February 2, 2004 -- Chief Executive, Barry Hibbert, commented: “For the second year under new management Polestar has bucked the trend of the printing industry in growing its profitability and this has given our shareholder the confidence to support our major investment plans for the future. Despite volatility in the economy there are signs of growing confidence in the marketplace. I am confident that the actions we have taken to date, together with the investment programme we have announced, will allow Polestar to capitalise on any upturn in market conditions.” OPERATIONAL HIGHLIGHTS Turnover for the year of £488.7 million was £4.3 million higher than last year. This reflects an increase in volume from the overseas operations of £13.3 million, of which £7.2 million is the effect of exchange movements on translation, partly offset by a fall in UK Printing and UK Packaging of £7.6 million and £1.4 million respectively. In the year the Group successfully renewed all the key accounts falling due for renewal representing approximately 20% of UK sales. No further major renewals are now due until 2005. High levels of overtime were worked to meet demanding customer schedules resulting in a decline in gross profit margins from 18.2% in 2002 to 17.7% in 2003. This decline was more than offset by further reductions in overheads, driven primarily by the consolidation of the web offset sites during the past two years. This resulted in an increase of 6.5% in pre-exceptional EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) to £78.4 million in the year compared to £73.6 million in the prior year. Operating profit before exceptional items for the year of £40.0 million represented an improvement of 6.7% on the prior year, and represented a margin on turnover of 8.2% compared to 7.7% last year. Exceptional items of £16.5 million were incurred in the year. The Group benefited in the year from the annualised effect of the cost reduction and efficiency improvement programmes implemented last year. At the end of the year the Group completed the closure of its web offset operations at Watmoughs and the site was subsequently sold. Following the year end the Group announced the proposed closure of its web offset operations at Watford and the transfer of production to its facility in Leeds, which is being expanded accordingly. This rationalisation of capacity is set to continue to enable the Group to reduce its unit costs whilst remaining responsive to customer requirements. The Group further consolidated its supplier base particularly in the area of outwork suppliers and was successful in reducing its direct material costs. During the year the Group improved its press efficiency by 4%, a direct consequence of the roll out of lean manufacturing techniques and continuous improvement schemes. As previously indicated, these programmes are an integral part of the process of moving the Group towards world class manufacturing standards. Substantial investment has been made during the year in more efficient equipment and technology. A second new 64-page press will be installed in the Leeds plant to replace two older presses at the Watford plant. Two presses were commissioned during the year in Hungary and Colchester, and CTP was successfully installed in the overseas operations to complement the roll out across the UK sites in the prior year. Polestar announced in December 2003 a £110 million investment in a new gravure facility, wholesale replacement of its inefficient binding equipment and further rationalisation of its facilities. This investment includes the construction of a 350,000 square foot printing facility in a location which will be finalised shortly, with expansion land available to double the size of the plant. Highly automated, the facility will initially house two new 3.90 metre wide gravure presses, with an option on a third machine, and a state of the art bindery. Across the Group, 11 new binding lines will be installed, replacing 27 old or inefficient lines, with installation commencing in the first half of 2004 and completion scheduled within one year. These investments will position Polestar amongst the best equipped large printing groups in Europe, further strengthening its market leading status in gravure and web offset production technologies. The Group also completed in December 2003 an integration of its Spanish operations with the printing activities of Grupo Prisa, Spain’s leading media group, to create the largest printing group in Spain. Prisa and Polestar each hold a 40 per cent share in Grupo Dedalo Grafico, with venture capitalists Ibersuizas holding the remaining 20 per cent. Polestar has an option in five years time to acquire the commercial printing assets of the company from its joint venture partners. This venture strengthens Polestar’s contract print base in Europe and also takes the Group back into book production and into newspaper production for the first time. We look forward to working with our new partners and combining our respective successes to create a powerful high quality Spanish printing group. Significant improvement continues to be made to the management of cash by the reduction in inventory levels and overdue debts. Since the year-end further cash has been released through the sale of surplus land and this programme will continue to be a valuable source of cash generation over the next 12 months. The completion of the merger in Spain after the year-end has enabled the repayment of €32.4 million of third party debt thereby improving the capital structure of the Group. Growth in the printing industry is expected to be marginal in the coming year with modest volume increments, driven primarily by advertising spend, likely to be offset by continued pricing pressure. There remains overcapacity in the web offset market, which is showing only limited signs of abating. Despite this, the operational initiatives instigated by the Group, including further consolidation of its web offset capacity, should allow further improvements in profitability to be made in the coming financial year. Looking further forward the major investment programme to which the Group has committed will provide a clear and secure route for significant profitable growth in the future.