at the hub of local communities - annualreports.co.uk...the last quarter of 2010 saw a deterioration...

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Johnston Press plc

108 Holyrood Road Edinburgh EH8 8AS

Tel: 0131 225 3361Fax: 0131 225 4580email: [email protected] Site: http://www.johnstonpress.co.uk

registration number 15382

At the hub of local

communities

Johnston Press plcannual report and accounts 2011

Overview ifc Key Financials and operational

summary

01 chairman’s statement

Business Review02 chief executive’s report

04 operational review

06 Key performance Indicators

08 performance review

14 principal risks and uncertainties

Governance16 corporate social responsibility

22 Board of directors

24 corporate Governance

30 directors’ remuneration report

40 directors’ report

43 directors’ responsibility statement

Financial Statements44 Independent auditor’s report

45 Group Income statement

46 Group statement of comprehensive Income

46 Group reconciliation of shareholders’ equity

47 Group statement of Financial position

48 Group statement of cash Flows

49 notes to the consolidated Financial statements

83 company Balance sheet

84 notes to the company Financial statements

90 Group Five Year summary

91 advisers

total revenue (£’m) print advertising revenue (£’m)

Impairment of Intangibles (note 15)

£163.7mloss Before tax (page 11)

£143.8m

Key Financials

Operational Summary

DealMonsterdaily deal offering by email successfully launched in nine regional areas, rolling out across the Group in 2012.

Find itnew online business directory and review site launched in March 2011, generating over £1.4m in new revenue.

Sales Effectivenessnew structures, customer propositions and incentives being introduced to improve relationships with advertisers and provide new products.

Refinancingnew finance agreement signed to extend existing facilities to 30 september 2015 (see page 12) leaving us well placed to build on our new strategy.

Mobile Websites and iPad AppsMobile websites launched for all local newspapers, attracting a younger audience. new ipad apps successfully launched for the scotsman and Yorkshire post.

Re-launch of Newspaper Titlessuccessful re-launch of several titles, with conversion from broadsheet to compact increasing circulation.

£373.8m11

10

373.8

398.1

0 100 200 300 0 100 200 300

0 1 2 3

operating profit (£’m)before non-recurring and Ias 21/39 items (pages 8-10)

£64.6m11

10

64.6

72.0

0 25 50 75

£212.9m11

10

212.9

235.8

£351.7m

net debt (£’m) (note 22)

3.50p

underlying earnings per share (p)before non-recurring and Ias 21/39 items (note 14)

11

10

11

10

351.7

3.50

386.7

3.67

0 100 200 300

2015printed on splendorgel extra White, an Fsc Mixed sources product from well managed forests and other controlled sources.

designed and produced by corporateprm, edinburgh and london. www.corporateprm.co.uk

johnston press plc annual report and accounts 2011 | 01

Although trading conditions in 2011 remained difficult, we are renewing our strategy and increasing the pace of development of our services.

2011 brought considerable change to Johnston Press - not least the appointment in November of Ashley Highfield as our Chief Executive. The benefits to our business from the technological innovations in earlier years, together with successful new partnerships, allowed our development of new services to continue - despite very tough economic conditions - and we are building a truly multi-media company.

Since the start of 2012 we have successfully renegotiated our finance facilities to September 2015 which leaves us well placed to build on our new strategy and indicates the strength of our underlying business. More details can be found on page 12.

StrategyWe remain uniquely positioned to provide information to communities across the UK and Ireland who know and trust our brands. Although patterns of readership are changing, weekly papers, which are still at the heart of our offering, are resilient. However, our real opportunity for growth comes from the digital platforms which advances in technology are creating. We must embrace the diverse range of media our customers want to use to access our services. To meet these demands - and grow our advertising and other revenues - we need to develop new services and adopt new vehicles for delivering our strong local content.

ResultsThe last quarter of 2010 saw a deterioration in revenues and that trend continued into 2011. Although digital revenues grew by 0.7% to £18.4 million, total revenues for the year were down by £24.3 million to £373.8 million. This was primarily due to further declines in print advertising revenues which dropped by 9.7% to £212.9 million. Although further cost savings were achieved, operating profit (before non-recurring and IAS 21/39 items) declined to £64.6 million, 10.3% down on 2010. This represented an operating profit margin of 17.3%. Underlying earnings per share were 3.50p, compared to 3.67p in 2010. However, we recognised an impairment in the value of our publishing titles of £163.7 million, resulting in a pre-tax loss of £143.8 million in 2011. Our cashflow performance remained strong with net debt at the end of the year of £351.7 million, a reduction of £35.0 million from the beginning of the year.

Share Price and DividendThe slow pace of economic recovery in the UK and Irish economies and the continued pressure on our revenues meant that our share price remained at low levels throughout the year. In accordance with the provisions of our financing arrangements, no dividend is proposed for the year. Excess cash will continue to be used to reduce the Group’s indebtedness.

Industry IssuesIt has been a year of considerable publicity and change for our sector. The Leveson Inquiry has scrutinised conduct across the newspaper industry. The practices which led to it were the subject of a detailed review of our editorial procedures and activities. I am pleased to say that we did not uncover any evidence of malpractice and we have been happy to co-operate fully with the Inquiry.

Board There was considerable change in our Executive team during 2011. Our new Chief Executive Ashley Highfield joined us from Microsoft UK where he was Vice-President with responsibility for their consumer and online business, including their MSN content portal. He succeeded John Fry. Grant Murray joined as Chief Financial Officer in early May, succeeding Stuart Paterson. He brings considerable media sector experience to the role, most recently from his time at Guardian Media Group. In welcoming Ashley and Grant to the Board, I would also like to record my thanks to John and Stuart for their dedication to Johnston Press. Both Ashley and Grant will stand for election to the Board at our AGM in Edinburgh on 13 June.

Your Board regularly reviews the balance of its membership and monitors the matters it considers should be regularly scrutinised at its meetings. We do this to ensure healthy, open debate over key issues facing the Group and to challenge, constructively, the Executives and management. All our Non Executive Directors visit a range of our sites each year and undertake training for their roles. After a detailed review in 2011, I remain satisfied that our Board is effective.

EmployeesOur employees are, of course, key to our business and on behalf of the Board I wish to express my gratitude to them for their dedication throughout a difficult year. The Group’s staff have continued to deliver the highest quality in both performance and products, and their commitment will be vital in the year ahead.

OutlookThe outlook for 2012 for the economies of the UK and Republic of Ireland remains challenging. However, we believe there are opportunities for innovative and creative companies who can react to changes in how consumers obtain their media services and information.

Ian RussellChairman

Ian Russell

Chairman’s Statement

iPad apps launched

02 | BusIness reVIeW

Chief Executive’s Report

Since I joined Johnston Press at the start of November 2011, we have focussed on developing a strategy and plans for the future, at the same time as maintaining current business performance in a tough market, looking for opportunities to drive further operational savings and ensuring a successful outcome to our refinancing. In my first 90 days, I spent a lot of my time visiting more than 50 of our regional newspapers.

I will explain more about our vision below after reviewing our performance in 2011. However, I would like to start by thanking my predecessor for his work over the previous three years. John Fry guided Johnston Press through a very difficult period in its history and we wish him well for the future.

Review of the YearThe past 12 months were challenging for the Group as the rates of growth in the economies of the United Kingdom and Republic of Ireland again declined. We reported the deteriorating trend in certain advertising categories in the latter part of 2010 in last year’s report. As anticipated at the time, that trend continued and we moved swiftly to address revenue declines and the impact of higher newsprint prices through a number of cost-saving measures. However this was not sufficient to prevent a decline in operating profit for 2011 to £64.6 million before non-recurring and IAS 21/39 items.

While structural decline continued to affect print advertising, three of our revenue streams – newspaper sales, digital advertising and contract printing – were all broadly unchanged or growing.

National advertising and print recruitment revenues remained particularly challenged, but internet advertising revenues finished 2011 strongly and there are many areas where the hard work and innovation of our staff is delivering positive results. Nevertheless, print advertising revenue declined by 9.7% over the course of the year, reflecting the difficult trading environment. Our challenge is to improve our performance across advertising categories and that will involve developing compelling propositions for our customers which stretch across the range of platforms our readers use to access our services. There is plenty of evidence within the Group to suggest we can rise to that challenge. A number of titles re-launched over the last 12 months produced significantly improved results both in absolute circulation terms and in circulation revenues. The re-launch format also proved more effective in cross-selling from print to online which bodes well for the rapidly increasing demand for access by mobile devices.

Cost control was again essential and like-for-like operating costs (excluding the impact of significant newsprint price increases) fell by £24.5 million over the course of the year. The number of staff employed by the Group fell to 5,245 in 2011, a reduction of 11.3% on 2010. Further efficiency measures are now under way including a reorganisation of our existing divisional structure and the introduction of a sales effectiveness programme across the Group after a trial in one region. The early results for this have been very positive and more detail can be found in the Operational Review on page 4. Further, we have started the process of consolidating our twelve contact centres into two. We aim to keep local editorial and local sales staff in the heart of the community, but increasingly centralise everything else. However, our internal reorganisation is not simply about costs. Of equal importance is the need to develop the Group into a simpler organisation – one more appropriate for its future needs as explained below.

Our review of future requirements led to a further rationalisation of our print capacity. In the last quarter of the year we announced the closure of our printing plant in Douglas, Isle of Man, and at the start of 2012 we began consultation on the closure of the print facility in Leeds. These moves reflect activity across the industry and are essential for ensuring the efficiency and streamlining of our operations. This leaves the Group with five modern print works at Portsmouth, Sheffield (Dinnington), Peterborough, Sunderland and Carn.

RefinancingWe are very pleased to announce the completion of our refinancing which provides the Group with lending facilities to take it through to September 2015. This is due in no small measure to our efforts over the last three years to significantly reduce our net debt by over £125 million, restructure our cost base, taking out over £90 million of costs, and introduce strong revenue initiatives for the future. Details of the refinancing can be found in the Performance Review. Further reduction in debt remains a priority for the Group in the coming years.

Ashley Highfield

Websites223 local websites211 mobile sites7.9m average unique users per month

johnston press plc annual report and accounts 2011 | 03johnston press plc annual report and accounts 2011 | 03

Future StrategyWe aim to put digital at the heart of Johnston Press. Newspapers will remain our primary revenue stream for many years to come, but the web and apps, accessed from PCs, tablets and smartphones, are becoming as important, if not more so, as an access method for an increasing percentage of our audience.

We have embarked on an ambitious plan to re-launch all our titles as far more integrated digital and print hybrid offerings, refreshed and revitalised in print, with new web, mobile and iPad offerings. In some cases the internet will become the hourly and daily pulse of a community and we will move to printing the physical paper just once a week – with overall audience uplift and a considerable increase in profitability for those titles. In all communities that we serve we aim to have a web audience at least as big as our newspaper circulation and to use print to actively cross-promote the web and vice versa, thus remaining relevant in a digital age, while not alienating our heartland audience.

It is clear the Group must undertake further radical change in its operations to be appropriately structured for the future and in recent months our strategic focus has been the subject of a great deal of work. Since joining the Group I have taken time to visit as many of our sites as possible. Our dedicated staff deliver a vast amount of good work and it has been extremely useful to meet a large number of them. I have found some titles are already handling web production, digital cross-promotion and digital advertising upsell very effectively and the re-launch of titles will ensure best practice is spread right across the Group.

We will also look to make much greater use of subscriptions and the bundling of content across a variety of platforms. In some cases, as already stated, the re-launch project means the move of some of our titles from daily to weekly publication. This is clearly a significant change and in each case it is based on detailed research into the readership habits of that community. It is vital that we develop a far greater synergy between our printed publications and online offerings – recognising the different ways that our users access content at different times of their day and week – through a further modernisation of our websites, with a particular focus on mobile devices. In December 2011 we completed the roll-out of specific mobile sites for each of our titles and that was followed by the introduction of our iPad app for The Scotsman early in 2012. The early signs are encouraging, with two-thirds of users of the mobile sites aged under 35.

Our aim is that these steps will allow us to create local portals providing a range of trusted information and media resources for the communities where we publish. Location-based services will be a key driver for becoming the information provider of choice, where local advertisers remain central to our offerings.

We are very much aware that in all aspects of these developments careful choices will need to be made regarding our use of resources, and our re-launch programme aims to be self-financing (after repayment of modest seed investment). Not least as there is a significant opportunity for cover price increases when we re-launch in many markets.

Looking a little further ahead, Johnston Press must look to diversify into new areas of business where we can put our existing strengths to good use. The introduction in 2011 of our successful Find it and DealMonster offerings showed what can be achieved and we will look at finding similar new business niches. These will be characterised by localness and a broad appeal to social media.

We have built a huge repository of valuable content from all our newspapers, held in a single database, all indexed with excellent metadata. The opportunity is therefore there to aggregate and publish this content around specific interest areas, creating new websites, and we will be launching the first of these in 2012.

SummaryClearly there is much to do to reshape our business, and to succeed we must increase the pace at which we adapt to the new environment and continued rapid change in our sector. Although the prospects for the economy remain downbeat in the short term, I believe we can return Johnston Press to being a growth business through the twin track approach of re-launching and revitalising our papers while simultaneously growing our websites, and taking full advantage of the opportunities created by technology and the changing media demands of our users to deliver innovative propositions.

In cities and towns throughout the British Isles, we are a trusted brand in communities. I believe that in a world that values local communities more not less, where smartphones (and iPads) are becoming ubiquitous and social media intrinsic to people’s lives, we are in a unique position to capture much of this new value being created across advertising, paid-for content and transactional revenues.

Ashley HighfieldChief Executive Officer

Newspaper Titles170 paid-for71 free


Operational Review

Danny Cammiade

Focussing on customers and developing better advertising sales opportunities across multiple platforms was a key objective for the Group during 2011.

In support of this, a number of projects were initiated and progressed during the year, all geared to building new revenue within local communities while developing multi-platform audiences. They included an expanded customer engagement programme, further sales incentives to target and win new advertisers on longer term contracts in print and online, and a step change in technology to allow further improvement of our contact centres.

These initiatives, which are covered in more detail later in the review, helped support the development of the Group’s operational aspects whilst enabling further cost reductions to be achieved in line with the current economic realities.

Business DevelopmentA major aspect of our work during the year was to ensure that all operating units had clear strategies and structures for growing customer bases while at the same time improving relationships with advertisers who have loyally used our services over many years. A “sales effectiveness” study was undertaken in Southern England where new structures, customer propositions and incentives were trialled. This trial saw an uplift in sales of 19% and an increase in the forward order book with 80% of ads pre-booked by at least a week. Following the success of the trial, the programme is being rolled out across the Group, requiring changes to sales organisation structures.

During 2011, a number of new digital advertising ventures were developed. Find it, our new online business listings directory and review website, was launched across the Group in March 2011, in partnership with Qype. This enables our website users to find reputable local businesses (from a trustworthy plumber to a great local restaurant), aided by other customers’ reviews and ratings. In 2011, we sold more than 10,000 premium listings with the site generating over £1.4 million in new revenue.

Perhaps the most exciting new venture was the launch of DealMonster, a local voucher website. It commenced in September and now operates in the Edinburgh, Blackpool, Sunderland, Leeds, Sheffield, Milton Keynes, Bedfordshire, Northamptonshire and Lancashire regions with further launches planned in 2012. The venture depends on leveraging off both existing advertiser relationships and our own local media for the marketing of this platform. Unlike some of the other players in this space, our focus is absolutely on local deals and although it is still an early stage business, we are very encouraged by performance to date.

In December, we launched 211 local mobile sites across our portfolio, specifically designed to cater for screen size and device functionality in smartphones. The sites feature local news, sport, lifestyle and community content. Importantly, they enable us to reach a younger demographic, with 67% of users under the age of 35. Approximately 22% of our online traffic now comes from mobile devices. Another significant step forward was our partnership with Localstars, a UK-based organisation that has successfully automated the creation of online display advertisements, allowing our local advertisers to seamlessly buy both print and digital services. As a result, local digital display advertising grew 55% year-on-year in Q4.

In print, we continued to innovate. We were the first local community media company to “wrap” around the newspaper a translucent advertisement (for a new ASDA store opening in Wakefield). We also published adverts with QR codes which allow the reader to scan a code with a mobile phone to obtain further product detail.

Work continued to build a separate exhibitions and events business with new shows successfully launched in Edinburgh for Outdoor Pursuits, Brighton for Homes & Gardens and Leeds for Yorkshire Food and Drink. We also ran a second Pet Show in Peterborough following the success of the first in 2010. These events attracted significant footfall and a strong exhibitor base giving confidence that a successful enterprise can be built.

Customer service is fundamental to the development of our revenue and profit and we continued to invest in engagement initiatives to understand and improve customer relations. It was encouraging to see the improvements recorded in call and e-mail handling as well as the satisfaction levels of new customers. Customer queries and post-sales follow-up were identified as areas for improvement and they will be a key focus in 2012.

Our StaffWith more than 5,200 employees, training and development is vital for ensuring we have the right people equipped with the appropriate skills and technology to provide a first-class service. To support this, a comprehensive suite of training was actioned during the year encompassing more than 800 sales courses, 270 management tutorials and 1,900 classroom training days. More than 1,500 journalists developed their print and digital skills, 400 journalists learned how to work remotely using new technology and trainee journalists were supported as they worked towards achieving senior status.


We introduced additional employee benefits during the year including changes to the pension scheme to help employees save more for their retirement and a ‘smart holiday’ benefit giving staff the opportunity to take additional unpaid leave.

Communication with employees continues to be of high importance and during 2011 we introduced and resourced ‘The Word’, a weekly digital newsletter and website for our employees. It has quickly become a site of interesting news, information and facts about people, the Group and events, attracting interest from the majority of employees every week.

IT and Support ServicesUnderpinning the increasing focus on our customers and their multimedia requirements the Group’s IT and support functions continued to play a major role in ensuring that our employees are appropriately equipped. Following the centralisation work undertaken in the latter stages of 2010, good progress was made in achieving the stated objective of having a single view of the customer aligned to one content management system for editorial and commercial assets.

In 2011 the central IT team trialled and developed supporting technology for the “sales effectiveness” study and the execution of local digital display advertising plans.

Engaging with and managing a number of technical partners was a key part of the overall Group strategy. Our teams developed a new digital platform with Zoopla, a leading property portal, with a new service launching in 2012. They continued to work with Jobsite to ensure the Group has a market-leading online recruitment offering. In addition, partnerships with social media providers such as Pluck will mean our websites have the right level of user participation.

Just as important has been the need to have a robust IT infrastructure that supports the Group’s 206 offices. In 2011 we made a number of investments which included:

• Theroll-outofnewsmartphonesforallmobilephoneuserstoimprovecommunication,particularly for journalists;

• Anewwideareanetworkproviderwhichhasimprovedcapacityandreducedcost;

• Acentrallibrarysystemwhichcombinesdataintoasingle,searchablerepositorywithmorethan32 million items accessible by all journalists. On average, 100,000 new print and web articles, photographs and pages are imported into the library each week.

Audience DeliveryEngaging with our readers and viewers by providing compelling local content and making it easy for them to purchase our newspapers continues to be a key operational strategy.

The success of our programmes to maintain newspaper sales revenue can be demonstrated by an 80% uplift of readers being retained using our discount vouchers and a 24% growth in customers paying by direct debit for direct delivery. These initiatives, coupled with a positive approach to pricing our titles appropriately for their value, have helped keep newspaper sales revenue at a more consistent level than prior years, at £95.6 million.

We continue to evaluate the quality and reader impression of our products with an ongoing programme of research which also looks at format and frequency. Findings resulted in decisions in 2011 to convert broadsheet newspapers in Lancaster, Falkirk, Hemel Hempstead and on the Isle of Man to compact format. In every case, circulation sales improved with an average increase of 8.4% achieved.

A number of specialist digital journalists were recruited to help provide local content using our local brands through mobile, tablet and smartphone applications. A new iPad app was launched at The Scotsman and recently, a Yorkshire Post app. These should help to ensure that digital audiences grow at a greater rate in 2012 than the 11% achieved in 2011.

Services DivisionProviding efficient workflows to meet the needs of both our internal and external customers is an area of activity that continues to evolve and improve. As in previous years our services division was able to further develop production and supporting processes. These included the introduction of new technology allowing further centralisation for advertisement creation, changes to creative teams to allow best practice to be shared across the Group, and new helpdesk facilities for property advertisers.

In addition, changes to the way our transport and logistics teams were managed improved efficiency and created a more cohesive approach from print site to point of sale. Further enhancements to the presses in Dinnington and Portsmouth created new revenue opportunities by offering different newspaper formats.

9

1

2

3

5 4

6

78

9

1 Edinburgh2 Belfast3 Naas4 Leeds5 Preston

6 Dinnington7 Peterborough8 Northampton9 Portsmouth

Keyoperatingcentres


Our largest revenue stream has continued to decline by 9.0% in 2011, due to the economic climate and competition from other forms of media.

•Displayadvertisingfellby4.2%in2011,withnationaldisplay print advertising most affected. However, digital local display advertising grew 24.0% following the redesign of our websites.

•Classifiedadvertisingcontinuedmigratingtodigitalmediain 2011. We continued to innovate our digital products to mitigate the print advertising declines.

•Newstrategyin2012tofocusonrelaunchingtitles,andchanging our sales approach to improve customer service for advertisers and provide a more attractive proposition.

With the decline in advertising revenues, new revenue streams continue to be developed with a key focus on digital revenues.

•Totalrevenuesin2011wereaffectedbythedeclineinadvertising revenues.

•Newspapersaleshadaslightdeclineof1.1%ascoverprice increases mitigated circulation declines.

•Digitalrevenuesgrew0.7%in2011,representing4.9% of total revenues, with scope for significant growth.

•2012willfocusonbuildingonourdigitalrevenues,suchas DealMonster, Find it and our new property offering with Zoopla. Providing new ways to access our local content through technology will also help grow revenues.

Underlying cost savings of £24.5 million were achieved in 2011, offsetting a newsprint price increase of £7.6 million.

These savings were achieved through:

•Restructureoftransportandlogisticsandpre-pressoperations;

•Closureoffreetitlesandmergersofpaid-fortitles;

•Implementation of new technology to improve efficiency; and

•Tight control of newsprint and production costs.

The Group continues to seek to grow profits to enhance shareholder value.

•Operatingprofit*wasimpactedprimarilybythereductionin classified revenues and increase in newsprint prices.

•Operatingmargins*continuetobeindustryleadingat17.3%, as we further re-engineer our cost base.

Reducing debt is a key priority for the Group.

•Netoperatingcashflowfortheyearof£67.9million,comparable with 2010.

•TheGroupcontinuedtouseexcesscashtoreducedebt,with net debt reduced by £35.0 million.

•Lowerfinancecostsin2011duetoearlyrepaymentofdebt.

•SuccessfulrenegotiationoffinancefacilitiesinApril2012 (page 12).

Key Performance Indicators

2 year comparison (£’m)


2yearcomparison(£’m)*

2yearcomparison(£’m)*


*beforenon-recurringandIAS21/39items(pages8-10)

Total Advertising Revenue (print and digital)

Total Revenues

Operating Costs

Operating Profit

Net Debt (note 22)

11

11

11

11

11

10

10

10

10

10

231.3

373.8

309.2

64.6

351.7

254.1

398.1

326.1

72.0

386.7

0 100 200

0 100 200 300

0 100 200 300

0 25 50 75

0 100 200 300

*beforenon-recurringandIAS21/39items(pages8-10)


This is a measure of the profit earned per share in the Company.

•Thefallinunderlyingearningspersharewasduetothelower operating profit in 2011. Offsetting a portion of the decline were lower net finance costs and reduced taxation.

2yearcomparison(p)*

Underlying Earnings per Share (note 14)

11

10

3.50

3.67

0 1 2 3 4

Johnston Press remains committed to improving health and safety for all employees, and reducing the number of accidents at work.

The lowest number of accidents in five years reflects continued focus on improvements in health and safety including:

•Standardisationofhealthandsafetymeasuresacross the Group;

•Introductionof‘safetyalerts’;and

•Independentriskaudits.

2 year comparison

Employees Involved in Accidents

11

10

152

252

0 100 200

Increased unique users provide a more attractive proposition to our advertisers.

Unique users increased through:

•Increasedonlinenewscontentandimprovedlocalinformation services;

•EnhancedwebsiteofferingsincludingFindit;and

•Newmobilewebsitesattractingayoungerandmoretechnologically aware audience.

Circulations have continued to decline in 2011 throughout the industry.

To reduce the decline Johnston Press:

•Successfullyre-launchedpapersinanumberofareas;

•Movedsomepapersfrombroadsheettotabloidsize;

•Focussedonimprovingqualityandcontent;

•Providedsalesincentivestocustomers;and

•Improveddeliveryandpaymentmethodssuchasofferingpre-paid vouchers.

2 year comparison (m)

2yearcomparison(%)*

2yearcomparison(%)*

dailies

Weeklies

*circulationexpressedasapercentageofthepreviousyear

Average Number of Monthly Unique Users

Newspaper Circulations

11

11

11

10

10

10

7.9

92.1

93.9

7.1

92.7

95.3

0 2 4 6 8

0 25 50 75

0 25 50 75

*beforenon-recurringandIAS21/39items


Performance Review

Grant Murray

The difficult economic and trading environment that the Group experienced in the previous year continued throughout 2011 and this was reflected in the 6.1% decline in total Group revenues (2010: 6.0%). However, costs were again tightly managed with the impact on the 2011 operating margin* of 17.3% minimised (2010: 18.1%). Operating profit was £64.6 million*, but due to a non-recurring impairment charge of £163.7 million, the Group recorded a loss before tax of £143.8 million. In April 2012, the Group agreed an extension of its finance facilities to September 2015.

The decline in revenues in 2011 was almost entirely due to print advertising revenues, with the other categories of the Group’s revenues being relatively stable in spite of the economic conditions within its markets. As shown in Table 1, taken collectively the non-advertising revenue streams, (amounting to £142.5 million, or 38.1% of total Group revenue) were down by only 1.0% year-on-year.

Of these non-advertising revenues, the Group’s circulation revenues of £95.6 million proved particularly resilient, down only 1.1% relative to 2010. Year-on-year circulation declines of 7.9% for dailies and 6.1% for weekly paid-for titles were offset by cover price increases to maintain this revenue. Contract printing revenues were virtually unchanged year-on-year with a decline of 0.4%. Other revenues declined by 1.5% year-on-year, this was principally due to the reduction in leaflet revenues from the closure of a number of free newspapers. The overall effect of these closures was to improve operating profit. Excluding this leaflet revenue, the remaining revenues within this revenue stream (including exhibitions and readers offers) grew by 10.4%.

Within advertising revenues, total digital revenues were up 0.7% in 2011 at £18.4 million. Digital employment revenues declined 9.2% due to the reduced upsell from print employment advertising revenues. Excluding employment, digital revenues increased 7.7% which is more reflective of the digital activity and performance following the launch of several new products in 2011. Local digital display revenues had the highest level of growth with a 24.0% increase in revenues. Digital revenues will be an area of greater focus and activity in the future, and it is anticipated that this will result in accelerated digital growth.

Table 1Performance Summary for 2011 and 2010 2011 2010 % £’m £’m change

Advertising revenues Print advertising 212.9 235.8 (9.7)Digital advertising 18.4 18.3 0.7

Total advertising revenues 231.3 254.1 (9.0)

Other revenues Newspaper sales 95.6 96.7 (1.1)Contract printing 27.0 27.1 (0.4)Other 19.9 20.2 (1.5)

Total revenues 373.8 398.1 (6.1) Operating costs (before non-recurring and IAS 21/39 Items) (309.2) (326.1) 5.2

Operating profit 64.6 72.0 (10.3)Operating margin 17.3% 18.1%

*Beforenon-recurringandIAS21/39items(page10)


Table 2 highlights that the display advertising decline in 2011 in the UK was limited to 3.0% (2010: 1.7%). Local display revenue was 2.6% lower than 2010, but was strong in the second half of 2011 with a decline of only 0.9%. National display, down 3.9% year-on-year, was affected in the second half of 2011 as national retailers reduced advertising budgets, impacting across all of the industry.

