LONDON British publishing group Daily Mail & General Trust (DMGOa.L) said its mid-market Mail on Sunday newspaper has established itself firmly as the market leader in the last quarter after the closure of scandal-hit rival News of the World.
The UK tabloid landscape has been transformed not only by the disappearance of top-selling Sunday tabloid the News of the World, but also by a series of investigations triggered by the scandal including an inquiry that may lead to new regulation.
Daily Mail, which was itself this week accused by actor Hugh Grant of phone hacking, reiterated that it had not engaged in illegal newsgathering, to the best of the editor-in-chief's knowledge.
The group said on Wednesday its national newspaper revenues for the year to end-September had remained stable on an underlying basis -- a better result than some had expected -- and its shares rose to top the European media index .SXMP.
It said although its newspaper circulation had benefited from the woes of the News of the World, owned by Rupert Murdoch's News Corp (NWSA.O), it was cautious about the outlook, as ad sales would depend on the health of the UK economy.
"There is uncertainty as to how the inquiry's conclusions might affect our newspaper and other publishing businesses," Daily Mail said in its statement.
Daily Mail said national advertising revenues in the first seven weeks of its new fiscal year were down 2 percent, in line with the fourth quarter to end-September, as retailers in particular cut ad spending.
"There is... more uncertainty than we might have had in previous years as to how the weeks into Christmas are going to pan out," Morgan told journalists on a conference call. "It doesn't feel as solid as we would like it to be."
DMGT said sales should rise in 2012 at its business-to-business divisions, which include events and financial information, with margins remaining stable.
But the performance of the UK newspaper business, where regional newspaper revenues fell 10 percent in the year to end-September, would depend on the advertising market and cost cuts.
Overall, 2011 sales and pretax profit rose 3 percent to 1.99 billion pounds and 237 million pounds respectively, broadly in line with expectations, and DMGT raised its dividend by 6 percent on a 2 percent rise in earnings.
"We view these as a solid set of results and are encouraged by the lower than expected debt and stability in the B2C national division," analysts at London brokerage Numis wrote in a note.
Daily Mail shares rose 4.5 percent to 402 pence by 0941 GMT.
The discovery that missing schoolgirl Milly Dowler had had her phone hacked, giving her parents hope that she was still alive and picking up voicemails -- she was later found murdered -- propelled the phone-hacking issue onto front pages in July.
Prime Minister David Cameron, who for a period employed ex-News of the World editor Andy Coulson as his spokesman, ordered a judge-led inquiry into press standards as the scale of the scandal emerged.
Judge Brian Leveson has now embarked on a wide-ranging inquiry into press culture, practices and ethics expected to take about a year that may lead to the end of the industry's self-regulation.
Daily Mail Editor-in-Chief Paul Dacre was one of the first media figures to appear before the inquiry, and is a key participant.
Asked on the conference call how much the inquiry might cost DMGT, CEO Morgan replied: "I don't have the figure but I'm sure it will be considerable. It's consuming a fair amount of time."
(Reporting by Georgina Prodhan; editing by Kate Holton and Chris Wickham)