group assets and expand its network of sites, audiences and advertisers. By the year-end the total AND network of sites (including acquisitions) reached an estimated 26% of the UK internet population. The respective digital results of Associated and Northcliffe are included within each of these divisions for the year under review.

PRIMELOCATION ATTRACTS MORE THAN 1.5 MILLION VISITORS PER MONTH.

The merged entity has extended its digital presence in recruitment and property, as well as entering into new sectors including dating, price comparison and motors. Run-rate annualised revenues for AND as a whole approached £90 million as the new financial year began with a current profit* margin of around 20%.

Recruitment: Jobsite, acquired in March 2004, continued to show strong growth, trading ahead of expectations. In line with its strategy, Jobsite acquired two recruitment advertising businesses that lead their field. The Appointment was acquired in July. The business incorporates the recruitment websites InRetail and RetailCareers, as well as the print recruitment magazine, The Appointment. ProductionBase, the market-leading subscription-based recruitment website focused on the UK entertainment production market, was acquired in May. The Jobsite network now serves ten niche sectors in addition to the national portal; in total reaching over 1.5 million unique users each month.

Property: AND’s position in this market was substantially strengthened in January through the acquisition of Fastcrop plc, the owner of Primelocation, one of the UK’s leading internet property advertising portals. Targeting top-end sales and letting agents in the UK and overseas, the business has traded well since acquisition. Its high-profile TV advertising campaigns have been successful in recruiting new agents and driving users to the site. The AND property portfolio already includes Findaproperty, which is also trading ahead of expectations and successfully executing against its growth plan to build a customer base beyond its current heartland of London and South East England, where it is the market leader.

THE THISIS NETWORK OF SITES HAS SEEN A 63% INCREASE IN PAGE VIEWS YEAR ON YEAR.

Utility Switching: August saw the acquisition of SimplySwitch, which allows consumers to compare available products in energy, home phone, mobile, broadband and credit cards, and then switch – online or on the phone – to services that best meet their needs or save them money. The business is rapidly building on its success in the energy and credit card markets by developing a wider set of categories for comparison, including personal loans and insurance.

Dating: In March, AND acquired Allegran, the leading online dating operator in the UK. Allegran operates two of the country’s three most popular dating websites and four of the top 10, according to Hitwise. Through the brands Loopylove, Girlsdateforfree, Pocado, Datingforparents and Dreamsdiscovered, Allegran provides a suite of dating services tailored for single people of different age groups and from varying walks of life. Allegran is trading in line with expectations.

ASSOCIATED NORTHCLIFFE DIGITAL: ENSURING THAT ASSOCIATED NEWSPAPERS ARE AT THE FOREFRONT OF DIGITAL TECHNOLOGY.

Motors: Data Media and Retail, the operator of online car classified sites including Carsource and an email marketing services division, was acquired in February and is growing well. This was followed in June by the acquisition of Autoexposure, a business providing motor dealers with publishing tools and advertising packages to enable them to market themselves on the web. The business is trading in line with expectations and further expansion is planned.

Newspaper companion sites and digital magazines: The group’s news, information and entertainment-led sites, which operate at national, regional and local levels, have performed strongly. The Mail online delivered good growth in audiences and revenues and now reaches 6.5 million unique users each month, driven by a renewed focus on content and user interactivity. A redesign and strong cross promotion by the Evening Standard, helped secure a dramatic increase in audience size for ThisisLondon. The new Metro.co.uk site was also well received by its growing audience and advertisers.

Development of cross-media sales, offering advertisers combined print and online packages is moving forward with promising results at both national and local level.

AND finished the year with almost a hundred websites and positioned as one of the leading players in many digital advertising sectors. Its strength and success were recognised by the Association of Online Publishers, which voted it, Consumer Digital Publisher of the Year.

Outlook

The new financial year has started well, with some signs of a gentle recovery in the advertising market and our national newspapers producing strong circulation results in an ever competitive market. The London evening market will remain a real challenge in the coming year but, with its experience of the London market and free newspapers, Associated is confident it can maximise the potential of its two titles. As the digital division is expected to continue its strong profit growth, the outlook for the next twelve months is cautiously optimistic.