The advertising revenue decline was mainly due to classified advertising, with employment advertising accounting for almost half of the classified decline. The decline in UK employment advertising revenues of 25.5% across the year was disappointing, although the rate of decline reduced from 30.8% to 17.4% between the first and second halves of the year (and the exit rate in the final quarter of the year was 12.0%). A large part of this was due to the recent high levels of UK unemployment, but it also reflected the increasing impact of online competition. It is clear that this category of advertising will be of less importance to the Group in the future than it has been historically, and with £25.1 million revenue in 2011, employment now represents only 6.7% of the Group’s total revenues.

The other categories of classified advertising also showed year-on-year declines, again reflecting the economic conditions within these markets. Motors advertising declined by 10.0% compared with 2010, reflecting the drop in new car sales particularly in the second half of 2011. The decline in property advertising of 7.6% experienced throughout the year was actually less than might have been expected given the slowdown in property transactions in the UK and there was an improving trend in other classifieds between the first and second halves of the year.

Total print advertising, which is included in the advertising revenue analysis above, declined by 9.7% compared with 7.1% in 2010.

The economic environment in Ireland remained very challenging with the year-on-year advertising decline of 19.1% being the same as in 2010. Our operations there remain profitable, but it is unlikely that we will see a significant improvement in the performance of these operations until there is a wider improvement in the Irish economy.

Table 2Print and Digital Advertising Revenue Analysis 52 week period Six months to June Six months to December 2011 2010 % 2011 2010 % 2011 2010 % £’m £’m change £’m £’m change £’m £’m change UK advertising Employment 25.1 33.7 (25.5) 14.1 20.3 (30.8) 11.0 13.4 (17.4)Property 30.9 33.4 (7.6) 17.1 18.4 (7.2) 13.7 15.0 (8.2)Motors 20.5 22.8 (10.0) 11.0 12.0 (7.9) 9.5 10.8 (12.3)Other classified1 54.0 58.5 (7.6) 28.1 30.8 (9.0) 26.0 27.7 (6.0)

Total classified advertising 130.5 148.4 (12.0) 70.3 81.5 (13.9) 60.2 66.9 (9.8)

Display advertising1 91.9 94.7 (3.0) 45.9 47.0 (2.4) 46.0 47.7 (3.6)

UK total advertising 222.4 243.1 (8.5) 116.2 128.5 (9.7) 106.2 114.6 (7.2)

Republic of Ireland 8.9 11.0 (19.1) 4.6 5.7 (19.7) 4.3 5.3 (18.4)

Group total advertising 231.3 254.1 (9.0) 120.8 134.2 (10.1) 110.5 119.9 (7.7)

1 A digital revenue stream with a value of £1.7 million in 2010 has been reclassified from other classifieds to display advertising.


Performance Review

Total operating costs for the Group, excluding non-recurring and IAS 21/39 items, were £309.2 million, a decrease of £16.9 million from 2010. However, costs were affected by significant price increases for newsprint, which increased newsprint costs on a like-for-like basis by £7.6 million. Underlying cost reductions were £24.5 million excluding the newsprint price increase. Costs savings were made across virtually all areas of the business with further restructuring of the operations during the year to increase efficiency, particularly in relation to transport, distribution and production.

The performance of the Group will continue to be affected by the economic conditions in the UK, and the ongoing cyclical downturn as indicated by the current trends in GDP, unemployment, property transactions, new car sales and the levels of consumer confidence. However, the outlook for the Group will also depend on a number of other factors, including:

• Growingnewrevenuesstreams(particularlydigital)intheGroup’sexistingmarketsegments;

• Maintainingmarketleadershipinitsexistingmarkets;

• Abilitytoadapttocustomerrequirementsthroughnewsalespropositionsandadvertisingchannels;

• Continuouslyimprovingexistingefficientoperationsthroughtechnologyandimprovedprocesses;and

• Furtherre-engineeringofthecostbaseofthebusiness.

Non-recurring and IAS 21/39 ItemsIn addition to the trading results discussed above, a number of items have been identified as non-recurring either due to the nature of the item or their materiality.

The most significant of these items is the impairment of intangibles. The Group is required under accounting standards to test the carrying value of its intangible assets (the Group’s publishing titles) against the present value of anticipated discounted future cash flows from those assets for indications of impairment. In 2011, management reassessed the discount rates and growth rates used in this calculation with regard to the on-going volatility in the economic environment and increased the discount rate used from 8.94% in 2010 to 11.00% in 2011. Changing the discount rate has resulted in an impairment charge being recognised in the period of £163.7 million (2010: net charge of £13.1 million). Details of the impairment test assumptions and the carrying values by CGU are included in note 15. A non-recurring tax credit of £44.0 million has been recognised following the release of a deferred tax liability in relation to the impaired publishing titles.

Other non-recurring items included:

• TheGroupannouncedtheclosureoftheIsleofManprintpressinlate2011,andinearly2012,theclosure of the Leeds print press. As a result, the book value of the print presses have been written down to their estimated realisable value on disposal. A non-recurring accelerated depreciation charge of £5.2 million has been recognised due to the write down.

• Restructuringcostsof£4.3millionwereincurredastheGroupcontinuedtorestructurethewayinwhich it carries out its business to drive efficiencies and cost savings. Unfortunately this resulted in a number of redundancies, the cost of which has been recorded as non-recurring items.

• A£1.9millioncreditwasrecognisedresultingfromapensionexchangeexercise.Furtherdetailsareshown below in the pension section.

• Apropertythatiscurrentlyclassedasheldforsale,hasbeenwrittendowntothevaluelikelytoberealised in the current property market; this has resulted in a non-recurring charge of £0.6 million.

• Includedinnon-recurringtaxistheimpactofthereductionintheUKrateofdeferredtaxto25.0%,a credit of £14.9 million.

It should be noted that the only non-recurring items which involved cash outflows for the Group in 2011 were the restructuring costs of £4.3 million. All other non-recurring items were non-cash transactions.


IAS 21/39 items relate to the fair value movement in our derivative financial instruments (primarily cross currency and interest rate swaps), as well as the retranslation of our US dollar and Euro denominated borrowings. The net charge for the year was £0.7 million (2010: credit of £3.2 million). Further details are shown in note 11c.

Finance Income and CostsFinance costs for the year were £38.5 million (2010: £41.9 million). The reduction from the previous year reflects the reduction in the level of debt during the year and the benefit of lower interest rates from our interest rate swaps, partially offset by higher payment-in-kind (PIK) interest rates.

The interest charge in the year reflects a blended rate of 9.9%, which includes PIK, and is comparable with the rate of 10.0% for the previous year. The charge in the Income Statement also includes £5.3 million in respect of the amortisation of the fees associated with the Group’s finance facilities from refinancing in 2009.

The Group’s exposure to the US dollar interest payments and principal payments on the private placement loan notes are 96.1% hedged from a currency perspective. The overall percentage of borrowings which have been swapped to fixed rate interest rate liabilities is 89.4%.

The net finance income on pension assets/liabilities was £2.3 million as the expected return on the pensions fund assets was higher than the interest cost on the fund liabilities.

Loss Before TaxThe Group’s loss before tax for the year was £143.8 million (2010: profit before tax of £16.5 million). This loss is primarily due to the impairment of the value of publishing titles of £163.7 million, compared with the charge of £13.1 million in 2010. Other significant differences between 2011 and 2010 which affected the loss before tax were the lower operating profit in 2011 and the loss from movements in the fair value of our derivatives, offset by lower finance costs due to the lower net debt in the year.

Tax RateThe Group tax rate for the year, excluding non-recurring and IAS 21/39 items, was 22.4%. This rate is considerably lower than the UK tax rate of 26%. The overall rate was reduced by the lower rates that apply to profits generated in the Republic of Ireland and the Isle of Man.

Cashflow, Financing and Net DebtNet debt at the year end was £351.7 million (excluding any reduction from unamortised financing fees) a reduction of £35.0 million on the prior year. The Group remained strongly cash generative throughout the year, with net cash in from operating activities of £67.9 million. This cash was primarily used for cash interest payments of £25.6 million and to repay borrowings. The Group maintained tight control of capital expenditure with £1.8 million spent, while proceeds received from disposal of surplus assets were £2.6 million.

Reducing the Group’s debt continues to be a key objective of the Board. During 2011, the Group operated under the finance facilities that were put in place in 2009. The Group accelerated the remaining facility reduction of £20.0 million that was due in June 2012 to April 2011. This enabled the Group to continue to reduce its level of debt and the interest cost through lower non-utilisation fees, cash interest payments and PIK interest accrual. The borrowings have been classed as current liabilities at 31 December 2011, as at that date, the facilities were due to mature within one year.

The Group has been in detailed negotiations with its lenders regarding the renewal and extension of the finance facilities. The Group has successfully concluded these negotiations in April 2012, with further details shown below.

Net Asset PositionAt the period end, the Group had net assets of £284.4 million, a decrease of £126.8 million on the prior year. The impairment of £163.7 million against publishing titles was the main cause for this decrease, offset by the deferred tax credit on this of £44.0 million. Other movements in the net asset position were the decrease in the deferred tax liability of £14.9 million from the change in the UK tax rate, offset by the increase in the retirement benefit obligation of £43.2 million (discussed further below). In addition, there


Performance Review

was a reduction in the net book value of property, plant and equipment (including assets held for sale) of £23.8 million, due to the low capital expenditure in the year and write down in the value of presses as discussed above.

RefinancingThe Group is pleased to announce that following negotiations with its lenders, a new secured facility amounting to £393.0 million has been agreed in April 2012, by way of amending and extending the current facility agreement. This extends the maturity of the facilities to 30 September 2015.

The starting and maximum cash margin in the case of the bank facilities is LIBOR plus 5.00% and, in the case of the loan notes, a cash interest coupon rate of up to 10.30%. The interest rates are based on the absolute amount of debt outstanding and leverage multiples and reduce based on agreed ratchets.

In addition to the cash margin, a payment-in-kind (PIK) margin will accumulate and is payable at the end of the facility. The PIK margin rate is again based on the absolute amount of debt outstanding and leverage multiples and reduces based on agreed ratchets. Further, if the loan facilities are fully repaid prior to 31 December 2014, the rate at which the PIK margin accrued throughout the period of the agreement will be recalculated at a substantially reduced rate.

There is an agreed repayment schedule of £70.0 million over the three years. In addition, a pay-if-you-can (PIYC) repayment schedule has also been agreed totalling £60.0 million over the three years.

New 5 year share warrants over the Company’s share capital will be issued. On completion of the new arrangements, warrants over a further 2.5% of the Company’s share capital will be issued with the issue of a further 5.0% in September 2012. In the event that the Company does not obtain the necessary authority to grant those warrants due to be issued in September 2012, the lenders would instead become entitled to an equity based fee at the maturity of the facility, the terms of which would be materially worse than if the warrants were issued as proposed. In addition, the exercise period for the 5.0% warrants issued to the lenders in August 2009 has been extended to make the expiry of all warrants coterminous in September 2017.

The new facilities include the same types of financial covenants as were within the previous facilities.

Fees payable are approximately £11.5 million. This represents a significant reduction on the fees associated with the 2009 refinancing.

Liquidity and Going Concern The Board has undertaken a recent and thorough review of the Group’s forecasts and associated risks. These forecasts extend for a period beyond one year from the date of approval of these financial statements. The extent of this review reflected the economic outlook and the current revenue and cost trends, together with the on-going volatility in advertising revenues. The forecasts make key assumptions, based on information available to the Directors, around:

• Futureadvertisingrevenueswhichshowreducingdeclinesin2012,consistentwithcurrentmarketviews; and

• Furthercostreductionmeasurestoreflectlowerrevenuesandtheon-goingre-engineeringofthebusiness.

Following a thorough review of these forecasts and projections and, after taking account of reasonable downside scenarios to the key assumptions underpinning these forecasts, the Directors are satisfied that the Group will be able to operate within the new financing terms determined by the amended and extended finance agreement and covenants.

Having reached agreement on these new financing terms, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operation for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.


PensionsThe Group’s defined benefit pension deficit increased by £43.2 million over the year. The increase in the deficit was the result of the following factors, both positive and negative.

Investment markets remained volatile during 2011, with returns falling short of those assumed by £27.0 million. In addition there was a further reduction in the discount rate applied to the scheme liabilities which resulted in an increase in the value of liabilities of £42.0 million. A change in the longevity assumptions has increased liabilities by £23.0 million while a decrease in the assumptions relating to inflation (including a change in the assumed rate of deferred revaluations) has resulted in a £33.0 million reduction in liabilities. Changes to other demographic assumptions, relating to dependants’ pensions and the likelihood of deferred pensioners taking up the pension increase exchange offer in future, have resulted in a further £9.0 million reduction in liabilities.

In 2011, the Group offered a number of existing pensioners the opportunity to take part in a pension exchange where, for a higher pension today, they give up a proportion of future increases. This resulted in a gain of £1.9 million. It is expected that this offer will be run for all other members in 2012.

Other movements totalling £5.0 million made up the balance of the increase.

The pension fund was also subject to a triennial valuation carried out as at 31 December 2010. The result of this valuation gave rise to a new schedule of contributions and funding plan to reduce the deficit. As a result, the annual level of contributions under the schedule of contributions increases from £2.2 million to £5.7 million with effect from 1 June 2012.

Financial ReportingIn terms of this report, there are no significant changes in International Financial Reporting Standards from those in force at the end of 2010.

Control ProcessesAs discussed in the Corporate Governance Statement, the Group operates rigorous internal control processes that assist in the efficient operation of our businesses. Central to these processes and controls is the fact that the general ledgers, fixed asset registers, payables system, expenses and payroll are controlled through our shared services centre in Peterborough, together with all cash processing and sales ledger balances for the mainland UK being controlled through a single centre in Leeds.

Earnings Per Share and DividendsBasic earnings per share was a loss of 14.24p, down from a profit of 5.61p in 2010 for the following reasons:

• Animpairmentlossrecognisedof£163.7millionin2011(2010:£13.1million);

• Areductionintheunderlyingoperatingprofitbeforenon-recurringandIAS21/39items,partiallyoffset by lower finance costs;

• TotalIAS21/39movementsin2011wereachargeof£0.7millioncomparedtoacreditof £3.2 million in 2010; and

• Offsettingthesemovementswerenon-recurringtaxcreditsof£14.9millionrelatingtothechangein deferred tax rate, and £44.0 million from the release of deferred tax on intangibles which reduced the loss per share (2010: £22.5 million non-recurring tax credits).

Excluding non-recurring and IAS 21/39 items, the underlying earnings per share at the basic level of 3.50p was down from the previous year’s comparative of 3.67p due to the lower operating profit.

There will be no dividend recommended by the Board relating to 2011. This reflects the Group’s focus on further reducing the debt levels of the business, and is also in line with the Group’s finance arrangements which preclude the payment of any dividend until the ratio of net debt to EBITDA falls below 2.5 times.


•ChangeinGrossDomesticProduct•Changeinunemploymentrate•Levelofpropertytransactions

•Levelofnewcarsales•Levelofconsumerconfidence•Publicsectorspending

Principal Risks and Uncertainties

This is not a complete list of all risks identified but those that the Directors feel could have the largest impact on the Group. By including risks within this section, the Directors make no prediction as to the particular likelihood of any event or set of events occurring. The business could also be affected by other risks not currently identified or considered to be significant.

The risks listed immediately below are those that the Directors view as the most significant in terms of the general economic conditions in our markets. These risks are the most important in terms of the overall performance of the Group, but also relate to issues over which the Group has no control, namely:

There are a number of potential risks and uncertainties which have been identified by the business that could have a material impact on the Group’s long-term performance.

description of risk

This is an industry issue. Online advertising rates are lower and it is difficult to charge for accessing news online because free alternatives exist.

As the Group is operating above its optimal level of gearing, repayment of debt is a key priority. However, this focus could lead to missed revenue opportunities if insufficient funds are left available for investment.

Newspaper circulations continue to decline due to increased availability of news through alternative media channels and reductions in the regularity of purchase.

Impact

Readership continues to migrate to a digital environment where the advertising rates per reader are lower.

The Group may be unable to take advantage of opportunities to invest in its core business or complementary revenue streams thus impacting its long-term growth prospects.

The reduction in circulations can lead to reduced newspaper sales revenues as well as reduced audience for our advertisers.

Mitigation

Print advertising revenues could continue to decline due to further migration of customer spending to online media, and the economic impact of the ongoing Eurozone crisis.

Online migration of classified advertising means that even with an economic recovery in the UK, it is unlikely that these revenues would be fully recovered. The Eurozone crisis is damaging consumer confidence, with national and local businesses reducing display advertising as consumers are spending less.

The Group continues to develop its online classified offering through partnerships and enhancements. It also continues to invest in its sales expertise to ensure both a more proactive and effective approach and that the sales offering is fully understood by sales staff and customers. The re-launch of newspaper titles is expected to provide customers a more attractive advertising proposition.

Our new digital strategy focusses on building digital audiences and revenues through new platforms and enhancing the content available to readers and advertisers. The Group has launched paid-for news applications and continues to innovate its digital products.

The Group seeks to comply with all the requirements of its funding arrangements in the most cash-effective manner and carefully prioritise any funds available for investment in those areas offering the greatest long-term return.

The Group continues to promote loyalty schemes and subscriptions to encourage increased frequency of newspaper purchase. In response to changing reader habits we have introduced news websites tailored to mobile devices, increased the frequency of updates and started the implementation of apps.

Further Reductions in Print Advertising

Failure to Monetise Increased Readership of our News Websites

Business Opportunities Constrained by Debt

Lifestyle and Technology Changes Affect Newspaper Circulations


description of risk

The Group has finance facilities in place which require certain financial covenants to be met, including profit and cashflow targets.

Like most groups there is an element of dependency on certain key individuals in the organisation.

Impact

If the covenants are not met, the Group may be forced to renegotiate its finance facilities with its lenders.

Should key people leave, there could be a loss of industry knowledge, supplier relationships, technical expertise and leadership.

Mitigation

There is a risk to the business in terms of both supply and pricing of newsprint which, after staff costs, is the largest single expense incurred by the business.

In 2011 newsprint represented approximately 12% of the Group’s cost base. A significant increase in price would impact the Group’s profitability and a reduction in supply could impact the quantity of free newspapers we distribute in the market, which could in turn impact advertising revenues.

The Group carefully manages its consumption of newsprint through waste management, recycling, pagination and distribution of free titles. The Group also has some of the most efficient presses in the industry, helping to minimise waste. Contracts with key suppliers ensure security of supply and optimum pricing.

The Group Defined Benefit pension scheme is currently in deficit, leaving the Group responsible for potential shortfalls.

While working to reduce the pension deficit, the Group must balance this with the need to invest in the business and reduce the level of debt and resulting interest charges.

From 1 June 2012, higher deficit funding payments will be made to the scheme as agreed with the trustees and taking into account Group cashflow forecasts. In an effort to control the pension fund deficit the Group closed the scheme to future accrual in 2010. Measures have been taken to limit the level of pension increases, such as the pension exchange exercise in 2011, thereby reducing the liability further.

The Group has a financial risk in terms of variations in interest rates and foreign exchange rates.

Should interest rates increase, the Group could pay more in interest and this would put a strain on cashflow and debt reduction plans. The Group also has debt in US dollars and Euros and adverse fluctuations in exchange rates could affect net indebtedness.

The Group policy is that at least 50% of its interest rate exposure should be hedged. As at 31 December 2011 over 89% of the exposure was hedged. The US dollar denominated debt was over 96% hedged with respect to foreign exchange risk such that there was minimal risk on either the interest payments on or the repayments of principal as and when they fall due. The Euro denominated debt was approximately £12.6 million and was more than matched by the value of Euro denominated assets, with interest payments funded by Euro cashflows from the Group’s Republic of Ireland activities.

The Group continues to use excess cash to reduce the level of debt. Under the new finance arrangement, covenant levels have been set based on management’s forecasts and expectations. The Group is confident that it can operate within the covenants throughout the term of the facilities.

The Group has put in place succession planning across the organisation and this is reviewed annually by the Executive Directors and by the Board.

Newsprint Price and Supply Risk

Pension Deficit Funding

Interest Rate and Foreign Exchange Risk

Finance Risk

Adequacy of Resources

16 | GoVernance

Corporate Social Responsibility

Business EthicsThe Group’s activities are supported by clear policies and procedures for addressing relevant issues. Policies are made available to employees with supporting guidance and are designed to protect both the employee and employer. The Group seeks to act as a fair and reasonable employer and is very aware of its responsibilities to readers, customers, suppliers, shareholders, other stakeholders and the environment. Some of the many community orientated activities in which the Group is involved are explained on pages 17 to 19.

Board ResponsibilityThe Board has delegated the day-to-day responsibility for all matters related to Corporate Social Responsibility to the Executive Directors. They are assisted by the Company Secretary.

Responsibility for formulating, updating and ensuring adherence to Group human resources policies and relevant legislation has been delegated to the Director of Human Resources, who reports to the Chief Executive Officer on these issues.

The Directors regularly review issues relating to the Company’s Corporate Social Responsibility Statement.

The Company seeks to monitor developments in relevant environmental, social and governance issues and to respond to changes in legislation, regulation and best practice. Environmental, social and governance risks are assessed as part of the Group’s ongoing risk analysis.

Health & SafetyThe Group has rigorous health & safety management and reporting processes in place. Robust accident and incident reporting procedures helped the business achieve a significant reduction in all types of accidents and in the number of people involved in accidents. 2011 marked the most improved year in safety performance since 2005. We believe that our focus on addressing the causes of accidents, and our insistence on the adherence to best practice and procedures, has played a role in this decline although work continues to ensure that the improvement is maintained.

Our consistent reporting processes have now been in place for more than seven years allowing performance over time to be measured. Every accident is reported and this is a key part of our control environment. There was a significant fall in total working days lost through accidents in 2011, continuing the trend since 2008.

There are Health & Safety Committees in every Group company and a Group Health & Safety Committee (of which the Chief Operating Officer is a member), which instructs and reviews audit visits, monitors compliance with Group policies, ensures those policies are kept up to date and encourages best practice. It also started inviting companies with leading health & safety performance to make presentations at its meetings to learn from their experiences and share best practice.

The Group Health & Safety Manager, appointed in early 2011, created stronger links with site health & safety officers and this helped centres improve their scores in our rolling internal audit programme. Average site compliance increased by 7% during the year. Standardisation of health & safety procedures and safety processes started in 2011 and will continue into 2012. All main sites will be independently audited in 2012. The audit process was revised to raise the level of compliance above industry expectations.

The introduction of ‘Safety Alerts’ ensured lessons learned from incidents were shared across the Group and ongoing campaigns have created a focus on key risk areas.

Johnston Press is committed to operating all of the Group’s business activities to the highest standards of business ethics and integrity. These principles are reflected in the Group’s approach to Corporate Social Responsibility.


Employee InvolvementWe employ more than 5,200 people in the UK and Republic of Ireland and our aim is to attract, retain and engage the best people in a high performance and supportive culture that drives business success. Our expectations in terms of managers’ and employees’ behaviour and standards are set out in our Value Statements, Personnel Policies & Procedures, Employee Handbook, Codes of Conduct and Contracts of Employment. Our grievance and whistleblowing procedures allow any employee to report behaviour that is contrary to our policies or is in any way of concern to them.

We recognise a number of trade unions at an operating company level in both the UK and in the Republic of Ireland. We also have employee forums at a Group and operating company level for communication and consultation.

The Group recognises that a diverse workforce adds clear value for our employees, customers, shareholders and the communities we serve. We fully support the principle of equal opportunity for all.

Key priorities, as we look to implement our new strategy, are identifying and developing leadership talent at all levels and succession planning. Details of our staff training and development initiatives can be found in the Operational Review on page 4.

Our subsidiary businesses have differing pay structures dependent on their size and local market conditions. Progression within these pay structures is based on competence, achievement of qualifications and performance. We also operate bonus schemes for executive and sales staff.

Our Disability Access policy is included in our Personnel Policies & Procedures manual. As part of our ongoing property and health & safety audits and property maintenance programmes, we seek to provide suitable access and working environments to ensure that we do not discriminate against disabled employees or customers.

To assist disabled users of our digital products, the Group continues to make improvements to its core internet sites in accordance with WCAG 2.0 accessibility standards and in line with W3C recommendations.

Fund-raisingIt may have been another tough year economically but that didn’t stop our readers from enthusiastically raising hundreds of thousands of pounds again through campaigns and appeals in our newspapers and on our websites. The people in the communities we serve do us proud, often digging deep to raise astonishing sums of money.

Table 1 - Health & Safety Accident Reporting Statistics 2011 2010 2009 2008

Average total employees in the Group (full time equivalents) 5,102 5,502 6,146 7,124

Employees involved in accidents 152 252 273 359- Publishing 2.5% 3.5% 3.2% 3.9%- Printing 8.1% 17.0% 15.7% 14.4%- Total 3.0% 4.6% 4.4% 5.0%

Employees with RIDDOR reportable accidents 18 33 30 44- Publishing 0.3% 0.4% 0.3% 0.5%- Printing 1.0% 2.7% 1.9% 1.8%- Total 0.4% 0.6% 0.5% 0.6%

Total working days lost through accidents 212 533 881 1,197

Our aim is to attract, retain and engage the best people in a challenging and supportive culture that drives business performance.

“

“

Table 2 - Workforce StatisticsOur total workforce is represented by 48.6% male and 51.4% female and our age profile is as follows:

Under 30 22.0%30-39 27.0%40-49 24.6%50-59 19.7%Over 60 6.6%

18 | GoVernance


Stories about children needing life-saving treatment clearly tug at the heartstrings: the Wigan Observer and its readers raised a mammoth £211,000 in 62 days to send a little girl to America for pioneering treatment, and the Luton Herald & Post series raised £100,000 in a few weeks towards £300,000 needed for another youngster to receive treatment available only in the United States.

Funds were also raised to support young people, the disabled, the homeless, soldiers injured in service, underprivileged children at home and abroad, and victims of house fires and natural disasters. Other appeals helped pay for the work of cancer nurses, medical equipment and services, special care facilities, the training of guide dogs, new minibuses and, through the Lynn News, a new lifeboat for Hunstanton. Readers’ donations helped save a wide range of services from pet rescue centres and libraries to day centres and sporting facilities, and funds were also raised to build war memorials and community landmarks. An appeal backed by the Northumberland Gazette proved small donations can add up quickly. The paper asked readers to collect coins in jam jars and an ever-growing Jam Jar Army raised £10,000 in six months for local hospice care. Its success has prompted the Gazette to continue the campaign in 2012 with a different beneficiary.

CampaignsThere can be no stronger voice than a local paper championing causes in its community and our editors nailed their colours to the mast again and again throughout 2011 with resounding success.

Hard-hitting editorial coverage in print and online – in many cases combined with petitions and public events - helped prevent the closure of buildings and services, such as libraries and the loss of transport services. Campaigns succeeded in bringing investment in roads and other infrastructure and forced councils across the country to reconsider decisions to increase various charges and close services. Others brought long-overdue recognition for individuals and groups such as Sheffield’s Women of Steel and those whose names are missing from war memorials.

