Independent News & Media PLC Annual Report 2003

Transcription

1 Annual Report 2003

2 International Profile Ivan Fallon Chief Executive Independent News & Media (UK) United Kingdom Leading National Newspaper Publisher (UK) No. 1 Newspaper Publisher (Northern Ireland) No. 1 Commercial Printer (Northern Ireland) Leading Specialist Magazine Publisher (London) Internet & Mobile Data Vincent Crowley Chief Executive Independent News & Media (Ireland) Ireland No. 1 Newspaper Publisher - National Newspapers - Regional Newspapers Directories No. 1 Wholesaler & Distributor of Newspapers and Magazines Leading Commercial Printer No. 1 News Website Internet & Mobile Data Tony Howard Chief Executive Independent News & Media (South Africa) South Africa No. 1 Newspaper Group - Metropolitan Newspapers - Leading Community Newspaper Publisher No. 1 Outdoor Advertising Operator No. 1 News Website Magazines Internet & Mobile Data Corporate Profile (INM) is a leading media and communications group, operating primarily in Australia, Ireland, New Zealand, South Africa and the United Kingdom. Spanning four continents and eight individual countries, INM has market leading newspaper positions in Australia (regional), New Zealand, Ireland and South Africa. In the UK, it owns the largest newspaper group in Northern Ireland and the flagship Independent titles. The Group publishes over 165 newspaper and magazine titles with a weekly circulation of 13.5 million copies and operates 53 on-line sites, achieving 95 million page impressions per month in aggregate. The Group is also the largest radio and outdoor advertising operator in Australasia, and has leading outdoor advertising operations in South Africa, Hong Kong, Malaysia and Indonesia. The Group has grown consistently over the last ten years by building a geographically diverse portfolio of market leading brands, and today manages gross assets of over 3.4 billion, turnover of 1.6 billion and employs over 11,500 people worldwide.

3 1 Brendan Hopkins Chief Executive APN News & Media Limited Australasia No. 1 Newspaper Group (New Zealand) - Metropolitan Newspapers - Regional Newspapers No. 1 Radio Operator No. 1 Outdoor Advertising Operator No. 1 Regional Newspaper Publisher (Australia) No. 1 Commercial Printer (New Zealand) No. 1 Magazine Publisher (New Zealand) No. 1 News Website (New Zealand) Leading Specialist Publisher Internet & Mobile Data Contents International/Corporate Profile 1 Executive Chairman s Statement 2 Operating and Financial Review 6 Operations Review 12 Notice of Meeting 22 Financial Statements 23

4 2 Executive Chairman s Statement Chairmen inevitably proclaim the previous year as one of the most important in the company s history and occasionally they are right but on balance, it is safe to say that the period marks one of the key watersheds of our company. Let me explain. The nature of acquisition in the media, and particularly the newspaper business, is, at its very best staccato and unpredictable, and at its worst capricious and unforeseeable. Titles of quality appear but rarely on the market, and then mainly only in enforced circumstances or at quite inhuman price/earnings ratios. The decision by the Trinity Group Newspapers to form Trinity Mirror, while an excellent idea, had, as its consequence, an enforced divestment ordered by the UK Competition Authority of The Belfast Telegraph. And so, a title, which is over 130 years old, was on the market for only the third time in its history. It is a title with a great and proud history. It is also a brand without equal in these islands. Importantly, its readership straddles the political and religious divide in Northern Ireland in almost symmetrical form. It was going to be a mighty contest to see who could secure this unique property for its future. That we prevailed is a tribute to a great number of people, not least, Brendan Hopkins (now the CEO of our Australasian company APN) and his team from London. Our competitors included extremely well funded opposition such as Newsquest/Gannet, Guardian Newspapers, Regional Independent Media, Apax Partners and 3i. This was not the moment one would choose to be faced with a major acquisition, but media companies do not have that kind of choice. It is a tribute to all concerned that we succeeded in acquiring this major asset, and completed our programmes elsewhere. The purchase of The Belfast Telegraph represented a further step in establishing ourselves as the low-cost operator in all our functions on the island of Ireland. This policy will be borne out significantly in the years ahead. Acquisition is always a traumatic game, and synergy often a word that appears in the acquisition document, but not in the real world. We were fortunate that, despite being let down by a major banker in the initial stages, a consortium was finally put together which enabled us to complete this vital acquisition in conjunction with the major building programme we were Sir Anthony O Reilly acquires control of Independent Newspapers Independent acquires stake in Australian Provincial Newspapers Limited (APN) US troops leave Vietnam Sir Anthony O Reilly Executive Chairman, Live Aid

