Mission Statement

A Community Media Company

Our aim is to serve local communities by meeting their needs for local news, information and advertising services through a range of media including print and digital channels which together achieve unparalleled levels of market reach.

Corporate Governance

In May 2010 the Financial Reporting Council published the United Kingdom Corporate Governance Code which applies to all companies for financial years beginning on or after 29 June 2010 (the “New Code”). Although 2011 is the first year during which the Company is required to comply with the New Code, it sought to be compliant with relevant aspects of it prior to the end of 2010. The Company is committed to the principles of Corporate Governance contained in both the revised Combined Code on UK Corporate Governance that was issued in 2008 (“the Code”) and to the New Code, for which the Board is accountable to shareholders.

Statement of Compliance with the Code
The Company has complied with the applicable provisions set out in Section 1 of the Code throughout the year, other than a departure from Section A.3.2 between May and July 2010 when, due to retirements, the Board was temporarily unbalanced in terms of the proportion of independent Non Executive Directors. This was addressed through the appointment of Kjell Aamot in August 2010.

Statement of Application of the Principles of Good Governance
The Company has applied the principles set out in Section 1 of the Code as reported above. Further explanation of how the principles have been applied is set out below and, in connection with directors’ remuneration, in the Directors’ Remuneration Report.

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

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. The core values of the Board are integrity, independence and objectivity. All Directors must take decisions in the interests of the Company and all of its shareholders.

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 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 publishing, the Group’s debt facilities, human resource requirements and implementation of major IT systems.

Board Meeting Agenda
The Board receives a formal schedule of matters specifically reserved to it for decision, such as 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 the Board and Committees 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 Responsibilities
The 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. Mark Pain succeeded Peter Cawdron as Senior Independent Director on 30 April 2010 following the latter’s retirement from the Board. 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 2010, the Nomination Committee was chaired by Ian Russell. The Remuneration Committee was chaired by Peter Cawdron until 30 April 2010 when Geoff Iddison succeeded him. Mark Pain chaired the Audit Committee throughout 2010.

The terms of reference of each of the Board’s Committees were reviewed and amended by the Board during 2010 and the updated terms are displayed on the Company’s website in the Investor Centre section.

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

	Board	Remuneration Committee	Audit Comittee	Nomination Comittee
Scheduled Meetings	(7)	(6)	(3)	(2)
Ian Russell	7	-	-	2
John Fry	7	-	-	-
Stuart Paterson	7	-	-	-
Danny Cammiade	7	-	-	-
Peter Cawdron¹	3	3	-	-
Freddy Johnston¹	3	-	-	-
Martina King¹	3	3	1	-
Ralph Marshall	7	-	-	2
Mark Pain	7	6	3	2
Camilla Rhodes²	6	2	3	2
Geoff Iddison	7	-	-	2
Kjell Aarnot³	3	-	1	1

1 Retired 30 April 2010.
2 Appointed to Remuneration Committee on 4 March 2010. Attended 2 of 3 scheduled Remuneration Committee meetings arranged subsequent to her appointment.
3 Appointed to the Board on 1 August 2010 and to the Audit Committee and Nomination Committee on 1 September 2010. Attended all scheduled Board and Committee meetings arranged subsequent
to his appointment.

Board Balance and Independence
Of the Company’s current nine Directors, three are Executive and the remainder Non Executive, of whom four are regarded as independent, excluding the Chairman and Ralph Marshall. As a consequence of the retirement of Freddy Johnston, Martina King and Peter Cawdron at the conclusion of the Annual General Meeting on 30 April 2010, the Company temporarily did not comply with the requirement of the Code that at least half of the Board (excluding the Chairman) should consist of independent Non Executive Directors. The Company addressed this through the appointment of Kjell Aamot who joined the Board as an independent Non Executive Director on 1 August 2010. Following that appointment, the Board is satisfied it had a sufficient independent Non Executive element to satisfy the requirements of the Code.

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 Committee
The Nomination Committee is chaired by Ian Russell. The Company Secretary acts as secretary to the Committee. Reporting to the Board, its duty is to regularly review the structure, size and composition of the Board, to seek suitably skilled and experienced candidates as Non Executive Directors with sufficient time to devote to the role and to oversee 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 need to encourage diversity within the Board’s membership. Its terms of reference were revised in 2010 to reflect the provisions of the New Code. Once the role of a vacancy has been determined, the Committee may appoint external recruitment consultants to assist with the search. In addition to Mr Russell, the Nomination Committee comprised Geoff Iddison, Mark Pain, Camilla Rhodes and Ralph Marshall throughout the year. Kjell Aamot joined the Committee on 1 September 2010. Under the guidance of the Nomination Committee, the Company has been conducting an exercise to appoint a new Executive Director to the position of Chief Financial Officer following the resignation of Stuart Paterson on 26 October 2010. On 4 March 2011, the Company announced the appointment of Grant Murray as the new Chief Financial Officer. Mr Murray will start with the Company on 3 May 2011. As John Fry, Chief Executive Officer, has indicated his intention to step down over the course of the next year, the Committee will start the process to identify suitable candidates for the position.