The Whitby Gazette reported regularly on issues facing its fishermen and its subsequent Fight for our Fleet campaign won international support, secured long overdue work in Whitby harbour and helped bring about changes in the controversial EU discards system.

The Yorkshire Post went right to the top, taking a petition to No 10 and demanding Prime Minister David Cameron acknowledge the divide between North and South government funding and agree to a Fair Deal for Yorkshire. Its campaign saw new policies and funding delivered to stimulate the county economy.

The News Letter in Belfast achieved a campaigning milestone with the successful conclusion of a two-and-a-half year battle in support of savers in the Presbyterian Mutual Society. The paper’s unrelenting coverage was acclaimed by stakeholders as crucial to the final £225 million government bail-out as old-fashioned campaigning journalism played a key role in the resounding victory for 9,500 of its readers.

Gauging reader reaction to issues is crucial. The Edinburgh Evening News responded quickly to objections to a plan to hang five giant multi-coloured Olympic rings on historic Edinburgh Castle for nine months and its ‘Say No to Coe’ campaign forced a rethink.

Many of our titles also took part in 100 campaigns which aimed to find 100 apprenticeships for 100 people in 100 days. The Lancashire Evening Post enjoyed remarkable success, placing 740 people in new positions with local firms in the 100 days.

Community InvolvementOur well established calendar of awards events continued throughout 2011 with virtually every title recognising individual and group achievements in their communities. Work also continued with schoolchildren, service clubs, charities, businesses, the farming community, sporting organisations and many others.

Isle of Man Newspapers, for example, runs a number of community schemes reflecting its involvement with life on the tightly-knit island. A new Pride in Mann awards night was launched in 2011 to celebrate unsung heroes in the community. It sits alongside the company’s Awards for Excellence night, attended


by more than 1,200 people; a Police Officer of the Year award scheme; a junior journalist competition, and a young farmers’ writing competition. A campaign to find the greatest living Manx man or woman drew considerable interest and the company’s three titles play an integral part in island life.

Exclusive News CoverageMore and more consumers are demanding a diet of news as it happens and our journalists work hard to be the first to report on breaking stories and to find exclusives – delivering them via our websites and mobile phone sites backed by our print publications.

Our journalists are part of their communities and have wide-ranging networks of contacts, helping to ensure they hear what is happening when it is happening. Those relationships allow us to continue to break many stories ahead of the national media.

Thanks to his contacts on Preston’s estates, a Lancashire Evening Post reporter received a tip-off that children as young as eight had taken part in a cage fight in front of a paying adult audience in the city. The resulting exclusive was picked up by media across the world but the reporter was still the first journalist to interview the father of one of the boys.

The Harborough Mail learned that a week after resigning as England manager Martin Johnson was to play rugby in the town in an old friend’s 40th birthday match. The paper’s story and pictures were heavily syndicated to the nationals.

The SNP plan for a single Scottish police force was an exclusive for The Scotsman and the paper also uncovered the £400,000 cost of policing Zara Phillips’ wedding to Mike Tindall, despite Buckingham Palace insisting it was to be a “private family affair”.

The Coleraine Times and Ballymoney Times broke a number of exclusives in what was arguably the biggest story of the year in Northern Ireland: the murder of their respective partners by dentist Colin Howell and his then lover Hazel Stewart.

Once again, many of our journalists, photographers and newspaper titles won awards during the year. Details can be found in the ‘About Us’ section of our website www.johnstonpress.co.uk.

Customer ServicesIt is Group policy to seek to provide the highest standard of service to all of our customers. Each operating company has staff appointed to respond to customer enquiries. There are strict procedures for resolving customer complaints or queries regarding service and these are carefully monitored.

Local management in each operation are responsible for ensuring compliance with all customer and competition related legislation. To monitor this, and for training purposes, the Group undertakes “mystery shopping” exercises.

With the consolidation of our regionalised call centres, the Group is striving to increase the levels of response, professionalism and overall experience for customers.

We have commissioned independent audits of our customer services to drive continual improvement. The Group Sales Charter

Our journalists work hard to be the first to report on breaking stories and to find exclusives.

“ “

20 | GoVernance


introduced in 2004 has become enshrined in our operations, ensuring our customers and advertisers are always dealt with in a fair and equitable manner. Our terms of trade are published in the Group’s newspapers and are available on all of our websites. Equal attention is paid to the service that we provide to our readers and viewers with each editor directly responsible for any complaints. The Editorial Review Group, a body of senior Group editors, meets regularly to discuss editorial policy and issues related to content. The Group also conforms to the Press Complaints Commission Code of Practice.

Energy and Climate ChangeClimate reduction requirements implemented in the UK require companies to forecast how much carbon dioxide their activities will produce. Those achieving Carbon Trust Standard Certification and who adopt automatic meter reading attain higher placings in the resulting league tables. Johnston Press is now positioned to perform well, following a number of initiatives including:

•Arollingprogrammeofinternalauditsofenvironmentalimpactsandrisks.Additionally,auditsbyexternal independent consultants verify the findings.

•TheGroupbenefittedfromitsinvestmentinmoreenergy-efficientequipmentaswellasthetimeandeffort put into the monitoring and control of energy consumption. This work enabled the Group to continue to benefit from rebates against the Climate Change Levy Tax and to target and audit sites where base load consumption levels were not showing required reductions. Table 3 below summarises the consumption of energy across the Group, with savings in 2011 primarily due to the closure of offices and print presses.

•Budgetsfor2012encompassfurtheryear-on-yearimprovementswithnewlongertermtargetsbeingset by the Carbon Footprint Taskforce in conjunction with our external advisers (see page 21).

•WecontinuedtomakeprogressonreducingtheGroup’scarandvanfleetandCO2ratings.Thefleetsize reduced in 2011 and older vehicles were replaced under the lease vehicle scheme. CO2 ratings reduced by 3.8% on average as a result. Full details are shown in Table 4.

The Group is considering green energy options in the solar and wind generated field, with a view to trialling the technology at the Dinnington print facility. Discussions are at an early stage and the project would be subject to local planning consent but it could provide the Group with up to 10% of the electricity needed to power the site. If successful, it could be rolled out to other printing centres in the Group.

The Group had no emissions to air in 2011 and 2010 from its print presses.

Table 3 - Consumption of Energy 2011 2010* % 2009 %

Electricity - kWh 39,029,230 41,966,457 (7.0) 49,362,652 (15.0)- print centres kWh/tonne 156.3 143.1 9.2 160.0 (10.6)

Gas - kWh 16,931,709 21,014,147 (19.4) 24,213,684 (13.2)- print centres kWh/tonne 28.9 37.0 (21.9) 51.6 (28.3)

Water - m³ 77,027 73,896 4.2 85,598 13.7- print centres m³/tonne 0.22 0.19 15.8 0.27 29.6

*2010hasbeenrestatedtoreflectactualfinalusage


Waste ManagementThe Group continued its long-standing partnership with industry-leading environmental services companies and both paper and non-paper waste products are now segregated into more than 20 different streams to maximise their recycling potential.

All our newsprint waste products are returned to paper mills in the UK to be used in the manufacture of recycled newsprint. Of our current supplies, 89.0% is obtained from recycled newsprint sources, mostly based in the UK, above the industry target agreed with the Government of 70.0%.

The Group adheres to the requirements of the Producer Responsibility Obligations Regulations 1997.

Non-paper based waste from the printing press is separated and collected for recycling in line with the Environmental Protection Act and Hazardous Waste Regulations. This is an audited and ISO 14001 accredited process carried out by our environmental partners. Some 90% of all material collected is recycled and re-used in the manufacture of a diverse range of products.

Environmental Policy The Group’s environmental policy is to ensure that every aspect of our activities is conducted in accordance with sound environmental practices. We aim to minimise the environmental impact of our activities.

Carbon FootprintThe Group established its Carbon Footprint Taskforce in 2008. It developed our environmental policy and is responsible for co-ordinating the Group’s activities in this area.

The aims and tasks of the Carbon Footprint Taskforce, which is chaired by the Company Secretary, are as follows:

• EstablishGrouppolicyandobjectives;

• Promotethegeneralaimsof“reduce,reuse,recycle”;

• WorkthroughtheestablishedEmployeeForums;

• Co-ordinateGroup-wideinitiatives;

• AgreetargetstocontinuetoreducetheGroup’scarbonfootprint;and

• RunGroupEnvironmentalAwards.

After a review, the Taskforce recommended that we seek reductions in total energy consumption of 10.0% against 2011 levels for our print and publishing centres by the end of 2013.

The Group continued to work in partnership with Dell, its principal supplier of IT equipment, to develop a disposal channel for redundant IT equipment.

Car FleetThe programme of changing our car fleet from wholly owned to leasing continued through 2011 and allowed us to move to lower emission versions where possible.

Further work was undertaken to update driver licensing records and driving risk assessments. In 2012, those employees driving on company business will be issued with a new updated comprehensive driver’s handbook incorporating road safety advice and guidance.

Table 4 – Motor Vehicle Data 2011 2010 % 2009 %

Total Fleet (number of vehicles) 1,561 1,701 (8.2) 1,631 4.3Total Fleet CO2 rating 235,021 267,715 (12.2) 265,321 0.9Average CO2 rating 151 157 (3.8) 163 (3.7)

22 | GoVernance

Ian Russell, CBEChairman Joined the Board in 2007. Chairman of the Nomination Committee. Chairman of Advanced Power AG and of Remploy Ltd, Non Executive Director of British Polythene Industries plc, the Mercantile Trust plc and British Assets plc, adviser to Clyde Bergemann Power Group and Chairman of the Campaign Board for the University of [email protected]

Ashley HighfieldChief Executive OfficerJoined the Board in November 2011. Previously Vice President of Microsoft, Director of New Media and Technology at the BBC and Managing Director of Flextech (now Virgin Media) Interactive. Non Executive Director of William Hill plc and a Governor of the British Film [email protected]

Grant MurrayChief Financial OfficerJoined the Board in May 2011. A chartered accountant with significant experience in senior financial roles within the media sector, including Guardian Media Group plc, Channel 5 Broadcasting and United Business Media plc. [email protected]

Danny CammiadeChief Operating OfficerJoined the Board in 2005. Joined Johnston Press plc in 1992 through its acquisition of TR Beckett Ltd. Appointed Managing Director of West Sussex County Times Ltd in 1994 and held various Divisional Managing Director roles until appointed Director of Operations in 2001. Chairman of the Newspaper Society Communications and Marketing Committee and a Director of the Advertising Standards Board of [email protected]

Mark PainNon ExecutiveJoined the Board in 2009. Senior Independent Director, Chairman of the Audit Committee and member of the Nomination and Remuneration Committees. A Chartered Accountant and former Group Finance Director at Barratt Developments Ltd and Abbey National Group plc. Non Executive Director of Punch Taverns plc, Spirit Pub Company plc, LSL Property Services plc and Chairman of London Square [email protected]

Board of Directors


Ralph MarshallNon ExecutiveJoined the Board in 2008. Member of the Nomination Committee. Executive Director of Usaha Tegas Sdn. Bhd. Serves on the Boards of several companies including Astro All Asia Networks plc as Executive Deputy Chairman and others which are listed on the Bursa Malaysia Securities [email protected]

Camilla RhodesNon ExecutiveJoined the Board in 2009. Member of the Nomination, Audit and Remuneration Committees. Former Chief Executive Officer of News Magazines Ltd and Managing Director of Times Newspapers and News Group Newspapers, News [email protected]

Geoff IddisonNon ExecutiveJoined the Board in 2010. Chairman of the Remuneration Committee and member of the Nomination Committee. Global head of e-commerce and m-commerce for Mastercard. Previously Chief Executive of Jagex Limited. Non Executive Director of [email protected]

Kjell AamotNon ExecutiveJoined the Board in 2010. Member of the Audit and Nomination Committees. Formerly Chief Executive Officer of Schibsted ASA. A Non Executive Member of the Board of 20Minutes (France), a Non Executive Member of the Board of PubliGroupe (Switzerland), and an advisor to FSN Capital, an Oslo based private equity [email protected]

Peter McCallCompany SecretaryJoined Johnston Press plc as Company Secretary and Corporate Counsel in November 2009. Previously Company Secretary of Kenmore Property Group Ltd and Deputy Company Secretary of British Energy Group [email protected]

24 | GOVERNANCE

Corporate Governance

The Company is committed to the principles of Corporate Governance contained in the United Kingdom Corporate Governance Code (“the Code”) published in May 2010 by the Financial Reporting Council, for which the Board is accountable to shareholders.

Statement of Compliance with the Code and the Application of the Principles of Good GovernanceThe Company has complied with the applicable provisions set out in Section 1 of the Code and applied the principles thereof throughout the year. Further explanation of how the principles have been applied is set out below and, in connection with directors’ remuneration, in the Directors’ Remuneration Report.

DIRECTORSBoard EffectivenessThe Board considers that it has shown its commitment to leading and controlling the Company by meeting eight times in the year, and can meet when necessary for any matters which may arise. The Remuneration Committee held eight scheduled meetings, the Audit Committee three and the Nomination Committee five.

The Board sets the strategic aims and objectives of the Group, ensuring that the Group has sufficient financial and human resources to meet its objectives. The Board also sets the Group’s values and standards and ensures that its obligations to its shareholders and others are understood and met. Management is responsible for the application of the aims and objectives on a day-to-day basis, as well as monitoring the financial achievements of the business. The Board reviews the performance of management in meeting the agreed objectives and goals, and monitors appropriate remuneration levels. The Group’s management development and succession plans are scrutinised by the Board to ensure that the skills and competencies of management correspond to the Group’s requirements.

At least one Board meeting each year is wholly devoted to strategy and to the consideration of a plan for the long term growth and development of the Group. This is reviewed and discussed as appropriate at the other Board meetings held during the year.

In addition to the normal agenda at Board meetings, which is described below, the Directors usually consider one or more operational or special topic at each meeting. During the last twelve months this has included business risks, circulation and audience reach of paid for newspapers, national sales, digital revenues, digital publishing, the Group’s finance facilities and human resource requirements.

Board Meeting AgendaThe Board maintains a formal schedule of matters specifically reserved to it for decision, including future strategy, acquisitions and disposals, dividend policy, approval of the Annual Report and Accounts, capital expenditure, trading and capital budgets and Group borrowing facilities. At each meeting, the Board considers reports from the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and the Director of Digital and Business Development. The Minutes of Board and Committee meetings are circulated to all Board members. The Company Secretary is responsible to the Board for the timeliness and quality of information provided to it.

Board ResponsibilitiesThe Board acknowledges the division of responsibilities for running the Board and managing the Company’s business. Ian Russell served as Non Executive Chairman throughout the year. The Chairman is responsible for the leadership of the Board, for setting the Board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues. It is also his responsibility to promote a culture of openness and debate by facilitating the effective contribution of Non Executive Directors in particular and ensuring constructive relations between Executive and Non Executive Directors.

Mark Pain served as Senior Independent Director throughout 2011. The Senior Independent Director is available to address any concerns that shareholders may have that have not been resolved through the normal communication channels of the Chairman or Executive Directors. Throughout 2011, the Nomination Committee was chaired by Ian Russell, the Remuneration Committee by Geoff Iddison and the Audit Committee by Mark Pain. The terms of reference of each of the Board’s Committees were reviewed and amended by the Board during 2011 and the updated terms are displayed on the Company’s website.

Board AttendanceAll Directors are expected to attend all Board and Board Committee meetings of which they are a member unless unable to do so. The following table indicates their attendance during the year:

Remuneration Audit Nomination Board Committee Committee CommitteeScheduled meetings (8) (8) (3) (5)

Ian Russell 8 — — 5Ashley Highfield1 2 — — —Grant Murray2 5 — — —Danny Cammiade 8 — — —Ralph Marshall 7 — — 5Mark Pain 8 8 3 5Camilla Rhodes 8 8 3 5Geoff Iddison 8 8 — 5Kjell Aamot 7 — 3 5John Fry3 6 — — —Stuart Paterson4 2 — — —

1 Appointed on 1 November 2011, attended all scheduled Board meetings subsequent to appointment.2 Appointed on 3 May 2011, attended all scheduled Board meetings subsequent to appointment.3 Resigned on 31 October 2011, attended all scheduled Board meetings prior to resignation.4 Resigned on 15 March 2011, attended all scheduled Board meetings prior to resignation.

jOhNstON pREss plC ANNuAl REpORt ANd ACCOuNts 2011 | 25

Board Balance and IndependenceOf the Company’s current nine Directors, three are Executive and the remainder Non Executive, of whom four are regarded as independent. Throughout the year, the Company complied with the requirement of the Code that at least half of the Board (excluding the Chairman) should consist of independent Non Executive Directors. Ralph Marshall is regarded as non-independent because he was appointed to the Board as the nominee Director of Usaha Tegas which owns 20% of the Company’s issued ordinary share capital.

Nomination CommitteeThe Nomination Committee is chaired by Ian Russell. The Company Secretary acts as secretary to the Committee. Reporting to the Board, its duties include regularly reviewing the structure, size and composition of the Board, seeking suitably skilled and experienced candidates as Non Executive Directors with sufficient time to devote to the role and overseeing all Board appointments. In doing so the Committee also considers the Company’s succession planning for Executive Directors and senior managers, to ensure that adequate plans are in place to protect against the loss of key staff, as well as reviewing the composition of the Board and its committees. In considering candidates to fill Board vacancies, the Nomination Committee has regard to the benefits of and the need to encourage diversity within the Board’s membership. Its terms of reference were reviewed and revised in 2011. Once the role of a vacancy has been determined, the Committee may appoint external recruitment consultants to assist with the search. In addition to Ian Russell, the Nomination Committee comprised Kjell Aamot, Geoff Iddison, Mark Pain, Camilla Rhodes and Ralph Marshall throughout the year. During the course of the year, the Company oversaw the process which led to the appointments of Grant Murray as Chief Financial Officer and Ashley Highfield as Chief Executive Officer.

Induction and Professional DevelopmentA detailed induction programme was arranged for both Ashley Highfield and Grant Murray which included visits to a range of the Group’s operations and meetings and discussions with senior management and advisers, together with the provision of the Company’s written full induction guide.

All Board members have access to independent advice on any matters relating to their responsibilities as Directors and as members of the various Committees of the Board. The assistance of the Company Secretary is available to all Directors for all matters connected to their duties.

TrainingDirector training is undertaken as required during the year. This can encompass a variety of topics, including industry specific governance and technical issues. The feedback from the 2011 board evaluation self-assessment exercise will assist in setting the training plan for 2012. It is the Company’s policy that each Non Executive Director visit at least two of the Group’s centres each year where they receive a presentation and a tour of the business. Individual Directors also attended a range of seminars presented by professionals throughout the year. When the Non Executive Directors meet without the Executive Directors present, the balance of skills on the Board (including training needs) is one of the standard topics for the Board to consider, both individually and collectively.

Board Performance EvaluationDuring the last year, the Board has conducted a rigorous evaluation of its own performance and that of each of its Committees. This involved the completion of a self-assessment questionnaire by all Directors covering the performance of the Board, individual Directors, the Company Secretary and Board Committees. Other topics included the conduct of meetings, the provision of information, relationships, strategy, training and the overall effectiveness of the Board. The composition and chairmanship of each Committee was reviewed together with its fulfilment of its role as outlined in its terms of reference, its reporting and overall performance. The topics which the evaluation exercise addressed were intended to provide the Board with an analysis of the performance of its key duties. The process has been developed internally and is administered by the Company Secretary. Following a review, the process was substantially amended in 2011. There was a continued emphasis on a scoring system for assessing Committee and Board performance with an increased focus on the particular skills and contributions of individuals. The Company Secretary prepared a summary of the conclusions which was presented to the Board and produced a detailed report summarising any individual recommendations for the consideration of the Chairman. This was followed up by meetings as appropriate between the Chairman and individual Directors. Reviews of Board Committees were undertaken by Committee members as well as the Board as a whole. The results highlighted areas of particular focus for the Board in the coming year and overall the process was positive and confirmed the effectiveness of the Board and relevant Committees as well as the contributions of individual Directors. Under the provisions of the Code, evaluation of the boards of FTSE 350 companies should be conducted externally every three years. The Board does not currently propose to undertake an external evaluation while it remains outwith the FTSE 350 index. However, the position is being kept under review.

Board Re-electionAll Directors are subject to election at the first Annual General Meeting after their appointment and thereafter to re-election every three years. All Non Executive Directors who have served nine years or more and who wish to stand for re-election are subject to re-election annually. The Company is not currently a member of the FTSE 350 index of companies and is therefore not required to comply with provision B.7.1 of the Code which requires all directors of companies in that index to be subject to annual re-election. The Board does not currently propose that all Directors stand for annual re-election while it remains outwith the FTSE 350 index. However, the position is being kept under review.

The Nomination Committee and Ian Russell as Chairman have, following the formal evaluation process described above, considered the performance of the Directors subject to election or re-election at the 2012 Annual General Meeting and are satisfied that those individuals’ performance continue to be effective and that they have demonstrated a clear commitment to their roles.

Separately during the course of the year, the Non Executive Directors met without Ian Russell to review his performance as Chairman and were satisfied that he continues to be effective and has demonstrated an ongoing commitment to the role.

26 | GOVERNANCE

ACCOUNTABILITY AND AUDIT Financial ReportingThe Board is committed to presenting appropriate information about the Group’s financial position by complying with best practice and all standards issued by the International and UK Accounting Standards Boards relating to the disclosures which are included in this Annual Report.

Directors’ Responsibilities StatementThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the Parent Company financial statements, the Directors are required to:

• selectsuitableaccountingpoliciesandthenapplythemconsistently;• makejudgmentsandaccountingestimatesthatarereasonableandprudent;• statewhetherapplicableUKAccountingStandardshavebeenfollowed;and• preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheCompanywillcontinueinbusiness.

In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:

• properlyselectandapplyaccountingpolicies;• presentinformation,includingaccountingpolicies,inamannerthatprovidesrelevant,reliable,comparableandunderstandableinformation;• provideadditionaldisclosureswhencompliancewiththespecificrequirementsinIFRSsareinsufficienttoenableuserstounderstandtheimpact

ofparticulartransactions,othereventsandconditionsontheentity’sfinancialpositionandfinancialperformance;and• makeanassessmentoftheCompany’sabilitytocontinueasagoingconcern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Going ConcernAfter making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Further detail is contained in the Business Review on pages 2 to 15.

Internal ControlThe Board has applied principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with the revised guidance on internal control published in October 2005 (the Turnbull Guidance). The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

In compliance with Provision C.2.1 of the Code, the Board regularly reviews the effectiveness of the Group’s system of internal control. The Board’s monitoring covers all controls, including financial, operational and compliance controls and risk management and is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses or emerging issues are promptly remedied or indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purpose of this Annual Report. This assessment considers all significant aspects of internal control arising during the period covered by the report including work of the Group's Internal Financial Control Committee (IFCC). The Audit Committee assists the Board (which maintains responsibility in this regard) in discharging its review responsibilities.



During the course of its review of the system of internal control, the Board has not identified or been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate. The key elements of the ongoing continuous process during the period under review have been:

• FormalBoardreportingonamonthlybasisoftheGroup’sperformanceandonanyemergingrisksandissues.Themonthlymanagementaccountsbreak down the results of the Group’s operations into its two reportable segments. All significant variations against budget and the previous year are fully examined. The day-to-day responsibility for managing each of the Group’s operations rests with experienced senior executives and the Group has a clear organisational structure which includes appropriate delegation of authority. The Executive Directors ensure that regular contact is maintained with all senior executives.

• FormalBoardapprovalforcapitalexpenditureover£500,000andforotherinvestmentdecisions.

• FormalBoardapprovaloftheannualbudgetfortheforthcomingfinancialyear.Thisincludesdetailedandcomprehensivebudgetscoveringeachoperating business.

• FormalBoardreportingofthekeyfunctionaldepartments’futurestrategyaspartoftheoperationaltopicsconsideredatBoardmeetingsduringtheyear.

• ReviewbytheAuditCommittee(withsubsequentreportingtotheBoard)onasix-monthlybasisoftheworkperformedbytheIFCCbasedonaprogramme of work agreed in advance. The IFCC is chaired by the Group Head of Finance who is responsible for the conduct of control reviews in selected locations by members of the Committee who are independent of the location visited. The IFCC is also responsible for the review of detailed financial control checklists submitted monthly by each operation to the Group head office. This work is supported by the Group’s financial accounting centre which ensures a consistent and compliant approach to the processing of transactions and ensures a uniform control process across the Group’s operations.

• ReviewbytheAuditCommittee(withsubsequentreportingtotheBoard)oftheconclusionsoftheGroup’sexternalauditorsintheirannualauditandreview of the half-year results. These reviews include discussion of any control weaknesses or issues identified by the auditors.

• TheconductofriskassessmentinvolvingallseniormanagersoftheGroup’sbusinessesinadditiontotheExecutiveDirectors.Ariskmatrixisreviewed on a regular basis throughout the year by both the local operations and senior management. Risks are examined at every monthly executive meeting both locally and at Group level. These risk assessment sessions are held at each operation and will evaluate and address the risks identified. The results of these assessments are addressed in the Chief Operating Officer’s report to the Board. During 2011, senior management considered customercaremetrics;humanresources;pensionliabilities;newsprint;publicsectoradvertising;bankingcovenants;nationaladvertisingsales;managementsuccessionplanning;digitalstrategy;managementstretch;dailynewspapersales;energymanagement;andcorporatestrategy.

Steps are taken on an ongoing basis to embed best practice into all the Group’s operations and to deal with areas of improvement which come to management’s and the Board’s attention.

In addition, senior management set policies, procedures and standards as detailed in the Group’s policy guidelines. These are reviewed and revised on an annual basis and a tailored version has been issued to the businesses in the Republic of Ireland and Isle of Man. The guidelines include policies on:

• Financeincludingcash/treasurycontrolsandauthorisationlevels• Trading• Customerservice• Commercialandcompetition• Technology• Propertymanagement• Humanresourcesincludingpensionadministration,disabilityandhealthandsafety• Environmentalissuesandenergymanagement• Legalandregulatorycompliance• Businesscontinuity.

At the Board meeting in early March 2012, the Directors reviewed the need for an internal audit department and concluded that they did not believe it necessary for the Group to maintain such a department given the very effective role played by the IFCC and the current independent review and monitoring procedures in operation.

28 | GOVERNANCE


AUDIT COMMITTEE AND AUDITORSSummary of the Role of the Audit CommitteeThe Audit Committee is appointed by the Board from the Non Executive Directors of the Company. The Audit Committee’s terms of reference include all matters indicated by Disclosure and Transparency Rule 7.1 and the Code. The terms of reference are considered annually by the Audit Committee and are approved by the Board. A copy of the current terms of reference are available on the Company’s website.

The Audit Committee is responsible for:• monitoringtheintegrityofthefinancialstatementsoftheGroupandanyformalannouncementsrelatingtotheGroup’sfinancialperformanceand

reviewingsignificantfinancialreportingjudgementscontainedtherein;• reviewingtheGroup’sinternalfinancialcontrolsandtheGroup’sinternalcontrolandriskmanagementsystems;• monitoringandreviewingtheeffectivenessoftheIFCCandmakingproposalstotheBoardastotheneed,orotherwise,foraninternalauditfunction;• makingrecommendationstotheBoard,foraresolutiontobeputtotheshareholdersfortheirapprovalingeneralmeeting,ontheappointmentofthe

externalauditorsandtheapprovaloftheremunerationandtermsofengagementoftheexternalauditors;• reviewingandmonitoringtheexternalauditors’independenceandobjectivityandtheeffectivenessoftheauditprocess,takingintoconsideration

relevantUKprofessionalandregulatoryrequirements;• theGroup'spolicyontheengagementoftheexternalauditorstosupplynon-auditservices,takingintoaccountrelevantguidanceregardingprovision

ofnon-auditservicesbytheexternalauditfirm;and• reviewingthearrangementsbywhichstaffmay,inconfidence,raiseconcernsaboutpossibleimproprietiesinmattersoffinancialreportingorother

areas.

