Annual Report to Shareholders 1997

Review of Operations

Brian McCarthy

The mild recovery in the agricultural sector enabled the Agricultural publishing division to increase profits. Coupled with reduced newsprint prices, and the addition of the Macquarie Publishing group for a full year's trading, Rural Press Limited was able to post a modest 2% increase in operating profits after tax and minority interests. This represents a satisfactory performance given the stagnant economic circumstances encountered during the year.

This places Rural Press as one of only a handful of listed companies on the Australian Stock Exchange that has managed to increase its profits each year for the last six years.

Although the agricultural sector's contribution to Gross Domestic Product has been declining, it remains a vital and thriving sector with particular significance in export terms for Australia's trading account balance. Droughts and adverse commodity prices have depressed Australia's farming industry in the recent past. However, farm estimates showed an improvement in the rural sector in 1996. Record grain crops assisted in providing more buoyant agricultural trading conditions.

The Regional Publishing division did not enjoy improved market conditions. Lower activity in the housing, construction and retailing sectors of the economy, mentioned in our 1996 report, continued to bear down on small business in regional Australia. Cutbacks in infrastructure services to many smaller regional towns contracted businesses in these areas.

The Macquarie Publishing group was the focus of management attention to rationalise and improve efficiencies, and to merge the activities of this very significant purchase into the rest of the regional operations. This process occurred throughout the 1997 year and will continue into the 1998 year.

This investment in re-training staff, repositioning publications in their respective markets, and providing the capital expenditure funds to update the pre-press and printing facilities, meant that the full potential from the Macquarie acquisition has yet to be realised. The adjustment process was not always easy for staff, and their efforts in meeting the challenge are greatly appreciated.

Once the change process is complete we are confident that the acquisition will meet our expectations and provide a satisfactory contribution to the Group's profits in the long term.

The acquisition momentum was maintained during 1997 with the purchase of the printing and pre-press operation, Canweb Printing Pty Limited, in the Canberra market. This plant will assist in the future upgrading and rationalising of the New South Wales web fed printing network.

The Printing division operated in a very competitive market, due to the introduction of new industry press capacity. Printing revenues and margins were put under pressure, resulting in the loss of a number of printing contracts.

Our Printing staff have worked hard to replace lost printing, and printing the new Saturday Australian Financial Review will assist.

The Broadcasting division, achieved record levels of profit. The division expanded organically, with installations of equipment in three new Western Australian FM radio stations. The installations, commenced in the latter part of the 1997 year, with a further five FM stations to be established in Western Australia and three in Queensland during the 1998 calendar year.

The company continued its technology drive, particularly in the pre-press area with expenditures at a number of sites on new state-of-the-art pre-press computer technology.

During the year, the company successfully launched a site on the world-wide-web, providing a range of agricultural information and services, and a host of links to other agriculturally based Internet sites.

In recognition of the importance of our staff, the training and development programme continued through the year, concentrating on management, editorial and sales training. Occupational health and safety resources were increased to help stay abreast of higher legislative standards in this area.

In June, Rural Press Limited significantly expanded its agricultural publishing interests with an agreement to purchase the Farm Progress group of publications in the United States of America. This group, the leading supplier of farm information in the US market, will provide an opportunity for sound growth in the years ahead.

At the end of the third quarter, the management of the Regional Publishing division underwent a change with the retirement of the Managing Editor-in-Chief, Dan Austin, OAM, after 38 years of service to the industry.

Mr Austin served as President and a Director of the major industry bodies, including the Pacific Area Newspaper Publishers' Association, Regional Dailies of Australia, and Country Press Australia. He has been a major contributor to the development of the Regional Publishing division of the company.

He was succeeded by Ian Law, previously General Manager Special Projects and responsible for the publications comprising the Macquarie Publishing group since their acquisition. For the six years prior to the change he had been General Manager for the Agricultural Publishing division.

In a further move, the former manager of the New South Wales North Coast operations, Greg Watson, joined the senior executive team, with specific responsibility for the regional newspapers in Queensland, South Australia and Western Australia.

The record of achievement at Rural Press Limited in a difficult trading environment is testimony to the commitment and dedication of all staff. We place on record our appreciation to all staff at all levels for the pleasing and satisfactory result.

It is encouraging to report that a total of 637 employees now participate in the company's employee share scheme, collectively holding 1.9% of the issued ordinary and preferred shares in the company.

Rural Press Limited publications, printing operations and radio stations maintained their strong links with the communities they serve by becoming involved in many worthwhile projects. These included donations to appeals and charities; participation in the Australian Rural Leadership Programme; training scholarships to universities; donations and sponsorships to scores of shows, agricultural societies and field days, Farmer-of-the-Year competitions; sponsorship of numerous tourist awards; and donations and sponsorships for schools within regional and rural areas. A small selection of our links with the community are featured in this Annual Report.

Directors have recorded a final dividend of 6.30 cents per share on ordinary shares and 6.93 cents per share on preferred shares to continue the record of dividend growth.

The company's dividend policy is to pay approximately 50% of its after-tax profits to its ordinary and preferred shareholders. This proportion may vary from year to year to ensure that if at all possible, the previous level of dividend is maintained.