Independent News & Media Regulatory News (INM)

 PROFIT BEFORE TAX GROWTH OF 11.8% TO €41.8M

Dublin and London 21 March 2017: Independent News & Media PLC (INM ID, INM LN) today announces its full year results for the 12 months ended 31 December 2016.

KEY HIGHLIGHTS1

· Total revenue increase of 0.7%

Total revenue of €323.4m was up 0.7% on the prior year. This was driven by a growth in digital revenue (+20.4%) and increased revenue from distribution, offsetting a continued decline in publishing advertising revenue, circulation revenue and contract printing due to the closure of the printing operation in Belfast.

· Profit before tax2 growth of 11.8% to €41.8m

Profit before tax2 growth, including a 53rd week, has been achieved by a significant decrease in pre-distribution operating costs and a year on year improvement in net interest costs2 of €2.2m, partially offset by a decline in advertising and circulation revenue. Earnings per share increased during the year by 0.5c to 2.9c.

· Significant decrease in operating costs

A reduction in pre-distribution operating expenses of c.9% was due to the closure of the printing operation in Belfast, the continued integration of the Group's operations, the wind up of GrabOne and operational savings. As a result of the above cost reductions, operating margin2 has increased to 12.4%.

· Balance sheet strength maintained

The cash balance has risen to €84.8m, up €25.1m year on year. Net assets currently stand at €62.3m, versus net assets of €44.5m as at 31 December 2015, despite an increase in the net retirement benefit obligation of €11.2m.

· Retirement benefit obligations

The Group notified the Trustees of two of its Republic of Ireland defined benefit pension schemes of its decision to cease contributions with effect from 7 November 2016. The Group is involved in an ongoing process of discussion with the Trustees. The Group is committed to an outcome that will lead to a more sustainable pension arrangement, more equitable outcomes between members and will give all members greater security and control over their pension savings.

· Acquisitions

In 2016, the acquisitions of both the remaining 50% shareholding in CarsIreland.ie and Greer Publications were completed. The Group continues to actively review potential acquisition opportunities that generate attractive returns on capital and represent a strategic fit to the Group. The acquisition of Celtic Media Group ("CMG") is currently in a Phase 2 Review by the Broadcast Authority of Ireland.

· Capital Reduction

On 5 December 2016, the shareholders voted to approve the Capital Reduction resolution at an EGM. The Company has not yet made an application to the High Court.

FINANCIAL HIGHLIGHTS1

· Total revenue of €323.4m, up 0.7% on the prior year.

· Total advertising revenue declined by 4.7%, driven by a publishing advertising revenue decrease of 9.2%. Digital revenues including CarsIreland.ie, continued to grow, increasing 20.4% throughout the period.

· Circulation revenue declined by 5.2%.

· Distribution experienced strong year on year growth due to new lines of business. The diversification strategy into adjacent categories continues apace, including entering the Fresh Food Packaging market through its Reach Retail Services division.

· Profit before tax2 growth, including a 53rd week, has been achieved by a significant decrease in pre-distribution operating costs and a year on year improvement in net interest costs2 of €2.2m, partially offset by a decline in advertising and circulation revenue. Earnings per share increased during the year by 0.5c to 2.9c.

· A reduction in pre-distribution operating expenses of c.9% due to the closure of the printing operation in Belfast, the continued integration of the Group's operations, the wind up of GrabOne and operational savings.

· The Group operating margin2 is up 0.6% to 12.4%.

· The cash balance has risen to €84.8m, up €25.1m year on year. Net assets currently stand at €62.3m, versus net assets of €44.5m as at 31 December 2015.

· The Group ended the period with an increased cash balance of €84.8m, generated primarily from a strong EBITDA performance, somewhat offset by exceptional expenditure outflow, acquisition expenditure including CarsIreland.ie and Greer Publications and a negative foreign exchange impact.

· The Group derecognised the net defined benefit obligation relating to two Republic of Ireland pension schemes with effect from 7 November 2016. As a consequence, an additional defined contribution pension provision was created. In 2016, the reduction in shareholders' equity attributable to the INIL and MSL defined benefit pension plans amounted to approximately €6 million mainly comprising a deficit on remeasurement of the defined benefit liabilities in the period from 1 January to 7 November of €17.6 million recognised in OCI and a credit to the Group Income Statement of €11.8 million on de-recognition of the defined benefit plans on 7 November 2016.

· The Group recorded a total net exceptional gain of €10.1m in 2016, which included:

Ø A retirement benefits accounting adjustment of €11.8m;

Ø A gain on the disposal of property, plant and equipment in the Island of Ireland of €5.8m; and

Ø A net exceptional charge of €7.5m on miscellaneous other items including tax, impairments, restructuring and acquisition related expenses in the Group somewhat offset by a €2.9m accounting gain relating to the acquisition of the remaining 50% interest in Carsireland.ie.