The Audit Committee is required to report its findings to the Board, identifying any matters on which it considers that action or improvement is needed and make recommendations on the steps to be taken. The Committee’s Terms of Reference permit it to oversee the selection process for appointing new auditors should it determine, or it becomes necessary, to do so.

Composition of the Audit CommitteeThe Audit Committee is chaired by Mark Pain, a chartered accountant, who is considered by the Board to have relevant financial experience and expertise forthatrole.CamillaRhodesandKjellAamot,bothofwhomholdorhavepreviouslyheldboardand/orexecutivemanagementlevelpostsinmajormediaorganisations, are also members. All three are independent Non Executive Directors.

Membership of the Committee is reviewed by the Chairman of the Committee and the Board Chairman, who is not a member of the Audit Committee, at regular intervals. The Committee is normally comprised of three independent Non Executive Directors. The Audit Committee is required to include one financially qualified member, currently Mark Pain fulfils this requirement. All Audit Committee members are expected to be financially literate.

MeetingsThe Audit Committee is required to meet three times per year and has an agenda linked to events in the Group’s financial calendar. The agenda is predominantly cyclical and is therefore approved by the Audit Committee Chairman on behalf of his fellow members. Each Audit Committee member has the right to require reports on matters of interest in addition to the cyclical items.

The Audit Committee meetings are attended by the Chief Financial Officer and the Group Head of Finance at the invitation of the Committee and by the Company Secretary, who acts as Secretary to the Committee, with minutes being circulated to all Board members. The Chairman, Chief Executive Officer and Chief Operating Officer are also invited to attend if required to do so by the Committee. Towards the close of relevant meetings, all Executives leave in order for the Committee to have appropriate discussion with the external auditors. The Audit Committee Chairman also has a private meeting with the external audit partner during the course of the year to discuss any relevant issues.

The Committee meets once during the year with the Company’s external auditors to discuss and agree the audit programme for the forthcoming year, together with any proposed non-audit work. Any significant non-audit work by the auditors is approved by the Committee in advance of any engagement letter being signed.

Overview of the Actions Taken by the Audit Committee to Discharge its DutiesTwo of the scheduled meetings in 2011 followed the interim review and the year-end audit. They covered comprehensive reports from management on material accounting policies and significant judgement areas and from the external auditors on their work and conclusions. The Committee focussed in particular on the areas of financial judgement by the Group.

In addition, these two meetings considered reports on the work of the IFCC. Its work is described in the Internal Control section and, given the detail and comfort included in the reports, the Committee continues to regard this approach as the most effective way to review the financial controls in the business rather than to establish an internal audit function.

A third meeting took place in October 2011 where the Committee carried out a review of the Group’s key business risks and discussed any revisions. The Committee is actively involved in the ongoing review of risk and internal controls by the main Board.

30 | GOVERNANCE

Directors' Remuneration Report

This report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006 (“the Act”). The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority (the "Listing Rules") and describes how the Board has applied the principles relating to directors’ remuneration in the United Kingdom Corporate Governance Code (the “Code”). As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved. The Act requires the auditors to report to the Company’s members on certain parts of the Directors’ Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. The report has therefore been divided into separate sections for audited and unaudited information.

UNAUDITED INFORMATION The Remuneration CommitteeThe Remuneration Committee (referred to in this report as the Committee) was chaired by Geoff Iddison throughout 2011. Mark Pain and Camilla Rhodes were members of the Committee throughout the year and up to the date of this report. All are independent Non Executive Directors. During 2011, the Committee met on eight occasions.

The Committee’s terms of reference were reviewed in 2011 and require it to meet at least twice each year and at such times as is necessary. The terms of reference, which are available on the Company’s website, set out the responsibilities of the Committee. These include:

• HavingthedelegatedresponsibilityforreviewingtheBoardpolicyonremunerationfortheexecutivemanagementteam(whichincludesthethreeExecutive Directors) and setting all aspects of remuneration, including the total remuneration package for all Executive Directors and the Chairman of the Board. In determining remuneration, the Committee will monitor and take account of pay and benefits elsewhere in the Group.

• Ensuring,afterconsultationwiththeChiefExecutiveOfficer,thatthegroupofotherexecutivemanagementmembersthattheCommitteeisdesignated to consider are provided with appropriate levels of incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company.

• Approvingthedesignof,anddeterminingtargetsfor,anyperformancerelatedpayschemes(includingbonuses)operatedbytheCompanyandapproving the total annual payments made under such schemes.

• ReviewingthedesignofallshareincentiveplansforapprovalbytheBoardandshareholders(whereappropriate).Foranysuchplans,determiningeach year whether awards will be made, and if so, the overall amount of such awards, the individual awards to Executive Directors and other senior executives and the performance targets to be used.

• Determiningthepolicyfor,andscopeof,pensionarrangementsforeachExecutiveDirectorandotherseniorexecutives.• Ensuringthatcontractualtermsontermination,andanypaymentsmade,arefairtotheindividual,andtheCompany,thatfailureisnotrewarded

and that the duty to mitigate loss is fully recognised. The Committee provides guidance to the Board on termination packages to individuals. No Director or manager is involved in any decisions as to their own termination package.

• Indeterminingsuchpackagesandarrangements,givingdueregardtoanyrelevantlegalrequirements,theprovisionsandrecommendationsoftheUK Corporate Governance Code and the Listing Rules and associated guidance.

• OverseeinganymajorchangesinemployeebenefitsstructuresthroughouttheCompanyorGroup.• ReviewingandnotingannuallytheremunerationtrendsacrosstheCompanyandGroup.

The remuneration of Non Executive Directors is a matter for the Chairman of the Board and the Executive Directors.

The Committee makes recommendations to the Board. No member of the Committee has any personal financial interest (other than as a shareholder), conflicts of interest arising from cross directorships or day to day involvement in running the business. Other Directors attend meetings when invited by the Committee and the Company Secretary acts as Secretary to the Committee. The Company’s Director of Human Resources also attends meetings by invitation. No Director plays a part in any discussion about his or her own remuneration.

During the year, the Committee received executive remuneration advice from its external independent adviser, New Bridge Street (NBS), an Aon Hewitt company. Neither NBS nor any other part of Aon Hewitt provided other services to the Company during 2011. NBS attended one of the meetings of the Committee during the year and provided advice as required by the Committee. The terms of engagement between the Company and NBS are displayed on the Company’s website. NBS are signatories to the Remuneration Consultants Group’s Code of Conduct which has been considered in the drafting of this report.

There is an ongoing training programme for the Committee which consists of an annual update on any changes in regulations and also best practice. In addition, each member of the Committee attends various seminars throughout the year.

As explained on page 25, the Board undertook an evaluation of its performance during the year. This included a review of the effectiveness of this Committee considering its composition, chairmanship, whether it fulfilled its role as outlined in the terms of reference, its reporting and overall performance. This evaluation process was undertaken by the members of the Committee itself as well as by all members of the Board. The results of this process were positive and confirmed the effectiveness of the Committee. Members of the Committee reviewed comments received as part of this process with a view to improving the Committee’s operation.


Remuneration PolicyThe Committee’s remuneration policy aims to attract, motivate and retain directors of the highest calibre needed to maintain the Group’s strong position in its local markets, to drive the future success of the business and to reward them for delivering long-term value to shareholders.

The Company’s policy is that a substantial proportion of the remuneration of the Executive Directors should be performance related. Executive Directors may earn annual bonus payments together with the benefits of participation in share schemes and these arrangements are described below.

The Committee reviews the performance criteria attached to short and long-term incentives each year and their appropriate mix to ensure that they are aligned with the Company’s strategic objectives and future direction.

The current performance-related benefits, which consist of an annual performance bonus and long-term incentives, account for a significant proportion of total remuneration. The graphic below shows the individual elements of the total remuneration package of the Executive Directors in 2011.

1 For 2011, 50% of bonus payable to Ashley Highfield and Danny Cammiade and one-third of bonus payable to Grant Murray was deferred.

The Committee has also considered the structure of the Directors’ remuneration packages from a risk perspective. It is satisfied that the packages, which include a base salary, an annual bonus (with a significant element paid in shares, receipt of which is deferred) and market competitive long-term incentives, do not encourage inappropriate risk taking. In addition, risk is taken into account when setting the targets under variable incentive schemes. This is done by ensuring that a mix of metrics is used and targets, while stretching, are realistic, attainable, for the long-term benefit of the Company and achievable without taking inappropriate business risks.

The Remuneration Committee also considers the level of pay and employment conditions throughout the Group (and in particular of other members of senior management) when setting Executive Directors’ remuneration.

In reviewing the remuneration policy, the Committee has the discretion to take into consideration (amongst other factors) corporate performance on environmental, social and governance (ESG) issues. The Committee seeks to ensure that ESG risks are not raised by the incentive structure through inadvertently motivating irresponsible behaviour.

Basic SalaryBasic salaries are determined by the Committee prior to the beginning of each calendar year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee takes into account a range of factors including market conditions, the prevailing market rates for similar positions in comparable companies (through objective research carried out by its external consultants), the responsibilities, individual performance and experience of each Director and the level of salary increases awarded to employees across the Group. Market conditions have changed in recent years and as a consequence, Ashley Highfield and Grant Murray were recruited on salaries which are considerably lower than those of their immediate predecessors.

In addition to basic salary, the Executive Directors receive certain benefits-in-kind, principally a car allowance and private medical insurance. Any payments made to Directors other than salary are not pensionable.

Witheffectfrom1January2012thesalariesofAshleyHighfield,GrantMurrayandDannyCammiaderemainedunchangedat£400,000,£270,000 and£323,592perannumrespectively.2012isthefifthyearduringwhichsalariesforcontinuingExecutiveDirectorshavestayedatthesamelevel.

Performance Related BonusThe Committee considers and approves the objectives that must be met for each financial year if a performance related bonus is to be paid. In setting the appropriate bonus parameters, the Committee, having taken advice, takes into account the Company’s internal budgets and analysts’ expectations for the forthcoming year. The bonus increases as performance above target increases and the targets are stretched at the top end. The Committee believes that this ties any incentive payments to the interests of shareholders.

Paid in cash Taxable benefit-in-kind Paid partly in cash and partly in shares deferred for 3 years1 Vesting period of 3 years

Benefits including private health insurance, mobile phone,

car allowance, life assurance and pension

Performance related bonus:Elements based on operating

profit,cashflow and KPIs

Performance Share Plan (PSP) awardsBasic salary

Fixed element Fixed element Variable element Variable element

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The maximum bonus level for the Executive Directors varies according to their contract and it is the Company's policy (unless special circumstances apply) that 50% of any bonus is paid in shares deferred for three years under the provisions of the Company’s Deferred Share Bonus Plan. A deferral of one-third of the bonus was agreed with Grant Murray at the time of his recruitment to the position of Chief Financial Officer. This will be applied in respect of the bonus payable in 2011. A forfeiture clause applies to the shares for bad leavers. In the case of Stuart Paterson, who was Chief Financial Officer until he left the Company on 15 March 2011, the bonus he was entitled to for 2008 was waived by him at that time and, as a consequence of his resignation, the shares relatedtothe2009deferredbonusandthedeferredelementofthe2010bonuswereforfeited.Nobonusispayabletohiminrespectof2011. On 8 March 2011, John Fry intimated his intention to retire from the Company and stepped down as Chief Executive Officer on 31 October 2011. In accordance with the terms of his contract, he remained an employee of the Company until 7 March 2012. The provisions of his contract provided that in these circumstances he was entitled to retain the shares representing the deferred elements of his bonus paid in each of 2010 and 2011 and to receive a bonus in 2012 relating to performance in 2011, no element of which shall be deferred.

The maximum bonus payable varies between each Executive Director. The following table outlines the elements of potential bonus in 2011:

Elements of bonus as a percentage of base salary Ashley Highfield1 Grant Murray1 John Fry Danny Cammiade2

Operating profit 70% 50% 80% 80%Cash flow 25% 25% 35% 35%Additionalcostsavings N/A N/A N/A 75%Key performance indicators 25% 25% 35% 35%

Maximum potential bonus payable in 2011 120% 100% 150% 225%

1 Pro rated to period of service in the year.2 See service contracts on page 36.

Operating profit and cash flow targets were set by the Committee and subsequently approved by the Board. Individual key performance targets were specific, clearly measurable and payable only if either of a specific profit or cashflow-related threshold was achieved. In the case of Ashley Highfield and Grant Murray, bonus was pro rated to the period of service in the year. John Fry remained an employee throughout the year and was entitled to receive elements of bonus calculated on that basis. References to bonus expressed as a percentage of salary refer to his full year salary.

Oftheprofitrelatedbonus,35%ofsalarywaspotentiallypayabletoJohnFryandDannyCammiade,21.9%toGrantMurray,and30.6%toAshleyHighfield on achievement of a challenging target with additional sums payable on a sliding scale which was stretched at the top end to achieve maximumbonusforthiselement.Basedonactualoperatingprofit(beforenon-recurringandIAS21/39items)forthe2011financialyear,whichwasbelow threshold and target performance, no bonus was payable in respect of the profit element.

As with the profit element, bonus in relation to cashflow was accrued on a sliding scale with 17.5% of salary being payable to John Fry and Danny Cammiade and 12.5% to Grant Murray and Ashley Highfield on achievement of a threshold with stretching targets to achieve a maximum payment. Based on actual cashflow for the 2011 financial year, which was above threshold and target performance, a cashflow based bonus equal to 27.5% of salarywaspayabletoJohnFryandDannyCammiade,withcashflowbonusesequalto19.6%ofsalarypayabletoAshleyHighfieldandGrantMurray(each on a pro rated basis).

The individual key performance targets varied by Executive Director. These included business development, newspaper sales, refinancing strategy, implementation of organisational change, together with strategic (including digital) and financial targets. Since the 2011 cashflow threshold was achieved, bonus was payable for the achievement of individual key performance targets. All Executive Directors achieved the majority of their individual KPIs with payments to John Fry, Danny Cammiade, Grant Murray and Ashley Highfield equivalent to 18.0%, 11.0%, 18.0% and 20.0% of salary respectively in this regard. Again, payments to Grant Murray and Ashley Highfield were pro rated for their period of service.

Danny Cammiade also had additional specific bonus targets linked to achieving an agreed level of additional significant cost savings across the Group. These were achieved and consequently a bonus payment equivalent to 75.0% of salary was made to him, resulting in a total bonus payment to him equivalent to 113.5% of salary. Further details of these arrangements are contained under Service Contracts on page 36.

For the 2012 financial year, each Executive Director has a bonus target relating to operating profit and has a number of individual key performance targets. In addition, Ashley Highfield and Grant Murray have targets relating to cashflow performance. Danny Cammiade has targets relating to gross revenue and cost savings (including measures relating to arrangements detailed on page 36). In the event that minimum threshold operating profit targets are hit but cashflow (in the case of Ashley Highfield and Grant Murray) or gross revenue or cost savings (in the case of Danny Cammiade) targets (collectively the “Other Targets”) are missed, the Committee may determine whether bonuses shall be payable in respect of operating profit. If the Other Targets are achieved, but the minimum threshold operating profit target is missed, it is not envisaged that the relevant element of bonus will be payable unless the Committee determines that extraordinary circumstances apply (or there is a contractual entitlement to that element of bonus).


The following table lays out the elements of the maximum potential bonus payable for each Executive Director in 2012:

Elements of bonus as a percentage of base salary Ashley Highfield Grant Murray Danny Cammiade1

Operatingprofitandcashflow 70% 75% N/AOperatingprofit,grossrevenueandcostsavings N/A N/A 75%Additionalcostsavings N/A N/A 75%Key performance indicators 50% 25% 75%

Maximum potential bonus payable in 2012 120% 100% 225%

1 See service contracts on page 36.

The Committee has determined that in 2012, clawback provisions shall apply to bonuses payable to Executive Directors. These arrangements allow the Company to require the repayment of amounts of bonus in certain specified circumstances, including a material misstatement of the Group’s financial position. The clawback provisions are contained within the rules of the Company's Annual Bonus Plan, which also gives the Committee discretion not to award bonuses in certain circumstances.

Share SchemesAs part of its strategic review, the Company undertook a review of the use of its existing share schemes to assess their ongoing suitability and fitness for purpose. In 2012, the Company intends to limit the use of its Performance Share Plan (PSP) to Executive Directors and to introduce a new Company Share Option Plan (CSOP) for senior managers. Executive Directors will not be eligible to receive awards under the CSOP and awards will only be satisfied by the use of market purchased shares.

The Company currently operates a number of Share Schemes and these are described below.

a) A PSP with awards being described below and further detail provided in note 30 to the financial statements. Under the rules of the PSP, Performance Shares may be granted over a three year performance period to the Executive Directors and certain senior Executives on an annual basis. The scheme rules permit 125% of salary as a normal annual maximum and 150% of salary in exceptional circumstances. No payment is made by the Executives for the award itself, nor for the shares that actually vest.

For 2008, awards were based 50% on total shareholder return (TSR) and 50% on Return on Capital Employed (ROCE). No elements of the performance conditions applying to the 2008 PSP awards were met and as a consequence these awards have now lapsed.

The2009and2010awardswerebasedentirelyontheCompany’sTSRperformanceagainsttheconstituentsoftheFTSEAll-ShareMediasector,excluding any FTSE 100 participants (on the grounds of size) (the “Comparator Group”). In addition, awards made in these years will only vest if the Committee is satisfied that the Company’s underlying performance has achieved an appropriate level of improvement. In deciding the appropriate performance metrics to apply at the time, the Committee felt that TSR was the best measure of performance since it aligned the interests of Executives and investors. Furthermore, setting TSR targets was more straightforward at a time when economic uncertainty made it difficult to set financialtargetsoverathreeyearperiod.25%ofawardsmadein2009and2010willvestiftheGroupachievesthemedianTSRperformanceofthe Comparator Group over the three year period from grant, with 100% allocation if the Group achieves upper quartile performance. There is a slidingscalebetweenthetwolevels.Asatthedateofthisreport,itisanticipatedthatthe2009awardwillnotvest.

Following a review of PSP performance measures and consultation with the Company’s largest shareholders, the Committee decided to re-introduce a financial metric to be used in conjunction with TSR for the awards made in 2011. Therefore, the Committee reduced the TSR element of the performance condition to 50% (measured against the Comparator Group and with the same vesting schedule) and introduced a second performance condition (also representing 50% of the total award) based on growth in earnings per share (EPS). Under this condition, 25% of this part of the award will vest for EPS growth of RPI +4% per annum over the three-year period ending 31 December 2013 and all of this part of the award would vest for EPS growth of RPI +12% per annum or greater with vesting on a straight line basis between these ranges. No vesting of this part of the award would occur for EPS growth of less than RPI +4% per annum.

Until 2008 and in line with policy, the Company made PSP awards with a face value of 100% of salary to Executive Directors. However, recognising the circumstances at the time (and in particular the Company’s falling share price), the Committee restricted PSP awards to lower levels in the subsequent years. In2009,anawardofthesamenumberofshareswasmadeasin2008(equivalentto53.3%ofsalaryforExecutiveDirectors),in2010anawardofalowernumber of shares, (equivalent to 73% of salary for Executive Directors), was made. In 2011, awards to Executive Directors (with the exception of the new ChiefExecutiveOfficer)wereofthesamenumberofsharesasin2008and2009(oranawardofthesameproportionsofsalaryforthosenotinpostin2009).Thisawardequatedto19.7%ofsalary.

The Committee anticipates that for awards to Executive Directors in 2012, the same performance conditions will apply. However, the determination of the relevant EPS targets was contingent upon the completion of the Group’s refinancing and therefore a final decision in respect of the EPS measure has been

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delayed. With the exception of Ashley Highfield (who has an agreed contractual arrangement regarding PSP awards), the level of PSP awards to Executive Directors in 2012 as a percentage of salary is expected to be similar to that made in 2011.

b) Under the terms of his contract of employment, the Company granted Ashley Highfield a one-off recruitment Award under the PSP, over shares worth 125% of his salary as at the date of grant. This one-off Award was made on 11 November 2011 and will normally vest on the later of 11 November 2014 or the date that the Remuneration Committee determines the extent to which the performance conditions have been satisfied. Once vested, the awards will normally be capable of exercise for a period of up to 12 months. The Award is subject to the terms of the PSP and the satisfaction of the following performance conditions:

(i) 50% of the award is subject to the same EPS growth condition which will apply to awards made to Executive Directors of the Company under the PSP in 2012 (as set out above) and measured over three financial years commencing with the financial year starting on or around 1January2012;and

(ii) the other 50% of the award is subject to a TSR performance condition measured against the Comparator Group measured over three years from the date of grant together with a financial underpin.

The Company has also agreed that in each of the years 2012 and 2013, subject to Ashley Highfield remaining employed within the Group and the achievement of an agreed level of performance by the Company and him, it will grant him an Award under the PSP over shares worth (on grant) not less than 62.5% of his base salary at that time. Additionally, if Ashley Highfield invests in Company Shares out of his own monies prior to the paymentofanybonusin2013and/oroutofacashbonusduring2013and/oroutofacashbonusduring2014,thenhewillreceiveanaward(orawards) of Matching Shares under the PSP ("PSP Matching Shares") on a 2 for 1 basis by reference to the level of investment (grossed up for tax in the case of investment of cash bonus). The value of these PSP Matching Shares cannot exceed 60% of salary in these circumstances and also cannotexceed£200,000inrespectofaninvestmentofownmonies.

The aggregate market value of shares (as at the time of grant) over which all awards are granted to him under the PSP (including any Award of PSP Matching Shares) in any financial year of the Company will not exceed 125% of his base salary at that time.

All awards made to Ashley Highfield under the PSP scheme rules, and as described in this report, shall be subject to such conditions (including performance conditions) as the Committee, acting reasonably, may specify on or prior to the award being granted and to a normal vesting period of at least three years. Awards over PSP Matching Shares will also normally only vest to the extent that he has retained the related 'matched' investment shares until the time of vesting. The Committee and the Board considered that the long-term incentive arrangements contained in Ashley Highfield’s contract were necessary to secure his recruitment and to incentivise appropriate strategic development necessary to return the business to growth.

c) As previously disclosed, as part of his recruitment terms John Fry was granted a long-term incentive award (“Option”) based on share price targets. The Committee determined that the performance conditions applying to his award should be the same as that applying to the PSP awards made to other senior employees and that his award would only differ in amount and in relation to specific promises regarding change of control which were agreed when he was recruited.Followingshareholderconsultation,theawardover5,000,000shareswasmadeon30June2009(theGrantDate)underListingRule9.4.2R.

The Option was subject to a performance condition which compared the rank of the Company’s TSR against the Comparator Group over three yearscommencingon13June2009,(the“GrantDate”),andtoafinancialunderpinandwouldnormallyhavebecomeexercisableonorfollowingthe third anniversary of the Grant Date, subject to the satisfaction of performance conditions and John Fry being employed in the Group at that time. Following his retirement, the Option has now lapsed and no element of this (or his 2010 PSP award) will vest.

d) A SAYE Sharesave Plan, the Johnston Press 2007 Sharesave Plan, for eligible employees under which options may be granted at a discount of upto20%ofmarketvalue,subjecttotheemployeeenteringintoamonthlysavingscontractwithmaximumaggregatesavingsequalto£250permonth. Consistent with the legislation and normal practice, the SAYE Sharesave Plan does not require the imposition of performance conditions. A scheme was introduced during 2006 to provide employees in the Republic of Ireland with a similar benefit. This was amended during 2008 and approved by the Irish Revenue to ensure that the grant price calculation mirrors the Johnston Press 2007 Sharesave Plan. No offer was made under either scheme in 2011.

e) A Share Incentive Plan (SIP) for all eligible employees. The SIP has been approved by HM Revenue and Customs and is in two parts. The first is a PartnershipScheme,whichallowsemployeestopurchasesharesintheCompany,worthupto£1,500inanytaxyear,onamonthlybasisinataxefficient manner. The second element is a Free Shares Scheme, which can provide employees who have joined the scheme with free shares up to a maximum value. The shares are held in a UK resident trust administered by Computershare Plan Managers (the 'UK Trust') and, after a period of five years, the shares may be withdrawn free of any tax and National Insurance. Shares may be withdrawn from the UK Trust earlier in certain circumstances although early withdrawal may result in a charge for tax and National Insurance. Employees who leave the Group as a bad leaver within three years of the shares being awarded forfeit the Free Shares. For Free Share awards, the Committee set a Group profit target and a base fund to be utilised to purchase shares in the Company. If the target was met, Free Shares were allocated to employees based on hours worked and not pro rata to salary. The UK Trust currently holds 18,378,782 shares in respect of awards under the Free Share Scheme and the SIP.


It is not possible to invite employees based in the Republic of Ireland to participate in the SIP. At the 2007 AGM, shareholders approved the Johnston Press Restricted Stock Unit Scheme (the “RSU Scheme”), for use in the Republic of Ireland, which mirrors as closely as possible the UK Free Shares Scheme. However, the Irish Commissioner would not approve any scheme which includes a forfeiture provision if employees leave and therefore tax will be payable by Irish employees when beneficial ownership of shares acquired under the RSU Scheme passes to the employees after a period of five years. The shares are held in a Jersey-resident Trust, the 'Johnston Press Employee Share Trust'.

In the 2011 calendar year, both the Free Share Scheme and the RSU Scheme were operated. However, the Group’s profit achievement did not meet the minimum target set by the Committee and therefore an award will not be made in respect of 2011. As part of its review of the Company’s share schemes, the Committee considered the operation of the SIP and concluded that the Free Shares Scheme was not operating effectively as an incentive. As a consequence, the Company has no current plans to make awards under the Free Shares Scheme in 2012 or future years. It does intend to continue to operate the Partnership Scheme.

Optionsunderd)abovearesatisfiedbytheissueofnewshares.Asat31December2011,11,958,165sharesintheCompanywereheldinthe'Johnston Press Employee Share Trust' in order to meet PSP awards anticipated to vest under a) and b). Shares were purchased in the open market to satisfy Free Shares and RSU awards within e). The Company will propose an ordinary resolution at its forthcoming AGM to review its authority to utilise new issue and treasury shares for the purpose of awards under the SIP. There are no plans at present to satisfy awards under the SIP other than by market purchased shares. Executive Directors are expected to retain 50% of shares which vest under Executive share plans, after allowing for sufficient sales of shares to meet tax liabilities, until a holding to the value of 100% of salary has been achieved.

DilutionAt the end of 2011 the total number of options and share awards granted, less lapsed, over new issuable shares under the share schemes over the previous 10 years was 3.2% of the issued share capital within a maximum limit of 10.0%.

Pension ArrangementsDuring 2011, the Group operated one main pension scheme for UK employees, the Johnston Press Pension Plan (JPPP), with a closed defined benefit section and a defined contribution section. The defined benefit section has been closed to new members for several years and has been closed to future accrual since 30 June 2010. The assets of JPPP are entirely separate from the assets of the Company and of the Group, and are invested by independent fund managers. A professional independent trustee and company and member nominated trustees are appointed to the pension scheme. A firm of external actuaries and consultants act as advisors. Pension scheme members receive a report from the trustees and a statement of their benefits each year.