5 3 already embarked upon in Dublin, London, All of this is to say that although we do of pirate deflectors, which cut off vital South Africa, Australia and New Zealand. not see another Belfast Telegraph on the revenue to Princes Holdings/Chorus and The short-term focus of the share market ignored the long-term benefits, and the refinancing programme initiated in July of 2001 was a necessary element in the balance sheet that we present today. Suffice to say that we have digested the largest single acquisition in the history of the horizon at this stage, the events in London at The Daily Telegraph and the extraordinary success of our new Compact in The Independent indicate that the market, though apparently reasonably stable, contains considerable and unpredictable flux within it. Cablelink/NTL, may have bought temporary political popularity but the price was the long-term erosion of the economic viability of all cable companies. I might add that the principal competitor to the cable companies, BskyB, was not price controlled at any time during this period. company; we have, I think, by common acknowledgment, the finest media headquarters in these islands; and, through our divestment of non core assets, the acquisition of Wilson & Horton by APN, and our two share issues in September of 2001 and May of 2003, we have produced a balance sheet which is now, happily, approximately investment-grade status and leaves us open to future opportunity either on our own, or with partners who are more than willing to join us if the right media property is identified. We believe we now have a stable of brands in the number one position in five countries throughout the world, which will guarantee the organic growth of our company over the next five years, with an important and parallel commitment to a similar level of dividend growth. The capital value of our company is shown in the Operating and Financial Review, and shareholders who followed their rights, particularly in May of 2003, must feel extremely pleased with the progress achieved. The increase in value of their stock since that date is 68%. When you consider that our Group, which had a market capitalisation of 35 million at the end of 1983, now has a market capitalisation of approximately 1.5 billion, which represents a compound annual growth rate of 20% per annum, I think we can all, as shareholders, feel a certain sense of satisfaction at the magnificent work done by our managers and workers throughout the world over the past two decades and look forward with some confidence to the future. Perhaps the only major negative note in our investment in media in the past 15 years has been Princes Holdings and its direct lineal successor, Chorus. This company represents a case study in broken promises, over-regulation, and a consistent inability to reflect that, if the government were serious in their attempt to ensure that broadband had universal application in Ireland, then cable was going to be one of the major vehicles in achieving that end. That it has not and that it will not ever, is a stinging indictment of the Regulator and of the inaction of government of the day in policing the law of the land. Their tolerance Cable companies have now been effectively de-capitalised because of the absence of a coherent long-term government policy. They will never provide a fixed line telephone system that will compete with any of the incumbents and they will never provide a broadband system of any scale to augment the limited number of effective and well funded existing providers. Your company and its shareholders have written off its entire investment in this sorry episode. One can only hope that government in the future will draw the appropriate lesson which is: that if capital is to be available for any enterprise from water, to roads, to ports, to pizza parlors; it has to be able to secure a reasonable rate of return. To pander to short-term political popularity is to force incumbents to provide services at below cost, or to cause the incumbent operator to be unable to raise its prices. This is a particular issue in State-owned industry, which still provides the bulk of essential economic services, such as energy and public transport. Too often, government objective has been The Berlin Wall falls Nelson Mandela freed 1st Gulf War Independent acquires controlling stake in Argus group, South Africa s leading newspaper publisher Independent acquires stake in Wilson & Horton, New Zealand s leading media group Independent acquires 100% stake in The Independent and The Independent On Sunday Independent acquires the Belfast Telegraph group September 11 Compact edition of The Independent is launched in the UK

6 4 Executive Chairman s Statement to keep down prices for the public, while performance and surprisingly, it was aided Our regionals performed extremely well, refusing to endorse the changes in costs by a rising Rand. Here again, we are in the and my congratulations to all concerned and efficiency which would permit long- happy position that we hedged out at on their inventiveness and their increase term improved services on a commercial below last year s rate and so we expect that in market share. base. The result is inadequate investment which hides but only for a time the poor financial performance of the incumbent. The pursuit of temporary political popularity in this fashion will make Ireland, as a location for inward investment for use in Ireland, a hazardous place to be. Chorus proved a dismal insight into political interference and over-zealous regulation. our operating performance this year, which is ahead of last year, will be enhanced in Euro terms. In addition, Tony Howard, Nazeem Howa and Moegsien Williams were assiduous in their determination to improve their margins in Cape Town, Johannesburg and Durban and to increase their market share. They achieved both in fine style. Our outdoor business in South Africa continues its momentum in market share and profit. We return to an earlier theme which is The Independent in London. There has seldom, in post-war years, been a more extraordinary return on a marketing investment than that achieved by our Compact. Ivan Fallon and his team, Terry Grote and the Editor, Simon Kelner, have produced outstanding papers in broadsheet for the past five years. The challenging and original headlines, and its very courageous stance on the war in Iraq made it one of On a happier note, our itouch investment that the company carries on its books at 20.7 million is now worth more than 73 million. It is a company very much in harmony with the new generation of mobile phones and provides a complete suite of services from the downloading of ring tones to a wide range of other services. It is the view of itouch that the advent of 2.5G and 3G phones will hugely increase In the Republic of Ireland, the performance of our Irish Independent, Sunday Independent, Sunday World and Evening Herald was quite exceptional in particular, because of the extreme competition in all areas and markets, but most particularly, the Sunday market where the Sunday Independent and Sunday World confront 13 competitors to make it one of the most competitive markets in the world. the most talked about papers in the United Kingdom, but in a sense, this excellence would have missed the wider market were it not for the advent of the Compact. In a nutshell, the launch of the Compact has changed the whole dynamics of The Independent, reversing in seven months seven years of declining core circulations and taking the paper back to its highest sales in our ownership and its best market the market. itouch, itself, is expanding both Some of our competitors appear to spend share since It has enjoyed seven organically and by acquisition and happily without regard to the size of the market, consecutive months of double-digit growth still has good cash balances to finance this or its capacity to ever return a profit, and in ABC circulation at a time when every expansion. the recent readership figures must have a other competitor has shown substantial Throughout the world, your company performed better than their various peer groups, but especially so in Australia and New Zealand where the booming raw material market in Asia, and particularly in China, provided a real stimulus to the economy. This flowed through to advertising in regional newspapers, The New Zealand Herald, radio, and to a lesser extent, outdoor. Australia and New Zealand had their best ever years and are set to exceed these numbers substantially in Brendan Hopkins and his team are, in the classic phrase the right men, in the right place, at the right time. South Africa put in a magnificent salutary affect on all competitors when they look at their performance against Independent Newspapers, right across the board, in the past year. To all this, we have added the very successful launch of the Compact Independent, which promises to increase our circulation in the Republic of Ireland for the Irish Independent. Vincent Crowley, Brendan McCabe, Joe Webb, Barry Brennan, Michael Brophy and Michael Roche together with their editors and co-workers produced a good year in an extremely competitive environment, particularly against UK competition, and are committed to product enhancement and margin improvement in all their publications. falls, and the UK fully paid-for sales (the real core of any newspaper's circulation) is up by an astounding 25% over this period. No other newspaper has enjoyed anything approaching this level of success in recent history. It is a simple idea, but it required flawless execution and a sedulous attention to detail in particular, to ensure that the broadsheet and the Compact were exactly the same not nearly the same, but exactly the same. This required vigilance and forbearance, but was achieved, and I can only congratulate most sincerely on behalf of all of the shareholders, its three principal architects.

