A&N Media: Northcliffe Media

Northcliffe’s portfolio of titles in the U.K. and in Central Europe were badly affected by weak advertising markets. All categories were under pressure but particularly recruitment, property and motors. The company responded by initiating a range of significant restructuring activities. Total headcount reduced by 20%, or 1,131 people. Overall, on a like-for-like basis, Northcliffe’s operating profit was down 66%, with revenues down £98 million, offset by cost reductions of £53 million. Exceptional costs of £13 million were incurred on restructuring activities and early termination of distribution costs. Like Associated, Northcliffe’s results 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 this year with 52 weeks last year.

UK

Trading conditions in the U.K. for local newspapers were unprecedented in 2009. Advertising revenues fell by 30% and newspaper sales were affected by the recession, as households scaled back on discretionary expenditure. Circulation revenues were 7% down. Underlying† revenues overall declined by £94 million, or 25%.

Unsurprisingly, the increase in unemployment levels has taken its toll on recruitment advertising revenues, both print and digital. Recruitment revenues declined by an underlying† 49%.

In the property category, the weak residential market which began in 2008 continued into 2009. Estate agents and new home builders continued to scale back advertising spend. Underlying† revenues fell by 46%. The rate of year-on-year decline slowed to 18% in the month of September.

Historic market factors such as dealer consolidation, contraction of the number of used car dealers and reducing revenue yields from the transfer of advertising from print to online were exacerbated by reduced consumer spending. All of this contributed to underlying† Motors advertising falling by 24% in 2009.

Retail advertising, Northcliffe’s largest category in 2009, fell by an underlying† 20%. All other categories combined contracted by an underlying† 11%.

Newspaper circulation revenues fell on a like-for-like basis by 7% to £70 million. Only a handful of cover price increases were implemented during the year. For the January to June 2009 ABC period, our dailies were down 9% compared with an industry average of 8%. The weekly titles recorded a fall of 8%, which was in line with the industry average decline.

This loss of print circulation contrasts with the rise in our digital audience. The number of visitors across our entire digital network was 4.4 million in September, up 31% on the previous year. The time spent on sites and the frequency of use (up 27% in September) also increased.

Despite the fall in revenues, Northcliffe has continued to innovate so as to improve the relevance and quality of its titles and products and to serve its customers better.

Digital advertising revenue of £17 million was in line with last year despite a decline in recruitment revenues of 35%. Growth was achieved across all other categories, particularly property where our improved digital property offering of findaproperty and primelocation continued to gain estate agent support. Progress was also made by motors.co.uk through increased inventory and higher yields. Retail and leisure digital advertising also recorded impressive growth on the back of print upsells.

During the year, Northcliffe launched its digital directory initiative under the ‘GoFind’ brand on the local thisisnetwork. Digital services revenues doubled in 2009 and further growth is expected in 2010.

In the digital space we now have a mobile platform for all sites and work continues to widen the mobile offerings further to deliver audience growth anticipated through smart devices.

Across our print portfolio, Northcliffe’s journalists are being challenged to deliver a unique story a day as part of the drive to differentiate print from digital. A number of Northcliffe’s titles, both daily and weekly, are undergoing remarkable design changes to better reflect the essence of their communities and people with local skills, in an ever-widening range of topics, are being recruited on a pro bono basis by Northcliffe’s editors to add breadth and surprise to their titles.

The scale of revenue attrition forced a radical review of our cost base and operating model resulting in savings of £53 million, compared with the same period last year.

U.K. staff costs fell by £17 million as headcount was reduced by 1,024 or 23% since September 2008. In early 2009, Northcliffe embarked upon a major restructuring programme which delivered savings across all departments and at all levels. Process innovation and systems enhancements have facilitated greater efficiency in advertising, editorial, production and circulation departments, in particular.

Production and distribution costs have reduced by £22 million, despite a significant newsprint price increase during the year. Some savings were as a consequence of falling activity levels. However, more significant reductions have been made through rationalisation of the product portfolio, involving title closures, consolidation of editions, distribution changes and the closure of three printing plants.

Central Europe

Profits for the year of £4.3 million were £4.0 million or 49% below last year.

Underlying† revenues fell by £5.5 million (11%) as a result of weak markets in printed media for recruitment, motors and retail advertising. Print advertising revenues declined by 24% while online revenues were down 1% in the year. Circulation revenues were in line with last year.

Digital revenues reported year-on-year growth in the first quarter of 29% but have since deteriorated. In the month of September, digital revenues were 22% below the prior year. Digital recruitment revenue declines have been partially offset by online revenue growth from the expansion of the digital network in the Czech Republic and Hungarian classified and property websites.

Cost saving measures were implemented to mitigate the revenue shortfalls. Excluding acquisitions, headcount reductions of 132 (15%) were achieved, alongside pagination and promotional spending cuts.

Outlook

U.K. advertising revenues appear to have stabilised at a consistent weekly run rate, but the economy remains fragile. Cost reduction will continue to be a focus with further savings made in 2010 as the programme of transformation continues.

* 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.

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