A&N Media: Associated Newspapers

A & N Media:

Given the unprecedented trading conditions, A&N Media took decisive action on costs and achieved its cost reduction target in September. Headcount (excluding the Evening Standard) fell by over 1,600 (16%) in the year, including the job losses from the closure of three regional printing plants at Grimsby, Leicester and Bristol. As expected, the benefit of significantly lower costs came through in the second half of the year.

In the face of extremely challenging economic conditions throughout the financial year and continued competitive activity in the London evening newspaper market for most of it, Associated Newspapers achieved a very satisfactory result. Total revenues were down £112 million due to a 14% fall in underlying† advertising revenues and to the sale of the Evening Standard, but the group-wide cost efficiency programme generated £80 million of savings. This, together with the sale of the Evening Standard, restricted the fall in operating profit* to £11 million and year-on-year profits* increased in the second half of the year. An exceptional operating charge of £85 million was made for restructuring and closure costs.

Newspaper operations

Circulation revenue was £366 million, down an underlying† 2%. Total advertising revenues were £350 million, down an underlying† 15%. Display advertising was down by an underlying† 16% to £281 million. All categories were lower, but with retail, our largest category, the best performer. The Daily Mail’s readership remains extremely attractive particularly to retail advertisers. Underlying† classified advertising, which is not dependent on property and jobs, fell by only 12% to £60 million. Underlying† digital revenue from the newspaper titles’ companion sites was up 11%, buoyed by the success of the MailOnline brand. Costs, despite a sharp increase in newsprint prices, were down 8%.

The circulation of both the Daily Mail and The Mail on Sunday fell marginally more than the market, reflecting the decision to direct promotional activity away from CD and DVD giveaways towards a sustained direct marketing campaign to recruit more long-term loyal purchasers. In consequence, circulations have been stable in recent months.

The Daily Mail’s average daily circulation for the year was 2,171,000 copies, which was 5.3% down year-on-year, in an overall market that contracted by 4.9%. However, the Daily Mail increased its Saturday cover price by 10 pence in October 2008 and this, together with a full year of the weekday price rise made in April last year, generated a 1% improvement in circulation revenue. Total advertising revenue fell by 11% year-on-year.

The average circulation for The Mail on Sunday of 2,073,000 copies fell marginally more than national Sunday circulations. However, the underlying strength of the brand was evidenced by a number of awards during the year, including YOU magazine which retained its title of ‘Supplement of the Year’ for an unprecedented second year at the British Press Awards. In common with circulation, the Sunday advertising market was harder hit than its daily counterparts. Consequently, total advertising revenues declined by 28% year-on-year, although The Mail on Sunday continued to carry a greater share of the Sunday advertising market by volume than any other national newspaper.

In response to the anticipated downturn in revenue base both the Daily Mail and The Mail on Sunday embarked on an extensive profit enhancement programme earlier in the year. Consequently the Daily Mail maintained its profitability year-on-year, whilst The Mail on Sunday continued to deliver a solid positive return.

The newspapers’ companion websites were consolidated within a new division, Mail Digital which recorded a 22% improvement in revenue. Traffic to its primary website, MailOnline, increased by 68% to 30 million unique users in September, making it one of the U.K.’s predominant newspaper websites.

The Free Newspaper division had a difficult year in line with the general newspaper market. Metro slightly decreased its circulation to 1,335,000 and saw total advertising revenue fall by 13%. However, early cost reducing initiatives enabled the title to protect its profits and Metro continues to have the largest distribution and be the most profitable free newspaper in the world. London Lite traded in line with last year, with advertising only 4% down, but since the end of the financial year, following the decision of the Evening Standard to go free, it has been closed after consultation with its employees. 7Days in Dubai experienced an extremely depressed advertising market, with revenues down 17%.

The Evening Standard was sold on 28th February, with the Group retaining a 24.9% stake and negotiating a contract to provide accommodation and certain commercial services to the new Evening Standard company.

Loot made a profit despite advertising revenue being 20% down.

