Profit generated by Guardian Media Group will allow the company to pursue “acquisition opportunities” in the year ahead, according to the annual report.

Latest figures show profit before tax from continuing operations for the company as a whole increased to £97.7m from £66.4m in 2006, profit after tax and exceptional items was up to £64.2m from £45.9m, while profit before exceptional items was down from £116.4m to £105.2m.

The regional media section, which includes the Manchester Evening News, the Manchester Online website, city TV station Channel M, the free daily Metro and a number of local weekly newspapers and their associated websites, as well as Surrey & Berkshire Media, publisher of the Reading Evening Post and Surrey Advertiser, faced “extremely challenging advertising market conditions”.

Turnover and profits were down for the division.

The company singled out the issue of digital disruption to its revenue base, but explained that its part paid-for, part free strategy for the Manchester Evening News had stemmed long-term circulation decline.

The report said: “The division did well to mitigate the impact on its financial performance. Operating profit before exceptional items was £19.4m (2006 £21.6m) on turnover of £122.2m (£126.8m).”

Classified revenues came under pressure during the year, declining by 11 per cent year-on-year. This was driven by recruitment, which fell by 16.3 per cent, and motors, which was down 20.2 per cent. Display revenue out-performed the market, increasing by 1.4 per cent, while digital revenue showed strong growth of 18.3 per cent year-on-year.

The report said: “During the year the Manchester Evening News adopted a ‘hybrid’ distribution model – part paid, part free – which has reversed decades of circulation decline and restored the MEN to its position as the UK’s biggest regional newspaper in terms of circulation and readership.”

There was also a wholesale redesign of the paper, and a £21.2m investment in new press equipment. Production of the Manchester Evening News switched to state-of-the-art presses in Oldham operated by Trinity Mirror.

Carolyn McCall, chief executive of Guardian Media Group, said: “Over the past year we have made significant changes to all our businesses in order to meet the new demands of our markets. The stability of GMG’s financial performance is testament to the success of our approach.

“We intend to invest the proceeds in developing our existing businesses and to pursue acquisitions where we have the opportunity to be majority owners of operating companies.

“The Guardian’s journalism remains at the heart of what we do, and we are committed to investing in the future of that journalism.”

The local newspaper division became GMG Regional Media, to reflect changes in the way news is delivered to readers, and the businesses within that were renamed MEN Media and Surrey & Berkshire Media.

MEN Media in particular has focused on developing its non-print activities alongside its core newspaper brands, with continued investment in its online properties and city TV station Channel M.

There has also been innovation in the newsgathering and distribution process.

Journalists from each part of the business – the Manchester Evening News, the Greater Manchester weekly titles, the Manchester Online website and Channel M – now work together on a ‘converged’ newsdesk. This ensures that content is distributed at the time and through the medium most suited to readers, users and viewers.

Carolyn said: “We do not expect the pace of change in this sector to diminish, and the division will need to review its operational structure on an ongoing basis to stay ahead of developments in its markets.”