Company contributions to the JPPP (defined benefit section) to address the deficit are at a fixed annual amount, paid monthly as agreed between the trusteesoftheJPPPandtheCompany.Thecontributionsin2011totalled£2.2million.Followingthetriennialvaluationasat31December2010,theannualcontributionswillincreaseto£5.7millionwitheffectfrom1June2012.Therearenoprovisionsforbeneficialrightsonearlyretirementfromthedefined benefit section, apart from a number of employees who were formerly members of The Scotsman section of the defined benefit scheme.

Employer contributions to the defined contribution section of the JPPP vary between 4% and 12% of salary depending on age, employee contribution and position in the Company.

In addition to the JPPP, the Group participates in three final salary schemes in the Republic of Ireland. Two are multi-employer industry schemes and the other is for a small number of employees in Limerick. Two of these schemes are closed to future accrual and one is in the process of being wound up. There are no financial implications to the Group if these schemes are terminated. The Group also inherited a number of defined contribution schemes. The Group operates a defined contribution scheme in the Republic of Ireland, the Johnston Press (Ireland) Pension Scheme (JPIPS). All relevant employees who are not members of a pension scheme or those employees who are members of other defined contribution schemes have been invited to join the JPIPS. Employer contribution rates vary between 3% and 12%.

Danny Cammiade was an uncapped member of the Executive section of the JPPP until 30 June 2010. Following the closure of the defined benefit section of the JPPP, the Company makes pension contributions of 25% of his basic salary and matches any contributions by him up to a maximum of 5% of salary. Under current pension legislation, Danny Cammiade is unable to make any further contributions to the defined contribution section of the JPPP or to a suitable private pension scheme in a tax efficient manner. Consequently, with effect from 1 July 2010, the Company’s pension contributions have been paid to him as a salary supplement less the cost of employer National Insurance contributions on such amounts. Stuart Paterson did not participate in the JPPP and the Company agreed instead to make a contribution equivalent to 25% of his basic salary into his private pension scheme. With effect from 1 January 2005, the Company agreed to match any additional annual contribution made by him, up to a maximum of 5% of salary. Under current pension legislation, such additional matching pension contributions to Stuart Paterson could not be made in a tax efficient manner and from 1 September 2010, these were paid to him as a salary supplement less the cost of employer National Insurance on such amounts. John Fry was entitled to receive a percentage of salary into his private pension scheme. For the first year of his employment this was 30% increasing by 1.25% per annum each year up to a maximum of 40%. For the period from 1 January 2012 until 7 March 2012, these contributions were equivalent to 33.75% of salary.

Ashley Highfield is a member of the JPPP. The Company makes pension contributions of 25% of his basic salary and matches any contributions by him up to a maximum of 5% of salary. Grant Murray is not a member of the JPPP. The Company has agreed with him that it will make an annual contributionof£50,000totheJPPP(ifhechoosestojoin)or,athisoption,intoaprivatepensionscheme.

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Service ContractsThe contract dates and notice periods for each Executive Director are as follows:

Notice period Notice period Date of Contract by Company by Director

Ashley Highfield 27 July 2011 1 year 1 yearDanny Cammiade 27 February 20061 1 year 1 yearGrant Murray 3 May 2011 1 year 1 year

1Asamendedbyacompromiseagreementdated19August2011(seebelow).

The Executive Directors have one year rolling contracts terminable by either party on 12 months’ notice. In the event of termination by the Company, the Executive Directors would be entitled to remuneration for the notice period and the Committee seeks to apply the principles of mitigation following termination.

In the event of termination, payment of any element of bonus to Executive Directors will depend upon the relevant circumstances, the terms of their contract and whether the leaver is treated as a good or bad leaver. In the former scenario, a payment of bonus on a pro rata basis up to the date of departure may be paid at the time that bonuses are paid to other Executives. Stuart Paterson resigned from the Company and did not receive any payment of bonus in respect of 2011.

On 8 March 2011, John Fry intimated his intention to retire from the Company and stood down as Chief Executive Officer on 31 October 2011. The Company entered into a compromise agreement with him on 27 October 2011 to agree the detailed terms of the termination of his employment. In accordance with the provisions of his contract, he remained as an employee of the Company until 7 March 2012 and received all payments of salary, pension contributions and other benefits during that time. As part of these arrangements, it was confirmed that he was not entitled to any payment, or to retain any award made under the Option, the PSP or the SAYE Sharesave Plan (except for the repayment of money invested under the SAYE Sharesave Plan). Under the terms of his contract of employment, he is entitled to be treated as a good leaver for the purposes of his deferred bonus relating to bonusespaidin2010and2011(inrespectofthe2009and2010financialyears).Inaddition,sincehewasemployedthroughout2011,hewasentitledto that element of bonus relating to his employment during 2011. All costs relating to his 2012 pay have been accrued for in 2011.

The Company has undergone a period of rapid change in its Executive team with the retirement of John Fry and the resignation of Stuart Paterson. Following the announcement in July of the appointment of Ashley Highfield as Chief Executive Officer, which also followed Grant Murray’s appointment in May 2011, the Committee determined that it was in the best interests of the Company to retain the services of Danny Cammiade as Chief Operating Officer for the forthcoming financial year during the period of transition for Executive management. The Company therefore entered into a compromise agreementwithDannyCammiadeon19August2011whichhastheeffectofamendinghiscontractofemployment.Thisagreementprovidesthathemay, upon the service of notice to the Company, terminate his contract of employment with the Company on 31 December 2012. In such circumstances he will be entitled to receive payment of one year’s basic salary, pension, car allowance and medical insurance to be paid in 12 equal monthly instalments throughout 2013 (such sum to be mitigated by any payments received by him for any alternative full time employment or work which he secures during 2013). The agreement also provides that, subject to the achievement of certain objectives linked to the achievement of Group cost savings for each of 2011 and 2012, he is entitled to receive bonuses equivalent to (i) 75% of salary payable on 31 March 2012 (those objectives applicable to 2011 were achieved, and 50% of the resulting bonus is payable in cash and 50% in shares which shall be deferred for three years under the Group’s Deferred Share BonusScheme);and(ii)upto75%ofsalaryon31March2013(ifagreedcostsavingsobjectivesfor2012aremet;anysuchbonuspaymentapplicableto 2012 shall be paid to him in cash). Since the Company's financial results for 2011 were not announced until 25 April 2012, the payment of this, and other bonuses to Executive Directors were not made until after that date. The Committee is satisfied that this incentive is necessary to continue to drive the Group’s cost performance and improve efficiencies, and merited in recognising Mr Cammiade’s key role in delivering successful cost reduction considerably in excess of budgeted targets. Under the terms of the agreement, he shall be entitled to participate in any PSP award made in 2012 on a basis consistent with any award made to other Executive Directors (except the Chief Executive Officer). In the event that he chooses to step down, Mr Cammiade is entitled to be treated as a good leaver for the purposes of the Company’s share schemes (for the avoidance of doubt, his entitlement to any awards shall be subject to the rules applied to good leavers in these circumstances), and (c) receive certain other benefits, including relocation expenses and the costs of outplacement support.

The Executive Directors’ contracts of employment may also be terminated, at the option of the Company, by giving six months’ notice if the Executive is incapacitated by reason of ill-health or accident from performing his duties for certain specified periods. The Company may also terminate the Executive’s employment forthwith in certain circumstances including any serious breach of his obligations under the relevant contract of employment.

The Executive Directors’ service contracts do not provide any entitlement to payment in lieu of notice or the provision of liquidated damages.

Executive Directors are entitled to accept up to two non executive director appointments outwith the Company provided that the Chairman’s permission is obtained. The Remuneration Committee decides whether any fees for such positions are retained by the Director. In addition, the Executive Directors are entitled to accept any positions connected with the newspaper industry or any business in which the Company holds an investment. In 2011, Stuart PatersonandJohnFryeachheldoneexternalNonExecutivepositionandreceived£8,600and£12,000infeesrespectivelyduringtheirperiodsinofficewiththeCompany.AshleyHighfieldisadirectorofWilliamHillplcandaGovernoroftheBritishFilmInstitute.Hereceivedfeesof£10,500fromWilliamHill plc during his period of employment with the Company. He received no fees as a Governor of the British Film Institute (a charity organisation).

Executive Directors’ service contracts, which include details of remuneration, will be available for inspection at the Annual General Meeting.

38 | GOVERNANCE

b) Directors’ Emoluments

Performance Related Bonus3 Pension Total Salary/Fees1 Taxable Benefits2 Cash Shares Cash Shares Contributions4 Emoluments 2011 2010 2011 2010 2011 2011 2010 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

ChairmanIan Russell 130 130 — — — — — — — — 130 130Executive DirectorsAshley Highfield5 67 — 2 — 13 13 — — 20 — 115 —Grant Murray6 179 — 7 — 45 23 — — 50 — 304 —Danny Cammiade 324 324 25 18 184 184 138 138 85 42 802 660John Fry7 438 525 13 16 239 — 230 230 143 164 833 1,165Stuart Paterson8 75 361 2 2 — — 157 — 33 102 110 622Non Executive DirectorsRalph Marshall 40 40 — — — — — — — — 40 40Mark Pain 55 53 — — — — — — — — 55 53Camilla Rhodes 40 40 — — — — — — — — 40 40Geoff Iddison 48 44 — — — — — — — — 48 44Kjell Aamot9 40 17 — — — — — — — — 40 17Peter Cawdron10 — 17 — — — — — — — — — 17Freddy Johnston10 — 13 — — — — — — — — — 13Martina King10 — 13 — — — — — — — — — 13

1,436 1,577 49 36 481 220 525 368 331 308 2,517 2,814

1 Half of Non Executive Directors’ fees are paid in the Company’s shares.2 Taxable benefits include a company car (or car allowance), telephone, health insurance and life assurance (all Executive Directors have life cover of four times basic salary).3 A proportion of Executive Directors’ bonus is paid in shares, deferred for three years with potential for forfeiture.4 Including salary supplement pension provisions. 5 Appointed 1 November 2011.6 Appointed 3 May 2011.7 Retired 7 March 2012. Emoluments are shown for the period to 31 October 2011, when he stepped down as Chief Executive Officer. He remained an employee throughout 2011 and bonus payable to

him is calculated on the basis of his full year's earnings. No element of bonus applicable to 2011 has been deferred.8 Resigned 15 March 2011.9Appointed1August2010.10 Resigned 30 April 2010.

c) Pension BenefitsThe following Directors had accrued pension benefits under the Group’s defined benefit scheme:

Total Increase in Total Transfer value of Increase in Years of accrued accrued Transfer accrued total accrued value of pensionable pension at pension value of pension at pension at pension

service 01.01.11 during year increase 31.12.11 01.01.11 31.12.11 during year £’000 £’000 £’000 £’000 £’000 £’000 £’000

DannyCammiade 19 152 — — 157 2,765 3,598 833

DannyCammiadewasamemberoftheGroupPensionSchemesbeforetheintroductionofthepensionablesalarycapinMay1989.Followingtheclosureofthedefinedbenefitpensionplantofutureaccrualin2010,theGroupmadepaymentsof£85,000(2010:£42,000)toDannyCammiadeasasalary supplement net of National Insurance during 2011.



d) Share Schemes At Granted/ At 01.01.11

40 | GOVERNANCE

The Directors present their annual report on the affairs of the Group, together with the financial statements and auditors’ report for the period ended 31December2011.TheCorporateGovernancereportsetoutonpages24to29formspartofthisreport.

Principal ActivitiesThe Group’s main activities are the publishing of local and regional weekly, evening and morning newspapers, both paid-for and free, together with associated websites, and specialist publications in print, online or via mobile technologies.

Review of BusinessTheresultsfortheyear2011aresetoutintheGroupIncomeStatementonpage45.TheGrouplossfortheperiodbeforetaxationwas£143,803,000(2010:profitof£16,529,000)whichresultsinanetlossfortheperiodof£88,937,000(2010:profitof£36,064,000).Detailsofthebusinessactivitiesduring the year, the financial results, the financial position and the principal risks and uncertainties facing the Group are set out in the Business Review on pages 2 to 15.

DividendsNo interim dividend was paid and the Directors recommend no final dividend for the period. In the short term, the Board believes the most important use of available cash is to reduce the Group’s net debt position. The preference dividend was paid on 30 June and 30 December 2011. Share CapitalDetails of share capital are shown in note 27.

Environmental PolicyThe Board acknowledges that environmental protection is one of the Group’s business responsibilities. It aims for a continuous improvement in the Group’s environmental performance and to comply with all relevant regulations. Following an internal audit and an assessment by external advisers, the Group put in place, and there is in force, a documented environmental policy to monitor performance and to take action where appropriate. Further details of this policy are provided in the Corporate Social Responsibility Statement.

DonationsCharitabledonationsamountedto£27,000,principallytolocalcharitiesservingthecommunitiesinwhichtheGroupoperates(2010:£32,000). There were no payments for political purposes.

Supplier Payment PolicyThe Group’s policy is to settle terms of payment with suppliers when agreeing the terms of each transaction, ensuring that suppliers are made aware of the terms of payment, and to abide by the terms of payment. Trade creditors of the Group at the end of the period were equivalent to 30 days purchases (2010: 23 days), based on the average daily amount invoiced by suppliers during the period.

Financing Policy and DerivativesThe Group’s policies are set out in notes 21 to 23 and note 32. These also include details of financial instruments and derivatives.

AuditorEach of the persons who is a Director at the date of approval of this report confirms that:

(1) sofarastheDirectorisaware,thereisnorelevantauditinformationofwhichtheCompany’sauditorisunaware;and(2) theDirectorhastakenallthestepsthathe/sheoughttohavetakenasaDirectorinordertomakehimself/herselfawareofanyrelevantaudit

information and to establish that the Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s.418 of the Companies Act 2006.

Forward-looking StatementsWhere the Directors’ Report (including the Performance Highlights, Business Review, Operational Review, Performance Review, and Corporate Governance Report) contains forward-looking statements these are made by the Directors in good faith based on the information available to them at the time of their approval of this report. These statements will not be updated or reported upon further. Consequently such statements should be treated with caution due to the inherent uncertainties including both economic and business risk factors underlying such forward looking statements or information.

Directors' Report


Directors and Their InterestsUnder the Company’s Articles of Association, each Director is subject to retirement every three years and to election at the first Annual General Meetingaftertheirappointment.Inaddition,anyDirectorwhohasservedmorethan9yearsautomaticallyoffershimself/herselfforre-electioneveryyear.

Ralph Marshall is retiring and offering himself for re-election at the Annual General Meeting. Ashley Highfield and Grant Murray were appointed during the year and are seeking election at the Annual General Meeting.

The Directors who held office at 31 December 2011 had the following interests in the ordinary share capital of the Company:

Ordinary Shares of 10p each % of share capital 31 December 2011

Ian Russell 0.5% 3,408,245Ashley Highfield 0.1% 711,818Grant Murray — —Danny Cammiade 0.2% 1,298,517Ralph Marshall 0.1% 406,188Mark Pain 0.1% 405,681Camilla Rhodes — 256,932Geoff Iddison 0.1% 373,558Kjell Aamot 0.1% 337,115

Grant Murray and Ashley Highfield were appointed Directors on 3 May 2011 and 1 November 2011 respectively. Stuart Paterson and John Fry resigned as Directors on 15 March 2011 and 31 October 2011 respectively.

Inadditiontotheshareholdingsshownabove,whichareallheldbeneficially,andtheshareoptionsasshownonpage39,AshleyHighfield,DannyCammiadeandGrantMurrayheldinterestsin11,958,165(2010:11,851,179)sharesat31December2011byvirtueoftheirstatusaspotentialbeneficiaries of the Johnston Press plc Employee Share Trust.

Since 31 December 2011, Danny Cammiade has purchased 5,403 shares through the Share Incentive Plan.

No Director had any material interest in any contract, other than a service contract, with the Company or any subsidiary at any time during the year.

Structure of SharesDetails of the issued share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note27.TheCompany’sissuedordinarysharecapitalwas639,746,083sharesattheendoftheperiod.Aspartoftherefinancingcompletedon 28August2009,theCompanyissuedwarrantsover5.0%ofitsissuedsharecapitaltotheGroup’slenders,exercisableatanytimeoverthe5yearperiod ending 27 August 2014 at an exercise price of 10p (the "First Issue Warrants"). No First Issue Warrants were exercised in 2011. As part of the refinancing completed on 24 April 2012 (i) the exercise period for the First Issue Warrants was extended to 30 September 2017 (the "Warrant Expiry Date"), (ii) the Company issued further warrants over just under 2.5% of its issued share capital to the Group's lenders (the "Second Issue Warrants") and (iii) the Company undertook that on or before 30 September 2012, and subject to receiving all necessary shareholder approvals, authorisations and powers, it would issue further warrants over just under an additional 5.0% of its issued share capital as at 23 April 2012 to the Group's lenders (the "Third Issue Warrants"), each of the Second Issue Warrants and the Third Issue Warrants being exercisable at 10p each at any time prior to the Warrant Expiry Date.

The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. The redeemable cumulative preference shares carry 13.75% interest but do not carry voting rights. The percentage of the issued nominal valueoftheordinarysharesis98.3%ofthetotalissuednominalvalueofallsharecapital.

There are no specific restrictions on the size of a holding or on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights.

Details of employee share schemes are set out in note 30.

No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the United Kingdom Corporate Governance Code issued by the Financial Reporting Council, the Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the schedule of matters reserved for approval of the Board, copies of which are available on request,andtheCorporateGovernanceStatementonpages24to29.

42 | GOVERNANCE

Substantial ShareholdingsSo far as the Directors are aware the only holders of 3% or more of the Ordinary Share Capital of the Company and any other major shareholders, other than Directors, as at the date of this report are as follows:

Ordinary Shares of 10p each % Holding Number

PanOceanManagementLtd(onbehalfofUsahaTegas) 20.0 127,947,952Orbis Investment Management Ltd 11.2 71,838,412Tindle Newspapers Ltd 7.2 45,847,735Henderson Global Investors Limited 5.7 36,457,088JupiterAssetManagementLtd 4.6 29,297,022AvivaInvestorsGlobalServicesLtd 3.0 18,997,397

Employee InvolvementIt is the policy of the Group to encourage and develop all members of staff to realise their maximum potential. Wherever possible, vacancies are filled from within the Group and adequate opportunities for internal promotion are created. The Board is committed to a systematic training policy and has a comprehensive training and development programme creating the opportunity for employees to maintain and improve their performance and to develop their potential to a maximum level of attainment. In this way, staff will make their best possible contribution to the organisation’s success. The Group supports the principle of equal opportunities in employment and opposes all forms of unlawful or unfair discrimination on the grounds of race, age, nationality, religion, ethnic or national origin, sexual orientation, gender or gender reassignment, marital status or disability. It is also the policy of the Group, where possible, to give sympathetic consideration to disabled persons in their application for employment with the Group and to protect the interests of existing members of the staff who are disabled.

Close Company StatusSo far as the Directors are aware the Company is not a close company for taxation purposes.

Change of ControlIn the event of a change of control the Group’s lenders, both the Private Placement loan note holders and the various Banks, have the option to declare all amounts outstanding repayable on demand.

Directors’ Liability As permitted by the Companies Act 2006 (the “Act”), the Company has insurance cover for the Directors against liabilities in relation to the Group.

Electronic Voting The Company has made provision for shareholders to vote electronically on the Resolutions to be considered at the Annual General Meeting and full instructions are included on the Form of Proxy, issued to shareholders with this Annual Report.

Special BusinessFive resolutions (resolutions 8 to 12) are set out under special business in the notice of this year’s Annual General Meeting. The first two of these resolutions will be proposed as ordinary resolutions and the others as special resolutions.

The first item of special business (Resolution 8) relates to the Johnston Press plc Share Incentive Plan (the "SIP") which was originally approved by the Company's shareholders at the Annual General Meeting held on 28 April 2000. The SIP is an HM Revenue & Customs approved all-employee share plan under the terms of which eligible employees within the Company's group may, in any tax year, be given the opportunity to:

a) beawardedupto£3,000worthoffreeshares("FreeShares");and/orb) purchaseupto£1,500worthofsharesusingmoniesdeductedfrompre-taxsalary("PartnershipShares");andc) be granted matching free shares subject to a maximum match of two free matching shares for every one Partnership Share purchased ("Matching Shares").

The SIP has been operated by the Company since March 2003 under which the Company has made offers of Free Shares (the last offer of Free Shares was made on 25 March 2011) and Partnership Shares. To date, the Company has satisfied all awards of Shares made under the SIP using existing shares purchased in the market.

The Company would like the flexibility to satisfy any future awards made under the SIP during the period of ten years starting on 13 June 2012 to be satisfiedusingeithernewlyissuedsharesand/ortreasuryshares,forwhichtheexistingauthorityexpiredon28April2010.Inaddition,theCompanyhasalso updated the rules of the SIP to reflect changes in market practice and HMRC policy. These are referred to in the summary of the principal terms of the SIP set out in the Appendix to the Notice of Annual General Meeting. Accordingly, the Company is asking shareholders to approve the updated SIP and renewtheauthoritytosatisfyawardsusingeithernewlyissuedsharesand/ortreasuryshares(aswellexistingsharespurchasedinthemarket).

Directors' Report


Directors' Responsibility Statement

ThepurposeofthenextresolutionistorenewtheDirectors’authoritytoallotsharesintheCompany.Part(i)ofResolution9seeksauthoritytoallotshares,andtograntrightstosubscribefororconvertanysecurityintosharesintheCompanyuptoamaximumnominalamountof£21,322,736representing33.33%oftheexistingissuedordinarysharecapitaloftheCompany.ThesecondpartofResolution9seeksadditionalauthoritytoallota further 33.33% of the existing ordinary share capital of the Company. In accordance with recommended best practice, this additional authority will be applied to fully pre-emptive rights issues only and the authorisation will be valid for one year only. The Directors have no current intention to allot shares or grant rights to subscribe for or convert any security into shares except in connection with employee share schemes, on conversion of existing warrants, or in relation to the grant of new warrants under the terms of the Company's revised arrangements with its lenders and the authority, if approved, will expire at the end of the Annual General Meeting in 2013.

The third resolution, Resolution 10 (which is the first of the three special resolutions), relates to the power given to the Directors to allot equity securities for cash without the statutory pre-emption provisions of the Companies Act 2006 applying. In accordance with best practice guidelines, this authority is limited to allotments representing in total up to 5% of the existing issued ordinary share capital and to allotments in connection with a rights issue. This power, which accords with normal practice, currently expires on the date of this year’s Annual General Meeting. The purpose of the resolution is to renew this power for a further year. In connection with the requirement for advance consultation and explanation before making any non pre-emptive cash issue which exceeds 7.5% of the Company's issued share capital in any rolling three year period, the Directors emphasise that this power is proposed to be applied in its entirety in connection with the grant of the Third Issue Warrants in September 2012 pursuant to the terms of the Company's revised arrangements with its lenders. This will ensure that the 7.5% limit is at no time exceeded in relation to equity securities actually allotted.

The fourth item of special business is the renewal of the authority of the Company to purchase its own ordinary shares as permitted under its Articles of Association and the Companies Act 2006. Resolution 11 will, if passed, give authority to make such purchases in the market. The Directors have no immediate intention of using such authority and would do so only if they consider it to be in the best interests of shareholders generally and that an improvement in earnings per share would result. This Resolution specifies the maximum number of ordinary shares which may be purchased (representing approximately 10% of the Company’s existing issued ordinary share capital) and the minimum and maximum prices at which they may be bought, reflecting the requirements of the Act and the Financial Services Authority.

The final resolution to be proposed is to permit the Company to call General Meetings (other than Annual General Meetings) on not less than 14 day's notice as permitted by the Companies Act 2006. Although no such meetings are currently planned, the Directors believe that having authority to do so may, in some circumstances, assist with the efficient discharge of the Company’s business. The Company intends to continue to provide as much notice as practicable of General Meetings and would normally use this authority only where it would be to the advantage of shareholders as a whole.

AuditorOrdinary resolutions to re-appoint Deloitte LLP as the Company’s auditor and to authorise the Directors to fix their remuneration will be proposed at the forthcoming Annual General Meeting.

By Order of the Board

P McCallSecretary108 Holyrood RoadEdinburgh EH8 8AS25 April 2012

We confirm to the best of our knowledge:1. the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities,

financialpositionandprofitorlossoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole;and

2. the business review, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

On behalf of the Board

Ashley Highfield Grant MurrayChief Executive Officer Chief Financial Officer25 April 2012 25 April 2012

44 | FINANCIAl stAtEMENts

We have audited the financial statements of Johnston Press plc for the 52 week period ended 31 December 2011 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group Reconciliation of Shareholders’ Equity, the Group Statement of Financial Position and Parent Company Balance Sheet, the Group Statement of Cash Flows and the related notes 1 to 43. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policiesareappropriatetothegroup’sandtheparentcompany’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.Inaddition,wereadall the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion:• thefinancialstatementsgiveatrueandfairviewofthestateofthegroup’sandoftheparentcompany’saffairsasat31December2011andofthe

group’slossfortheyearthenended;• thegroupfinancialstatementshavebeenproperlypreparedinaccordancewithIFRSsasadoptedbytheEuropeanUnion;• theparentcompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccounting

Practice;and• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006and,asregardsthegroupfinancial

statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006In our opinion:• thepartoftheDirectors’RemunerationReporttobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesAct2006;and• theinformationgivenintheDirectors’Reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththefinancial

statements.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:• adequateaccountingrecordshavenotbeenkeptbytheparentcompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranches

notvisitedbyus;or• theparentcompanyfinancialstatementsandthepartoftheDirectors’RemunerationReporttobeauditedarenotinagreementwiththe

accountingrecordsandreturns;or• certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.

Under the Listing Rules we are required to review:• thedirectors’statement,containedwithintheBusinessReview,inrelationtogoingconcern;• thepartoftheCorporateGovernanceStatementrelatingtothecompany’scompliancewiththenineprovisionsoftheUKCorporateGovernance

Codespecifiedforourreview;and• certainelementsofthereporttotheshareholdersbytheBoardondirectors’remuneration.

Colin Gibson CA (Senior statutory auditor)for and on behalf of Deloitte LLPChartered Accountants and Statutory AuditorEdinburgh25 April 2012

Independent Auditor's Report to the Members of Johnston Press plc


Group Income Statement for the 52 week period ended 31 December 2011

2011 2010 Before non- Before non- recurring recurring and Non- and Non- IAS 21/39 recurring IAS IAS21/39 recurring IAS items items 21/39 Total items items 21/39 Total Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Revenue 6 373,845 — — 373,845 398,084 — — 398,084Cost of sales (235,143) — — (235,143) (241,605) — — (241,605)

Gross profit 138,702 — — 138,702 156,479 — — 156,479

Operating expenses 7 (74,150) (7,836) — (81,986) (84,488) (4,047) — (88,535)Impairment of intangibles 7/15 — (163,695) — (163,695) — (13,086) — (13,086)

Total operating expenses (74,150) (171,531) — (245,681) (84,488) (17,133) — (101,621)

Operating profit/(loss) 8 64,552 (171,531) — (106,979) 71,991 (17,133) — 54,858Investment income 10 67 — — 67 43 — — 43Net finance income on pensionassets/liabilities 11a 2,250 — — 2,250 373 — — 373Change in fair value of hedges 11c — — (676) (676) — — 2,573 2,573Retranslation of USD debt 11c — — (285) (285) — — (2,030) (2,030)Retranslation of Euro debt 11c — — 285 285 — — 2,623 2,623Finance costs 11b (38,475) — — (38,475) (41,921) — — (41,921)Share of results of associates 18 10 — — 10 10 — — 10

Profit/(loss) before tax 28,404 (171,531) (676) (143,803) 30,496 (17,133) 3,166 16,529Tax 12 (6,371) 61,058 179 54,866 (6,866) 27,287 (886) 19,535

Profit/(loss) for the period 22,033 (110,473) (497) (88,937) 23,630 10,154 2,280 36,064

Earnings per share (p) 14 Earnings per share - Basic 3.50 (17.66) (0.08) (14.24) 3.67 1.58 0.36 5.61Earnings per share - Diluted 3.50 (17.66) (0.08) (14.24) 3.58 1.55 0.35 5.48

The above revenue and profit/(loss) are derived from continuing operations. The accompanying notes are an integral part of these financial statements.