· The Directors are not proposing a dividend for 2016.

Outlook

The media industry continues to face challenging times with declining publishing advertising and circulation revenues, and the current slowdown in digital display advertising. However, despite these ongoing challenges, the Group anticipates an EBIT performance in 2017 within market expectations and continued cash generation.

OPERATIONAL HIGHLIGHTS

Publishing performance

· The Irish Independent continues to lead the quality daily market with an ABC3 of 97,104 maintaining its No.1 position. The title also experienced a 59% increase in its digital edition subscriptions and has 50.2% of the daily quality market in the Republic of Ireland.

· The Sunday Independent, which recorded an ABC3 of 191,594, has c.64% of the Sunday quality market and remains by far the biggest selling quality Sunday newspaper. Additionally its digital edition subscriptions saw an increase of 47%. The Sunday Independent has the largest regular audience on the island of Ireland across any advertising platform.

· The Sunday World is the nation's largest tabloid with an ABC3 of 149,652 (c.44.7% of the Sunday popular market).

· The Herald holds the position as the No.1 popular title for Dubliners, with an ABC3 of 40,847, and holds 17.9% of the daily popular market.

· INM Regional Newspapers are market leaders in every region they publish (Kerry, Wexford, Sligo and Drogheda/Dundalk). Advertising revenue locally has remained strong throughout 2016. Top quality local journalism allied to quality editorial content continue to drive circulation numbers. The Group's proposed acquisition of CMG (subject to regulatory approval) will add further quality regional titles to the Group.

· The Star is one of Ireland's most popular daily tabloid newspapers with an ABC3 of 50,733 and 22.3% of the daily popular market.

· In Northern Ireland the Belfast Telegraph, which recorded an ABC3 of 40,042, continues to hold a strong No.1 position within the local daily newspaper market, while the Sunday Life recorded an ABC3 of 36,467, performing ahead of local competitors.

· The strong revenue performance of Newspread, the Group's wholesale distribution business continued during 2016. Newspread's diversification strategy into adjacent categories continues apace, entering the Fresh Food Packaging market through its Reach Retail Services division.

Digital performance

· Digital revenues grew by 20.4% year on year driven by the combined growth in advertising, classifieds and the acquisition of CarsIreland.ie. As consumers increasingly shift to news consumption on mobile devices, our newsrooms and technology platforms are well equipped to meet the always-on expectations of our audiences. Revenue lines are becoming increasingly diversified with less dependency on display advertising revenues and growth fuelled by a combination of native, programmatic audience targeting and commercial partnerships. The Group is focusing on improving its capabilities to address the needs of niche audience segments with several innovations and systems launched during the year.

· The Group's major publishing portal, independent.ie, continued to extend its reach throughout 2016, with 25% year on year growth in traffic. The shift in consumer behaviours towards always-on mobile news consumption accelerated in 2016 with a 38% increase in traffic on mobile devices alone. The digital newsroom is now well equipped to respond to these consumer demands with virtually 24-hour coverage of breaking news from around the globe.

· The relaunch of the mobile app mid-year, helped to deliver a 33% increase in active users in H2. Over 2.2 million unique users are now consuming content from independent.ie via their mobile phone each week. The independent.ie platform retains its position as the leading mobile destination for direct news consumption on the island.

· Continued innovation focused on meeting niche audience needs is at the heart of the successes achieved by Digital during the year. For example, the FarmIreland (farmireland.ie) platform emerged from the Innovation Hub which is becoming a central driver of new product development. Responding to the needs of an under-served and information hungry agri-business community, FarmIreland was quickly achieving weekly audiences in excess of 250,000. Further product launches are planned for 2017.

· belfasttelegraph.co.uk, Northern Ireland's leading commercial news website, continues to enjoy strong audience and commercial success, with visits up 13% and page views up 8% year on year. Mobile usage continues to grow with new users on mobile up 11.3% which delivered growth in mobile visits of 30% year on year. The Group's recruitment sites in Northern Ireland nijobfinder.co.uk and recruitni.com continued to deliver strong audiences and traffic figures. Despite the entrance of new competition in Northern Ireland, propertynews.com grew visits to the site by 20% and introduced new features such as call tracking, which enabled the business to grow and track lead delivery to estate agents.