Information and Professional Development
A detailed induction programme was arranged for both Geoff Iddison and Kjell Aamot. Mr Iddison also received detailed training in respect of his appointment as Chairman of the Remuneration Committee. In each case, training included meetings and discussions with advisers and senior management where appropriate, together with the provision of a full induction guide and seminars (both internal and external). The Company formalised its written induction guide for new Directors in 2010.

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 in respect of all matters connected to their duties and he is responsible for ensuring that all Board procedures are complied with.

Training
Training is undertaken as required during the year. This encompasses a variety of topics, industry specific and technical issues, as well as governance and corporate social responsibility. The feedback from the recent board evaluation self-assessment exercise will assist in setting the training plan for 2011. The Company arranged for its Non Executive Directors to visit at least two of the Group’s centres during 2010 where they received 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, training is one of the standard topics for the Board to consider, both individually and collectively.

Board Performance Evaluation
During 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. There was a continued emphasis on a scoring system for assessing individual, Committee and Board performance. The Company Secretary prepared a summary of the conclusions which was presented to the Board meeting in January 2011. Separately, the Secretary 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 of the process were positive and confirmed the effectiveness of the Board and relevant Committees as well as the contributions of individual Directors. Under the provisions of the New Code, evaluation of the boards of FTSE 350 companies should be externally evaluated every three years. At present the Board does not propose to undertake an external evaluation while it remains outwith the FTSE 350 index. However, the position will be kept under review.

Board Re-election
It is the policy of the Board that all 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 New Code which requires all directors of companies in that index to be subject to annual re-election. At present the Board does not propose that all Directors stand for annual re-election while it remains outwith the FTSE 350 index. However, the position will be kept under review.

The Nomination Committee and Mr 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 2011 Annual General Meeting and are satisfied that those individuals’ performance continue to be effective and that they have demonstrated a clear commitment to the role.

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

ACCOUNTABILITY AND AUDIT
Financial Reporting
The Board has shown its commitment 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 Statement
The 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:

select suitable accounting policies and then apply them consistently;
make judgments and accounting estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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

properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
make an assessment of the Company’s ability to continue as a going concern.

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 Concern
After 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 10 to 25 of the Annual Report.

Internal Control
The 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 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 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:

Formal Board reporting on a monthly basis by the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer on the Group’s performance and on any emerging risks and issues. The monthly management accounts break down the results of the Group’s operations into its two reportable segments and then by individual business performance. 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 local 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. The Group Management Board, which comprises the Executive Directors, the Company Secretary, the Group Head of Finance, the Director of Human Resources and the Digital and Business Development Director met every month during the year to review financial and operational issues as well as the risks facing the Group. From January 2011 this body has met along with Divisional Managing Directors and other senior executives from throughout the Group as a Senior Management Team.
Formal Board approval for capital expenditure over £250,000 and for other investment decisions.
Formal Board approval of the annual budget for the forthcoming financial year. This includes detailed and comprehensive budgets covering each operating business.
Formal Board reporting of the key functional departments’ future strategy as part of the operational topics considered at Board meetings during the year.
Review by the Audit Committee (with subsequent reporting to the Board) on a six-monthly basis of the work performed by the IFCC based on a programme 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.
Review by the Audit Committee (with subsequent reporting to the Board) of the conclusions of the Group’s external auditors in their annual audit and review of the half-year results. These reviews include discussion of any control weaknesses or issues identified by the auditors.
The conduct of risk assessment involving all senior managers of the Group’s businesses in addition to the Executive Directors. A risk matrix is reviewed on a regular basis throughout the year by both the local operations and the Senior Management Team. One risk is discussed 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 monthly report to the Board. During 2010, the Group Management Board considered customer care metrics; human resources; pension liabilities; newsprint; cuts in public spending; banking covenants; national advertising sales; management succession planning; digital strategy; management stretch; daily newspaper sales; and corporate strategy.