The comparative period is for the 52 week period ended 1 January 2011.


Group Statement of Financial Position at 31 December 2011

2011 2010 Notes £’000 £’000Non-current assets Goodwill 15 — —Other intangible assets 15 742,851 907,455Property, plant and equipment 16 171,154 195,091Available for sale investments 17 970 970Interests in associates 18 14 12Trade and other receivables 21 6 35Derivativefinancialinstruments 23/32 — 15,757

914,995 1,119,320

Current assetsAssetsheldforsale 19 3,238 3,071Inventories 20 4,709 4,531Trade and other receivables 21 48,730 49,481Cash and cash equivalents 21 13,407 11,112Derivativefinancialinstruments 23/32 11,657 —

81,741 68,195

Total assets 996,736 1,187,515

Current liabilities Trade and other payables 21 42,958 47,682Current tax liabilities 4,244 3,642Retirement benefit obligation 24 2,200 4,444Borrowings 22/33 372,094 251Derivativefinancialinstruments 23/32 1,056 728

422,552 56,747

Non-current liabilities Borrowings 22/33 — 399,736Derivativefinancialinstruments 23/32 306 3,513Retirement benefit obligation 24 101,790 56,342Deferred tax liabilities 25 181,609 252,955Trade and other payables 21 148 155Long term provisions 26 5,967 6,880

289,820 719,581

Total liabilities 712,372 776,328

Net assets 284,364 411,187

Equity Share capital 27 65,081 65,081Share premium account 502,818 502,818Share-based payments reserve 17,845 17,273Revaluation reserve 2,160 2,245Own shares (5,379) (5,004)Hedging and translation reserve 9,779 10,412Retained earnings (307,940) (181,638)

Total equity 284,364 411,187

The comparative numbers are as at 1 January 2011.

The financial statements of Johnston Press plc, registered number 15382, were approved by the Board of Directors and authorised for issue on 25 April 2012.

They were signed on its behalf by:

Ashley Highfield, Chief Executive Officer Grant Murray, Chief Financial Officer

The accompanying notes are an integral part of these financial statements.


Group Statement of Cash Flows for the 52 week period ended 31 December 2011

2011 2010 Notes £’000 £’000

Cash generated from operations 28 71,207 79,338Income tax paid (3,282) (9,750)

Net cash in from operating activities 67,925 69,588

Investing activities Interest received 51 43Dividends received from associated undertakings 25 25Proceeds on disposal of property, plant and equipment 2,589 5,097Purchases of property, plant and equipment (1,802) (4,522)

Net cash received from investing activities 863 643

Financing activities Dividends paid (152) (152)Interest paid (25,629) (30,576)Repayment of borrowings (28,371) (27,408)Repayment of loan notes (6,363) (17,498)Financing fees (53) (294)Issue of shares — 2Purchase of own shares (375) —(Decrease)/increaseinbankoverdrafts (5,550) 4,528

Net cash used in financing activities (66,493) (71,398)

Netincrease/(decrease)incashandcashequivalents 2,295 (1,167)Cash and cash equivalents at the beginning of period 11,112 12,279

Cash and cash equivalents at the end of the period 13,407 11,112

The comparative period is for the 52 week period ended 1 January 2011.



Notes to the Consolidated Financial Statements for the 52 week period ended 31 December 2011

1. General Information

Johnston Press plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on the back page. The nature of the Group’s operations and its principal activities are set out in notes 5 and 6 and in the Business Review on pages 2 to 15.

These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 3.

2. Adoption of New and Revised Standards

The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

IFRIC19Extinguishing Financial Liabilities The Interpretation provides guidance on the accounting for ‘debt for equity’ swaps with Equity Instruments from the perspective of the borrower. IAS24(2009)Related Party Disclosures The revised Standard has a new, clearer definition of a related party, with inconsistencies under the previous definition having been removed.

Amendment to IAS 32 Classification of Rights Issues Under the amendment, rights issues of instruments issued to acquire a fixed number of an entity’s own non-derivative equity instruments for a fixed amount in any currency and which otherwise meet the definition of equity are classified as equity.

Amendments to IFRIC 14 Prepayments The amendments now enable recognition of an asset in the form of prepaid minimum of a Minimum Funding Requirement funding contributions.

The following amendments were made as part of Improvements to IFRSs (2010):

Amendment to IFRS 3 Business Combinations IFRS has been amended such that only those non-controlling interests which are current ownership interests and which entitle their holders to a proportionate share of net assets upon liquidation can be measured at fair value or the proportionate share of net identifiable assets. Other non-controlling interests are measured at fair value, unless another measurement basis is required by IFRSs.

Amendment to IFRS 7 Financial Instruments: Disclosures The amendment clarifies the required level of disclosure around credit risk and collateral held and provides relief from disclosure of renegotiated financial assets.

The amendments made to Standards under the 2010 improvements to IFRSs have had no impact on the Group.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 1 (amended) Severe Hyperinflation and Removal of Fixed Dates for First-time AdoptersIFRS 7 (amended) Disclosures – Transfers of Financial AssetsIFRS9 Financial InstrumentsIFRS 10 Consolidated Financial StatementsIFRS 11 Joint ArrangementsIFRS 12 Disclosure of Interests in Other EntitiesIFRS 13 Fair Value MeasurementIAS 1 (amended) Presentation of Items of Other Comprehensive IncomeIAS 12 (amended) Deferred Tax: Recovery of Underlying AssetsIAS19(revised) Employee BenefitsIAS 27 (revised) Separate Financial StatementsIAS 28 (revised) Investments in Associates and Joint Ventures

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except as follows:

• IFRS9willimpactboththemeasurementanddisclosuresofFinancialInstruments;• IFRS12willimpactthedisclosureofinteresttheGrouphasinotherentities;• IFRS13willimpactthemeasurementoffairvalueforcertainassetsandliabilitiesaswellastheassociateddisclosures;and• IAS19(revised)willimpactthemeasurementofthevariouscomponentsrepresentingmovementsinthedefinedbenefitpensionobligation;and

associated disclosures, but not the Group’s total obligation. It is likely that following the replacement of expected returns on plan assets with a net finance cost in the Income Statement, the profit for the period will be reduced and correspondingly other comprehensive income increased.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.


Notes to the Consolidated Financial Statements for the 52 week period ended 31 December 2011 continued

3. Significant Accounting Policies

Basis of accountingThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties and financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

Basis of consolidationThe consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the Saturday closest to 31 December each year for either a 52 or 53 week period. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the Group Income Statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Basis of preparation The Group’s business activities, together with factors likely to affect its future development, performance and financial position and commentary on the Group’s financial results, its cash flows, liquidity requirements and borrowing facilities are set out in the Business Review on pages 8 to 15. In addition, note 32 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to liquidity risk and credit risk.

The financial statements have been prepared for the 52 week period ended 31 December 2011. The 2010 information relates to the 52 week period ended 1 January 2011.

Going concernThe Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Business Review on pages 2 to 15.

Non-recurring itemsNon-recurring items include significant exceptional transactions, the restructuring of businesses and material one-off items such as the disposal of a significant property and impairment of intangible and tangible assets together with the associated tax impact. The Company considers such items are material to the Income Statement and their separate disclosure is necessary for an appropriate understanding of the Group’s financial performance.

Business combinationsThe acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the Income Statement as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, including publishing titles, are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 ‘Non Current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Investment in associatesAn associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these Group financial statements using the equity method of accounting. Investments in associates are carried in the Group Statement of Financial Position at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.


3. Significant Accounting Policies (continued)

Publishing titlesThe Group’s principal intangible assets are publishing titles. The Group does not capitalise internally generated goodwill or publishing titles. Titles separatelyacquiredafter1January1989arestatedatcostandtitlesownedbysubsidiariesacquiredafter1January1996arerecordedatDirectors’valuation at the date of acquisition. These publishing titles have no finite life and consequently are not amortised. The carrying value of the titles is reviewed for impairment at least annually with testing undertaken, as outlined below for goodwill, to determine any diminution in the recoverable amount below carrying value. The recoverable amount is the higher of the fair value less costs to sell and the value in use is based on the net present value of estimated future cash flows discounted at the Group’s pre-tax weighted average cost of capital. Any impairment loss is recognised as an expense immediately. An impairment loss recognised for publishing titles can be reversed in a subsequent period if the discounted cash flows justify the treatment.

GoodwillGoodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and cannot be subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit, second to the value of publishing titles and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Goodwill can also arise as an equal and opposite offset to deferred tax on publishing titles acquired after 1 January 2005 under the technical provisions of IAS 12.

On disposal of a subsidiary or associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP valuation subject to being tested for impairmentatthatdate.GoodwillwrittenofftoreservesunderUKGAAPpriorto1998hasnotbeenreinstatedandisnotincludedindetermininganysubsequent profit or loss on disposal.

Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

Advertising revenue is recognised on publication and circulation revenue is recognised at the point of sale. Printing revenue is recognised when the service is provided.

Foreign currenciesThe individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each period end, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the close of business on the last working day of the period. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items carried at historical cost in respect of which gains and losses are recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the period end date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s hedging and translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.




Property, plant and equipmentProperty, plant and equipment balances are shown at cost, net of depreciation and any provision for impairment. In certain cases, the amounts of previousrevaluationsofpropertiesconductedin1996or1997orthefairvalueofthepropertyatthedateoftheacquisitionbytheGrouphavebeentreated as the deemed cost on transition to IFRSs. Depreciation is provided on all property, plant and equipment, excluding land, at varying rates calculated to write-off cost over the useful lives. The principal rates employed are:

Heritable and freehold property (excluding land) 2.5% on written down valueLeasehold land and buildings equal annual instalments over lease termWeb offset presses (excluding press components) 5% straight line basisMailroom equipment 6.67% straight line basisPre-press systems 20% straight line basisOther plant and machinery 6.67%, 10%, 20%, 25% and 33% straight line basisMotor vehicles 25% straight line basis

Assets held for saleAssets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale. Where the sale is expected to qualify for recognition as a completed sale within one year from the date of classification, the assets are shown as current and when the sale is anticipated to complete after one year from date of classification the assets are shown as non-current.

InventoriesInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costincurredinbringingmaterialstotheirpresentlocationandconditioncomprises;(a)rawmaterialsandgoodsforresaleatpurchasecostonafirst-infirst-outbasis;and(b)workinprogressatcostofdirectmaterials,labourandcertain overheads. Net realisable value comprises selling price less any further costs expected to be incurred to completion and disposal.

Financial instrumentsFinancial assets and financial liabilities are recognised in the Group’s Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assetsInvestments are recognised and derecognised on the trade date in accordance with the terms of the purchase or sale contract and are initially measured at fair value, plus transaction costs.

Available for sale financial assetsListed and unlisted investments are shown as available for sale and are stated at fair value. Fair value of listed investments is determined with reference to quoted market prices. Fair value of unlisted investments is determined by the Directors. Gains and losses arising from changes in fair value are recognised directly in equity, with the exception of impairment losses which are recognised directly in the Income Statement. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in equity is included in the Income Statement for the period.

Dividends on available for sale equity investments are recognised in the Income Statement when the Group’s right to receive the payment is established.

Trade receivablesTrade receivables do not carry any interest. They are stated at their nominal value as reduced by appropriate allowance for estimated irrecoverable amounts. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Other trade receivables are provided for on an individual basis where there is evidence that an amount is no longer recoverable.

Impairment of financial assetsFinancial assets are assessed for indicators of impairment at each period end date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance for estimated irrecoverable amounts. Changes in the carrying value of this allowance are recognised in the Income Statement.



Derivative financial instrumentsThe Group’s activities and funding structure give rise to some exposure to the financial risks of changes in interest rates and foreign currency exchange rates. The Group enters into a number of derivative financial instruments to manage its exposure to these risks, including interest rate swaps, cross currency swaps and forward foreign exchange contracts. Further details of derivative financial instruments are given in note 32.

The Group re-measures each derivative at its fair value at the period end date with the resultant gain or loss being recognised in profit or loss immediately. All such changes in the fair value of the Group’s derivatives are shown in a separate column on the face of the Group Income Statement.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Embedded derivativesDerivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with the changes in fair value recognised in profit or loss.

Financial liabilities and equityDebt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

On28August2009,theCompanyissuedsharewarrantsover5%ofitsissuedsharecapitaltolendersaspartoftherefinancingpackageagreedonthat date. The warrant instruments will be settled by the Company delivering a fixed number of ordinary shares and receiving a fixed amount of cash in returnandsoqualifyasequityunderIAS39.TheBinomialOptionpricingmodelwasusedtoassessthefairvalueofthewarrantsissuedandthefullcostwasrecognisedasanon-recurringfinancecostintheIncomeStatementin2009.

Trade payablesTrade payables are not interest-bearing and are stated at their nominal value.

BorrowingsInterest-bearing loans and bank overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premia payable on settlement or redemption and direct issue costs, are charged to the Income Statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Fees incurred in negotiating borrowings are held on the Statement of Financial Position and amortised to the Income Statement over the term of the underlying debt.

LeasesRentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the term of the lease.

Where the Group is a lessor, rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Where the Group leases a property but is no longer using the premises, full provision is made for the rentals payable over the remaining term of the lease (up to any break clauses where relevant).

Development grantsDevelopment grants for revenue expenditure are recognised as income over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Grants relating to property, plant and equipment are treated as deferred income and released to the Income Statement over the expected useful lives of the related assets.

Operating profit/(loss)Operatingprofit/(loss)isstatedafterchargingrestructuringorothernon-recurringcostsbutbeforeinvestmentincome,otherfinanceincome,financecosts and the share of the results of associates.




TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the period end date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax based values used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

On transition to IFRS, a deferred tax liability was recorded in respect of publishing titles and properties that do not qualify for any tax allowances that were acquired through business combinations. Given that the Group elected, under IFRS 1, not to restate pre-transition business combinations under IFRS 3, this pre-transition deferred tax element was charged against retained earnings. Any such fair value on future business combinations will form part of the goodwill on acquisition and both the goodwill and related deferred tax liability will be included in any impairment test in relation to the relevant cash generating unit.

Deferred tax assets and liabilities are offset when the relevant requirements of IAS 12 are satisfied.

Retirement benefit costsThe Group provides pensions to employees through various schemes.

Payments to defined contribution retirement benefit schemes are charged to the Income Statement as an expense as they fall due. Payments made to the industry-wide retirement benefit schemes in the Republic of Ireland are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each period end date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside the Income Statement and presented in the Statement of Comprehensive Income. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight line basis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the Statement of Financial Position represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.

Share-based paymentsThe Group issues equity settled share-based benefits to certain employees. The Group has elected to apply IFRS 2 to all share-based awards and options granted post 7 November 2002 but not vested at 31 December 2004. These share-based payments are measured at their fair value at the date of grant and the fair value of share options is expensed to the Income Statement on a straight-line basis over the vesting period. Fair value is measured by use of the Black-Scholes model, as amended to take account of the Directors’ best estimate of probable share vesting and exercise.

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

Critical judgements in applying the Group’s accounting policiesIn the process of applying the Group’s accounting policies, which are described in note 3, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.


4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty (continued)

Deferred tax balances on publishing titles and properties not eligible for tax allowancesDeferredtaxamountingto£185,713,000at31December2011(1January2011:£244,193,000),hasbeenprovidedpursuanttoIAS12(IncomeTaxes) on the values of the publishing titles in the Group’s Statement of Financial Position.

Management has considered it appropriate to provide this entire deferred tax balance in order to comply with the technical requirements of IAS 12 despite the fact that management cannot foresee any future circumstances in which such a tax liability would arise. If a decision was taken to dispose of any of the assets concerned, it is unlikely that the titles would be sold separately from the legal entities that own the assets. As such, management is confident that this tax provision will never be required to be paid.

Valuation of publishing titles on acquisitionThe Group’s policies require that a fair value at the date of acquisition be attributed to the publishing titles owned by each acquired entity. The Group’s management uses its judgement to determine the fair value attributable to each acquired publishing title taking into account the consideration paid, the earnings history and potential of the title, any recent similar transactions, industry statistics such as average earnings multiples and any other relevant factors.

The publishing titles are considered to have indefinite economic lives due to the historic longevity of the brands and the ability to evolve the brands in the changing media environment.

Provisions for onerous leasesWhere the Group exits a rented property, an estimate of the anticipated total future cost payable under the terms of the operating lease, including rentals, rates and other related expenses, is charged to the Income Statement at the point of exit. Where there is a break clause in the contract, rentals are provided for up to that point. In addition, an estimate is made of the likelihood of sub letting the premises and any rentals that would be receivable from a sub tenant. Where receipt of sub lease rentals is considered reasonable, these amounts are deducted from the rentals payable by the Group under the lease and provision charged for the net amount.

Valuation of share-based paymentsThe Group estimates the expected value of equity-settled share-based payments and this is charged through the Income Statement over the vesting periods of the relevant payments. The cost is estimated using a Black-Scholes valuation model. The Black-Scholes calculations are based on a number of assumptions that are set out in note 30 and are amended to take account of estimated levels of share vesting and exercise. This method of estimating the value of the share-based payments is intended to ensure that the actual value transferred to employees is provided in the share-based payments reserve by the time the payments are made.

Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the period end date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of goodwill and publishing titlesDetermining whether goodwill or publishing titles are impaired requires an estimation of the value in use of the cash generating units (CGUs) to which these assets are allocated. Key areas of judgement in the value in use calculation include the identification of appropriate CGUs, estimation of future cash flows expected to arise from each CGU, the long-term growth rates and a suitable discount rate to apply to cashflows in order to calculate present value. The Group has identified its CGUs based on the seven geographic regions in which it operates. This is considered to be the lowest level at which cash inflows generated are largely independent of the cash inflows from other groups of assets and has been consistently applied in thecurrentandpriorperiods.Animpairmentlossof£163,695,000hasbeenrecognisedin2011(2010:lossof£13,068,000).Thecarryingvalueofpublishingtitlesat31December2011was£742,851,000(2010:£907,455,000).DetailsoftheimpairmentreviewsthattheGroupperformsareprovided in note 15.

Valuation of pension liabilitiesThe Group records in its Statement of Financial Position a liability equivalent to the deficit on the Group’s defined benefit pension schemes. This liability is determined with advice from the Group’s actuarial advisers each year and can fluctuate based on a number of factors, some of which are outwith the control of management. The main factors that can impact the valuation include:

• thediscountrateusedtodiscountfutureliabilitiesbacktothepresentdate,determinedeachyearfromtheyieldoncorporatebonds;• theactualreturnsoninvestmentsexperiencedascomparedtotheexpectedratesusedinthepreviousvaluation;• theactualratesofsalaryandpensionincreaseascomparedtotheexpectedratesusedinthepreviousvaluation;• theforecastinflationrateexperiencedascomparedtotheexpectedratesusedinthepreviousvaluation;and• mortalityassumptions.

Details of the assumptions used to determine the liability at 31 December 2011 are set out in note 24.

Bad debt allowanceThe trade receivables balance recorded in the Group’s Statement of Financial Position comprises a large number of relatively small balances. An allowance is made for the estimated irrecoverable amounts from debtors and this is determined by reference to past default experience. Further details are shown in note 21.



5. Business Segments

Information reported to the Chief Executive Officer for the purpose of resource allocation and assessment of segment performance is focussed on the two areas of Newspaper Publishing (in print and online) and Contract Printing. Geographical segments are not presented as the primary segment is the UKwhichisgreaterthan90%ofGroupactivities.

6. Segment Information

a) Segment revenues and resultsThe following is an analysis of the Group’s revenue and results by reportable segment:

Newspaper Contract Newspaper Contract publishing printing Eliminations Group publishing printing Eliminations Group 2011 2011 2011 2011 2010 2010 2010 2010 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Revenue External sales 344,863 28,982 — 373,845 369,344 28,740 — 398,084Inter-segment sales* — 61,030 (61,030) — — 60,303 (60,303) —

Total revenue 344,863 90,012 (61,030) 373,845 369,344 89,043 (60,303) 398,084

Result Segment result before non-recurring items 57,026 7,526 — 64,552 66,862 5,129 — 71,991Non-recurring items (164,656) (6,875) — (171,531) (12,694) (4,439) — (17,133)

Net segment result (107,630) 651 — (106,979) 54,168 690 — 54,858

Investment income 67 43Netfinanceincomeonpensionassets/liabilities 2,250 373IAS21/39adjustments (676) 3,166Finance costs (38,475) (41,921)Share of results of associates 10 10 (Loss)/profit before tax (143,803) 16,529

Tax 54,866 19,535

(Loss)/profit after tax (88,937) 36,064



8. Operating (Loss)/Profit

2011 2010 £’000 £’000 Operating(loss)/profitisshownaftercharging/(crediting): Depreciation of property, plant and equipment (note 16) 17,986 19,763Non-recurring write down of value of presses (note 16) 5,161 2,459Profit on disposal of property, plant and equipment: Operating disposals (487) (396) Non-recurring disposals — (1,350) Assets held for sale disposals (288) —Movement in allowance for doubtful debts (note 21) (1,852) (577)Redundancy costs 3,938 7,683Staffcosts(note9) 147,806 154,062Auditors’ remuneration: Audit services Group 110 100 Subsidiaries 240 240Operating lease charges: Plant and machinery 1,301 496 Other 4,510 5,367Rentals received 313 318Netforeignexchange(gains)/losses (30) 44Cost of inventories recognised as expense 43,494 41,243

Staffcostsshownaboveinclude£2,517,000(2010:£2,814,000)relatingtoremunerationofDirectors.

In addition to the auditors’ remuneration shown above, the auditors received the following fees for non-audit services.

2011 2010 £’000 £’000

Audit-related assurance services 54 35Taxation compliance services 85 85Other taxation advisory services 58 34Other services 72 —

269 154

All non-audit services were approved by the Audit Committee. The Audit Committee considers that these non-audit services have not impacted the independence of the audit process.

Inaddition,anamountof£17,800(2010:£17,800)waspaidtotheexternalauditorsfortheauditoftheGroup’spensionscheme.

9. Employees The average monthly number of employees, including Executive Directors, was:

2011 2010 No. No.

Editorial and photographic 1,913 1,993Sales and distribution 2,648 2,850Production 740 791Administration 456 575

5,757 6,209

£’000 £’000

Staff costs: Wages and salaries 127,693 135,771Social security costs 12,198 12,896Other pension costs (note 24) 7,343 7,468Cost of share-based awards (note 30) 572 (2,073)

147,806 154,062

Full details of the Directors’ emoluments, pension benefits and share options are included in the audited part of the Directors’ Remuneration Report on pages37to39.


10. Investment Income

2011 2010 £’000 £’000

Income from available for sale investments 18 1Interest receivable 49 42

67 43

11. Finance Costs

2011 2010 £’000 £’000

a) Net finance income on pension assets/liabilitiesInterest on pension liabilities 23,612 24,979Expected return on pension assets (25,862) (25,352)

(2,250) (373)

b) Finance costsInterest on bank overdrafts and loans 25,496 30,194Payment-in-kind interest accrual 7,693 6,441Amortisation of term debt issue costs 5,286 5,286

38,475 41,921

c) IAS 21/39 itemsAll movements in the fair value of derivative financial instruments are recorded in the Income Statement. In the current period, this movement was a net chargeof£0.7million(2010:creditof£2.6million),consistingofarealisedcreditof£0.5millionandanunrealisedchargeof£1.2million.

Theretranslationofforeigndenominateddebtattheperiodendresultedinanetcreditof£nil(2010:creditof£0.6million)beingrecordedintheIncomeStatement. The retranslation of the Euro denominated publishing titles is shown in the Statement of Comprehensive Income.

12. Tax

2011 2010 £’000 £’000

Current tax Charge for the year 5,527 5,903Adjustment in respect of prior periods (1,657) (13,806) 3,870 (7,903)

Deferred tax (note 25) (Credit)/chargefortheyear (16) 657Adjustment in respect of prior periods 231 89Deferred tax adjustment relating to the impairment of publishing titles (44,041) (3,471)Credit relating to reduction in deferred tax rate to 25.0% (2010: 27.0%) (14,910) (8,907)

(58,736) (11,632)

Total tax credit for the year (54,866) (19,535)

UKcorporationtaxiscalculatedat26.5%(2010:28.0%)oftheestimatedassessableprofit/(loss)fortheperiod.The26.5%basictaxrateappliedforthe2011 period was a blended rate due to the tax rate of 28.0% in effect for the first quarter of 2011, changing to 26.0% from 1 April 2011 under the 2011 Finance Act. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdiction.



12. Tax (continued) The tax credit for the period can be reconciled to the (loss)/profit per the Income Statement as follows:

2011 2010 £’000 % £’000 %

(Loss)/profitbeforetax (143,803) 100.0 16,529 100.0

Tax at 26.5% (2010: 28%) (38,108) (26.5) 4,628 28.0Tax effect of share of results of associate (5) — (3) —Taxeffectof(income)/expensesthatare(non-taxable)/non-deductibleindeterminingtaxableprofit (65) — (1,866) (11.3)Tax effect of investment income 7 — 7 —Effect of different tax rates of subsidiaries (359) (0.2) 323 2.0Adjustment in respect of prior years (1,426) (1.0) (13,717) (83.0)Effect of reduction in deferred tax rate to 25% (2010: 27%) (14,910) (10.4) (8,907) (53.9)

Tax credit for the period and effective rate (54,866) (38.1) (19,535) (118.2)

13. Dividends

2011 2010 £’000 £’000

Amounts recognised as distributions to equity holders in the period:

Finaldividendfortheperiodended31December2011of£nil(2010:£nil) — —

Preference Dividends 13.75% Cumulative Preference Shares 104 104 13.75% “A” Preference Shares 48 48

152 152

NodividendistoberecommendedtoshareholdersattheAnnualGeneralMeetingmakingatotalfor2011of£nil(2010:£nil).

14. Earnings per Share

Thecalculationofearningspershareisbasedonthefollowing(losses)/profitsandweightedaveragenumberofshares:

2011 2010 £’000 £’000

Earnings

(Loss)/profitaftertaxfortheperiod (88,937) 36,064Preference dividend (152) (152)

Earnings for the purposes of basic and diluted earnings per share (89,089) 35,912Non-recurringandIAS21/39items(aftertax) 110,970 (12,434)

Earnings for the purposes of underlying earnings per share 21,881 23,478


14. Earnings per Share (continued)

2011 2010 No. of shares No. of shares

Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 625,711,881 639,743,875 Effect of dilutive potential ordinary shares: - warrants — 15,708,618

Number of shares for the purposes of diluted earnings per share 625,711,881 655,452,493

Earnings per share (p)Basic (14.24) 5.61Underlying 3.50 3.67Diluted - see below (14.24) 5.48

Underlyingfiguresarepresentedtoshowtheeffectofexcludingnon-recurringandIAS21/39itemsfromearningspershare.Dilutedearningspersharearepresented when a company could be called upon to issue shares that would decrease net profit or increase loss per share.

The Group's average share price in 2011 was below the option price for any potential dilutive shares, accordingly no dilutive shares are shown.