7 5 They have injected real added economic value into our publication. It has had a tremendous impact in the United Kingdom and has established The Independent for what it is an independent, free-standing, fearless paper, committed to the highest standards of our Group and entirely independent in its editorial stance. The icing on the cake was, of course, selection by its peers to be the Newspaper of the Year, an honour endorsed by even its staunchest competitors. We also received the award of Newspaper of The Year in New Zealand with The New Zealand Herald and completed a memorable year for the Group by winning the Newspaper of The Year award for Northern Ireland with The Belfast Telegraph and its Sunday paper the most excellent Sunday Life. The results and achievements referred to above could not have been attained without the on-going commitment of our employees throughout the Group. Your Group is spread over four continents and eight individual countries and its operations are co-ordinated on a daily basis by Gavin O Reilly as Chief Operating Officer and Donal Buggy as Chief Financial Officer, who have been most active on your behalf throughout the world. I want to thank them and all our 11,500 employees worldwide for their contribution to your Group s success. Finally, I report that James Parkinson and Hugh Hamilton have resigned from the Board after, in Hugh s case, 32 years of service as a Board member, and in James case, 16 years as Finance Director of the company. I cannot begin to express my admiration for both of these colleagues, who in their differing ways, have made such a major contribution to what we have achieved today; Hugh, by his unwavering independence, and James, by his original and resourceful advice on our rapidly changing and demanding financial structures most particularly for our original investment in Australia in 1988, our investment in New Zealand in 1995 and our investment in 1994, at that time, in a very turbulent South Africa. We are delighted that James is continuing as Chairman of APN News & Media Limited and as a consultant to the company. His wise counsel will be of great help in the years ahead. In addition, Dermot Gleeson who has been a very active and supportive Director for the past four years is retiring by rotation and is not offering himself for re-election as a result of his appointment as Chairman of Allied Irish Banks p.l.c. I want to thank him for his enormous contribution to the Board during his time as a Director and I also wish him every success in his new and demanding role. In 2003, a new Combined Code on Corporate Governance was issued. This new code will apply for reporting periods beginning on or after 1st November 2003 and will, therefore, apply to the Group s 2004 Annual Report. The Board is currently reviewing its practices and procedures in line with the new Code and in line with the Board s stated objective of maintaining the highest standards of corporate governance. Sir Anthony O'Reilly Executive Chairman

8 6 Operating & Financial Review 2003 was a year that was based upon the simple agenda of repositioning the Group for sustainable growth, after what had been an unusually depressed number of years for advertising and media stocks. Repositioned for Change As a Group we believe that editorial excellence, top-line growth and sustainable profits are not, nor ever have been, mutually exclusive. Too often media commentators believe that there has been a paradigm shift in the business of newspaper publishing, and that top-line growth now requires a major shift of strategy. Latest fads include a wanton embracing of free newspapers and an unquestioning acceptance of convergence with a resultant loss both in margins and in business rationale. In contrast, we at Independent believe that the business logic that has successfully governed our business for the past 30 years is as relevant for the next 30 years and beyond. Our business is about producing the best, most compelling products that are relevant and critical to the lives of our consumers. Our challenge is finding the most efficient and effective way of doing just that. 2003: Core Operations Following a decade of strategic investment and acquisitions and a subsequent major realignment of our balance sheet the Group s primary focus in the year under review was unashamedly on its core operations. Indeed, 2003 was all about repositioning the Group for sustainable growth and catching the rising tide of the advertising cycle. It proved an extremely busy, productive and rewarding year. In last year s annual report, we said that the focus for 2003 was to make sure that we continue with the consistent execution of our strategy no right angle turns. As you will read in each of the individual operating reviews that follow, that s exactly what we did; no change of philosophy; no change of strategy; no right-angle turns. It was this unrelenting focus on doing what we do, but doing it better that allowed us to record substantial progress in all regions and at every level of the organisation. Gavin K. O Reilly Chief Operating Officer, Donal J. Buggy Chief Financial Officer,

9 Key Performance Indicators 7 Group Turnover m Driving Organic Growth Earnings Per Share* cent Delivering Sustainable Compound Growth Dividend Per Share cent Rewarding our Shareholders Market Capitalisation m Growth of over 250% in the past 10 years *Fully diluted earnings per share excluding exceptional items and amortisation