· Following the Groups acquisition of the remaining 50% of the business, CarsIreland.ie has increased its traffic, engagement rate and its offering and continues to grow as one of the leading online classified platforms in the Republic of Ireland for motor vehicles. 2017 plans for the platform centre on increased investment in data analytics and trend analysis to provide an enhanced consumer experience. Consumers are increasingly turning to online to inform themselves about the purchase of a car and CarsIreland.ie is well positioned to benefit from this trend throughout 2017.

STATEMENTS

Mr Leslie Buckley, Chairman, Independent News & Media PLC, said: "I am pleased to report that the INM Group performed strongly in 2016 against the continuing challenging backdrop for the news publishing sector. The key drivers of our increase in revenue were growth in digital advertising and in our distribution business. Profit has been enhanced by a significant decrease in pre-distribution operating costs.

INM's focus has been on strengthening the overall financial performance of the Group and the creation of shareholder value. We have worked to deliver on the company's strategy of maintaining our leading position in the print publishing market, growing our existing digital business and seeking acquisitions for further growth and diversification. Looking at suitable acquisitions for the business is essential against the backdrop of the consistent, continued decline in the news publishing sector.

I would like to sincerely thank the Board, management and each employee in INM for their contribution to the successful outcome for 2016. Their continuing commitment is an essential ingredient as the Group progresses in a challenging environment."

Mr Robert Pitt, Group Chief Executive Officer, Independent News & Media PLC, said: "The full year results for 2016 released today represent a strong profit performance given the negative industry conditions. The industry is also challenged by uncertainty relating to Brexit and other international events.

The Group has recorded a PBT growth year-on-year of 11.8% to €41.8 million. This has been driven by a combination of revenue growth in both the digital and distribution businesses and cost containment measures across the entire Group. Pre-distribution operating expenses have been reduced by 9% owing to a range of pro-active measures approved by the Board and implemented by Senior Management, including the wind up of GrabOne and the closure of the Belfast printing operation. The Group has continued to strengthen its net asset position and has increased cash reserves at year-end, positioning it well for future acquisition opportunities.

I give credit and thanks to all the staff in INM for their efforts in securing the 2016 results. In light of the aforementioned very challenging industry conditions, the Group does need to address the structure of its pension obligations. The Group is involved in ongoing discussions with the Trustees of the two pension schemes affected by its decision of 7 November 2016 and is intent on achieving a satisfactory outcome for all concerned, including pension members, employees and shareholders."

SUBSEQUENT EVENTS

The Company is complying with a requirement from the Office of the Director of Corporate Enforcement ("ODCE") to produce records in relation to the possible acquisition by the Company of Newstalk and related matters that were the subject of the Company's announcement on 28 November 2016. The Company is taking all necessary steps to meet the ODCE's request.

A requirement from the ODCE to produce books and records is a procedural matter that does not involve any conclusion that there has been a breach of law by the Company or its officers.

The Company established in December 2016, before being contacted by the ODCE, a formal independent review to examine and inquire into matters concerning the possible acquisition of Newstalk and related matters. Discussions on the possible acquisition ended at a preliminary stage and the acquisition was never considered by the Board. The confidential, independent review is being carried out on behalf of the Board by senior counsel and a senior independent governance expert who have been mandated to report to the Board.

The Company takes its corporate governance responsibilities very seriously, and seeks to comply at all times with all relevant laws and regulations.

The Company does not intend to comment further regarding the ODCE's request and the independent review.

There were no further events since the year end that would require disclosure or adjustment in the financial statements.

 - Ends -

For further information, contact:

INDEPENDENT NEWS & MEDIA PLC

GROUP INCOME STATEMENT

* Results to 31 December 2016 include an extra (53rd) week.

** See note 5.

GROUP STATEMENT OF COMPREHENSIVE INCOME

* Results to 31 December 2016 include an extra (53rd) week.

** In 2016, the reduction in shareholders' equity attributable to the INIL and MSL defined benefit pension plans amounted to approximately €6 million mainly comprising a deficit on remeasurement of the defined benefit liabilities in the period from 1 January to 7 November of €17.6 million recognised in OCI and a credit to the Group Income Statement of €11.8 million on de-recognition of the defined benefit plans on 7 November 2016.

GROUP STATEMENT OF FINANCIAL POSITION

GROUP STATEMENT OF CHANGES IN EQUITY (2016 Unaudited; 2015 Audited)

 * 2016: A €0.1m movement relates to a movement on cash flow hedging reserve. (2015: A net €nil movement relates to a movement on available-for-sale financial assets

reserve of €0.7m and the Group's share of the movement on APN's fair value reserve of (€0.7m)).

 **Details can be found in the Group Statement of Comprehensive Income.

GROUP CASH FLOW STATEMENT

* Results to 31 December 2016 include an extra (53rd) week.