As explained in note 27, the preference shares qualify as equity under IAS 32. In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of earnings per share.

15. Goodwill and Other Intangible Assets

Publishing Goodwill titles £’000 £’000

Cost

Opening balance 145,254 1,310,143Exchangemovements — (909)

Closing balance 145,254 1,309,234

Accumulated impairment losses

Opening balance (145,254) (402,688)Impairmentlossesfortheperiod — (163,695)

Closing balance (145,254) (566,383)

Carrying amount

Closing balance — 742,851

Openingbalance — 907,455

The exchange movement above reflects the impact of the exchange rate on the valuation of publishing titles denominated in Euros at the period end date. It is partially offset by a decrease in the euro borrowings.

Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination.



15. Goodwill and Other Intangible Assets (continued)

The carrying amount of publishing titles by cash generating unit (CGU) is as follows:

2011 2010 £’000 £’000

Scotland 58,575 82,423North 279,223 337,810Northwest 104,561 139,867Midlands 168,731 175,128South 45,267 71,540Northern Ireland 63,042 69,510Republic of Ireland 23,452 31,177

Total carrying amount of publishing titles 742,851 907,455 The Group tests the carrying value of publishing titles held within the publishing operating segment for impairment annually or more frequently if there are indications that they might be impaired. The publishing titles are grouped by CGUs, being the lowest levels for which there are separately identifiable cash flows independent of the cash inflows from other groups of assets which were arrived at by considering the cash inflows for the publishing titles and how they are generated across portfolios of complementary titles in various geographic markets.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are the discountrate;expectedchangestosellingpricesanddirectcostsduringtheperiod;andgrowthrates.

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to therelevantunderlyingassets.Thediscountrateappliedtofuturecashflowsin2011was11.0%(2010:8.94%).In2011,managementupdateditsassessment of the discount rate, to reflect their views of the current risk profile of the underlying publishing title assets. In the absence of asset specific rates for the Group's intangible assets, management determined the discount rate with regard to the current economic environment and the risks that the regional media industry is facing. The rate was compared against the rate being applied by publicly traded competitors for similar groups of assets, and the Group's weighted average costs of capital. Given the operating activities across the Group's portfolio, and within the individual CGU's, have similar trading characteristics and risk profiles, it is considered appropriate to use the same estimated discount rate for each of the CGU's.

Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. These include changes in cover prices and advertising rates as well as movement in newsprint and production costs and inflation.

Discounted cash flow forecasts are prepared using:

• themostrecentfinancialbudgetsandprojectionsapprovedbymanagementfor2012–2016whichreflectmanagement’scurrentexperienceandfutureexpectationsonrevenuesandcostsforthemarketsinwhichtheCGUsoperate,andconsiderexternalanalysts'viewsofrevenuetrends;

• cashflowsfor2017to2031thatareextrapolatedbasedonanestimatedannuallong-termgrowthrateof1.0%;• adiscountedresidualvalueof5timesthefinalyear’scashflow;and• capitalexpenditurecashflowstoreflectthecycleofcapitalinvestmentrequired.

The present values of the cash flows are then compared to the carrying value of the assets to determine if there is any impairment loss.

Thetotalimpairmentchargerecognisedin2011was£163.7million(2010:netimpairmentchargeof£13.1million).ThiswasprimarilyduetotheincreaseinthediscountrateappliedtoallCGUsandchangestotheshorttermgrowthrates.TheimpairmentchargebyCGUwasScotland£23.8million;North£58.6million;NorthWest£35.3million;Midlands£6.4million;South£26.3million;NorthernIreland£6.3million;andRepublicofIreland£7.0million.

The Group has conducted a sensitivity analysis on the impairment test of each CGU's carrying value. The following table illustrates the additional impairment charge for each CGU that would result if the long-term growth rate decreased by 0.5% or if the discount rate was increased by 0.5%.

Growth rate Discount rate sensitivity sensitivity £’000 £’000

Scotland 1,493 2,435North 7,272 11,860Northwest 2,528 4,123Midlands 4,035 6,580South 2,329 3,798Northern Ireland 1,536 2,505RepublicofIreland 483 907

Totalpotentialimpairmentfromsensitivityanalysis 19,676 32,208


16. Property, Plant and Equipment

Freehold land Leasehold Plant and Motor and buildings buildings machinery vehicles Total £’000 £’000 £’000 £’000 £’000

Cost At2January2010 105,391 5,198 293,083 16,779 420,451Reclassifiedtoassetsheldforsaleatstartofperiod (9,437) — (34,327) — (43,764)Additions 45 — 4,282 87 4,414Disposals (86) (15) (31,329) (2,854) (34,284)Exchangedifferences (32) (39) (401) (28) (500)Transferred to assets held for sale during the period — (762) (4,076) — (4,838)

At1January2011 95,881 4,382 227,232 13,984 341,479

Additions 62 10 1,724 — 1,796Disposals (1,331) (1) (8,994) (3,809) (14,135)Exchange differences (13) — (4) (8) (25)Transferredtoassetsheldforsaleduringtheperiod (1,921) — (666) — (2,587)

At 31 December 2011 92,678 4,391 219,292 10,167 326,528

Depreciation At2January2010 17,608 1,648 168,279 13,308 200,843Reclassified to assets held for sale at start of period (6,624) — (31,544) — (38,168)Disposals (40) (15) (31,194) (2,805) (34,054)Chargefortheperiod 1,925 744 15,305 1,789 19,763Non-recurringwritedowninperiod — — 2,459 — 2,459Exchange differences (52) (7) (311) (18) (388)Transferred to assets held for sale during the period — (762) (3,305) — (4,067)

At1January2011 12,817 1,608 119,689 12,274 146,388

Disposals (424) (1) (8,977) (3,766) (13,168)Chargefortheperiod 1,873 139 14,814 1,160 17,986Non-recurring write down in period — — 5,161 — 5,161Exchange differences (10) — (4) (8) (22)Transferred to assets held for sale during the period (408) — (563) — (971)

At 31 December 2011 13,848 1,746 130,120 9,660 155,374

Carrying amount At 31 December 2011 78,830 2,645 89,172 507 171,154

At1January2011 83,064 2,774 107,543 1,710 195,091

Assets in the course of constructionThere were no assets in the course of construction at the start or end of the period.

17. Available for Sale Investments

The Group’s available for sale investments are:

2011 2010 £’000 £’000

Listed investments at fair value 2 2

Unlisted investments Cost 4,494 4,494 Provision for impairment (3,526) (3,526)

Unlisted investments carrying amount 968 968

Total investments 970 970



18. Interests in Associates

The Group’s associated undertakings at the period end are:

Place of Proportion of Proportion Method of incorporation ownership of voting accountingName and operation interest power held for investment

Classified Periodicals Ltd England 50% 50% Equity method

The aggregate amounts relating to associates are:

2011 2010 £’000 £’000

Total assets 32 46Total liabilities (4) (22)Revenues 37 42Profit after tax 10 10

19. Assets Held for Sale

Freehold land Leasehold Plant and and buildings buildings machinery Total £’000 £’000 £’000 £’000

Cost At 2 January 2010 — — — —Reclassifiedfromproperty,plantandequipmentatstartofperiod 9,437 — 34,327 43,764Disposals (722) — (34,219) (34,941)Transferred from property, plant and equipment during period — 762 4,076 4,838 Exchange differences (30) — (115) (145)

At1January2011 8,685 762 4,069 13,516

Disposals — — (4,069) (4,069)Transferredfromproperty,plantandequipmentduringperiod 1,921 — 666 2,587Exchange differences (15) (17) — (32)

At 31 December 2011 10,591 745 666 12,002

Depreciation At 2 January 2010 — — — —Reclassified from property, plant and equipment at start of period 6,624 — 31,544 38,168 Disposals (180) — (31,640) (31,820)Transferred from property, plant and equipment during period — 762 3,305 4,067 Exchange differences 17 — 13 30

At 1 January 2011 6,461 762 3,222 10,445

Disposals — — (3,222) (3,222)Non-recurring write down in carrying value 600 — — 600Transferredfromproperty,plantandequipmentduringperiod 408 — 563 971Exchange differences (13) (17) — (30)

At 31 December 2011 7,456 745 563 8,764

Carrying amount At 31 December 2011 3,135 — 103 3,238

At 1 January 2011 2,224 — 847 3,071

Assets held for sale consists of land and buildings in the UK and Republic of Ireland that are no longer in use by the Group and print presses that have ceased production. All of the assets are being marketed for sale and are expected to be sold within the next year.


20. Inventories

2011 2010 £’000 £’000

Raw materials 4,709 4,531

21. Other Financial Assets and Liabilities

Trade and other receivables

2011 2010 £’000 £’000

Current:Trade receivables 42,967 46,408Allowance for doubtful debts (5,626) (7,478)

37,341 38,930Prepayments 6,132 4,610Other debtors 5,257 5,941

Total current trade and other receivables 48,730 49,481

Non-current:Trade receivables 6 35

Trade receivablesThe average credit period taken on sales is 44 days (2010: 52 days). No interest is charged on trade receivables. The Group has provided for estimated irrecoverable amounts in accordance with the accounting policy described in note 3.

Before accepting any new credit customer, the Group obtains a credit check from an external agency to assess the potential customer’s credit quality and then defines credit terms and limits on a by-customer basis. These credit terms are reviewed regularly. In the case of one-off customers or low value purchases, pre-payment for the goods is required under the Group’s policy. The Group reviews trade receivables past due but not impaired on a regular basis and considers, based on past experience, that the credit quality of these amounts at the period end date has not deteriorated since the transaction was entered into and so considers the amounts recoverable. Regular contact is maintained with all such customers and, where necessary, payment plans are in place to further reduce the risk of default on the receivable.

IncludedintheGroup’stradereceivablebalancearedebtorswithacarryingamountof£19.9million(2010:£19.9million)whicharepastdueatthereporting date but for which the Group has not provided as there has not been a significant change in credit quality and the Group believes that the amounts are still recoverable. The Group does not hold any security over these balances. The weighted average age of these receivables (past due) is 25 days (2010: 27 days).

Ageing of past due but not impaired trade receivables

2011 2010 £’000 £’000

0 - 30 days 14,417 13,90530 - 60 days 4,798 4,74560-90days 192 63090+days 471 621

Total 19,878 19,901

Movement in the allowance for doubtful debts

2011 2010 £’000 £’000

Balance at the start of the year 7,478 8,055Decrease in the allowance recognised in the Income Statement (note 8) (1,852) (577)

Balance at the end of the year 5,626 7,478



22. Borrowings (continued)

Facility BFacilityBisatermloanfacilityof£218.9million(2010:£232.2million)withfullrepaymentdueon30September2012.InterestispayablequarterlyatLIBOR plus a cash margin of up to 4.15% (2010: 4.15%), depending on covenants.

Under the terms of the finance agreement, committed reductions of the facilities were due in 6 monthly intervals from 30 June 2010. However, all of the scheduled reductions were brought forward at the request of the Group, with the 2010 reductions executed on 30 September 2010 and the June 2012 facility reduction executed on 28 April 2011. No further scheduled facility reductions remain.

HedgingIn accordance with the credit agreements in place, the Group hedges a portion of the bank loans via interest rate swaps exchanging floating rate interest forfixedrateinterest.Atthebalancesheetdate,borrowingsof£200.0million(2010:£245.0million)werearrangedatfixedratesandexposetheGrouptofair value interest rate risk. Further details on all of the Group’s derivative instruments can be found in note 32.

Private placement loan notesTheGrouphastotalprivateplacementloannotesof£39.1millionand$158.2million(2010:£41.0millionand$165.9million).Thenotesarerepayableinfullon30September2012.Interestispayablequarterlyatfixedcouponratesupto9.45%(2010:9.45%)dependingoncovenants.

As noted with Facility B, committed reductions of the facilities were due in 6 monthly intervals from 30 June 2010. However all of the 2010 and 2011 reductions were made during 2010, and the 2012 facility reduction was executed in 2011.

2003 Private placement loan notesThe 2003 Private placement loan notes are made up of:

• £39.1millionatacouponrateofupto9.45%(2010:£41.0millionatacouponrateofupto9.45%);and• $67.4millionatacouponrateofupto8.9%(2010:$70.7millionatacouponrateofupto8.90%).

Ofthe$67.4million,$32.4millionhasbeenswappedintofloatingsterlingof£20.5millionand$35.0millionhasbeenswappedintofixedsterlingof£22.2milliontohedgetheGroup’sexposuretoUSdollarinterestrates(2010:$35.7millionintofloatingsterlingof£22.6millionand$35.0millionintofixedsterlingof£22.2million).

2006 Private placement loan notesThe 2006 Private placement loan notes are made up of:

• $32.2millionatacouponrateofupto9.33%(2010:$33.8millionatacouponrateofupto9.33%);and• $58.6millionatacouponrateofupto9.43%(2010:$61.4millionatacouponrateofupto9.43%).

Thetotalamountof$90.8millionhasbeenswappedbackintofixedsterlingof£31.4million(2010:£32.9million)andfloatingsterlingof£17.3million(2010:£18.1million),againtohedgetheGroup’sexposuretoUSdollarinterestrates.

Payment-in-kind interestIn addition to the cash margin payable on the bank facilities and private placement loan notes, a payment-in-kind (PIK) margin accumulates and is payable attheendofthefacility.Thismarginincreasesthroughouttheperiodofthefacility.ThePIKmarginiseliminatedif£85.0millionisrepaidonthefacilitiesexcluding the scheduled facility reductions. The PIK accrues at a margin of between 1.35% and 3.05%.

Interest rates:The weighted average interest rates paid over the course of the year, were as follows:

2011 2010 % %

Bank overdrafts 4.6 4.6Bank loans 10.4 10.72003 Private placement loan notes 9.1 8.92006 Private placement loan notes 8.7 8.7

9.9 10.0


23. Derivative Financial Instruments

Derivatives that are carried at fair value are as follows:

2011 2010 £’000 £’000

Interest rate swaps - current liability (1,056) (728)Interest rate swaps - non-current liability (306) (3,513)Cross currency swaps - current asset 11,657 —Cross currency swaps - non-current asset — 15,757

10,295 11,516

24. Retirement Benefit Obligation

Throughout 2011 the Group operated the Johnston Press Pension Plan (JPPP), together with the following schemes:

• AdefinedcontributionschemefortheRepublicofIreland,theJohnstonPress(Ireland)PensionScheme.

• AnROIindustry-widefinalsalaryschemeandafinalsalaryschemeforasmallnumberofemployeesinLimerickwhichhasbeenclosedtofutureaccruals. A third ROI industry wide final salary scheme was contributed to prior to February 2011 when the Group ceased contributions and this scheme is being wound up. There are no additional financial implications to the Group if these schemes are terminated. Consequently, the Group’s obligations to these schemes is included in Long Term Provisions and the details shown below exclude these schemes.

The JPPP is in two parts, a defined contribution scheme and a defined benefit scheme. The latter is closed to new members and closed to future accrual. Acurtailmentcreditof£6.3millionwasrecognisedintheGroupIncomeStatementinthepriorperiodreflectingtheclosuretofutureaccrual.Theassetsofthe schemes are held separately from those of the Group. The contributions are determined by a qualified actuary on the basis of a triennial valuation using the projected unit method. The contributions to the defined benefit scheme are fixed annual amounts with the intention of eliminating the deficit. Based on theoutcomeofthetriennialvaluationat31December2010,thefixedannualamountsincreaseto£5.7millionfrom1June2012underthescheduleofcontributions agreed between the Company and the JPPP Trustees. As the defined benefit scheme has been closed to new members for a considerable period the last active member is scheduled to retire in 35 years with, at current mortality assumptions, the last pension paid in 55 years. On a discounted basis the duration of the pension liabilities is circa 20 years. The financial information provided below relates to the defined benefit element of the JPPP.

During 2011, the Company carried out a pension exchange exercise whereby a number of pensioner members were made an offer by the Company to exchange some of their future pension increases for a one-off increase in pension, where the new uplifted amount would no longer be eligible for increases inpayment.Theimpactofthiswasanon-recurringcreditintheGroupIncomeStatementof£1.9millionintheyear.

The composition of the trustees of the JPPP is made up of an independent Chairman, a number of member nominated (by ballot) trustees and several Company appointed trustees. Half of the trustees are nominated by members of the JPPP, both current and past employees. The trustees appoint their own advisers and administrators of the Plan. Discussions take place with the Executive Directors of the Company to agree matters such as the contribution rates.

The defined contribution schemes provide for employee contributions between 2-6% dependent on age and position in the Group, with higher contributions from the Group. In addition, the Group bears the majority of the administration costs and also life cover.

The pension cost charged to the Income Statement was as follows:

2011 2010 £’000 £’000

Defined benefit schemes — 1,064Defined contribution schemes and Irish schemes 7,343 6,404

7,343 7,468



24. Retirement Benefit Obligation (continued)

Major assumptions:

2011 2010

Discount rate 4.9% 5.4%Expected return on scheme assets 5.6% 6.8%Expected rate of salary increases n/a n/aFuture pension increases Deferred revaluations (CPI) 2.0% 2.6% Pensions in payment (RPI) 2.9% 3.3%Life expectancy Male 23.1 years 19.9years Female 23.3 years 23.0 years

The expected rate of salary increases is no longer relevant to the calculation of Plan liabilities given its closure to future accrual and so is noted as ‘not applicable’ in the table above.

The valuation of the defined benefit scheme's funding position is dependent on a number of assumptions and is therefore sensitive to changes in the assumptions used. The impact of variations in the key assumptions are detailed below:

• Achangeinthediscountrateof0.1%pawouldchangethevalueofliabilitiesbyapproximately1.7%or£8.5million.• Achangeinthelifeexpectancybyoneyearwouldchangeliabilitiesbyapproximately3.0%or£14.0million.

Amounts recognised in the Income Statement in respect of defined benefit schemes:

2011 2010 £’000 £’000

Current service cost — 1,064Interest cost 23,612 24,979Expected return on scheme assets (25,862) (25,352)Gain on curtailment — (6,300)Past service gain (1,930) —

(4,180) (5,609)

Therewasnocurrentservicecostin2011astheDefinedBenefitschemehasbeenclosedtofutureaccrual(2010:£1,064,000currentservicecost,ofwhich£798,000wasincludedincostofsalesand£266,000includedinoperatingexpenses).Anactuariallossof£49,584,000(2010:gainof£14,064,000)has been recognised in the Group Statement of Comprehensive Income in the current period. The cumulative amount of actuarial gains and losses recognisedintheGroupStatementofComprehensiveIncomesincethedateoftransitiontoIFRSisalossof£84,465,000(2010:lossof£34,881,000).Theactualreturnonschemeassetswasa£1,198,000loss(2010:£36,491,000return).

Amounts included in the Statement of Financial Position:

2011 2010 £’000 £’000

Present value of defined benefit obligations 472,708 446,095Fair value of plan assets (368,718) (385,309)

Total liability recognised in the Statement of Financial Position 103,990 60,786Amount included in current liabilities (2,200) (4,444)

Amount included in non-current liabilities 101,790 56,342

Asat31December2011therequiredamountsofcontributionstobepaidtotheschemeduring2012was£2,200,000(2010:£4,444,000);followingthecompletionofthetriennialvaluation,thesecontributionsincreaseto£5,700,000from1June2012.


24. Retirement Benefit Obligation (continued)

Movements in the present value of defined benefit obligations: 2011 2010 £’000 £’000

Balance at the start of the period 446,095 446,114

Service costs — 1,064Interest costs 23,612 24,979Contribution from scheme members — 927Age related rebates 74 565Changes in assumptions underlying the defined benefit obligations 22,524 (2,925)Gain on curtailment — (6,300)Past service gain (1,930) —Benefits paid (17,667) (18,329)

Balance at the end of the period 472,708 446,095

Movements in the fair value of plan assets: 2011 2010 £’000 £’000

Balance at the start of the period 385,309 362,006

Expected return on plan assets 25,862 25,352Actual return less expected return on plan assets (27,060) 11,139Contributions from the sponsoring companies 2,200 3,649Contributions from plan members — 927Age related rebates 74 565Benefits paid (17,667) (18,329)

Balance at the end of the period 368,718 385,309

Analysis of the plan assets and the expected rate of return: Expected return Fair value of assets 2011 2010 2011 2010 % % £’000 £’000

Equity instruments 6.8 8.0 224,549 250,836Debt instruments 3.8 4.8 98,816 90,162Property 4.8 6.0 21,754 20,807Other assets 2.6 3.3 23,599 23,504

5.6 6.9 368,718 385,309

Five year history: 2011 2010 2009 2008 2007 £’000 £’000 £’000 £’000 £’000

Present value of defined benefit obligations 472,708 446,095 446,114 340,060 406,900Fair value of scheme assets (368,718) (385,309) (362,006) (321,849) (393,757)

Deficit in the plan 103,990 60,786 84,108 18,211 13,143

Experience adjustments on scheme liabilitiesAmount(£’000) (22,524) 2,925 (100,425) 80,193 30,179

Percentage of plan liabilities (%) (4.8%) 0.7% (22.5%) 23.6% 7.4%

Experience adjustments on scheme assetsAmounts(£’000) (27,060) 11,139 29,137 (92,340) (4,895)

Percentage of plan assets (%) (7.3%) 2.9% 8.0% (28.7%) (1.2%)



25. Deferred Tax

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods.

Properties Accelerated tax Intangible Pension Other timing not eligible depreciation assets balances differences Total £’000 £’000 £’000 £’000 £’000 £’000

At2January2010 13,551 15,478 257,372 (23,551) (1,396) 261,454(Credit)/chargetoincome (460) (531) (3,854) 2,628 (508) (2,725)Debittoequity — — — 3,936 — 3,936Reductionintaxrate-income (552) (457) (8,664) 716 50 (8,907)Reductionintaxrate-equity — — 48 (141) — (93)Transfer between categories 2,263 (2,263) — — — —Currencymovements — (1) (709) — — (710)

At1January2011 14,802 12,226 244,193 (16,412) (1,854) 252,955

(Credit)/chargetoincome (502) (1,764) (44,041) 1,723 758 (43,826)Credit to equity — — — (13,388) — (13,388)Reductionintaxrate-income (1,067) (785) (14,212) 1,088 66 (14,910)Reductionintaxrate-equity — — — 992 — 992Currency movements — 2 (227) — 11 (214)

At 31 December 2011 13,233 9,679 185,713 (25,997) (1,019) 181,609

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (before offset) for financial reporting purposes:

2011 2010 £’000 £’000

Deferred tax liabilities 208,625 271,221Deferred tax assets (27,016) (18,266)

181,609 252,955

Temporary differences arising in connection with interests in associates are insignificant.

TheGroupestimatesthatthefutureratechangesto22.0%wouldreduceitsUKactualdeferredtaxliabilityprovidedat31December2011by£20.8million, however the impact will be dependent on our deferred tax position at that time.

26. Long Term Provisions

Obligations Onerous to industry leases Post sponsored and Unfunded retirement pension dilapidations pensions health costs schemes Total £’000 £’000 £’000 £’000 £’000

At1January2011 5,187 1,189 250 254 6,880Credittoincome (679) — — — (679)Actuarial valuation — — — 108 108Paidduringtheperiod (295) — (47) — (342)

At 31 December 2011 4,213 1,189 203 362 5,967

The unfunded pension provision and obligations to industry sponsored pension schemes are assessed by a qualified actuary at each period end. The post retirement health costs represent management’s estimate of the liability concerned. The provision for onerous leases and dilapidations represent management's estimate of the liability for future lease obligations.


27. Share Capital

2011 2010 £’000 £’000

Issued639,746,083OrdinarySharesof10peach(2010:639,746,083) 63,975 63,975756,00013.75%CumulativePreferenceSharesof£1each(2010:756,000) 756 756349,60013.75%“A”PreferenceSharesof£1each(2010:349,600) 350 350

65,081 65,081

The Company has only one class of ordinary shares which has no right to fixed income. All the preference shares carry the right, subject to the discretion of the Company to distribute profits, to a fixed dividend of 13.75% and rank in priority to the ordinary shares. Given the discretionary nature of the dividend right, the preference shares are considered to be equity under IAS 32.

28. Notes to the Cash Flow Statement

2011 2010 £’000 £’000

Operating(loss)/profit (106,979) 54,858Adjustments for: Impairment of intangibles - non-recurring 163,695 13,086 Depreciation of property, plant and equipment (including write-downs) 23,147 22,222 Write down in carrying value of assets held for sale 600 — Currency differences (360) (39)Charge/(credit)fromsharebasedpayments 572 (2,073) Profit on disposal of property, plant and equipment (775) (1,746) Movement in long-term provisions (679) 1,555 Net pension funding contributions (2,200) (1,373)IAS19pensioncurtailmentgain(non-recurring) — (6,300)IAS19pastservicegain(non-recurring) (1,930) —

Operating cash flows before movements in working capital 75,091 80,190

Increase in inventories (178) (1,668) Decrease in receivables 1,431 1,546 Decrease in payables (5,137) (730)

Cash generated from operations 71,207 79,338

Cash and cash equivalents (which are presented as a single class of assets on the face of the Statement of Financial Position) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.



29. Guarantees and Other Financial Commitments

a) Lease commitmentsThe Group has entered into non-cancellable operating leases in respect of motor vehicles and land and buildings, the payments for which extend over a period of years.

2011 2010 £’000 £’000

Minimum lease payments under operating leases recognised as an expense in the year 5,798 5,863

At the period end date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

2011 2010 £’000 £’000

Within one year 6,170 5,664In the second to fifth years inclusive 17,011 16,689After five years 20,622 21,849

43,803 44,202

Operating lease payments represent rentals payable by the Group for certain of its office properties and motor vehicle fleet. Leases are negotiated for an average term of 10 years in the case of properties and 4 years for vehicles. The rents payable under property leases are subject to renegotiation at various intervals specified in the lease contracts. The Group pays insurance, maintenance and repairs of these properties. The rents payable for the vehicle fleet are fixed for the full rental period.

b) Assets pledged as securityUndertherefinancingagreementsignedon28August2009,theGroupandallitsmaterialsubsidiarieshaveenteredintoasecurityagreementwiththeGroup’s bankers and Private Placement loan note holders. The security provided includes a fixed charge over the assets of the Group including investments, fixed assets, goodwill, intellectual property and a floating charge over its present and future undertakings.

30. Share-based Payments Equity-settled share option schemeOptions over ordinary shares are granted under the Executive Share Option Scheme. Options are exercisable at a price equal to the closing quoted market price of the Company’s shares on the day prior to the date of grant. The vesting period is 3 years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest. No options have been granted under the Executive Share Option Scheme since 2005.

Details of the share options outstanding during the period:

2011 2010 Weighted Weighted Number average Number average of share exercise of share exercise options price (in p) options price (in p)

Outstanding at the beginning of period 312,657 246 321,888 232Lapsed/forfeitedduringtheperiod (66,710) 229 (9,231) 214

Outstanding at the end of the period 245,947 266 312,657 246

Exercisable at the end of the period 245,947 266 312,657 246

No share options were exercised during the period. The options outstanding at the period end had a weighted average exercise price of 266p, and a weighted average remaining contractual life of 0.7 years.

Previous grants were valued using the Black-Scholes model. As far as the assumptions were concerned, expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous full year. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

TheGrouprecognisedachargeof£nilrelatedtoequity-settledshare-basedpaymenttransactionsin2011fortheExecutiveShareOptionScheme(2010:netcreditof£2,123,000).


30. Share-based Payments (continued) Group Savings-Related Share Option SchemeThe Company operates a Group Savings-Related Share Option Scheme. This has been approved by the Inland Revenue and is based on eligible employees being granted options and their agreeing to save weekly or monthly in a sharesave account with Computershare Plan Managers for a period of either 3, 5 or 7 years. The right to exercise is at the discretion of the employee within six months following the end of the period of saving.