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, the Group Management Board 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:

Finance
Cash/treasury controls
Authorisation levels
Trading
Customer service
Commercial and competition
Technology
Property management
Human resources including pension administration, disability and health and safety
Environmental issues and energy management
Legal and regulatory compliance
Business continuity

At the Board meeting in March 2011 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.

AUDIT COMMITTEE AND AUDITORS
Summary of the Role of the Audit Committee

The 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.

The Audit Committee is responsible for:

monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance and reviewing significant financial reporting judgements contained therein;
reviewing the Group’s internal financial controls and the Group’s internal control and risk management systems;
monitoring and reviewing the effectiveness of the IFCC and making proposals to the Board as to the need, or otherwise, for an internal audit function;
making recommendations to the Board, for a resolution to be put to the shareholders for their approval in general meeting, on the appointment of the external auditors and the approval of the remuneration and terms of engagement of the external auditors;
reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements;
developing and implementing a policy on the engagement of the external auditors to supply non-audit services, taking into account relevant guidance regarding provision of non-audit services by the external audit firm; and
reviewing the arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other 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 Committee
The Audit Committee is chaired by Mark Pain, a chartered accountant, who is considered by the Board to have relevant financial expertise for that role. Camilla Rhodes (who was appointed to the Committee on 1 January 2010) and Kjell Aamot (who was appointed to the Committee on 1 September 2010) are also members. All are independent Non Executive Directors.

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.

Meetings
The 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 governance - corporate governance 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.

Overview of the Actions Taken by the Audit Committee to Discharge its Duties
Two of the scheduled meetings 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 2010 where the Committee carried out a full and detailed 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.

External Auditors
At the meeting to review the Annual Report and Accounts, the Committee formally considers the non-audit services provided by the Group’s external auditors and the effectiveness of the audit process. It is the Company’s policy that any non-audit work to be performed by the auditors requires to be approved in advance by the Audit Committee.

To assess the effectiveness of the external auditors, the Audit Committee reviewed:

the arrangements for ensuring the external auditors’ independence and objectivity;
the external auditors’ fulfilment of the agreed audit plan and any variations from the plan;
the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgements; and
the content of the external auditors’ reporting on internal control.

The Committee is satisfied that the objectivity and independence of the external audit is safeguarded.

During 2010 the Company has used several professional firms for different projects and the Republic of Ireland taxation compliance and advisory work is undertaken by a professional firm other than the Group’s auditors.

The Committee oversaw the appointment of Deloitte LLP in 2002 and has a primary responsibility for the appointment, re-appointment and removal of auditors. The Audit Committee conducted a formal evaluation of the effectiveness of the external audit process. The Committee has considered the likelihood of a withdrawal of the external auditor from the market and noted that there are no contractual obligations to restrict the choice of external auditors.

The Committee has recommended to the Board the re-appointment of the external auditors. On the recommendation of the Audit Committee, the Directors will be proposing the re-appointment of Deloitte LLP at the Annual General Meeting on 28 April 2011. The Audit Partner rotated at the commencement of the 2007 interim review and will rotate every five years.

Dialogue with Institutional Shareholders
The Board encourages and seeks to build a mutual understanding of objectives between the Company and its institutional shareholders. As part of this process, the Chief Executive Officer and Chief Financial Officer make twice yearly presentations to institutional shareholders and meet with shareholders to discuss any issues of concern and to obtain feedback. In addition, they communicate regularly throughout the year with those shareholders who request a meeting.

The Chairman personally contacts the leading shareholders in the Company on an annual basis to address any concerns and discuss any issues. The Board receives a report on any discussion with shareholders and the written feedback that follows full year and the half year results presentations is circulated to the Board. Brokers’ reports and analysts’ briefings, when available, are included in the Board papers sent to the Directors in advance of meetings.

The Board receives a quarterly update on the shareholder register with a summary of the main movements in shareholdings since the previous report.

Members of the Board have met with institutional shareholders during the year to consider Corporate Governance matters. All the Non Executive Directors are prepared to meet with shareholders to understand their views more fully.

Annual General Meeting
The Board seeks to encourage shareholders to attend its Annual General Meeting. It is the policy of the Board that all Directors should attend the Annual General Meeting and be available to answer shareholders’ questions unless unable to do so. The Company uses the Annual General Meeting to communicate with private investors and encourages their participation. All Directors attended the Annual General Meeting in 2010. In 2010, the notice of the Annual General Meeting and related papers were sent to shareholders more than 20 days before the meeting.

Letter of Appointment - Chairman (35KB PDF)

Letter of Appointment - Non-Executive Directors (35KB PDF)