** Repayment of borrowings is comprised of release of Escrow cash €10.0m and €115.5m repayment of debt, primarily from proceeds of disposal of APN shareholding (note 2).

NOTES TO THE FINANCIAL INFORMATION 

1. Basis of Preparation of Financial Information under IFRS

Reporting Entity and Basis of Accounting

Independent News & Media PLC ("the Company") is a company domiciled in Ireland. These condensed preliminary Group financial statements as at and for the twelve months ended 31 December 2016 comprise the financial statements of the Company and its subsidiaries (together referred to as "the Group") and the Group's interest in associates and joint ventures.

This financial information has been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due during the 12 months from the date of approval of the 2016 Annual Report, the time period that the Directors have considered in evaluating the appropriateness of the going concern basis.

Financial Information

The financial information in this announcement does not constitute the statutory financial statements of the Company and the Group, a copy of which is required to be annexed to the Company's annual return to the Companies Registration Office in Ireland. A copy of the statutory financial statements in respect of the year ended 31 December 2016 will be annexed to the Company's annual return for 2016. The annual report and financial statements will be approved by the Board of Directors by 1 May 2017. Accordingly, this financial information is unaudited. A copy of the statutory financial statements required to be annexed to the Company's annual return in respect of the year ended 31 December 2015 has been annexed to the Company's annual return for 2015 to the Companies Registration Office. The audit opinion on these financial statements was unqualified.

The 2016 statutory financial statements of the Company will be available on the Company's website inmplc.com as of 1 May 2017. Consistent with prior years, the full financial statements for the year ended 31 December 2016 and the audit report thereon will be completed and available to all shareholders at least 20 working days before the AGM.

General Information

The Group is required to present its annual consolidated financial statements for the year ended 31 December 2016 in accordance with EU adopted International Financial Reporting Standards ("IFRS") and with those parts of the Companies Act 2014, applicable to companies reporting under IFRS. This financial information comprises the Group Statements of Financial Position, Group Income Statements, Cash Flow Statements, Statements of Comprehensive Income, Statements of Changes in Equity and selected notes for the years ended 31 December 2016 and 31 December 2015. This financial information for the years ended 31 December 2016 and 31 December 2015 has been prepared in accordance with the Listing Rules of the Irish Stock Exchange.

Measurement of Fair Values

A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

The Group regularly reviews significant unobservable inputs and valuation adjustments.

Significant valuation issues are reported to the Group's Audit and Risk Committee.

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

NOTES TO THE FINANCIAL INFORMATION (continued)

1. Basis of Preparation of Financial Information under IFRS (continued)

Measurement of Fair Values (continued)

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

- Note 18 - share-based payment arrangements;

- Note 6 - financial instruments; and

- Note 19 - acquisition of subsidiary.

Except as described below, the accounting policies and methods of computation and presentation adopted in the preparation of this financial information are consistent with those applied in the Annual Report for the year ended 31 December 2015 and are described in those financial statements on pages 107 to 123.

Except for the changes below, the Group has consistently applied its accounting policies to all years presented in these consolidated financial statements.

The following new and amended standards and interpretations are effective for the Group for the first time for the financial year beginning 1 January 2016. 

· Amendments to IFRS 11: Accounting for acquisitions of interests in Joint Operations (6 May 2014)

· Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation (12 May 2014)

· Amendments to IAS 16: Property, Plant and Equipment and IAS 41: Bearer Plants (30 June 2014)

· Amendments to IAS 27: Equity method in Separate Financial Statements (12 August 2014)

· Amendments to IAS 1: Disclosure Initiative (18 December 2014)

· Annual Improvements to IFRSs 2012-2014 Cycle (25 September 2014)

· Amendments to IFRS 10, IFRS 12 and IAS 28: Investment entities - exception to consolidation.

The aforementioned did not have a material impact on the Group.

NOTES TO THE FINANCIAL INFORMATION (continued)

1. Basis of Preparation of Financial Information under IFRS (continued)

Risks and Uncertainties

(i) Market Disruption (Print Media)

Maintaining profitability is increasingly challenging due to market disruption (i.e. shift from print media to digital/mobile) negatively affecting newspaper circulation and print advertising revenues giving rise to an increased need to achieve cost reductions to offset this contraction. This is being managed through the following:

• Advertising revenue and circulation volumes and revenue are closely monitored against budgets and industry benchmarks by senior management during weekly management meetings.

• INM operates a continuous programme of product development and refinement, and periodic readership reviews that are carried out by third party specialists and which produce a series of actions or identify potential initiatives. Marketing budgets are then aligned to target these initiatives.