10 8 Operating & Financial Review 2003 Financial Highlights development; and the writedown of our investment in Chorus, all of which were In conjunction with strong operating performances and an improved advertising Strong top-line delivers record results partially offset by substantial exceptional climate, 2003 not only saw the full After what has been a challenging period in global advertising markets for the last couple of years, we are extremely pleased that your Group reported another solid year of underlying growth, with total revenues growing in aggregate by 5.9% to a record 1,388.2 million. This growth came on the back of much improving trends in advertising (both volume and rate), coupled with strong circulation revenue gains. Such top-line growth was achieved despite a weakening of Sterling relative to the unprecedented strength of the Euro. In constant currency terms, total revenues were actually up on a like-for-like basis by 7.6%. cash gains (of 71.8 million) from various asset disposals under the recapitalisation programme. Delivering stated EPS growth Earnings per share excluding exceptional items and amortisation (EPS) was up a strong 10.8% to cent, in line with market consensus forecasts. Rewarding shareholders To reflect these strong results and the improving prospects for 2004 the Board has recommended a final dividend of 5.15 cent per share. This increased payout brings the full year dividend to 7.90 cent per share, 7.6% ahead of the previous year. completion of the recapitalisation programme (which commenced in 2001) but the over-achievement of it. This programme has greatly fortified and realigned the Group s balance sheet and debt maturity profile. The main elements of this recapitalisation plan concluded in 2003 included the sale of our UK regional newspapers to Archant, the sale of our Portuguese investment to Cofina and other non-core asset disposals. In total, the Group s divestments realised 156 million in cash, and yielded a 71.8 million profit. In March 2003, the Group announced a 103 million rights issue, which was enthusiastically taken up by 97% of all The strong performance of each of our five main operations produced a record 239 million in operating profit. With a persistent focus on cost containment in each of the operating regions, operating profit (before exceptional items), at a record million, was 6.9% ahead of the prior year and even stronger in constant currency terms, up 8.2%. These record results delivered a very healthy Group operating margin of 17.0%. Profit before exceptionals and tax was up nearly 20%, reflecting the stronger underlying operating performances and a lower interest charge, resulting from the Group s reduction in total net debt. As you will read in the detailed financial statements that follow (Note 3), there is a net exceptional charge of 32.6 million. This primarily reflects: the cost of the worldwide restructuring plan announced This 2003 dividend per share (DPS) means that long-term dividend growth is now back in line with EPS growth and is up an impressive compound 13% over the past 30 years. Consistent Track Record C.A.G.R. ( ) Turnover + 17% Operating Profit + 20% E.P.S. + 13% D.P.S. + 13% Completed recapitalisation programme Last year we were unambiguous in our stated objective for Our key objective is to fully deliver our budget for 2003, while comprehensively concluding the recapitalisation programme. shareholders who have enjoyed a 68% return on their investment in less than a year. During the year, the Group also redeemed, on maturity, a preference share for 108 million in June; completed an oversubscribed issue of new cumulative exchangeable preference shares (CEPs) totalling NZ$225 million in June, which replaced the previous NZ$182 million CEPs; completed a new five-year Club facility with our nine core banks in June; and issued an oversubscribed 125 million subordinated bond in December, which matures in As a direct consequence of this comprehensive programme, the Group has significantly restructured its balance sheet reducing its total net debt by 245 million (or 20%) to 978 million (of which only 644 million is recourse ie. excluding APN News & Media Limited s net debt which has no recourse to Independent). on December ; costs of product

11 9 Financial Ratios ( ) 6.0 unambiguous strategy becomes even more potent when you operate under the uniquely collegiate management philosophy that we practice Mindful that our work is never done and to ensure the continuation of the substantial progress already made throughout the last number of years the following table sets out our guiding principles, which represent the short-term priorities of your management team and the posture we shall be adopting in the coming years Repositioned for Growth Interest Cover Net Debt: EBITDA Having now achieved a year-end Net Debt to EBITDA ratio of 3.4 times, the Group remains committed to maintaining the most appropriate financial ratios, which befit the strong earnings profile and cash generative capabilities of your Group. Preparing for the future International Financial Reporting Standards (IFRS) will apply to the Group from 2005 and we are currently, in conjunction with external advisors, undertaking a detailed review of the impact that the adoption of IFRS will have on the Group s financial results. This extensive programme includes the training of all key financial personnel and the updating of internal financial systems to ensure an efficient transition. Guiding Principles Though it sounds obvious, producing stellar results does not happen by chance nor just because we will them to. Extensive planning, debate and collective hard work is a necessary part of the equation. Moreover, having a straightforward and 2003: A Year of Innovation A year of innovation and that may well be the understatement of the year! 2003 was the year in which we consciously and decisively turned up the heat on our many would-be competitors and the year in which we successfully launched a myriad of successful new editorial products and exciting new advertising platforms. Our focus was all about producing patently superior products that would meet the needs and aspirations of our millions of consumers (readers and advertisers alike). Indeed, it is worth reflecting on the fact that in 2003 alone the Group launched more new value-added publications than at any other time. So to be clear, our focus in 2003 was always on upping the ante with our competitors, securing new advertising opportunities, advancing our circulation and readership and further extending our advertising market share. As a review of our competitive position at the end of 2003 confirms, that simple and clear-cut strategy worked decisively.

