MGN recovers to pounds 132m profit: Cost cutting helps newspaper group to strong performance with promise of a return to dividends

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The Independent Online
MIRROR Group Newspapers yesterday sealed its return to normality following the depredations of the Robert Maxwell era with a strong profits performance and the promise of a return to dividend payments this year.

The group, which is involved in a consortium bid for Newspaper Publishing, publisher of the Independent and the Independent on Sunday, turned a loss of pounds 88.7m in 1992 into pre-tax profits of pounds 131.9m in the 53 weeks ended 2 January. David Montgomery, its chief executive, indicated a 'modest' dividend would be paid at the half-year stage.

Stripping out exceptional factors, principally the release of provisions following the successful recovery of assets siphoned from the pension fund by Mr Maxwell, underlying trading profits were up 19 per cent to pounds 115.9m.

Strong cash flow meant that debts were cut by pounds 57m. As a result net interest payable was slashed from pounds 44.2m to pounds 29.8m. After interest and a pounds 12.8m financing charge in respect of the pension fund, pre-tax profits on ordinary activities more than doubled to pounds 73.8m.

The profits improvement was largely due to cost cutting; turnover rose by only 2 per cent to pounds 476.1m. While advertising revenues were up by 9.7 per cent, the price war that has seen the Sun cut its cover price to 20p, 7p less than the Daily Mirror, meant circulation revenues were down and promotional spend had to rise.

Indeed, the circulation of the Mirror, which accounts for around a third of group profits, dropped nearly 7 per cent to 2.55 million in the six months to January against the same period last year.

But the adoption of high technology production, consumated this week with the completion of MGN's move to Canary Wharf in London's Docklands, has sharply improved profitability and produced trading margins of 24 per cent, the highest in the industry.

Operating costs were cut by more than pounds 8m. Although the group faced higher newsprint costs, as a result of adding extra pages, and increased promotional and marketing expenditure to limit the damage done by the Sun, this was more than offset by cuts in production and editorial costs.

Mr Montgomery said around 600 jobs had so far gone and redundancies were continuing as planned in Scotland. This meant staff numbers for the group as a whole would probably shrink by another 200 or so to around 2,700.

MGN's 1993 figures included an additional pounds 12m redundancy provision, but Mr Montgomery said this did not relate to further staff reductions but was mainly due to the fact that the group had earlier failed to set aside sufficient funds to cover redundancies currently in train.

He said MGN was seeking ways to expand into 'broader media'. It was looking at a number of opportunities, but the focus on MGN's participation in the Newspaper Publishing consortium had been out of all proportion to the size of the deal.

Analysts estimate MGN might make up to pounds 9m from its conditional deal to handle the production and administration of Newspaper Publishing's titles.

Exceptional profits generated during the year amounted to pounds 58.1m. The bulk of this was accounted for by a pounds 60.8m reduction in its pension provisions, less a pounds 19.7m related tax charge, which was made possible by the recovery of assets taken by Mr Maxwell.

Earnings per share tripled from 5.8p to 15.1p and the shares rose 7p to 197.

The European Commission yesterday cleared the acquisition of Newspaper Publishing by a consortium consisting of existing Spanish and Italian shareholders, Promotora de Informaciones and Editoriale L'Espresso, and MGN.

The Commission said the Spanish and Italian companies operated in separate geographic areas from the UK newspaper publishing market and that MGN's newspapers were not 'significantly substitutable' for Newspaper Publishing's from the consumer's point of view.

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