• INM has undertaken several initiatives to drive more effective relationship management between advertising sales representatives, agents and key customers, including targeted product and sales training, introduction of campaign sales teams focused on delivering value to advertising customers and investment in a cross platform advertising booking and customer relationship management (CRM) system.

• Cost containment across all areas of the business to protect and grow margin remains a key priority of the Group and is monitored closely by senior management and finance.

(ii) Cyber and Information Security

Maintaining adequate IT systems and infrastructure to support growth and development may be affected by:

• accidental exposure or deliberate theft of sensitive information;

• loss of service or system availability;

• significant system changes or upgrades; and

• cybercrime.

Dedicated IT personnel with the appropriate technical expertise are in place in the INM Group to oversee IT security. IT standards and policies are subject to internal audit and external reviews annually to ensure they are in line with appropriate best practices. Cyber security reviews, including penetration testing and vulnerability assessments are performed throughout the year by specialist third party technical experts to provide independent assurance.

(iii) Talent Management/Succession Planning

A failure to attract, retain or develop high quality staff and management throughout the Group could impact on the attainment of strategic objectives.

The Group maintains a constant focus on this area with structured succession planning, management development and remuneration programmes in place. Several talent initiatives launched in 2015 were carried through 2016, including a graduate recruitment programme, increased focus on and budget for targeted staff training, and the INM Business Manager Programme and Digital Journalist Programme in association with National College of Ireland aiming to further develop management and editorial capability across the Group. These programmes are reviewed regularly by Group Human Resources, the Group Chief Executive Officer and the Board.

(iv) IT Disaster Recovery and Business Continuity

A significant loss of production capability during a disaster scenario could severely impact revenue and lead to increased costs.

Business continuity plans ("BCP") and IT disaster recovery plans ("DRP") are in place and tested throughout the year. These plans are subject to review on an annual basis. Also, individual plans are in place for individual businesses and locations where appropriate. These individual plans and testing feed into the overall Group plan.

NOTES TO THE FINANCIAL INFORMATION (continued)

1. Basis of Preparation of Financial Information under IFRS (continued)

Risks and Uncertainties (continued)

(v) Acquisitions and Change Management

A failure to identify, execute or properly integrate acquisitions, change management programmes or other growth opportunities could impact on profit targets and impede the strategic development of the Group.

Dedicated resources are focused on continuous and active review of potential acquisitions. They are supported by a Mergers & Acquisitions ("M&A") Board sub-committee made up of Board members, Executive management and external specialists. All potential acquisitions are subject to an assessment of their ability to generate a return on capital employed well in excess of the cost of capital, and for their strategic fit within the Group.

The Group conducts a stringent internal evaluation process and external due diligence prior to completing any acquisition. Projects and change management programmes are resourced by dedicated and appropriately qualified internal personnel, supported by external expertise.

(vi) Digital Revenue Growth

A failure to achieve anticipated growth in digital and e-commerce revenues, and failure to adequately monitor the return on investment of the current and future digital investment could significantly impact revenue and profit targets and impede the strategic development of the Group.

INM senior management closely monitors performance of digital and e-commerce through a series of digital specific key performance indicators, such as revenue per thousand impressions, weekly online advertising spend reporting, number of unique visitors, page impressions and average time on site. In addition, weekly and monthly revenue/cost reporting is submitted to Group Finance to support monitoring of investment performance. A Digital Board sub-committee is established and operational, which monitors progress of the digital strategy. Also, significant leadership changes were made in Digital in 2016, including the hiring of a Chief Digital Officer and a Managing Director of New Business Ventures.

(vii) Litigation

Libel action or other types of litigation taken against the INM Group or producing published content that lacks trust and credibility could result in financial loss or reputational damage.

Libel action claims are actively managed by Editorial senior management in conjunction with legal support. Rigorous investigations and disciplinary processes are carried out following any proven errors (e.g. factual errors, photo errors). In addition, several functions exist to mitigate the risk of libel actions occurring.

These include for example:

• A detailed Editorial Code of Practice was published and issued to all staff with specific reference to libel and factual accuracy;

• Introduction of libel training and exam requirements for all graduates, as well as training rolled-out to all existing journalists and contributors; and

• Introduction of in-house legal support with service level targets specifically related to libel actions.

(viii) Data Protection Legislation

A breach in data protection legislation could lead to fines as well as reputational and operational damage to INM.

INM's data protection readiness and processes were subjected to detailed review in 2015 by third party subject matter specialists. Several actions and initiatives were undertaken in 2015 following on from this review, including the designation of a Group Data Protection Officer, designation and training of a data protection champion's network consisting of individuals from each function and business unit, and the development and implementation of an updated suite of INM Group data protection policies and procedures. Also, continuous assessment of INM's data protection programme is underway to ensure preparedness with enactment of the General Data Protection Regulation in May 2018.

