A strong performance in South Africa and Australasia led a rebound in profits at Independent News & Media (IN&M) last year, with the group expecting continued growth in 2004 as it concentrates on cutting costs across its four markets.

Growth was more muted in the Republic and the UK, where advertising revenues were weak for most of the year.

Independent yesterday posted pre-tax profits before exceptionals of €154.6 million, up almost 20 per cent on the previous year.

The growth came on turnover of €1.39 billion, which was up 5.9 per cent on 2002 on the back of gains in circulation and advertising. Independent said the increase would have been in the order of 7.6 per cent but for unhelpful currency movements over the year.

Chief executive Mr Gavin O'Reilly said trade had begun positively in 2004, with advertising and circulation ahead of internal targets.

The firm's shares failed to benefit from the optimistic outlook, however, falling back by 3.5 per cent to €1.95 as investors balked at the extent of the exceptional charges included in the numbers.

Gains of €72 million on the sale of assets such as the firm's UK regional titles were cancelled out by charges relating principally to its continuing restructuring programme and costs relating to the development of its tabloid-sized compact editions.

It was the latter charge of some €9 million that came as a surprise to the market, with some analysts suggesting it could simply have been taken as an operating cost.

A €9.9 million charge reflecting Independent's write-down of its investment in cable television firm Chorus was also included in the results. The group sold its 50 per cent holding in Chorus for a nominal sum at the start of this year.

It had already taken an €80.9 million write-down on the investment in 2002.

A geographical breakdown of last year's numbers shows operating profits climbed by 20 per cent to €23.5 million at the company's South African operations as the country's economic health continued to improve.

Operations were also strong in Independent's 40.5 per cent holding in Australia and New Zealand, where profits rose by 11 per cent to €131 million.

Closer to home, operating profits rose by €400,000 to €75.3 million in the Republic but declined by about 10 per cent to €18.2 million in the UK. The UK result came as the Belfast Telegraph put in another solid performance and the London Independent lost about £9 million. The company said the result would have been just "marginally behind" in constant currency terms.

Mr O'Reilly was upbeat on the prospects for achieving better results in both markets this year, although he was cautious on an uplift in UK advertising.

He said 2004 would be about stripping the "fat" out of Independent's businesses following last year's recapitalisation programme, which allowed the firm to reduce its net debt by €245 million to €978 million.

This will see the removal of "cost anomalies" and "historical legacy issues" from all operations, according to Mr O'Reilly.

He indicated that large aspects of the group's back-office support would be moved to "low-cost locations" such as South Africa.

An overall headcount reduction of 5 per cent is expected to yield annual savings of €18.9 million for the company. Mr O'Reilly said this should lead to an increase in operating margins rising to 18.5 per cent in 2005 from 17 per cent.

Independent will pay a final dividend of 5.15 cents per share, thus lifting the full-year shareholder return by 7.6 per cent to 7.9 cents per share.