12 10 Operating & Financial Review The Compact The extremely complicated logistics of functional operations on a trans-regional The Executive Chairman has already introduced in his statement the publishing revolution that is the Compact. However, it is not overstating the point, when we add to his comments and say that the most significant new product innovation for 2003 was indeed the publication in the United production and distribution were masterfully executed with military-like precision and as of April 2004, the results have been quite startling a staggering 25% uplift in UK newstrade, or core sale at the direct expense of our main UK competitors. basis. Your Group is, in so many ways, unique in that it is a truly global media group, with a common core competency of publishing, a common language and consistent internal controls. While your Group enjoys operating margins in the top-quartile of its peer Kingdom of the Compact edition of The With results like these, it came as no group, the exercise confirmed certain Independent. surprise to us that our peers should rightly legacy issues within the Group, cost It is not very often that we in the newspaper industry can be described as trend-setters but, simply put, that s exactly what Simon Kelner, Ivan Fallon, Terry Grote, Dave Green and the rest of the team in London have become, as their efforts have redefined the newspaper industry. While it may first appear a simple enough proposition producing a dual format newspaper edition in both Compact and broadsheet forms, with exactly the same content at exactly the same price it proved so simple a concept, that nobody had ever done it before! award The Independent the 2004 Newspaper of the Year at the annual British Press Awards. Investing in the future The success of the Compact and the host of other winning new product developments in 2003 is tangible evidence of our simple belief that the best return we can garner is from further investment in our titles. This decided investment strategy is an expansionist posture that we shall continue in the months and years ahead. Our stated intention is to target above market revenue growth and to do that we must consistently produce the best products, continually and aggressively anomalies and opportunities on a region by region basis. The restructuring plan addresses each of these issues in a positive and proactive manner. And based on our successful experience in Australia and New Zealand, all operations will move towards centralised shared service centres in finance, back-office, contact centres and prepress. The plan, which involves a 50.8 million charge, will enhance the core profitability of the Group and is expected to generate up to 18.9 million of additional annualised savings on a phased basis. In total, headcount savings of 5% will be negotiated and achieved based on the generous severance terms being offered. innovate and roll-out new products and be ever vigorous in our sales and marketing efforts. Our aim is simple to be a low cost operator and to be location indifferent as to the compilation and production of However, in doing so, we also recognise our products. that such investment cannot come at the expense of our operating margins. As such, Outlook and prospects for 2004 it is critical to reflect on our policy on costs Based on the first 16 weeks trading of 2004 and particularly the redefining restructuring and given a continuation of current programme that was initiated during trading conditions we remain confident At the end of December following a sixmonth intra-group benchmarking exercise of yet further improvements in underlying profitability for prepared in conjunction with international The Group has achieved much in 2003 consultants Booz Allen Hamilton the and 2004 will be based on building on Group announced a far-reaching those many successes. Specifically, the restructuring of its worldwide operating Group can rely on three key operating areas cost base. that will underpin the prospects for 2004 The very basis of the plan is to be and beyond:- geographically agnostic and view all

13 11 1. Growth the Group is targeting above 3. Finance the result of the positioned to benefit from the improving market growth, and investing wisely and recapitalisation programme (net debt economic and advertising cycle, and decisively in expanding the scale and down 245 million) yields a much provide us with the backdrop to continue scope of its market leading titles. lower volume of debt, on better terms to set the standard and pace of innovation 2. Costs the Group is firmly committed to being the low-cost operator, and and at a time of historically low interest rates. for our industry. Finally, we would like to thank all our the restructuring plan will deliver All of these factors combined, we staff for their significant input into a sustainable and lasting savings. believe, leave your Group uniquely well successful Gavin K. O Reilly Donal J. Buggy Chief Operating Officer Chief Financial Officer 10 Year Summary (as restated) (as restated) (as restated) (as restated) (as restated) (as restated) (as restated) (as restated) (as restated) m m m m m m m m m m Group Turnover 1, , , , , Profit on Ordinary Activities before Interest & Exceptional Items Profit before Taxation Profit after Taxation Earnings/(Loss) per Share (cent) 6.81 (6.58) Fully Diluted Earnings per Share before Exceptional Items and Amortisation (cent) Dividend per Share (cent)

14 12 Operations Review Australasia APN News & Media Limited (APN), in which Independent has a 40.5% interest, is the number one regional publisher, radio broadcaster and outdoor advertising operator in Australasia. It also publishes New Zealand s largest newspaper, The New Zealand Herald and has interests in specialist publishing, magazines, new media and Pay TV. Listed on the Australian Stock Exchange, APN returned a record net profit for Group revenue before non-recurring items increased 11% to A$1,117 million and operating profit before non-recurring items increased 11% to A$228 million. Strong trading conditions in the first half of the year continued into the second half, with particularly good outcomes achieved in the high growth regional economies of Queensland, Auckland and the Bay of Plenty. During 2003, APN raised A$103 million through a successful and heavily oversubscribed share placement. APN also refinanced its banking facilities, reducing margins and improving terms. The net effect of these initiatives has been to improve the group s balance sheet and to reduce net debt during the year. The resultant interest savings and improved cash flows will provide continuing benefit during 2004 and beyond. Publishing Newspapers accounted for 72% of APN s operating profit in During the year, the group launched a number of strategic new initiatives to further build its market share. These included the launch of magazines such as Canvas, Revive and Noosa that are inserted in the daily newspapers, as well as The Aucklander network of community newspapers. These initiatives resulted in circulation gains by The New Zealand Herald, by the 23 regional daily newspapers and by the more than 90 non-dailies in group ownership. The New Zealand Herald The New Zealand Herald, New Zealand s largest circulating daily newspaper, grew revenue by 18% to A$280 million, and grew operating profit by 23% to A$89 million. Circulation revenue increased by 9% to NZ$63 million, assisted by cover price increases in the first quarter. In the first half of 2003, advertising volumes increased by 11% and advertising yield increased by 3%. In the second half, overall revenues increased by 14% over the previous corresponding period driven by advertising volume gains of 7.7% and advertising yield improvements of 6.4%.

15 The Auckland economy remained buoyant throughout 2003, producing good increases in employment and real estate in particular. The New Zealand Herald attracted an average of 10,000 extra readers each day, bringing average daily readership to 603,000. Readership of the Weekend Herald increased to 723,000, up 12,000 on During the year, The New Zealand Herald s subscriber base increased to 92,000, of which more than half are long-term subscriptions. Regional Newspapers Regional newspapers in Australia and New Zealand performed strongly in Real estate, motoring and employment classifieds showed good volume and yield gains. Advertising yields strengthened in the second half, increasing in Australia by 8.3% and in New Zealand by 6.1% on the corresponding period in Divisional revenues were up 11% to A$346 million and overall operating profit increased 23% to A$81 million. Circulation revenue increased 5% to A$58 million, with particularly good circulation volume growth for the Sunshine Coast Daily (up 7%) and the Fraser Coast Chronicle (up 5%) in the six months to December These were among the best circulation increases of all major Australian regional newspapers. In New Zealand, the Bay of Plenty Times increased circulation by 2.5% in the most recent survey, becoming the fastest growing daily newspaper in the country. There were a number of small in-fill acquisitions during the year, including the Bush Telegraph in the Hawke s Bay- Wairarapa region and the Waihi Leader, north of Whangamata. Radio Australian and New Zealand radio operations performed well, both in terms of audience growth and profit improvement. Revenue increased by 13% to A$213 million, and operating profit on a like-for-like basis increased 13% to A$56 million. In Australia, the second half was marked by good market share gains in agency advertising and local advertising sales. The final survey for 2003 produced strong gains in audience share for the commercially important year-old demographic in the key markets of Sydney, Melbourne and Brisbane. The first two surveys for 2004 continued this trend, growing market share in target audiences.

16 14 In New Zealand, APN s radio assets operated through The Radio Network (TRN) are the market leader in a majority of the 13 surveyed markets, including the key Auckland and Christchurch markets. In Auckland, TRN has the most listeners with three stations in the top five Newstalk ZB (No. 1), Classic Hits (No. 2) and ZM (No. 4). In December, TRN secured 20 new licences at a cost of NZ$9.5 million, payable in The new licences will strengthen existing networks throughout the country, including one of two full market coverage FM frequencies in Auckland. TRN will launch a new brand stream by mid APN aims to operate 124 radio stations across Australia and New Zealand by year-end Outdoor APN is Australia s market leader in the dynamic outdoor advertising sector, with products across each of the major outdoor categories. The company s main outdoor businesses are Transit (Buspak and Taximedia), Billboards (Cody Outdoor, Look Outdoor, Rainbow & Kurnia) and Street Furniture (Adshel). Revenues of A$187 million were achieved, with operating profit up marginally on the prior year from A$16.2 million to A$16.5 million. The outdoor division in Asia was restructured during the year to enable the reorganisation of its broad mix of assets into a more efficient structure. Operations in Singapore and Thailand were closed and operational improvements were put in place in Hong Kong, Malaysia and Indonesia. Print & Specialist Publishing The restructure of the Print & Specialist Publishing Division was completed in 2003, with the full benefit expected to be seen in The commercial print operations have been reorganised under a single brand APN Print which will bring additional efficiencies. Graphic Screen Print, a specialist large format printing business that was previously reported within the outdoor division, was transferred to APN Print at the half year. Operating profit for the division in the second half increased to A$5 million, up 19% over the same period in the prior year. The division s New Zealand magazine business benefited from the buoyant advertising market. The New Zealand Woman s Weekly maintained its position as the country s most read women s weekly magazine. The magazine upgraded its paper stock, which has enhanced reader and advertiser appeal. The New Zealand Listener has maintained its reputation as a quality current affairs and TV listing publication. New Media/Interactive The New Zealand Herald s website is the most visited news website in New Zealand and continues to provide an important on-line extension of the core newspaper brand. Planning is well advanced to extend the reach of The New Zealand Herald s already market leading employment advertising, with the listing of all display employment advertising on-line. At year-end, a number of Australian Posters assets were sold and the balance have since been integrated into existing operations. The new trans-tasman structure for APN Outdoor will consist of a single operational function, with separate sales forces for the main outdoor categories. Since year-end, the group announced the formation of APN Outdoor as a positive strategy for growth in the sector. Mr Richard Herring has been appointed chief executive of APN Outdoor to oversee a unified structure for the division.

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18 16 Operations Review South Africa Independent News & Media (South Africa) (Pty) Limited is the leading newspaper group in South Africa, publishing 15 daily and weekly newspapers in the country s major metropolitan centres. The group owns and publishes 14 free/community newspapers in the Cape and also has interests in free/community newspapers in Gauteng and KwaZulu Natal. It also publishes three of South Africa s leading lifestyle magazines and has significant interests in outdoor advertising, electronic media and commercial printing/publishing. The South African operation performed very well in 2003 in a much improved economic and trading environment. A stronger Rand, together with lower inflation and lower interest rates boosted business and consumer confidence, resulting in more robust retail activity. Overall, the group produced solid growth year-on-year, with operating margins increasing from 14.5% to 14.7% in Operating profits for the year increased by 16.2% on the back of revenue growth of 13.8% and very firm cost control. The Cape and Gauteng divisions performed well in their respective markets reflecting good improvements in operating profits. The KwaZulu Natal division, which entered a turnaround phase in 2003, recorded substantial growth on its prior year performance and is a major contributor to the group s overall performance. Advertising revenues for the last quarter were particularly buoyant, bringing annual advertising revenue growth to 12.9%, well up on average rate escalation. This resulted from a strong performance in the local markets (retail and classified) and in the agency retail sector. National brand advertising was marginally softer reflecting the impact of the stronger Rand on the manufacturing sector. Newspapers In Cape Town, the group publishes the Cape Argus, the Cape Times, the Saturday Argus, the Sunday Argus and 14 Cape community newspapers. The group s flagship title, The Star, is published in Gauteng along with the Saturday Star in Johannesburg and the Pretoria News in Pretoria, The Diamond Fields Advertiser in Kimberley and The Sunday Independent nationally. It also holds a 25% interest in 12 free/community newspapers in Pretoria. In KwaZulu Natal, the group publishes the Daily News, The Mercury, the Post, The Independent on Saturday, The Sunday Tribune and Isolezwe. Independent also has a 33% interest in a number of free/community newspapers in Durban. Press advertising in South Africa showed good growth during 2003, with the group retaining leading market shares across both the display and classified markets. Circulation also performed very well, with 14 of the group s 15 titles showing year-onyear growth, in a market where most of the

19 group s direct competitors showed ongoing declines. Circulation of Isolezwe the group s Zulu language newspaper (launched in 2002) increased to over 55,000 copies per day in the second half of This was an increase of 21,000, or 62% on the comparable period in Outdoor During 2003, the group increased its interest in Clear Channel Independent South Africa s leading outdoor advertising company by 3.5% to 40.3%. The outdoor advertising business, which has a presence in thirteen African countries, delivered a substantial increase in its profit contribution through new product innovations and a rationalisation of its activities. The South African operation, which commands a 56% outdoor advertising market share, grew EBITDA by 26% during This resulted from growth in its litter bins service; higher yields following the roll-out of 169 Citilite panels and greater advertiser interest in the back-lit illumination format offered by the Citilite concept. Profitability across the entire African operation improved dramatically following the introduction of 222 new Citilite panels and rationalisation of loss making countries. Clear Channel Independent now has a solid market presence allowing for further growth. Magazines Under a licence arrangement with Condé Nast, the group took full ownership of market leading title House and Garden, and GQ during Both magazines recorded circulation growth in a very competitive market. The new licencing agreement provides exciting opportunities for closer linkages with the group s newspaper titles. The launch of Glamour magazine early in 2004 also holds exciting growth prospects. New Media/Interactive The group s news portal, Independent On-Line (iol.co.za), is the dominant on-line news provider in South Africa, attracting 1.4 million unique visitors per month. The newspaper websites within this portal are also driving newspaper subscriptions and classified advertising business for the group.

20 18 Operations Review UK In the UK, the Group publishes the quality national broadsheets The Independent and The Independent on Sunday and also owns the Belfast Telegraph group, the largest newspaper publisher in Northern Ireland. The UK division recorded revenue of Stg million, in line with last year. Good performances from the Belfast operations and growing circulation revenues from The Independent offset the prolonged tough advertising market. The launch of a Compact edition in September 2003 enabled The Independent to buck an industry trend and record an historic 15.2% increase in circulation. The UK advertising market slowdown of the last two years continued through 2003, with national display revenues in particular showing little sign of recovery. Overall operating profits were marginally behind last year at Stg 12.7 million. National Division It was a year for great innovation at The Independent, which launched a Compact edition of the Monday to Friday papers on 30 September. This not only became the major event of the year for the UK business, but also for the industry. The new Compact edition achieved industry acclaim along with a significant number of new readers. This was continued in February 2004 with the launch of the Saturday paper as a Compact resulting in total ABC sales for February 2004 up 15.2% year-on-year with core UK Newstrade sales up 25%. This produced the highest market share (at 11.7%) since April The Independent is the only quality newspaper to show an increase year-on-year for this period. The high quality of journalism by The Independent, particularly its coverage of events in Iraq and the Hutton enquiry, has been recognised again this year with numerous awards, including Simon Kelner being voted Editor of the Year. This culminated with The Independent being named National Newspaper of the Year. The Independent on Sunday has been further strengthened in 2004 with additional sections and a new look. In the most recent National Readership Survey, The Independent on Sunday increased readership year-on-year by 10.7%, the only quality Sunday broadsheet to show an increase. Costs continued to be tightly controlled during the year across both titles. Belfast Division The largest newspaper publisher in Northern Ireland enjoyed continued success during 2003 with its two main titles The Belfast Telegraph and Sunday Life. An overall refresh of The Belfast Telegraph along with product enhancements helped keep both titles as Northern Ireland s leading local daily and Sunday newspapers, read by over half the adult population in

21 Northern Ireland. These included the launch of twentyfourseven, an entertainment and listings supplement on Friday, and a new North West supplement published out of the new Derry office. ABC circulations of The Belfast Telegraph and Sunday Life hit peaks of 110,427 and 99,389 respectively in In a difficult market, advertising remained strong, helped by the launch of several new advertising led supplements. Recruitment, in particular, was strong from both the private and public sectors. Revenue growth was also achieved from contract print. This included a contract to print the Mirror titles in Belfast, which commenced in September Editorial and production excellence was recognised for The Belfast Telegraph which won the Best Daily Newspaper Award, Best Magazine Award and Best Overall Newspaper of the Year Award. The Sunday Life scooped the Best Sunday Newspaper Award and Sports Journalist of the Year Award. The titles also won a host of additional awards across editorial, production and advertising at the prestigious IPR/BT Press and Broadcast Awards. Regional Division During 2003, the group completed the sale of its Greater London regional newspaper network to Archant Regional Limited. Magazines Division The group is the number one recruitment magazine publisher in London and an operator of exhibitions and recruitment fairs. It also publishes sports magazines in the UK. Despite on-going weakness in the London secretarial and financial recruitment markets, market share for the group titles remains strong. Cost saving initiatives have ensured that the division remains in a strong position for the eventual recovery of the London recruitment advertising market. New Media/Interactive The group continued to leverage its editorial content into the on-line arena. Page impressions reached 24 million per month across all the UK sites. The current stable of sites includes independent.co.uk, belfasttelegraph.co.uk and londoncareers.net. On-line revenue has continued to be sluggish in line with market trends. However, the introduction of paid-for content has been very successful, adding a new revenue stream, leveraging further the quality editorial in the off-line products. Portugal The group successfully sold its 19.1% shareholding in Lusomundo Media during the year.

22 20 Operations Review Ireland Independent Newspapers is Ireland s leading media company, publishing 5 market leading national newspapers; 11 regional newspapers and a fast growing consumer directory. It is also a leading commercial newspaper printer; the largest newspaper and magazine wholesaler and distributor and the leading on-line news portal. Turnover for the Irish operation, at million, was up 3.7% on 2002, driven by improving advertising revenues in the second half and further strong growth in Newspread, the group s wholesaling division. EBIT grew to 75.3 million, a modest 0.4 million increase on the prior year, with core newspaper margins being maintained at 2002 levels. Advertising revenues improved steadily in the second half, after a weak first half, and the Irish titles maintained or grew market share in each of the major advertising categories. Circulation revenues grew by 2.7% on the back of cover price increases and there is a continuing focus on driving core volumes and yield per copy, resulting in a drop in the number of bulk copy sales. The continuing strength of the group s titles was reaffirmed in the most recent JNRS readership results, which showed most titles growing in readership, with the Sunday Independent s readership expanding to 1,064,000 an audience reach unrivalled by any other publication and/or programme in the market. Costs continue to be tightly controlled across all areas of the business, particularly payroll, with further headcount reductions planned for New product development allied to strong editorial and marketing initiatives has helped to reinforce Independent s lead across all key newspaper markets. Publishing During 2003, the Irish Independent consolidated its position as Ireland s best selling quality daily, with an audited average daily circulation of 161,880 copies and 532,000 readers. The successful launch in February 2004 of a Compact version of the Irish Independent (Monday Friday) has reinforced its leadership position and has widened its appeal (particularly among younger readers, females and commuters). Core volume growth of up to 14% has been recorded in those areas where the Compact has been rolled out. Despite an increasingly competitive market place, the Sunday Independent maintained its position as the best selling and most read newspaper in Ireland with an average daily circulation of 293,619 copies and 1,064,000 readers. The pilot launch during 2003 of Sunday Life magazine has proved extremely popular with Sunday Independent readers and advertisers. The glossy, high quality lifestyle magazine has become a weekly feature since year-end.

23 21 The Evening Herald remains Ireland s leading evening newspaper with an average Monday to Friday circulation of 97,973 copies and over 343,000 readers. The launch of It s Friday magazine has further enhanced the Evening Herald s appeal to readers in the all important demographic. The group s highly efficient network of street sellers has also ensured that the Evening Herald achieves the greatest penetration in the Dublin market of any newspaper title. The Irish Daily Star had another good year, delivering average daily circulation of 109,139 copies, up 2.5% on The launch in October 2003 of Irish Daily Star Sunday has further extended the Star s franchise. With average weekly circulation figures of 282,058 and 827,000 readers, the Sunday World retains its strong number one position in the tabloid market. The launch of a new weekly glossy magazine in August has further enhanced the title s appeal over its UK owned rivals in the ever more competitive Sunday popular market. The group s 11 regional paid-for titles again performed strongly, achieving a combined circulation of 106,039 copies per week and continue to be Ireland s number one regional newspaper group. On-going consolidation in this market underpins the inherent value of these titles. The Independent Directory greater Dublin s dedicated household directory achieved good profit growth in 2003 and plans are afoot to strengthen its hold in the commercial sector with the development of a business focused section. Wholesale & Distribution The group s Irish newspaper and magazine wholesaling subsidiary, Newspread, had another outstanding year achieving strong growth based on new contracts achieved in New Media/Interactive Unison, the group s on-line portal, supporting 27 newspaper titles (including competing regional titles) is now the number one news portal in Ireland with over 10 million page impressions per month.