NOTES TO THE FINANCIAL INFORMATION (continued)

1. Basis of Preparation of Financial Information under IFRS (continued)

(ix) Economic and Geopolitical uncertainty

General economic conditions can positively or negatively affect the performance of the Group's businesses. The main geographies which the Group are directly exposed to are the Republic of Ireland and Northern Ireland. Following the UK vote to leave the EU, there is uncertainty surrounding the nature, timing and associated trade conditions of the UK exit. Given its proximity and close trading relationship with the Republic of Ireland, the UK exit from the EU is certain to affect the Irish domestic economy. Other events in 2016, including the US presidential election outcome are likely to impact the global economy, the affects of which could be felt locally. A weakening of the Irish economy, particularly if consumer led, could accelerate the decline in print advertising revenue.

INM executives monitor the macroeconomic and geopolitical environment by way of regular analysis of business performance through financial results and KPI's to highlight early trends and impacts from economic and geopolitical uncertainty.

(x) Compliance with laws and regulations

Increasing regulation, including in the areas of Corporate Governance such as director's duties and director's compliance statement requires increased focus and resources to ensure the Group is compliant with all applicable laws and regulations. Failure to comply with all relevant laws and regulations could result in financial penalties and reputational damage.

The Group manages compliance with laws and regulations through the following:

• Changes in laws and regulations are monitored and potential impacts discussed with relevant management team members, Board, or sub-committees as appropriate.

• Professional services are retained to support the Group in key compliance areas, such as Tax, Corporate Governance and Company Secretarial duties.

• Developments in the legal and regulatory landscape are reviewed by the Audit & Risk Committee.

• Group-wide policies are implemented where required to address new legislation and regulation.

2. Financial Restructuring

As part of the disposal of South African operations in August 2013, the Group gave standard warranties with a total potential exposure of R200m (€14.3m as at 31 December 2014). €10.0m of the proceeds were retained in an Escrow account (with this amount classified as restricted cash in the Group Statement of Financial Position) pending any potential warranty claims for a period of 12 to 24 months post completion (24 months if certain pre-existing industry wide competition commission enquiries were still open after 12 months). In early 2015, the Group signed a Settlement Agreement with the purchasers of the South African business to pay the euro equivalent of R85m (€6.6m) in full and final settlement of all warranties and industry wide competition commission enquiries. The residual balance of €3.4m in the Escrow account was paid to the banking syndicate with a consequential reduction of €10.0m in Escrow debt in line with the Escrow Agreement.

On 19 March 2015, the Group announced that it had entered into an agreement with Credit Suisse (Australia) Limited ("Credit Suisse") in respect of the sale, by way of an underwritten block trade, of 191,541,073 ordinary shares in APN, being the entire holding of the Group in APN (representing 18.61% of the issued share capital of APN).

Under the terms of the agreement giving effect to the sale (the "Sale Agreement"), Credit Suisse agreed to acquire, or procure the acquisition by third party purchasers of, all of the Group shareholding in APN at a fixed price per APN ordinary share ("APN Share") of AUD$0.88. All of the net proceeds of the transaction were applied to repay INM Group indebtedness.

NOTES TO THE FINANCIAL INFORMATION (continued)

3. Revenue

An analysis of the Group's revenue from continuing operations for the year is as follows:

4. Segmental Reporting

Segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker ("CODM"). The CODM has been identified as the Board of Directors. The key performance measure that is reviewed for these segments is operating profit/(loss) before exceptional items. Exceptional items are reviewed at a level higher than these operating segments and appear as a reconciling item from the key performance measure reviewed by the CODM to the IFRS result. Finance income and expense, share of results of associates and joint ventures and taxation are reviewed and considered by the CODM at a Group level only.

The Group continued to report its revenues and operating profit before exceptional items by geographical areas with a further analysis of the geographical areas by class of business also provided.

A number of operating segments are aggregated into one operating segment on the basis that they exhibit similar long-term financial performance as they have similar economic characteristics and the segments are similar in each of the following respects:

• the nature of the products and services;

• the nature of the production processes;

• the type or class of customer for their products and services; and

• the methods used to distribute their products or provide their services.

INM's entire shareholding in APN was disposed of in 2015. Consequently, as APN was a major line of business, it was treated as a discontinued operation in 2015.

 NOTES TO THE FINANCIAL INFORMATION (continued)

4. Segmental Reporting (continued)

NOTES TO THE FINANCIAL INFORMATION (continued)

5. Exceptional Items

Exceptional items are those items of income and expense that the Group considers are material and/or of such a nature that their separate disclosure is relevant to a better understanding of the Group's financial performance.