Mail Today, the Delhi-based daily newspaper, in which Associated holds a 26% interest, has established itself as a strong editorial publication since its launch in November 2007. Expansion of the newspaper’s circulation was deliberately held back in 2009 whilst advertising confidence was low, but there are plans to double its circulation in 2010.

Printing

The difficult economic conditions have had a significant effect on Harmsworth Printing. With falls in circulation and advertising revenues, publishers have reduced their print orders and surplus capacity has increased at almost every print centre. In response to falling revenues, three sites were closed. Harmsworth Printing has successfully reorganised its production requirements across its remaining five sites, but continues to monitor its trading position and to seek further operational efficiencies.

Associated Northcliffe Digital

AND’s portfolio of digital businesses continued to build market share amidst difficult economic conditions. Revenue fell by 20% as a result of the economic slowdown. The Jobs and Property businesses were particularly affected, though both of these companies outperformed the decline in transaction volumes in their respective markets. Profitability was further affected by strategic investments in Jobsite’s marketing campaign, including TV and Portsmouth FC sponsorship and overall was down £5 million. AND remains one of the U.K.’s leading digital media companies, and is actively seeking to apply its expertise to expansion into new business opportunities as well as expanding our existing and adjacent verticals and embracing international opportunities.

Jobs

The recruitment division continued its expansion with the acquisition of Broadbean, a leading provider of job posting and advertising analytics software to the recruitment market. AND’s flagship recruitment portal, Jobsite, embarked on a major advertising campaign, which exceeded expectations with sizeable increases in uploaded CVs and brand awareness. Jobsite also became the recruitment partner to Johnston Press. The partnership has quickly delivered significant uplifts in response. Revenue fell by 16% over the year due to contraction in the overall market. However, the company has remained profitable during this downturn and the rate of decline year-on-year has stabilised in recent months.

Property

The Digital Property Group (‘TDPG’) concluded its integration programme, uniting its businesses of FindaProperty.com, Primelocation.com, Homesandproperty.co.uk and FindaNewHome.com. Each of the sites has a distinct market position providing increased exposure and additional leads and instructions for estate agents. Despite the dramatic fall in property transaction volumes, TDPG’s revenues fell by only 11% whilst broadly maintaining its profit margins. Website traffic has continued to grow with 4.6 million unique users in September 2009, a 24% increase year-on-year.

Motors

The Digital Automotive Division continued to invest in its used car website, Motors. co.uk, building its customer base of automotive dealers by 22%. Motors.co.uk has particularly benefited by targeting local markets through its partnership with Northcliffe Media. The division has recently signed deals with a number of regional newspaper groups, further increasing its reach to local audiences. The division also provides a variety of technology services to dealers. Revenues increased by 9%.

Other areas of operation

AND’s online dating business, Allegran, completed a successful restructuring programme that returned it to profitability. It implemented a new technology platform which provides it with increased flexibility in supporting its portfolio of sites, benefits have already been realised by the efficient launch of MatureDatingUK.com and the dating site of the Daily Mail. In addition AND has embarked on a highly successful new initiative to launch local community websites based on user generated content to capture commercial opportunities at a hyperlocal level.

Teletext

We plan to close the majority of Teletext’s loss-making television business in early 2010, bringing to an end the Teletext information services provided under the terms of the public teletext licence. This follows a year when the operating losses from Teletext’s businesses increased by £1 million due to the continuing decline in television revenues, despite further significant actions on cost reduction. The remaining businesses will focus around the company’s online travel activities.

Outlook

It is difficult to predict future revenue trends but the extensive cost efficiency programme, together with its strong brands and diversified portfolio, leave Associated well placed to capitalise on the eventual recovery in the economy.

* Adjusted operating profit (before exceptional items and amortisation and impairment of intangible assets).

† Underlying revenue or profit* is revenue or profit* on a like-for-like basis, adjusted for acquisitions and disposals made in the current and prior year and at constant exchange rates. The underlying percentage movements compare 52 weeks with 52 weeks.

†† Percentages are calculated on actual numbers to one decimal place.

Associated Newspapers benefited from the inclusion of an extra week’s trading, but all underlying† year-on-year comparisons are on a like-for-like basis, comparing 52 weeks with 52 weeks and exclude the Evening Standard.

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