Options outstanding under the Savings-Related Scheme at the period end:

Option Grant Date Number of Shares Issue price per Share

29.09.04 29,097 304.46p 29.09.05 17,103 291.60p 29.09.06 74,827 224.76p 29.09.06 10,404 228.80p 27.09.07 108,358 226.41p 27.09.07 3,165 220.17p 26.09.08 3,187,766 37.60p 26.09.08 65,894 37.60p 25.09.09 2,794,333 28.60p 25.09.09 54,412 28.60p 28.09.10 10,192,490 15.75p 28.09.10 11,459 15.75p

TheGrouprecognisedanetchargeof£391,000in2011(2010:£964,000)relatedtoequity-settledshare-basedpaymenttransactionsfortheSavings-Related Share Option Scheme.

Theaboveoptionsgrantedon29September2006andearlierwereissuedtoemployeesatapriceequivalenttotheaveragemid-marketpriceforthe 30 days prior to 27 August 2004, 2 September 2005 and 1 September 2006 respectively. The subsequent options were granted at the closing mid-market priceonthedaypriortotheinvitationbeingsenttoemployeeson3September2007,1September2008,1September2009and1September2010respectively. This follows the approval of the revised Sharesave Scheme at the Annual General Meeting in April 2007. A discount of 20% to the average mid-marketpricewasappliedtotheissuesuptoandincluding2009.Nodiscountwasappliedtothe2010issue.

There were no options granted under the Savings-Related Share Option Scheme in 2011.

Share Matching PlanTheGrouprecognisedatotalchargeof£nilin2011(2010:creditof£1,357,000)inrelationtotheShareMatchingPlan.Theperformanceconditionsfor the matching awards granted prior to 1 January 2007, when the plan was suspended, were not met and all awards lapsed in 2010.

Performance Share PlanThe Company makes awards to Executive Directors and certain senior employees on an annual basis under the Performance Share Plan. The awards vest after three years if certain performance criteria are met during that period.

Awards outstanding under the Performance Share Plan at the period end:

Grant Date Number of Shares Market Price on Award Vesting Dates

30.06.09 6,227,606 16.50p 30.06.12 16.04.10 5,200,900 31.75p 16.04.13 21.04.11 5,962,068 7.40p 21.04.14 31.05.11 720,000 7.00p 31.05.14 11.11.11 10,471,204 4.78p 11.11.14

TheGrouprecognisedanetcreditof£30,000in2011(2010:£443,000)relatedtoequity-settledshare-basedpaymenttransactionsforthePerformanceShare Plan.

Deferred Share Bonus PlanIt is the Company's policy that a proportion of any bonus paid to Executive Directors and certain senior employees is paid in shares deferred for three years. Shares are purchased at the time the bonus is awarded and held by the Company until either the three years are completed or the employee leaves and is treated as a good leaver. 2,076,037 shares are held by the Company in relation to the Deferred Share Bonus Plan.

TheGrouprecognisedanetchargeof£211,000in2011(2010:£500,000)relatedtoequity-settledbonuspaymentsfortheDeferredShareBonusPlan.


32. Financial Instruments (continued)

e) Categories of financial instruments

2011 2010 £’000 £’000

Financial assets (current and non-current)Derivative instruments 11,657 15,757Trade receivables 37,341 38,930Cash and cash equivalents 13,407 11,112Available for sale financial assets 970 970

Financial liabilities (current and non-current)Derivative instruments (1,362) (4,241)Trade payables (13,632) (11,182)Borrowings at amortised cost (372,094) (399,987)

f) Financial risk management objectivesThe Group’s Corporate Treasury function provides services to the business and monitors and manages the financial risks relating to the operations of the Group through assessment of the exposures by degree and magnitude of risk. These risks include market risk (including currency risk and interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.

The Group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the Board and requirements of the bank loan and private placement funding agreements, which provide guidelines which must be operated within. The Group does not enter into or trade in financial instruments, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports regularly to the Executive Directors and the Board.

g) Market riskThe Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (refer to section h) and interest rates (refer to section i). The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:

• Currencyswapstomanagetheforeigncurrencyriskassociatedwithforeigncurrencydenominatedborrowings,namelytheUSdollardenominatedprivateplacementloannotes;

• BorrowingsinEurostomanagetheforeigncurrencyriskassociatedwiththeGroup’snetinvestmentinitsforeignoperations;and• Interestrateswapstomitigatetheriskofrisinginterestrates.

At a Group and Company level, market risk exposures are assessed using sensitivity analyses.

There have been no changes to the Group’s exposure to market risks or the manner in which it manages and measures risk.




h) Foreign currency risk managementThe Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise.

The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is a party to a number of cross currency interest rate swaps at the year end in the management of its exchange rate exposures. The instruments purchased are primarily denominated in US dollars in order to hedge the risks associated with the US dollar denominated private placement loan notes. There were no open foreign currency forward contracts at the year end (2010: nil).

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Liabilities Assets 2011 2010 2011 2010 £’000 £’000 £’000 £’000

EuroTrade receivables — — 1,766 3,018Cash and cash equivalents — — 1,349 1,487Trade payables (2,170) (2,467) — —Borrowings (12,563) (12,848) — —

US DollarCash and cash equivalents — — 142 174Borrowings (106,739) (109,432) — —

Foreign currency sensitivityAs noted above, the Group is mainly exposed to movements in Euros and US dollars rates. The following table details the Group’s sensitivity to a 5% change in pounds sterling against the euro and a 5% change in pounds sterling against the US dollar. These percentages are the rates used by management when assessing sensitivities internally and represent management’s assessment of the possible change in foreign currency rates.

The sensitivity analysis of the Group’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and other equity where pounds sterling strengthens against the respective currency. For a 5% weakening of the sterling against the relevant currency, there is an equal and opposite impact on profit or loss and other equity, and the balances below reverse signs.

US Dollar Euro currency impact currency impact 2011 2010 2011 2010 £’000 £’000 £’000 £’000

Profit or loss 450 466 183 103Other equity — — — —

Oftheimpactonprofitorlossanincreaseof£598,000(2010:£612,000)relatestotheretranslationoftheGroup’seurodenominatedborrowings. The£183,000(2010:£103,000)impactonprofitorlossfromUSDollarexposurerelatestotheretranslationofthatelementofthePIKaccrual.



i) Interest rate risk managementThe Group is exposed to interest rate risk as the Parent Company borrows funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align interest rate views, define risk appetite and the requirements of the funding agreements in place, ensuring optimal hedging strategies are applied, by either positioning the balance sheet or interest expense through different interest rate cycles.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in section k.

Interest rate sensitivityThe sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the period end date. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the period end date was outstanding for the whole year. A 50 basis points decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates.

At the reporting date, if interest rates had been 50 basis points lower and all other variables were held constant, the Group’s:

• netprofitwouldincreaseby£374,000(2010:netprofitwouldincreaseby£409,000),mainlyduetotheimpactoftheGroup’sfairvaluehedges;and• netprofitwoulddecreaseby£377,000(2010:netprofitwoulddecreaseby£664,000)asaresultofthechangesinthefairvalueoftheGroup’scashflow

hedges.

For an increase of 50 bps, the numbers shown above would have the opposite effect.

Interest rate swap contractsUnder interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures on the issued floating rate debt held.

The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date. The average interest rate is based on the outstanding balances at the end of the financial year. In the tables below, positive values in the fair value columns denote financial assets and negative values denote financial liabilities.

Table 1Cash flow hedges - outstanding receive floating: pay fixed contracts and receive fixed: pay fixed contracts

Average contract Notional principal fixed interest amount Fair value 2011 2010 2011 2010 2011 2010 % % £’000 £’000 £’000 £’000

Within 1 year 3.79 4.59 223,548 75,000 6,101 (727)2 to 5 years 1.90 3.83 30,000 225,047 (306) 5,174

3.57 4.02 253,548 300,047 5,795 4,447

Contractswithanominalvalueof£170.0millionhavefixedinterestpaymentsatanaverageof2.55%forperiodsupto2012,contractswithanominalvalueof£30.0millionhavefixedinterestpaymentsatanaverageof1.9%forperiodsupto2013,andcontractswithanominalvalueof$93.6millionhavefixed interest payments at an average of 7.74% for periods up to 2012.

The interest rate swaps settle on a quarterly basis with interest being paid monthly or quarterly on the underlying principal amount. The floating rate on the interest rate swaps is 3 months LIBOR. The Group settles the difference between the fixed and floating interest rates on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest rate amounts are entered into in order to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings.

Table 2Fair value hedges - outstanding receive fixed: pay floating contracts

Average contract Notional principal fixed interest amount Fair value 2011 2010 2011 2010 2011 2010 % % £’000 £’000 £’000 £’000

Within 1 year 8.85 — 37,758 — 4,500 —2 to 5 years — 8.84 — 40,704 — 7,068

Theinterestrateswapssettleonaquarterlybasis.Theaveragefloatingrateontheinterestrateswapsis3monthLIBORplusamarginof3.90%. The Group settles the difference between the fixed and floating interest rates on a net basis.




i) Interest rate risk management (continued)Financial instruments that are measured subsequent to initial recognition at fair value are grouped into 3 levels based on the extent to which the fair value is observable. The levels are classified as follows:

Level 1: fair value is based on quoted prices in active markets for identified financial assets and liabilities.Level 2: fair value is determined using directly observable inputs other than level 1 inputs.Level 3: fair value is determined on inputs not based on observable market data.

In the current and prior period, the interest rate and cross currency swaps are classified as level 2 financial instruments. The available for sale investments are classified as level 3 financial instruments. There have been no transfers between the various levels of the fair value hierarchy during the period.

j) Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a way of mitigating the risk of financial loss from defaults. The Group’s policy on dealing with trade customers is described in notes 3 and 21.

The Group’s exposure and the credit ratings of its counterparties are continuously monitored. As far as possible, the aggregate value of transactions is spread across a number of approved counterparties.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable.

The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, the latter being defined as connected entities, other than with some of the larger advertising agencies. In the case of the latter, a close relationship exists between the Group and the agencies and appropriate allowances for doubtful debts are in place. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies, and the funds and financial instruments are held with a number of banks to spread the risk.

The following table shows the total estimated exposure to credit risk for all of the Group’s financial assets, excluding trade receivables which are discussed in note 21:

2011 2010 Carrying Exposure to Carrying Exposure to value credit risk value credit risk £’000 £’000 £’000 £’000

Available for sale investments 970 — 970 —Cash and cash equivalents 13,407 — 11,112 —Derivative instruments 11,657 — 15,757 —

26,034 — 27,839 —

k) Liquidity risk managementUltimate responsibility for liquidity risk management rests with the Board of Directors, which has agreed an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 22 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.

Liquidity risk is further discussed in the Business Review on page 12.



k) Liquidity risk management (continued)

Liquidity and interest risk tablesThe following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities as at 31 December 2011. The tables have been drawn up on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Period ended 31 December 2011

2003 2006 Bank Bank Private Private Trade overdraft loans placement placement payables Total £’000 £’000 £’000 £’000 £’000 £’000

Within 1 year — 237,722 91,918 65,495 13,632 408,767

— 237,722 91,918 65,495 13,632 408,767

Period ended 1 January 2011

2003 2006 Bank Bank Private Private Trade overdraft loans placement placement payables Total £’000 £’000 £’000 £’000 £’000 £’000

Within1year 5,550 11,593 7,878 5,744 11,182 41,947In1-2years — 262,412 94,239 67,060 — 423,711

5,550 274,005 102,117 72,804 11,182 465,658

The maturity profile of the Group’s financial derivatives (which include interest rate and foreign currency swaps), using undiscounted cash flows, is as follows:

2011 2010 Payable Receivable Payable Receivable £’000 £’000 £’000 £’000

Within 1 year 94,852 105,650 11,107 11,091In 1-2 years 141 124 102,533 116,008 94,993 105,774 113,640 127,099

TheGrouphasaccesstofinancialfacilities,thetotalunutilisedamountofwhichis£55.0million(2010:£40.3million)atthereportingdate.TheGroupexpects to meet its obligations from operating cash flows and proceeds of maturing financial assets.

l) Fair value of financial instrumentsThe fair values of financial assets and financial liabilities are provided by the counterparty to the instrument.

Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.



33. Post Balance Sheet Event

As explained in note 22, the Group currently meets its day-to-day and long term funding requirements through facilities that were due to expire on 30 September 2012. In April 2012, the Group announced the amendment and restatement of these finance facilities until 30 September 2015. Thefacilitiesconsistofarevolvingcreditfacility,atermloanfacilityandprivateplacementloannotes,withatotalavailablefacilityof£393.0million.

Interest margins The starting and maximum cash margin in the case of the bank facilities is LIBOR plus 5.00% and, in the case of the loan notes, a cash interest coupon rate of up to 10.30%. The interest rates are based on the absolute amount of debt outstanding and leverage multiples and reduce based on agreed ratchets.

Payment-in-kind In addition to the cash margin, a payment-in-kind (PIK) margin of a maximum rate of 4.0% will accumulate and is payable at the end of the facility. The PIK margin rate is again based on the absolute amount of debt outstanding and leverage multiples and reduces based on agreed ratchets. Further, if the loan facilities are fully repaid prior to 31 December 2014, the rate at which the PIK margin accrued throughout the period of the agreement will be recalculated at a substantially reduced rate.

RepaymentThereisanagreedrepaymentscheduleof£70.0millionoverthethreeyears.Repaymentsaredueeverysixmonthswiththefirstscheduledfor30June2012.Inaddition,apay-if-you-can(PIYC)repaymentschedulehasalsobeenagreedtotalling£60.0millionoverthethreeyears,beginning30June2012.

WarrantsNew 5 year share warrants over the Company’s share capital will be issued. On completion of the new arrangements, warrants over a further 2.5% of the Company’s share capital will be issued with the issue of a further 5.0% in September 2012. In the event that the Company does not obtain the necessary authority to grant those warrants due to be issued in September 2012, the lenders would instead become entitled to an equity based fee at the maturity of the facility, the terms of which would be materially worse than if the warrants were issued as proposed. In addition, the exercise period for the 5.0% warrantsissuedtothelendersinAugust2009hasbeenextendedtomaketheexpiryofallwarrantscoterminousinSeptember2017.

Covenant testsThe new facilities include the same types of financial covenants as were within the previous facilities.

FeesFeespayableareapproximately£11.5million.Thisrepresentsasignificantreductiononthefeesassociatedwiththe2009refinancing.


Company Balance Sheet at 31 December 2011

Notes 2011 2010 £’000 £’000

Fixed assetsTangible 35 5 9Investments 36 529,292 624,728

529,297 624,737

Current assets Debtors - due within one year 37 83,343 77,092 - due after more than one year 37 443,754 456,185Cash at bank and in hand 6,968 179

534,065 533,456Creditors: amounts falling due within one year 38 (495,751) (117,500)

Net current assets 38,314 415,956

Total assets less current liabilities 567,611 1,040,693Creditors: amountsfallingdueaftermorethanoneyear 39 (306) (403,249)Provisions for liabilities 41 (1,189) (1,189)

Net assets 566,116 636,255

Capital and reserves Called-up share capital Ordinary 27 63,975 63,975Preference 27 1,106 1,106

65,081 65,081Reserves 42 501,035 571,174

Shareholders’ funds 566,116 636,255

The comparative numbers are as at 1 January 2011.

The financial statements of Johnston Press plc, registered number 15382, were approved by the Board of Directors on 25 April 2012 and were signed on its behalf by:

Ashley Highfield, Chief Executive Officer Grant Murray, Chief Financial Officer



Notes to the Company Financial Statements for the 52 week period ended 31 December 2011

34. Significant Accounting Policies

Basis of accounting and preparationThe separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards. No Profit and Loss Account is presented as permitted by section 408 of the Companies Act 2006. The Company’s result for the period, determined in accordance with the Act, was a loss of£70,184,000(2010:profitof£20,328,000).Thefinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforderivativefinancialinstruments. The principal accounting policies adopted are set out below.

The 2011 period was for the 52 weeks ended 31 December 2011 with the prior year being for the 52 weeks ended 1 January 2011.

Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the financial statements.

Tangible fixed assetsTangible fixed asset balances are shown at cost or valuation, net of depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment, excluding land, at varying rates calculated to write-off cost over the useful lives. The principal rates employed are:

Plant and machinery 6.67%, 10%, 20%, 25% and 33% straight line basisMotor vehicles 25% straight line basis

InvestmentsInvestments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. Unlisted investments are shown at Directors’ valuation. Upward revaluations are credited to the revaluation reserve. Downward revaluations in excess of any previous upward revaluations are taken to the Profit and Loss Account.

BorrowingsInterest-bearing loans and bank overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premia payable on settlement or redemption and direct issue costs, are charged to the Profit and Loss Account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Fees incurred in negotiating borrowings are held on the Balance Sheet and amortised to the Profit and Loss Account over the term of the underlying debt.

TaxationCurrent tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the period end date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the period end date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the period end date.

Share-based paymentsThe Company issues equity settled share-based benefits to certain employees. These share-based payments are measured at their fair value at the date of grant and the fair value of expected shares is expensed to the Profit and Loss Account on a straight-line basis over the vesting period. Fair value is measured by use of the Black-Scholes model, as amended to take account of the Directors’ best estimate of probable share vesting and exercise.

DividendsDividends payable to the Company’s shareholders are recorded as a liability in the period in which the dividends are approved. In the Company’s financial statements, dividends receivable from subsidiaries are recognised as assets in the period in which the dividends are approved.

Financial instrumentsFinancial assets and financial liabilities are recognised on the Balance Sheet when the Company becomes a party to the contractual provisions of that instrument.

The Company’s activities and funding structure give rise to some exposure to the financial risks of changes in interest rates and foreign currency exchange rates. The Company uses interest rate swaps and cross currency interest rate swaps to manage these exposures. The Company does not use derivative financial instruments for speculative purposes.

Changes in the fair value of derivative financial instruments are recognised directly in the Profit and Loss Account.

Full details of the Group policy are summarised on page 53.



Retirement benefit obligationsThe Company participates in a Group-wide scheme, the Johnston Press Pension Plan, which has a defined benefit section (providing benefits based on final pensionable pay) and a defined contribution section (see note 24). The assets of the scheme are held separately from those of the Company. The pension costs for the defined contribution section are charged to the Profit and Loss Account on the basis of contributions due in respect of the financial year. In relation to the defined benefit section of the scheme, the Company is unable to identify its share of the underlying assets and liabilities on a consistent and reliable basis and therefore, as required by FRS 17, the Company accounts for this scheme as a defined contribution scheme. As a result, the amount charged to the Profit and Loss Account in respect of the defined benefit section represents the contributions payable to the scheme in respect of the period.

35. Tangible Fixed Assets

Plant and Motor machinery vehicles Total £’000 £’000 £’000

Cost At 1 January 2011 164 42 206 Disposals (156) (42) (198)

At 31 December 2011 8 — 8

Depreciation At1January2011 157 40 197Disposals (156) (40) (196)Charge for the year 2 — 2

At 31 December 2011 3 — 3

Carrying amount At 31 December 2011 5 — 5

At1January2011 7 2 9

36. Investments

Subsidiary Unlisted undertakings investments Total £’000 £’000 £’000

CostAt the start of the period 1,105,182 3,526 1,108,708Amounts relating to share based payments 658 — 658

Attheendoftheperiod 1,105,840 3,526 1,109,366

Provisions for impairmentAtthestartoftheperiod (480,454) (3,526) (483,980)Provisionforimpairment (96,094) — (96,094)

At the end of the period (576,548) (3,526) (580,074)

Net book value At the end of the period 529,292 — 529,292

At the start of the period 624,728 — 624,728

An impairment charge has been reflected in the financial statements of the Group. Full details are explained in note 15. Inevitably this affects the value of the investments held by the Parent Company and the element of the impairment of intangible assets relating to the investments held by the Company only has been processed as an impairment of investments.


Notes to the Company Financial Statements for the 52 week period ended 31 December 2011 continued

36. Investments (continued)


37. Debtors

2011 2010 £’000 £’000

Amounts falling due within one year Amounts owed by subsidiary undertakings 60,459 66,713Corporation tax recoverable 9,611 9,999Trade and other debtors and prepayments 1,616 380Derivative financial instruments 11,657 —

83,343 77,092

Amounts falling due after more than one year Amounts owed by subsidiary undertakings 443,400 440,062Derivative financial instruments (note 23) — 15,757Deferred tax asset - see below 354 366

443,754 456,185

The following are the major deferred tax assets recognised by the Company and movements thereon during the year.

Accelerated tax Pension Other timing depreciation balances differences Total £’000 £’000 £’000 £’000


42. Reserves

Share-based Share payments Retained Other Own premium reserve earnings reserves shares Total £’000 £’000 £’000 £’000 £’000 £’000

Openingbalance 502,818 17,273 36,577 19,510 (5,004) 571,174Loss for the period — — (70,184) — — (70,184)Dividends (note 13) — — (152) — — (152)Provision for share-based payments — 572 — — — 572Own shares purchased — — — — (375) (375)

At the end of the period 502,818 17,845 (33,759) 19,510 (5,379) 501,035

Further details of share-based payments are shown in note 30.

The own shares reserve represents the cost of shares in Johnston Press plc purchased in the market and held by the Johnston Press plc Employee Share Trust (the 'JP EST') to satisfy options under the Group's share options schemes (see note 30). The number of ordinary shares held by the JP EST as at 31December2011was11,958,165(2010:11,851,179).Inaddition,2,076,037sharesareheldregardingthedeferredsharebonusplan.

43. Post Balance Sheet Event

Subsequent to the year end date, the Company has signed an amended and restated finance agreement, extending the maturity of its borrowings to 30 September 2015. Further details are shown in note 33.


Group Five Year Summary

2007 2008 20091 2010 2011 £’000 £’000 £’000 £’000 £’000Income statement Revenue 607,504 531,899 427,996 398,084 373,845

Operating profit on ordinary activities2 178,142 128,414 71,784 71,991 64,552Share of associates’ operating profit 76 85 22 10 10Non-recurringitems (12,703) (528,090) (162,398) (17,133) (171,531)

Profit/(loss)beforeinterestandtaxation 165,515 (399,591) (90,592) 54,868 (106,969)Netfinancecosts (40,801) (29,667) (28,465) (41,505) (36,158)Non-recurringfinancecostsandIAS21/39items — — 5,282 3,166 (676)

Profit/(loss)beforetaxation 124,714 (429,258) (113,775) 16,529 (143,803)Taxation (11,159) 63,788 26,517 19,535 54,866

Profit/(loss)fortheyear 113,555 (365,470) (87,258) 36,064 (88,937)

StatisticsBasicearnings/(loss)pershare3 28.91p (67.99p) (13.66p) 5.61p (14.24p)Underlying earnings per share3 25.08p 13.41p 5.53p 3.67p 3.50pOperating profit2toturnover 29.3% 24.1% 16.8% 18.1% 17.3%

Balance sheetIntangibleassets 1,503,624 1,057,886 923,377 907,455 742,851Property,plantandequipment 273,381 260,498 219,608 195,091 171,154Investments 2,751 2,772 1,000 982 984Derivativefinancialinstruments 4,192 36,488 15,794 15,757 —

1,783,948 1,357,644 1,159,779 1,119,285 914,989Netcurrent(liabilities)/assets (2,378) 8,400 (41,473) 11,483 (340,805)

Total assets less current liabilities 1,781,570 1,366,044 1,118,306 1,130,768 574,184Non-currentliabilities (691,010) (519,728) (405,973) (403,404) (454)Longtermprovisions (406,785) (332,496) (342,309) (316,177) (289,366) Net assets 683,775 513,820 370,024 411,187 284,364

Shareholders’ FundsOrdinaryShares 28,838 63,974 63,974 63,975 63,975Preference Shares 1,106 1,106 1,106 1,106 1,106Reserves 653,831 448,740 304,944 346,106 219,283

Capital employed 683,775 513,820 370,024 411,187 284,364

1 Allperiodsrelatedto52tradingweekswiththeexceptionof2009whichwasa53weekperiod.2Beforenon-recurringandIAS21/39items.3 The earnings per share for the 2007 period have been restated to reflect the dilution factor of the Rights Issue completed in June 2008.


Advisers

Investment BankersCitigroupCitigroup Centre33 Canada SquareCanary WharfLondonE14 5LB

StockbrokersDeutsche Bank AG LondonWinchester House1 Great Winchester StreetLondonEC2N 2DB

RegistrarsComputershare Investor Services PLCPO Box 82The PavilionsBridgewater RoadBristolBS997NH

SolicitorsMacRobertsCapella60 York StreetGlasgowG2 8JX

AshurstBroadwalk House5 Appold StreetLondonEC2A 2HA

AuditorDeloitte LLPChartered Accountantsand Statutory AuditorSaltire Court20 Castle TerraceEdinburghEH1 2DB


Notes

Overview ifc Key Financials and operational

summary

01 chairman’s statement

Business Review02 chief executive’s report

04 operational review

06 Key performance Indicators

08 performance review

14 principal risks and uncertainties

Governance16 corporate social responsibility

22 Board of directors

24 corporate Governance

30 directors’ remuneration report

40 directors’ report

43 directors’ responsibility statement

Financial Statements44 Independent auditor’s report

45 Group Income statement

46 Group statement of comprehensive Income

46 Group reconciliation of shareholders’ equity

47 Group statement of Financial position

48 Group statement of cash Flows

49 notes to the consolidated Financial statements

83 company Balance sheet

84 notes to the company Financial statements

90 Group Five Year summary

91 advisers

total revenue (£’m) print advertising revenue (£’m)

Impairment of Intangibles (note 15)

£163.7mloss Before tax (page 11)

£143.8m

Key Financials

Operational Summary

DealMonsterdaily deal offering by email successfully launched in nine regional areas, rolling out across the Group in 2012.

Find itnew online business directory and review site launched in March 2011, generating over £1.4m in new revenue.

Sales Effectivenessnew structures, customer propositions and incentives being introduced to improve relationships with advertisers and provide new products.

Refinancingnew finance agreement signed to extend existing facilities to 30 september 2015 (see page 12) leaving us well placed to build on our new strategy.

Mobile Websites and iPad AppsMobile websites launched for all local newspapers, attracting a younger audience. new ipad apps successfully launched for the scotsman and Yorkshire post.

Re-launch of Newspaper Titlessuccessful re-launch of several titles, with conversion from broadsheet to compact increasing circulation.

£373.8m11

10

373.8

398.1

0 100 200 300 0 100 200 300

0 1 2 3

operating profit (£’m)before non-recurring and Ias 21/39 items (pages 8-10)

£64.6m11

10

64.6

72.0

0 25 50 75

£212.9m11

10

212.9

235.8

£351.7m

net debt (£’m) (note 22)

3.50p

underlying earnings per share (p)before non-recurring and Ias 21/39 items (note 14)

11

10

11

10

351.7

3.50

386.7

3.67

0 100 200 300

2015printed on splendorgel extra White, an Fsc Mixed sources product from well managed forests and other controlled sources.

designed and produced by corporateprm, edinburgh and london. www.corporateprm.co.uk

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Johnston Press plc

108 Holyrood Road Edinburgh EH8 8AS

Tel: 0131 225 3361Fax: 0131 225 4580email: [email protected] Site: http://www.johnstonpress.co.uk

registration number 15382

At the hub of local

communities

Johnston Press plcannual report and accounts 2011

at the hub of local communities - annualreports.co.uk...the last quarter of 2010 saw a deterioration...

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