* Of the exceptional gain of €10.1m in 2016, €8.2m is shown as an exceptional expenditure outflow in the Group Cash Flow Statement and primarily relates to miscellaneous restructuring costs (proceeds received from the sale of property, plant and equipment are disclosed separately in the Group Cash Flow Statement). Of the exceptional gain of €40.7m in 2015, €0.8m is shown as an exceptional expenditure outflow in the Group Cash Flow Statement and primarily relates to miscellaneous restructuring costs partially offset by a termination payment received from the cessation of a printing contract.

(i) 2016

Primarily relates to the following:

(a) A retirement benefits accounting adjustment of €11.8m (see note 12 for further information) with €0.4m of related professional fees. In 2016, the reduction in shareholders' equity attributable to the INIL and MSL defined benefit pension plans amounted to approximately €6 million mainly comprising a deficit on re-measurement of the defined benefit liabilities in the period from 1 January to 7 November of €17.6 million recognised in OCI and a credit to the Group Income Statement of €11.8 million on de-recognition of the defined benefit plans on 7 November 2016;

(b) A gain on the disposal of property, plant and equipment in the Island of Ireland of €5.8m;

(c) A gain of €0.6m for a currency translation adjustment due to the disposal of two Australian subsidiaries;

(d) A charge of €3.3m related to miscellaneous restructuring costs, primarily redundancy costs in the Island of Ireland; and

(e) A charge of €0.7m (of which €0.2m related to Digital Odyssey Limited) for acquisition related expenses.

2015

Primarily relates to the following:

(a) A charge of €0.9m related to miscellaneous restructuring costs, primarily redundancy costs in the Island of Ireland; and

(b) A retirement benefits accounting adjustment of €0.3m due to the transfer of certain members from the defined benefit plan to the Company's defined contribution plan (note 12). This comprises a €0.5m exceptional settlement gain on the transfers out by members, somewhat offset by an exceptional charge of €0.2m on the booking of a liability for payments to the defined contribution pension scheme in respect of those members.

NOTES TO THE FINANCIAL INFORMATION (continued)

5. Exceptional Items (continued)

(ii) 2016

A charge of €1.8m relating to miscellaneous impairments and write-offs of property, plant and equipment in the Island of Ireland to its recoverable amount, primarily as a result of a review of the distribution business. The impairment amount was quantified by the use of a third party valuation report.

2015

Primarily relates to the following:

(a) A charge of €1.7m relating to miscellaneous impairments and write-offs of property, plant and equipment and intangible assets in the Republic of Ireland;

(b) A charge of €1.7m relating to the write-down of property, plant and equipment in the Belfast operations; and

(c) A charge of €1.2m relating to the impairment of the Belfast Telegraph masthead.

(iii) 2015

The share of associates' and joint ventures' exceptional items (net of tax and non-controlling interests) charge of €0.1m relates to redundancies in Independent Star Limited.

(iv) 2016

Relates to a gain arising from the remeasurement to fair value of the Group's pre-existing 50% interest in Digital Odyssey Limited following the acquisition of the remaining 50% of the shares and voting rights in that entity (see note 19).

 (v) 2016

Relates to a charge of €1.5m for the write down of two available-for-sale financial assets deemed not recoverable.

2015

Relates to a charge of €0.9m due to the reclassification to the Group Income Statement of a negative fair value reserve on an available-for-sale financial asset. This comprises a reclassification relating to a €0.7m opening balance in fair value reserve and a €0.2m movement during the year.

(vi) 2016

The exceptional tax charge in 2016 primarily relates to a tax charge of €2.1m arising on the release of a deferred tax asset (see note 16 for further information), a tax charge of €1.5m arising due to the retirement benefit accounting adjustment (see note 12 for further information) and a tax credit of €0.3m arising on exceptional expenses in the Republic of Ireland.

2015

Relates to a net charge of €0.5m classified as exceptional tax. The exceptional tax charge in 2015 primarily relates to a tax charge of €0.4m arising on the release of a deferred tax asset on foreign losses and a tax charge of €0.1m arising on exceptional expenses in the Republic of Ireland.

(vii) 2015

Relates to the gain on disposal of the Group's entire shareholding in APN (see note 17).

NOTES TO THE FINANCIAL INFORMATION (continued)

6. Fair Value

The fair values of quoted available-for-sale financial assets and derivative financial instruments are measured using market values. Unquoted available-for-sale financial assets and derivatives are measured using valuation techniques. The carrying amount of non interest bearing financial assets and financial liabilities and cash and cash equivalents approximates their fair values. The Group has not disclosed the fair value of certain financial instruments such as other payables, short-term receivables and short term payables because their carrying amounts are a reasonable approximation of fair value.

Of the available-for-sale financial assets of €0.2m (2015: €2.0m), €nil (2015: €0.9m) are measured at Level 1 of the fair value hierarchy and €0.2m (2015: €1.1m) are measured at Level 3 of the fair value hierarchy.

The derivative financial instruments - cash flow hedges of €0.1m (2015: €nil) are measured at Level 2 of the fair value hierarchy.

7. Net Finance Income/(Costs)

The 2016 net exceptional finance income relates to a gain of €2.9m arising from the remeasurement to fair value of the Group's pre-existing 50% interest in Digital Odyssey Limited (see note 19) following the acquisition of the remaining 50% of the shares and voting rights in that entity and a charge of €1.5m for the write down of two available-for-sale financial assets deemed not recoverable.

During 2015, an exceptional finance charge of €0.9m was booked relating to the reclassification to the Group Income Statement of a negative fair value reserve on an available-for-sale financial asset. This was due to a sustained period of negative movements in the market value of the financial asset.

NOTES TO THE FINANCIAL INFORMATION (continued)

8. Taxation

(a) Amounts recognised in profit or loss

(b) Amounts recognised in OCI

(c) Reconciliation of effective tax rate

The total tax charge for the year is different from the standard rate of Corporation Tax in Ireland of 12.5% (2015: 12.5%). The differences are explained below:

For further information on movement in deferred tax assets in 2016, see note 16.

Within the total tax charge of €4.9m (2015: charge of €5.7m), a net charge of €3.3m (2015: net charge of €0.5m) is classified as exceptional tax.

The exceptional tax charge of €3.3m in 2016 primarily relates to a tax charge of €2.1m on the release of a deferred tax asset arising from a change in accounting estimate, a tax charge of €1.5m arising on the retirement benefit accounting adjustment of €11.8m and a tax credit of €0.3m arising on exceptional expenses in the Republic of Ireland.

The exceptional tax charge in 2015 primarily relates to a tax charge of €0.4m arising on the release of a deferred tax asset on foreign losses and a tax charge of €0.1m arising on exceptional expenses in the Republic of Ireland.

NOTES TO THE FINANCIAL INFORMATION (continued)

9. Earnings Per Share

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Share options are the Company's only category of dilutive potential ordinary shares.

Employee share options are contingently issuable shares because of the requirement to satisfy specific performance and service conditions. These contingently issuable shares are included in the computation of diluted earnings per ordinary share to the extent that the conditions would have been satisfied as at the end of the reporting period if this was the vesting date.

At 31 December 2016, 535,098 options (2015: 581,220) were excluded from the diluted weighted average number of ordinary shares calculation because their effect is anti-dilutive.

Basic and diluted earnings per share before exceptional items are presented in order to give a better understanding of the Group's underlying financial performance.

NOTES TO THE FINANCIAL INFORMATION (continued)

10. Investments in Associates and Joint Ventures

* On 13 May 2016, the Group acquired the remaining 50% of the shares and voting interests in Digital Odyssey Limited (trading as CarsIreland.ie). As a result, the Group is deemed to have disposed of its 50% interest in the joint venture upon acquiring 100% of the shares and obtaining control of Digital Odyssey Limited.

(i) Carrying Amount

The reporting year end dates of the Group's associates and joint ventures are the same as the Group's reporting year end date.

NOTES TO THE FINANCIAL INFORMATION (continued)

10. Investments in Associates and Joint Ventures (continued)

(ii) Associates

The closing balance for year end 31 December 2016 for associates of €0.9m relates to Click & Go. No ownership interests, assets or liabilities were held in APN as at 31 December 2016 (2015: €nil). The summarised trading results below relate solely to APN:

.

 (iii) Joint Ventures

Summarised financial information in respect of the Group's share of its joint ventures (The Star and Reachmount) is set out below:

NOTES TO THE FINANCIAL INFORMATION (continued)

11. Share Capital and Share Premium

At the EGM during 2016 the Company, in accordance with Section 83(1)(f)(ii) of the Companies Act 2014, reduced the authorised share capital of the Company from €259,045,221.72 to €70,000,000 by the cancellation of 556,015,358 deferred shares of €0.34 each, which have not been taken or agreed to be taken by any person.

NOTES TO THE FINANCIAL INFORMATION (continued)

12. Retirement Benefit Obligations

The Group operates defined benefit and defined contribution pension schemes. The pension scheme assets are held in separate trustee administered funds. A summary of the Group's net liabilities in respect of these schemes is set out below:

Group Income Statement

The amounts recognised in the Group Income Statement in respect of all pension schemes are as follows: