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Johnston Press PLC (JPR)

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Friday 28 March, 2014

Johnston Press PLC

Results for the 52 weeks ended 28 December 2013

RNS Number : 3966D
Johnston Press PLC
28 March 2014
 



FOR IMMEDIATE RELEASE                                                                                               28 March 2014

 

JOHNSTON PRESS PLC

RESULTS FOR THE 52 WEEKS ENDED 28 December 2013

 

Underlying operating profit* up 2.5%,

Debt continues to be paid down

 

Johnston Press plc ("Johnston Press" or "the Group"), one of the leading community media groups in the British Isles, announces its results for the 52 week period ended 28 December 2013.

 

Underlying operating profit* increased by 2.5% from £53.0m to £54.3m, the first increase in underlying operating profit for seven years.

 

Advertising revenues in 2013 declined 6.4% on an underlying basis.  Unadjusted advertising revenues were down 10% but significant improvements in the second half reduced this decline to 4.4% in H2.

 

Digital revenues were up 19.4% in the full year and 25.3% in the second half of 2013. In our most strategically important area of digital display advertising, we saw revenue growth of 30.3% for the period, and 44.6% during H2.

 

In December 2013 we achieved an aggregate audience of 21.1m, an increase of 17.1% against December 2012. Digital audience growth for December was up 47.7% with unique users reaching 13.3m in December 2013.

 

Statutory loss before tax of £286.8m is due to significant exceptional items, largely the impairment of assets announced at the half year and restructuring costs.

 

Net debt was down £17.3m to £302.0m for the year with repayments of £33.1m partially offset by the increased PIK interest accrual of £12.1m.

 

Financial Highlights

£'million


Statutory


Underlying












2013


2012


Change


2013


2012


Change



52 weeks


%


52 weeks


%














Revenue


302.8^


358.7^


(15.6)


291.9*


308.8*


(5.5)














Operating (loss)/profit


(245.6)


40.4


-


54.3**


53.0**


2.5














(Loss)/profit before tax


(286.8)


(6.8)


-


13.3


8.6


54.7














Net Debt


302.0


319.3


(5.4)


302.0


319.3


(5.4)














Earnings per share(pence)- basic


(32.74)


0.88


-


2.56


2.76


(7.2)

 

^ Includes exceptional receipt of £10.0m (2012: £30.0m) in connection with the cancellation of contract printing arrangements with News International.

* Underlying is stated excluding exceptional revenues and after removing trading revenues following  the cancellation of contract print arrangements with News International of £0.9m in 2013 and £10.0m in 2012

** Underlying operating profit is stated after removing trading revenues of £9.9m from 2012 and related costs associated with five titles that changed format from daily to weekly and closed free titles.

All Underlying figures are stated before IAS 21/39 adjustments and exceptional items - refer to the Financial Review for a more detailed description.

 

Key highlights for financial year 2013

·      Revenue: Underlying total revenues at £291.9m, down 5.5% period on period

·      Digital revenues: Up 19.4% period on period, from £20.6m to £24.6m

·      Cost reduction:Operating costs, before exceptional and IAS 21/39 items, have reduced by £33.8m from £271.7m to £237.9m

·      Operating margin before exceptional and IAS21/39 items: Up to 18.8%, from 17.3%

·      Continued debt reduction:Net debt down £17.3m from December 2012 to £302.0m at 28 December 2013

·      Exceptional items: Net exceptional costs before tax of £300.5m, net of a £10.0m receipt associated with the termination of the News International contract

 

Revenues

 

Total underlying revenues decreased by 5.5% period on period. Consumer confidence remained low in the first half of 2013, and this was reflected in advertiser spending, however the second half saw signs of improvement.

 

·        Total advertising revenues declined 6.4% year on year on an underlying basis (unadjusted decline was 10.0% in the full year). The unadjusted decline narrowed in the second half to 4.4%.

 

·        During 2013 digital revenue increased by 19.4%. Following flat half-on-half digital revenue growth in 2012, 2013 saw a return to digital growth of some 13.0% in the first half, rising to 25.3% in the second half.

·        Newspaper sales revenues declined 2.1% on an underlying basis in 2013 (4.5% unadjusted).

 

Exceptional items

·       The results include a net charge before tax of £300.5m in respect of exceptional items, the majority of which was announced at the time of the Interim Results in August 2013.

 

·        The charge includes a non-cash accounting adjustment reducing the carrying value of our publishing titles by £202.4m, print assets by £63.7m and properties held for resale by £4.7m. £10.0m of cash was received from the cancellation of the remaining element of our News International print contract.  There were other cash costs of £33.0m in connection with the further restructuring of the business and £5.7m of pension protection fund levy and other pension charges.

 

Refinancing

 

The Company announced on 27 December 2013 that it had reset its financial covenants through to the maturity of its debt facilities in September 2015 and intends pursuing a refinancing of its debt facilities in 2014. On 3 March 2014 the Company announced that as part of a proposed refinancing of its debt facilities it is considering a range of options including a potential equity fundraising.  The Company is actively exploring these options and will make further announcements in due course. 

 

Outlook

 

In January and February 2014, advertising revenues are down 6.0%. The growth in underlying profits has continued into 2014 with an 8.0% increase in EBITDA (operating profit before depreciation and amortisation, exceptional items and IAS21/39 adjustments) to the end of February. Our digital growth remains strong, with audiences in the last reported ABC period to December 2013 up by 47.7% year on year to 13.3m unique users per month.  In both January and February 2014, digital audiences have exceeded 15m with year on year growth of around 50%.

 

Although the economic outlook is starting to show signs of improvement, most evident in property and particularly employment, the Company will continue to manage our cost base while building on the strong digital growth in the second half of 2013.

 

Commenting on the annual results for 2013 and outlook, the Chief Executive, Ashley Highfield, said:

 

"We are delighted to see a return to underlying operating profit growth for the first time in seven years, with underlying operating profits in 2013 increasing by 2.5% on 2012. Having delivered EBITDA of £62.7m in 2013, January and February has seen an 8% increase in EBITDA year on year. Our digital growth remains strong, with significantly increasing audiences coming to our websites in 2013 and into 2014.  Along with slowing declines in print advertising revenues, and a stable circulation revenue decline rate, these are clear indications of good progress during the year in the implementation of our strategy for growth.

 

During the year we completed the re-launch of our websites and our print titles, and took the first steps to re-invent community newspapers with significantly higher levels of user generated content. We invested further in technology to build our digital platforms, including launching DigitalKitbag, a one-stop-shop for digital marketing services aimed at the hundreds of thousands of Small and Medium sized Enterprises (SMEs) that we already serve in print. With the benefits of our actions coming through, coupled with strong digital growth and a slowing print decline, the Group is well positioned to make further progress in 2014.

 

 

 

 

For further information please contact:

Johnston Press                                                                                             020 7466 5000 (today) or

Ashley Highfield, Chief Executive Officer                                        020 7614 2602 (thereafter)

David King, Chief Financial Officer

 

Buchanan                                                                                                       020 7466 5000

Richard Oldworth/Sophie McNulty/Clare Akhurst

 

 

Investor presentation and audio cast

 

A presentation for analysts and live audio cast will be held at 09.00am on Friday 28 March 2014 which will be available at:

http://mediaserve.buchanan.uk.com/2014/jp280314/registration.asp

 

A replay of the audio cast will be available after 11am on Friday 28 March on the Group website www.johnstonpress.co.uk and from the URL above.

 

Please see the conference call dial in details below:

 

Number:                             02034281542

Participant Pin:                 57239117#

 

The announcement for the period ended 28 December 2013 will be available at www.johnstonpress.co.uk/investors

 

 

Forward-looking statements

 

The report contains forward looking statements. Although the Group believes that the expectation reflected in these forward- looking statements are reasonable, it can give no assurance that the expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. 

 

 



 

Chairman's Statement

2013 was the year that we started to see signs of an improving economic climate and positive results from our strategy.

 

Strategy

2013 was another year of considerable change and innovation at Johnston Press, during which we made progress towards achieving our strategic aims and our longer-term vision to build a truly multimedia business.

 

For our business it remains essential that we increase our profitability. We must embrace the changes and innovations we are undertaking to increase our audience size and the revenue we generate as a result. Our digital business is key to this strategy, both in terms of new services and reaching new audiences in different demographics than our print business. However, our established print business has an essential role to play as we look to stabilise our print circulation and advertising revenues. We have incurred significant restructuring costs in the year as we implement changes to ensure our cost base is appropriate for our multimedia future.

 

In parallel with our operating strategy we are making good progress towards refinancing our debt. A successful refinancing would bring a level of financial stability that would allow us to invest more in delivering our short, medium and longer-term strategic objectives and would fast track Johnston Press into an organisation that is fit for a truly multimedia future.

 

Results

Our results for 2013 were affected by the difficult trading environment in the first half of the year. Nevertheless, there were strong results in some of our key advertising categories.

 

Total statutory revenues were affected by the termination of the News International contract and conversion of titles from daily to weekly and closure of certain titles.

 

Total underlying revenues ended the year down 5.5% from £308.8 million to £291.9 million, with underlying print advertising down 9.5% from £173.5 million to £157.1 million. The combined underlying print and digital advertising revenue was down 6.4% at £181.7 million. However, the rate of decline in our advertising revenues is narrowing and in the final quarter of 2013 the decline had narrowed to 5.3%. We are working to build on this momentum in 2014. Underlying newspaper sales revenue, supported by cover price increases, was down 2.1% from £89.6 million to £87.7 million.

 

Digital revenues again grew strongly in the year by 19.4% from £20.6 million to £24.6 million, with the second half of the year experiencing year-on-year digital revenue growth of 25.3%. The key digital categories of employment, property, motors and local display all showed strong year-on-year growth.

 

Despite this, our digital performance was not sufficient in preventing a decline in our total advertising revenue.

 

The Group's cost management was extremely impressive once again. Adjusted operating costs (before exceptional and IAS 21/39 items and including depreciation and amortisation), were reduced by £33.8 million from £271.7 million to £237.9 million which represents a year-on-year decline of 12.4%.

 

The resulting underlying operating profit was up 2.5% from £53.0 million to £54.3 million with underlying operating profit margins up from 17.2% to 18.6% year-on-year. This is a strong improvement on 2012 and led to the Group's first year-on-year underlying operating profit growth for seven years.



 

Chairman's Statement (continued)

Earnings per share (before exceptional and IAS 21/39 items) were 2.65p, compared to 3.42p in 2012 (Note 11). Underlying net profit after tax was £16.7 million (2012: £17.4 million). Cash flow performance was again strong, with net debt at the end of the year of £302.0 million, a reduction of £17.4 million from the start of 2013.

 

Total net exceptional items before tax were £300.5 million (2012: £16.6 million). These included £10.0 million revenue from the termination of a long-term printing contract with News International, a £202.4 million impairment of publishing titles, in part reflecting changes in the discount and growth rate assumptions applicable to the business and sector as a whole, a £68.4 million write down in the value of print press assets and property assets brought about as a result of structural rationalisations and closure of specific operations (particularly presses), £33.0 million on restructuring and £5.7 million of pension related Section 75 and pension protection fund levy expenses. This resulted in a statutory operating loss of £245.7 million. More information on these items can be found in the Financial Review section of this report.

 

Dividend

We continue to use excess cash to reduce the Group's debt and, as required under our financing arrangements, no dividend is proposed for the year.

 

Industry issues

Lord Justice Leveson made it clear in his enquiry into press standards that the local press was not guilty of any wrongdoing and should not be penalised by any new regulatory system. However, we felt that the Royal Charter proposals would not provide smaller titles with adequate protection from vexatious or speculative complaints and the costs associated with processing such claims. As a result, and in line with the significant majority of the industry, we have joined the process of establishing the Independent Press Standards Organisation.

 

The new regulatory body will have transparent processes, independence and authority to direct remedial action, call editors to account, investigate serious breaches of its code and impose appropriate and proportionate sanctions and fines in the worst cases.

 

Board

Geoff Iddison, who served as a Non-Executive Director from January 2010, stepped down from his role in June 2013. I would like to thank Geoff for his commitment and contribution to the Group over the past three-and-a-half years. He made a considerable contribution to the development of our digital strategy over this period and we wish him all the best for the future. Stephen van Rooyen joined the Board as a Non-Executive Director of the Company with effect from 1 June 2013. Stephen has held a number of senior roles at Sky since joining in 2006, and is currently Managing Director, Sales and Marketing. He was previously Director of Strategy at Virgin Media and has also worked at News International and Accenture in both Australia and the UK. I am confident Stephen's knowledge and perspective will add significant value to the business. We look forward to working with him in continuing to develop our business.

 

There was also significant change amongst our Executive Directors this year. As we announced at the end of 2012, Danny Cammiade stepped down as Chief Operating Officer at the end of March 2013. During May 2013 we announced that Grant Murray had stepped down as Chief Financial Officer and was succeeded by David King at the beginning of June 2013. David is a former Chief Executive Officer of Time Out Group and before that was Chief Financial Officer at BBC Worldwide.



 

Chairman's Statement (continued)

 

The Board regularly reviews both the balance of its membership and the issues it considers when it meets. The agenda for its meetings are structured to scrutinise both strategic and operational matters in an atmosphere of constructive challenge and debate. We have retained our programme of site visits for all our Non-Executive Directors and I am satisfied that the Board remains effective.

 

Employees

Our employees are, of course, key to our business and on behalf of the Board I wish to express our gratitude to them for their dedication throughout another year of considerable change. They have continued to deliver performance and products of a high quality, and their commitment will remain vital in the year ahead.

 

Outlook

The last several years have been impacted by the longest, and at times the deepest, recession in memory. However, the economic outlook in the markets in which we operate is more positive. This, coupled with the changes and innovations that we have made at Johnston Press, give the Board greater confidence in our future than at any time in recent years.

 

 

Ian Russell

Chairman



 

Chief Executive's Report

2013 was the year we returned to underlying operating profit growth.

 

We continue to transform our business into a modern multimedia organisation, growing our overall audience strongly, which will provide us with the best opportunity to succeed in 2014 and beyond.

 

2013 was an important year in our turnaround at Johnston Press as it was the year we posted our first underlying operating profit growth for seven years. This is an important milestone and indicates that our strategy for the business is the right one. We posted an underlying operating profit of £54.3 million, representing year-on-year growth of 2.5%.

 

Review of the year

2013 started with very difficult trading conditions but as the year progressed, conditions improved and we ended the year with a sense of optimism across many business sectors. The improving conditions were reflected in our trading performance which improved from quarter to quarter. With property playing a significant role in the economic recovery to date, we are well placed to take advantage of this, as our advertiser base comprises many businesses that benefit from higher volumes in the property market from estate agents to solicitors, and from furniture retailers to transport companies.

 

In response to the macro economic environment we have continued to transform Johnston Press. We have implemented a number of strategic initiatives that will continue to reduce our cost base, to stem the decline in top line revenue and accelerate our digital growth.

 

This transformation has allowed us to post the first positive year-on-year growth in underlying operating profit for seven years. We grew underlying operating profit by 2.5% year-on-year to £54.3 million, stopping the operating profit decline and taking Johnston Press back to underlying growth.

 

We have historically converted a high proportion of EBITDA into operating cashflow and we continue to do so, underpinned by controlled capital expenditure. This has allowed us to continue to reduce our net debt burden which has now declined by more than 37% since December 2008 from £476.8 million to £302.0 million in December 2013.

 

Our aggregate print and digital audience has grown from 18.1 million users in December 2012 to 21.2 million users in December 2013, a year-on-year growth of 17.1%. In the same period digital audiences grew from 9.0 million unique users to 13.3 million unique users, a growth of 47.7% year-on-year. This growth demonstrates that we continue to be relevant to both our readers and advertisers.  Whilst overall circulation revenue declines were as anticipated in one or two very challenged economic markets, increasing cover prices during the recession created a greater circulation decline than expected.

 

As well as growing digital audiences, we grew digital revenues by 19.4% year-on-year, from £20.6 million in 2012 to £24.6 million in 2013, with very encouraging growth in some of our key digital categories. The property category grew by 125.0% year-on-year, the motors category grew by 200.0% year-on-year and total digital display advertising grew by 30.3%, albeit from a low base. These categories are well positioned for growth in 2014, as we develop our products and propositions with the benefit of a better economic climate.

 

The Group's digital employment business, operating in an exceptionally challenging economic environment for most of 2013, still managed to post revenue growth of 4.1% year-on-year.

 

Total display advertising grew by 30.3%, digital local display advertising grew by 32.7% year-on-year with national display advertising growing by 25.9% year-on-year, with combined growth in the second half of the year of 44.6%. This gives us further confidence for 2014.

Chief Executive's Report (continued)

We launched a new site for the entertainment market, WOW247.co.uk, to support further the Group's engagement with the local community and reach beyond newspaper footprints.

 

Our national advertising sales were depressed by the macro economic situation, which badly affected some of our largest retail clients. Our underlying total revenues for the year were down 5.5%, an improvement on the 7.9% decline we experienced in 2012. Amongst this, the quarterly run rates for advertising revenues are showing positive signs, the year-on-year declines for each quarter in 2013 were, 14.8%, 12.7%, 7.6% and 5.3% respectively, once again providing further encouragement for 2014.

 

The relaunch of the Group's newspaper titles into more modern standardised templates was successfully completed in 2013. The programme has helped quality control and given more time for editors to develop content in print and digital platforms and is unrivalled at this scale in the newspaper sector, driving both copy sales and the national advertising proposition.

 

One of the direct results of the relaunch programme is that we now have a platform to provide greater efficiencies in our content gathering operation from our journalists, freelance contributors and readers. Using web-based editorial software the Group is now allowing trusted contributors the ability to author content directly. If these trials are successful they will provide a blueprint for the Group to restructure the editorial content gathering operations and greatly increase the volume of locally supplied material, ensuring we remain at the heart of our communities.

 

We have managed our cost base efficiently during the year. Adjusted operating costs were reduced by £33.8 million in 2013, a 12.4% year-on-year reduction. This is on the back of a £37.6 million reduction in 2012 (a 12.2% year-on-year reduction). The closure of titles and changes in frequency, as well as the loss of the News International contract have contributed to the reduction in the cost base during 2013. Adjusted operating profit margins (before exceptional and IAS 21/39 items) have improved from 17.3% in 2012 to 18.8% in 2013, and on an underlying basis from 17.2% in 2012 to 18.6% in 2013.

 

One of the most important efficiency projects this year has been the identification and implementation of best practice across the Group in the editorial and the rationalisation of the sales and back-office functions. This has led to a reduction in the average number of staff we employ to 4,188, a year-on-year reduction of 13%. We are now a re-sized, flatter and more agile organisation with better technology and processes to support our journalists and sales teams. Our centralisation of 14 content centres into two, while saving considerable costs, caused some short-term drop-off in our 'other classified' revenue.

 

Exceptional items

Accounting standards (IAS 36) require us to assess the recoverable value of our publishing titles and print assets by discounting the future cash flows the Group expects to derive from these assets at a market discount rate. Our long-term forecast model is updated annually and used to satisfy this requirement and is updated more frequently if we identify impairment indicators. The reduction in the value of the publishing titles, of £202.4 million, is primarily driven by a change in the rate used to discount future cash flows from 11.0% (2012) to 12.0% (2013) for our UK publishing titles and from 11.0% (2012) to 15.9% (2013) for our Republic of Ireland titles (as a result of an increase in risk-free rates of return and a revised market view on optimal media sector debt equity structures) and an update to underlying anticipated cash flows as a result of recent trading results. Due to the intended disposal of the Republic of Ireland titles, they have been valued at fair value less estimated cost of disposal. The key cash flow assumptions for our publishing titles are explained in Note 12.



 

Chief Executive's Report (continued)

Exceptional items (continued)

The anticipated future cash flows from the printing assets have reduced following the buy-out of the Group's contracting printing arrangements with News International. The review led to the recognition of an exceptional write-down in the period of £62.3million (refer note 7) which has been recognised in the Income Statement.

In addition to the write-down of asset values, the Group incurred other restructuring costs (including redundancy costs) of £33.0 million (2012: £24.4 million) and includes a pension related expense of £4.4 million (2012: nil) relating to required contributions to the Pension Protection Fund and £1.3 million (2012: nil) of Section 75 debt.

 

Refinancing

In 2012 we successfully refinanced our existing lending facilities through to September 2015. The terms of our facilities provide strong incentives to implement an alternative debt structure by the end of 2014. We are now actively engaged in seeking a more fundamental restructuring of our debt that would provide a more normalised capital structure, which would in turn provide an optimal platform for the Company to continue its strategic initiatives.

 

Priorities for 2014

Press with changes and innovations being undertaken to transform our revenue base and sustain our cost leadership position. More specifically for 2014, I have identified a number of priorities that will keep us on track to deliver our vision.

 

At the heart of this is culture change. Having lost almost 1,600 staff (average number of employees) in two years and, having come through a period of acquisition before that, we now need to build our Company as 'one Johnston Press,' putting both quality local journalism and innovative marketing solutions for small and medium-sized businesses at our core.

 

The focus on quality will be key, I want to achieve a big increase in customer and reader satisfaction by improving our end-to-end processes across our sales and editorial functions.

 

To really drive the quality agenda we will invest more resources into training. We must give our sales teams and journalists the tools and skills to get their jobs done as simply and effectively as possible.

 

Accelerating the growth in our digital offerings will be achieved through an increased focus on mobile, and expanding the social engagement of our digital products.

 

Finally, I want Johnston Press to be a data-driven organisation, an organisation where we really start to use the data about our readers and customers, from subscriptions to out-bound marketing, from targeted and behavioural advertising to winning new customers. We must put data and insight at the heart of Johnston Press and with this in mind, we are continuing to invest in and develop our marketing database.

 

To enable the above priorities, I have commissioned five enabling projects around Journalism, Publishing, Commercial, Digital and Data.



 

Chief Executive's Report (continued)

Priorities for 2014 (continued)

I am pleased to say our work through the year helped to raise our share price to levels which had not been seen for some time. Although we wish to see this grow a great deal more, we are pleased that there has been recognition for the strategy we are following.

 

Employees

I have mentioned that our staff numbers have reduced significantly over the last year and I recognise that it has been a difficult year for many employees as they adjust to the changes needed to take the Group forward. Their professionalism and dedication has been tremendous and, although much more needs to be done to complete the delivery of our strategy, I would like to take the opportunity to thank all of them for their contributions through a very demanding time.

 

Summary

Last year, I stated that we remain exceptionally well placed to serve the demand for information about the communities in which people work and live. That remains the case but the way we do this is changing and the growth in our digital audiences continues to reflect this. To remain relevant to the communities we serve we are continually innovating. Examples of this are the launch of two initiatives in Harrogate and Bourne where editorial content is driven by the readers - an example of 'user generated content' in action. Early results are both encouraging and exciting and in the case of Bourne our audience across print and on-line has grown by over 150%. The demand from advertisers to reach those communities in a targeted and cost-effective manner also grows. We are on a clear journey to become the 'one-stop-shop' for advertisers and readers across all media in the communities we serve.

 

 

Ashley Highfield

Chief Executive Officer

 



 

Operational Review

 

Throughout 2013 we have focused on three key themes for the operational teams - restructuring, building our skills set and being properly equipped to develop further revenue opportunities as the Group continued to focus on delivering its strategic aims in print and digital.

We have made good progress in our on-going implementation of a new sales plan to up-skill, reorganise and better focus our face-to-face sales force on meeting local customer needs. This continues to be one of our most ambitious and, potentially most beneficial, projects.

The majority of our advertising customers are local businesses who we have served for many years. A great deal of work has been dedicated to an on-going review of many markets and sales teams to ensure we continue to have the right resources, technology and customer insight to meet the marketing requirements of local consumers. We are now able to offer more defined marketing solutions from the various media platforms we can provide. The review also includes an evaluation of sales skills and measures have subsequently been introduced to ensure that all existing and new employees attain an agreed standard of expertise.

This work has helped to embed the Group's multimedia face-to-face customer engagement programme and the organisation can fully benefit from the many digital platforms which have been advanced during the year.

To support media sales, the Group has made further improvements to its consolidated centre operations in Sheffield and Edinburgh. This has focused on implementing and developing best practices from the contact centre industry, using enhanced technology to manage the volume of enquiries and new customer relationship management systems to provide better customer insight.

These projects are now supporting our various business development, including the new digital platforms for property and motors, the Group's voucher website, DealMonster (which is now operational in 14 towns, cities or regional areas), as well as non-geographical markets for travel and shopping deals. A new site has also been launched for the entertainment market, WOW247.co.uk, to support further the Group's engagement with the local communities.

In addition, the Group's recruitment portal Jobstoday.co.uk, continues to grow with new services such as The SmartList which provides application filtering and other benefits for a fixed price to recruiters.

All of our local digital platforms can be accessed via a dedicated mobile website. We have 196 websites for our local titles, and a further 13 sites for e-commerce, such as DealMonster and SmartList. We have tablet apps for 18 titles on iPad, Amazon Kindle Fire and Google Play Android. In addition, 11 titles now have smartphone football apps on both iPhone and Android platforms. These solutions support the programme of change in print products and some of the relaunched newspapers, and were backed by expanded digital activity including the ability to subscribe to the newspaper and digital service for a single price. During 2013 we completed the relaunch of the Group's newspaper titles into more modern standardised templates. The programme has helped quality control and given more time for editors to develop content in print and digital platforms and is unrivalled at this scale in the newspaper sector, driving both copy sales and and the national advertising proposition.

The implementation of the re-launch programme has been assisted by changes made to our backroom fulfilment services. All aspects of production are now centralised to a single point enabling each newspaper to have the same workflows supported by a single design team for both advertising and editorial. These changes have included further consolidation of our press centres with the closure of the Peterborough, Leeds and Sunderland press halls over the past two years and also the partial outsourcing of advertisement creation work which has driven further efficiencies.



 

Operational Review (continued)

 

We are continuing to look at a number of markets and centres that still have accommodation which does not meet the requirements of the business going forward. We are looking at these properties in light of our 'Environment Charter'. The Charter is a commitment to provide accommodation and technology which will enable staff to conduct their specified tasks, primarily content gathering, in a modern and efficient way. Although a great deal of progress has been made in this regard, the projects will continue during 2014. Allied to this review, we are continuing to look at the technology and resources that our staff required. Accordingly, our programme to enhance technology systems across the Group has continued and many iPads and smartphones have been issued to sales staff, allowing them remote access to our customer relationship management system and providing much greater insight into our customers' needs. The Group has also equiped journalists to enable them to again work remotely in the heart of their local communities. This initiative has helped to greatly improve the quality, quantity and timeliness of multimedia content available on websites, mobile sites and tablet apps.


The importance of our staff remains paramount. We continue to invest in training and development along with further improvements to Group-wide communication. As we seek to re-inforce a shared culture through our 'one Johnston Press' initiative, features such as the Group's weekly e-newsletter and website 'The Word' become ever more important as a source of Group information. We again launched a staff satisfaction survey in 2013 to identify areas of improvement such as career development, recognition, training and leadership. Following the feedback from our initial survey we introduced a new annual Johnston Press plc awards scheme, to recognise and celebrate media and commercial excellence in our staff. Our first awards night was held in March 2013. 

As our work to reshape Johnston Press continued through 2013, all aspects of the business were reviewed. As a consequence, we offered a voluntary redundancy programme to all our employees during the autumn which contributed to a reduction in average headcount of 609 over the period. This has allowed staff to accept enhanced terms to leave the Group and with a number of them doing so during the early part of 2014. Careful planning has been undertaken to ensure the efficiency of future operations and to maintain quality. The programme has allowed us to review and reform the way in which many services are provided, not least front counter operations and photography.



 

Financial Review

 

In 2013 we posted the first positive year-on-year growth in underlying operating profit for seven years. We grew underlying operating profit by 2.5% year-on-year to £54.3 million.

 

Introduction

This Financial Review, based on the condensed consolidated financial statements of the Group, provides commentary on the Group's performance during the 52 week period ended 28 December 2013.

Despite achieving some positive operational milestones in 2013, the financial result was adversely affected by a number of exceptional and one-off costs associated with the reshaping of the business.

Basis of presentation of results

In preparing commentary on performance, the financial impact of a number of significant accounting and operational items affecting the results have been adjusted for in arriving at the underlying results discussed in this Financial Review.

A reconciliation from the statutory to the adjusted and underlying results is provided below along with a description of the nature of the adjustments made.

 

Reconciliation of Statutory to Adjusted and Underlying Performance

 

52 weeks ended 28 December 2013

Statutory

£m

Exceptionals1

£m

IAS 21/392

£m

Adjusted

£m

Other3

£m

Underlying

£m

Revenue

302.8

(10.0)

-

292.8

(0.9)

291.9

Operating costs4

(540.6)

310.5

-

(230.1)

0.3

(229.8)

EBITDA5

(237.8)

300.5

-

62.7

(0.6)

62.1

Depreciation and amortisation

(7.8)

-

-

(7.8)

-

(7.8)

Operating (loss)/profit

(245.6)

300.5

-

54.9

(0.6)

54.3

Net finance costs

(41.2)

-

0.2

(41.0)

-

(41.0)

(Loss)/profit before tax

(286.8)

300.5

0.2

13.9

(0.6)

13.3

Tax

74.8

(71.3)

(0.1)

3.4

-

3.4

(Loss)/profit for the period

(212.0)

229.2

0.1

17.3

(0.6)

16.7

Operating margin

(81.1%)



18.8%


18.6%

 



 

Financial Review (continued)









Statutory

Exceptionals1

IAS 21/392

Adjusted

Other3

Underlying

 

52 weeks ended 29 December 2012

£m

£m

£m

£m

£m

£m

 

Revenue

358.7

(30.0)

-

328.7

(19.9)

308.8

 

Operating costs4

(305.6)

46.6

-

(259.0)

15.9

(243.1)

 

EBITDA5

53.1

16.6

-

69.7

(4.0)

65.7

 

Depreciation and amortisation

(12.7)

-

-

(12.7)

-

(12.7)

 

Operating (loss)/profit

40.4

16.6

-

57.0

(4.0)

53.0

 

Net finance costs

(47.2)

-

2.8

(44.4)

-

(44.4)

 

(Loss)/profit before tax

(6.8)

16.6

2.8

12.6

(4.0)

8.6

 

Tax

12.4

(2.9)

(0.7)

8.8

-

8.8

 

Profit/(loss) for the period

5.6

13.7

2.1

21.4

(4.0)

17.4

 

Operating margin

11.3 %



17.3%


17.2%

 

1   Exceptional items set out in Note 7 to the condensed financial statements.

2   IAS 21/39 finance costs set out in Note 9 to the condensed consolidated financial statements.

3   Other adjustments have been made to reflect the impact of closed titles and the change of publication frequency of five titles from daily to weekly as well as the impact of the termination of the News International printing contracts in 2012 and 2013.

4   Operating costs include cost of sales and are stated before depreciation and amortisation.

5   EBITDA is earnings before interest, tax, depreciation and amortisation.

 

Exceptional items

Exceptionals mainly relate to the impairment of publishing titles and assets and restructuring costs incurred in reshaping the business as it progressively moves from a print to digital business as well as cutting our costs to maintain margins. Exceptional items include the following:

 

·   £10.0 million revenue from printing contract termination;

·   £202.4 million impairment of publishing titles;

·   £68.4 million write downs in the value of presses and property assets;

·   £34.0 million on restructuring and other costs; and

·   £5.7 million PPF levy and Section 75 provision.

Refer to the discussion of 'Exceptional items' for further details.

 

"IAS 21/39"

These accounting adjustments relate to the fair value movement in derivatives and currency exchange and are separated out to assist the reader in understanding the operating results of the business:

 

·   £1.7 million charge on changes in fair value hedges; and

·   £1.5 million gain on retranslation of foreign denominated borrowings.



 

Financial Review (continued)

 

"Other Adjustments" to reflect "Underlying" business

The Group results were impacted by operational changes which included the closure or merging of titles in previous years and the conversion of five titles from daily to weekly publications. In addition, a significant print contract was terminated with News International with the remaining contracts bought out in 2013.

The details of the Other Adjustments are as follows:

·     In each reported year, the revenues lost due to the closure in previous periods of  54 free titles and 4 paid-for titles, together with the conversion of five newspapers from daily to weekly publications have been removed from revenue; and

·   the Group removes from operating profit an amount of cost that is equal to

(i)           100 per cent of the lost revenue from the newspapers that were closed or converted to weekly publication;

(ii)          costs equivalent to 10% of revenue for 2012 to cater for an allocation of shared costs to reorganised titles; and

(iii)         the actual cost of sales of the discontinued printing operations for News International, together with mitigating cost savings and revenue from new print contracts which commenced in 2012.

 

In the case of the News International contract, these "Underlying" business adjustments reconcile to amounts in the Group's accounting records. In the case of revenue lost from newspaper closures and conversions to weekly publications, the revenue adjustments represent an estimate that is based on the financial performance of the affected publications in the periods immediately prior to and immediately following the change. In the case of the associated adjustments to operating profit relating to newspaper closures and conversions, the cost adjustment that is equal to lost revenue is an estimate of the cost benefit arising as a result of the closure or conversion based on an assumption these activities were at a break-even position, but also recognising the benefit derived by these titles from shared costs.



 

Financial Review (continued)

 

Performance Review


Statutory


Underlying


 

2013
£'m

 

2012
£'m

 


£'m

 

%
change


 

2013
£'m

 

2012
£'m

 


£'m

 

%

change

Advertising Revenues










Print advertising

157.1

181.3

(24.2)

(13.3)


157.1

173.5

(16.4)

(9.5)

Digital advertising2

24.6

20.6

4.0

19.4


24.6

20.6

4.0

19.4

Total advertising revenues

181.7

201.9

(20.2)

(10.0)


181.7

194.1

(12.4)

(6.4)

Non Advertising Revenues










Newspaper sales

87.7

91.8

(4.1)

(4.5)


87.7

89.6

(1.9)

(2.1)

Contract printing

21.2

48.4

(27.2)

(56.2)


10.3

8.4

1.9

22.6

Other

12.2

16.6

(4.4)

(26.5)


12.2

16.7

(4.5)

(26.9)

Total other revenues

121.1

156.8

(35.7)

(22.8)


110.2

114.7

(4.5)

(3.9)

Total revenues

302.8

358.7

(55.9)

(15.6)


291.9

308.8

(16.9)

(5.5)











Operating (loss)/profit

(245.6)

40.4

(286.0)

(707.9)


54.3

53.0

1.3

2.5

1   Operating costs includes depreciation, amortisation and exceptional items.

2   Digital advertising includes all digital revenues including DealMonster and other marginal non advertising digital revenues.

 

Advertising revenue

Total advertising revenues in 2013 were £181.7 million, a decline of 10% from previous year. The underlying decline was 6.4% after adjusting for the impact of changing five titles from daily to weekly. All of this decline was from the print advertising categories which had an underlying decline of 9.5%, with digital revenues growing by 19.4%. The overall reduction in the rate of decline in total advertising revenues as the year progressed was encouraging, with declines improving from quarter to quarter.  The quarter one to quarter four year on year declines were 14.8%, 12.7%, 7.6% and 5.3% respectively.

Print and Digital Advertising

Revenue Analysis


Full Year

Print

Digital

 

Categories

2013

£m

2012

£m

% change

2013

£m

2012

£m

% change

2013

£m

2012

£m

% change

Property

24.9

27.9

(10.8)

24.0

27.5

(12.7)

0.9

0.4

125.0

Employment

20.3

21.9

(7.3)

12.7

14.6

(13.0)

7.6

7.3

4.1

Motors

14.9

17.2

(13.4)

14.0

16.9

(17.2)

0.9

0.3

200.0

Other

44.4

49.0

(9.4)

37.8

43.0

(12.1)

6.6

6.0

10.0

Display

77.2

85.9

(10.1)

68.6

79.3

(13.5)

8.6

6.6

30.3

Total

181.7

201.9

(10.0)

157.1

(13.3)

24.6

20.6

19.4

Underlying adjustment1

-

(7.8)








Total underlying revenue

181.7

194.1







1   Reflects the impact of closed titles and the change of publication frequency of five titles from daily to weekly.



 

Financial Review (continued)

 

Print and Digital Advertising

Half- Yearly Revenue Analysis

 


52 week period

First half to June

Second half to December

 

Categories

2013

£m

2012

£m

% change

2013

£m

2012

£m

% change

2013

£m

2012

£m

% change

Property

24.9

27.9

(10.8)

13.6

15.7

(13.4)

11.3

12.2

(7.4)

Employment

20.3

21.9

(7.3)

10.7

12.5

(14.4)

9.6

9.4

2.1

Motors

14.9

17.2

(13.4)

7.6

9.5

(20.0)

7.3

7.7

(5.2)

Other

44.4

49.0

(9.4)

21.6

25.9

(16.6)

22.8

23.1

(1.3)

Display

77.2

85.9

(10.1)

38.1

44.1

(13.6)

39.1

41.8

(6.5)

Total

181.7

201.9

(10.0)

91.6

107.7

(14.9)

90.1

94.2

(4.4)

 

Our advertising categories are driven by a number of key macro indicators including GDP, and the level of unemployment and levels of consumer confidence.  Throughout the year as the forecasts for these indicators improved, so did our performance and the second half of the year was significantly better than the first half, with decline rates in total advertising revenues moving from 14.9% in January to June to 4.4% in July to December.

Property

A strong property market with growing volumes of property transactions from both new build and older properties will fuel growth in our Property advertising business in both print and digital. We saw early signs of this in the second half of the year primarily driven by government backed schemes. This is an important advertising category and a healthy property market will not only benefit this category but can also benefit local display as businesses servicing home buyers and owners increase advertising spend.  Despite this, the first half of 2013 still remained a very difficult market and as a result we saw this category decline by 10.8% year on year in 2013, with the January to June declines of 13.4% but encouragingly July to December declines reduced to 7.4%. Property Print advertising recorded an annual decline of 12.7%, while Digital advertising grew 125% albeit from a low base.

Employment

Our employment category was our strongest performing category over the year and generated £20.3m in 2013, a single digit annual decline of 7.3%. There was a stark difference in the first half of the year and second half of the year performance, with January to June 2013 recording an annual decline of 14.4% and July to December 2013 recording annual growth of 2.1%. Most of the 2013 growth was digital led with digital employment growing by 4.1% year on year and print declining by 13% year on year. Digital employment revenue now accounts for 37% of our total employment revenue and is the category with the highest proportion of digital revenue. While the Employment market remains strong, our improving performance in this category and changing mix from print to digital is expected to continue into 2014.

Motors

2013 remained difficult for both new and used car dealers. Encouragingly however, the macro indicators for new car registrations is more positive for 2014 and we did witness some of this improvement in the second half of the year.  Overall the motors category generated £14.9m of revenue in 2013, an annual decline of 13.4%. Importantly the second half year annual decline was only 5.2% on the back of the first half year decline of 20%.  The print category accounted for all the decline, with annual decline rates 17.2% and digital growing by 200%.



 

Financial Review (continued)

 

Display

Display advertising is sensitive to a number of macro indicators including the ones that drive our classified categories of Employment, Property and Motors. Our advertisers in these classified categories use display advertising both to generate sales, but also we believe for local brand awareness. 2013 started with tight control over marketing budgets for many of our Display advertising customers both at a local and national level. As with our other categories, there were signs of increasing spend during the year and this was reflected in the performance for this category in the latter months. Overall display advertising generated £77.2m in 2013, an annual decline of 10.1%, with the first half of the year declining by 13.6% year-on-year and the second half declining by 6.5% year-on-year. Print advertising declined by 13.5% year-on-year and digital grew by 30.3% year-on-year.

Other

The Other category includes Entertainment, Public Notices and Other Classified, DealMonster and other marginal digital income.  This combined category generated £44.4m in revenue, representing an annual decline of 9.4%, with print declining 12.1% and digital growing by 10%. Public Notices in print performed comparatively well with an annual decline rate of 6.8%, Other classified and Entertainments had the biggest decline rates of 17% and 23% respectively. The digital growth of 10% was driven by Public Notices.

Audience growth

Our digital advertising as a whole has benefited from substantial traffic growth, following further investment in our websites, and increased levels of content. In summary we have more visitors to our websites, who visit more frequently, more pages and higher sell through rates with higher average order values.

Non advertising revenue

Newspaper sales generated £87.7 million in the year against £91.8 million in 2012, a decline of 4.5%. This decline was halved to 2.1% after taking account of the closed titles and change of frequency of the 5 titles from daily to weekly. 2013 was the year that we completed the relaunch of all our titles and continued our strategy of cover price increases. Our relaunched titles have standardised templates that we believe will be more attractive to readers and make it easier for advertisers to buy across multiple titles.

Contract printing revenue was down 56.2% compared to 2012 and was almost exclusively a result of the termination of the News International Contract.



 

Financial Review (continued)

 

Operating Costs

In the period ended 28 December 2013, operating costs including exceptional items and IAS21/39 adjustments increased by £230.1 million to £548.4 million (2012: £318.3 million). Total operating costs before exceptionals reduced by £33.8 million to £237.9 million (2012: £271.7 million).


Statutory


Underlying


 

2013
£'m

 

2012
£'m

 


£'m

 

%
change


 

2013
£'m

 

2012
£'m

 


£'m

 

%

change

 

Operating costs - ordinary

237.9

271.7

(33.8)

(12.4)


237.6

255.8

(18.2)

(7.1)

 

Operating costs - exceptional

310.5

46.6

263.9

566.3


-

-

-

-

 

Operating costs

548.4

318.3

230.1

72.3


237.6

255.8

(18.2)

(7.1)

 

 

On an underlying basis, after adjusting for exceptionals and IAS21/39 adjustments (as well as making adjustments for the closure of titles, changes in frequency of publication and stripping out the costs associated with the termination of the News International print contract), underlying operating costs decreased by £18.2 million to £237.6 million (2012: £255.8 million).

Refer to the section on Exceptional items for a description of exceptional operating expenses.

Operating Profit

In 2013 we posted the first positive year on year growth in underlying operating profit for seven years. Underlying operating profit grew by 2.5% year on year to £54.3 million from £53.0 million. This compares favourably with previous years. We have stemmed the rate of profit decline.

Despite underlying profit growth, the trading environment in the Group's markets continued to be difficult during 2013 albeit with early signs of improvement in the latter part of the year. Advertising revenues remained under pressure throughout the year but we saw significant improvements in the rate of decline as each quarter passed. Total underlying Group revenues were down £16.9 million to £291.9 million, a decline of 5.5%.

The revenue declines were mitigated by cost reductions, which were reduced from £255.8 million to £237.6 million, a year on year underlying reduction of 7.1%.

Our gross margin remains strong and grew from 17.2% to 18.6% on an underlying basis for the year, despite a level of investment in the online business.



 

Financial Review (continued)

 

Exceptional items

In addition to the trading results discussed above, a number of items have been identified as exceptional either due to the size or nature of the item. Total net exceptional items before tax was £300.5 million (2012: £16.6 million) and included:

·   £10.0 million revenue from the termination of a long term printing contract with News International;

·   £202.4 million impairment of publishing titles, in part reflecting changes in the discount and growth rate assumptions applicable to the business and sector as a whole;

·   £68.4 million write down in the value of presses and property assets brought about as a result of structural rationalisations and closure of specific operations (particularly presses);

·   £33.0 million on restructuring and other costs designed to reduce staff costs and enable operating efficiencies and £1.0 million on professional fees and aborted disposal costs; and

·   £5.7 million net pension charge due to accrual of Pension Protection Fund levies of £4.4 million and a section 75 debt of £1.3 million.

 

The only exceptional items that involved significant cash outflows for the Group in 2013 were the restructuring costs of £33.0 million of which £9.4 million was paid in the period with the balance to follow in subsequent years, and pension related costs. Further details are included in the cash flow statement and notes and in Note 5 to the condensed financial statements.

IAS 21/39 Items

IAS 21/39 items relate to the fair value movement in the Group's derivative financial instruments (primarily interest rate caps and foreign exchange call options) as well as the retranslation of the Group's US dollar and Euro denominated borrowings. The net charge for the year was £0.2 million (2012: charge of £2.8 million). Further details are shown in Note 9 to the condensed consolidated financial statements.

Finance Income and Costs (excluding IAS 21/39 items)

Net finance costs excluding IAS 21/39 items for the 52 week period ended 28 December 2013 were £41.0 million, a decrease of £3.4 million or 7.7 per cent from net finance costs of £44.4 million for the 52 week period ended 29 December 2012. The largest component of net finance costs was interest on loans, which were £39.8 million in 2013 and £42.1 million in 2012.

The £3.4 million decrease in net finance costs was primarily due to reduced debt levels and includes a £0.9 million decrease associated with pensions.

In accordance with Group policy, the Group's interest rate exposure (excluding any impact of exchange rates) is hedged through interest rate caps. Accordingly, the Group's exposure to interest rate increases is limited.

Loss Before Tax

The Group's loss before tax was £286.8 million (2012: loss before tax of £6.8 million). The significant difference between 2013 and 2012 was the exceptional expense recognised in 2013 of £300.5 million as discussed previously.



 

Financial Review (continued)

 

Tax Rate

The statutory tax credit of £74.8 million (2012: £12.4 million) comprises a current tax charge of £0.6 million (2012: £3.7 million) and a deferred tax credit of £75.4 million (2012: credit of £16.1 million).

The tax credit of £74.8 million for the period and the £62.4 million increase was primarily attributable to the recognition of the tax benefit arising on the impairment write-down on intangible publishing title assets and benefit of reorganisation costs as well as the benefit of the change in tax rate to 23% from 1 April 2013.

The Group's effective tax rate was 26.1% for the 2013 financial year and 182.8% in its 2012 financial year. The 23.25% basic tax rate applied for the 2013 period was a blended rate due to the tax rate of 24.0% in effect for the first quarter of 2013, changing to 23.0% from 1 April 2013 under the section 6 of the Finance Act 2012.

Earnings Per Share and Dividends

Basic loss per share was 32.74p, compared with earnings of 0.88p in 2012. The deterioration of basic earnings per share reflects the following:

·     Impairments and write down of assets totalled £270.8 million in 2013 compared with £24.8 million in 2012;

·     Other exceptional operating expenses items totalled £39.8 million in 2013 compared with £21.8 million in 2012;

·     A reduction in the operating profit before exceptional and IAS 21/39 items of £2.1 million;

·     A £6.0 million decrease in finance costs including a £0.9 million decrease in net finance expense on pension assets/liabilities;

·     IAS 21/39 movements in 2013 were a charge of £0.2 million compared to a charge of £2.8 million in 2012; and

·     The increase in tax credits of £62.4 million.

 

Excluding exceptional and IAS 21/39 items, the adjusted earnings per share of 2.65p was down from the previous year's comparative of 3.42p.

The Group's finance arrangements preclude the payment of ordinary dividends until the ratio of net debt to EDITDA falls below 2.5 times.

Cashflow, Financing and Net Debt

Net debt at 28 December 2013 was £302.0 million, a reduction of £17.3 million on the prior year. The Group remained cash generative throughout the year, with net cash received from operating activities of £51.7 million including £10.0 million received from News International. The cash was primarily used for cash interest payments of £24.8 million and to repay borrowings and loan notes of £33.1 million. The Group maintained tight control of net capital expenditure with £7.4 million spent, while proceeds received from the disposal of surplus assets (primarily property sales, titles and the disposal of closed presses) were £5.7 million.

The maximum cash interest margin payable in the case of the bank facilities is LIBOR plus 5.0%, and in the case of the loan notes, a cash interest coupon rate of up to 10.3%. The interest rates are based on the absolute amount of debt outstanding and leverage multiples and reduce based on agreed ratchets.

In addition to the cash interest, a PIK margin accumulates and is payable at the end of the facility. The PIK accrual has increased from £8.5 million to £20.3 million reflecting a non-cash charge of £11.8 million in the period. The PIK margin rate is again based on the absolute amount of the debt outstanding and leverage multiples and reduces based on agreed ratchets. If the loan facilities are fully repaid prior to 31 December 2014, the rate of the PIK margin accrued throughout the period of the agreement will be recalculated at a substantially reduced rate.

Financial Review (continued)

 

Cashflow, Financing and Net Debt (continued)

There is an agreed repayment schedule of £70.0 million over three years with £30.0 million remaining payable as at 28 December 2013, of which £5 million was paid on 31 December 2013. In addition, a pay-if-you-can (PIYC) repayment schedule was agreed totalling £60.0 million over three years, with £52.5 million remaining payable at 28 December 2013 of which £7.5 million was paid on 31 December 2013.

Five-year share warrants over the Company's share capital have been issued to the Group's lenders. Warrants for 2.5% of the Company's share capital were issued on completion of the new financing arrangements and a further 5.0% were issued in September 2012. In addition, the exercise period for the 5.0% warrants issued to the lenders in August 2009 was extended to make the expiry of all the warrants coterminous in September 2017. As a result, warrants equivalent to a total of 5.1% of the Company's issued ordinary share capital have been issued. During 2013, 44,428,306 warrants were exercised, generating £4.4 million of cash for the group.

Net Asset Position

At the period end, the Group had net assets of £97.1 million, a decrease of £176.8 million on the prior year. The movements in the net asset position from the prior year includes £202.4 million on impairment of publishing titles in part reflecting changes in the discount and growth rate assumptions applicable to the business and sector as a whole; £68.4 million write downs in the value of presses and property assets brought about as a result of structural rationalisation and the exit of the remaining News International contract; increased centralisation, divisional and title reorganisations and closure of specific operations particularly presses; and £24.4 million on redundancy accruals relating to restructuring.  These were partially offset by a £43.0 million reduction in the deficit on the defined benefit plan as the actual return on assets exceeded the expected return and a £67.8 million reduction in deferred tax principally due to the tax effecting of the intangible write downs and change in tax rates.

Pensions

The Group's defined benefit pension plan deficit (as assessed under IAS 19) decreased by £43.0 million over the year to £78.3 million. The decrease in the deficit was largely due to improvements in the asset valuations partially offset by increased inflation assumptions.

The amount of contributions committed to be paid to the scheme during 2014 is £5.7 million (2013: £5.7 million) plus share of asset disposal proceeds, as agreed as part of the formal actuarial valuation undertaken as at 31 December 2010.

The Pension Fund Trustees are taking professional advice, including actuarial input, to determine whether any employer debt is payable to the Plan following the previous cessation of five participating employers.  At period end, £1.3 million has been provided for.

During the period the Pension Fund Trustees have agreed to carry out a formal actuarial valuation at 31 December 2012, effective as at one year ahead of the next planned valuation date of 31 December 2013. The outcome of the review will not be formalised until after the reporting date.  The Trustees have indicated that they will seek an increase in the committed annual contributions. The Trustees are also consulting with the Group about planned changes to the investment strategy of the Plan to reduce the level of risk.

The levy payable by the Pension Fund to the Pension Protection Fund for the year to 31 March 2013 was £3.1 million and for the year to 31 March 2014 is £3.2 million. The Group has committed to the Pension Fund to underwrite any annual charge in excess of £0.7 million. The Group has paid £1.5 million during 2013 and at period end accrued £1.0 million in connection with the year to 31 March 2013 and a further £1.9 million has been provided for the nine month period to 28 December 2013 within trade and other payables.  It is expected that this levy will continue in 2014. The level of increase in charges is not known at this point.

Financial Review (continued)

 

Pensions (continued)

The Johnston Press Pension Plan is subject to a potential increase in its liabilities due to benefit equalisation not having taken effect for a specific group of members. The Group's lawyers have advised that an application to court be made and are confident of a successful outcome in the case. The Group is aiming to issue an application to court in the first half of 2014 with the expectation that the hearing would take place before the end of 2014. No provision has been made in the financial statements as the Group's management does not consider that there is any probable loss however the maximum obligation in relation to this matter is expected to be in the region of £8 million, based on the most recent calculations.

IAS 19 (revised 2011) - "Employee benefits" is effective for annual periods beginning on or after 1 January 2013 and will therefore be applied in the next accounting period. The key changes are the deferral of actuarial gains and losses will no longer be permitted and the deficit should be recognised in full on the balance sheet (subject to any restrictions in IFRIC 14); the finance cost, which is currently the difference between the interest on liabilities and expected return on assets will be replaced by a net interest cost. In most cases the finance cost will increase as the expected return on assets will effectively be based on the discount rate (i.e. the returns available on AA-rated corporate bonds) with no allowance made for any outperformance expected from the Plan's actual asset holding; more disclosure will be required about the risks posed by the Plan. Had the Standard been applied in the current financial year, the Group's profit before tax would have been reduced by approximately £5.2 million.

Capital Expenditure

In the financial periods ended 28 December 2013 and 29 December 2012, the Group incurred capital expenditure of £7.3 million and £5.2 million respectively. Of this, £4.3 million was spent on infrastructure and £3.0 million on developing the digital platforms.

Financial Reporting

With the exception of the application of IAS 19 (revised) - Employee Benefits in 2014, the IFRS standard changes applicable in 2014 are not expected to have a material impact on the financial statements of the Group in future periods. Additional details on changes in the standards are included in Note 3 to the Condensed Consolidated Financial Statements.

Control Processes

As discussed in the Report of the Audit Committee, the Group operates internal control processes that assist in the efficient operation of the Group's businesses. Central to these processes and controls is the fact that the general ledgers, fixed asset registers, payables system, expenses and payroll are controlled through our shared services centre in Peterborough, with all cash processing and sales ledger balances for mainland UK being controlled through a single centre in Leeds. Plc related expenditure is managed in Edinburgh.



 

Financial Review (continued)

 

Factors Affecting Future Group Performance

The performance of the Group will continue to be affected by the economic conditions in our markets, cyclical conditions, structural and business specific circumstances and trends in employment, property transactions, new car sales and the levels of consumer confidence.

However, the outlook for the Group will also depend on a number of other factors, including:

·   Successful implementation of the Group's strategy;

·   Growing new revenues (particularly digital) in the Group's existing market segments;

·   Trends seen in the last half of 2013, continuing in 2014;

·   Ability to adapt to customer requirements through new sales propositions and advertising channels;

·   Continually improving existing efficient operations through technology infrastructure and improved processes; and

·     Further re-engineering of the cost base of the business.

 

Liquidity and Going Concern

The Group and the Company continues to adopt the going concern basis of accounting in preparing the consolidated financial statements.

The Group's bank facilities and private placement loan notes contain three quarterly covenant tests, Consolidated EBITDA to Consolidated Net Borrowing Costs, Consolidated Net Borrowings to Consolidated EBITDA, and Consolidated Net Cash Flow to Total Debt Service, in addition to a Consolidated Net Worth covenant which is tested at the half year and year end. In December 2013 the Company and its lenders agreed to reset financial covenants until September 2015, providing the Company with the opportunity to pursue a full refinancing in 2014.  When tested throughout the year and at 28 December 2013, the covenants were all met.

The Group has continued to report improving trends in underlying profitability, has reduced its net debt from £319.3 million at 29 December 2012 to £302.0 million at 28 December 2013, and is now exploring the opportunity to repay its existing bank facilities and private placement loan notes, through a combined debt and equity capital refinancing during 2014.

The Board has undertaken a recent and thorough review of its forecasts and associated risks. These forecasts extend for a period of 12 months from the date of approval of these financial statements and demonstrate anticipated compliance with financial covenants over this forecast period, albeit with limited headroom. The Directors are satisfied that it is reasonable to adopt the going concern basis of accounting following this review, further details of which are set out below.



 

Financial Review (continued)

 

The forecasts make key assumptions, based on information available to the Directors, on a number of items including:

·     External advertising forecasts;

·     Current print advertising run rates;

·     Growth in digital revenues;

·     The impact of newspaper cover price increases on circulation revenues;

·     Existing and planned cost reduction measures;

·     Planned disposals of non-strategic assets;

·     Projected debt service and interest costs over the next 12 months;

·     Expected future cost of the PPF levy; and

·     The levels of advisory fees and other costs incurred in exploring refinancing if it were subsequently delayed or aborted.

The Directors recognise that some of the assumptions referred to above are not within the Group's control, and around which therefore there remains some uncertainty. Good progress has been and continues to be made against all of the key assumptions: the overall economic environment is improving, digital revenues are growing strongly, circulation revenues are stabilising, cost savings targets have been met, good progress has been made on planned asset disposals, and debt reduction continued, as evidenced by underlying increases in operating profits and margins, and debt reduction.

The risks described are not new. However, in the event that a number of the following were to happen concurrently, before the Group has successfully refinanced - a deteriorating economic climate, a lack of successful execution of the strategy by the Group, the delay or inability to continue to make cost savings, unexpected increase in raw materials,  a lack of success or delays in completing the sale of non-core property and other assets and the Group incurred significant additional adviser and other costs in connection with a refinancing without the benefit of a successful refinancing - and thus the Group were to breach its financial covenants, then this would give lenders, acting in their majority, the ability to demand repayment of the facilities.  As discussed, the Group has renegotiated its covenants and is in constructive discussion with its existing lenders and Pension Trustees with a view to achieving a successful refinancing during 2014.

Despite the covenant reset, the Group forecasts show limited headroom and therefore in accordance with Accounting Standards and the UK Financial Reporting Council guidance for Directors on going concern, it is appropriate for the Directors to recognise a material uncertainty, which may give rise to significant doubt over the Group's and the Company's ability to continue as a going concern, and if the majority of lenders chose to exercise their rights in such an event, the Group and the Company may be unable to realise assets and discharge their liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

Nevertheless, after making enquiries and considering the uncertainties above, the Directors have a reasonable expectation that the Group and the Company will continue to trade within the terms of its existing financial arrangements and will have adequate resources to continue operating in the normal course of business for the foreseeable future. Thus the Directors continue to adopt the going concern basis of accounting in preparing the consolidated and parent company financial statements.



 

Directors' Responsibility Statement

 

We confirm to the best of our knowledge:

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 28 December 2013. Certain parts thereof are not included within this announcement.

1.    The Consolidated Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

 

2.    The Chairman's Statement, Chief Executive's Report, Operational Review and Financial Review, include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

This responsibility statement was approved by the board of directors on 28 March 2014 and is signed on its behalf by :

 

 

 

Ashley Highfield                                                                                                                                              David King

Chief Executive Officer                                                                                                                                  Chief Financial Officer

28 March 2014                                                                                                                                                28 March 2014



 

Group Income Statement for the 52 week period ended 28 December 2013



2013

2012


Notes

Before  exceptional and IAS 21/39 items £'000

Exceptional items

£'000

IAS

 21/39

£'000

Total

£'000

Before 

exceptional and IAS 21/39 items

£'000

Revised1

Exceptional

items

£'000

IAS

21/39

£'000

Total 

£'000

Revenue

6

292,799

10,000

-

302,799

328,691

30,000

-

358,691

Cost of sales


(173,710)

-

-

(173,710)

(207,868)

-

-

(207,868)

Gross profit


119,089

10,000

-

129,089

120,823

30,000

-

150,823

Operating expenses

7

(64,210)

(39,756)

-

(103,966)

(63,778)

(21,824)

-

(85,602)

Impairment of intangibles, property, plant and equipment and assets held for sale1

7

-

(270,793)

-

(270,793)

-

(24,780)

-

(24,780)

Total operating expenses


(64,210)

(310,549)

-

(374,759)

(63,778)

(46,604)

-

(110,382)

Operating (loss)/profit

8

54,879

(300,549)

-

(245,670)

57,045

(16,604)

-

40,441











Financing










Investment income


394

-

-

394

148

-

-

148

Net finance expense on pension assets/liabilities

9

(1,576)

-

-

(1,576)

(2,471)

-

-

(2,471)

Change in fair value of hedges

9

-

-

(1,691)

(1,691)

-

-

(7,297)

(7,297)

Retranslation of USD debt

9

-

-

1,749 

1,749 

-

-

4,275

4,275

Retranslation of Euro debt

9

-

-

(235)

(235)

-

-

262

262

Finance costs

9

(39,808)

-

-

(39,808)

(42,129)

-

-

(42,129)

Net finance costs


(40,990)

-

(177)

(41,167)

(44,452)

-

(2,760)

(47,212)











Share of results of associates


2

-

-

2

6

-

-

6

(Loss)/profit before tax


13,891

(300,549)

(177)

(286,835)

12,599

(16,604)

(2,760)

(6,765)











Tax

10

3,420

71,394

55

74,869

8,825

2,875

676

12,376

(Loss)/profit for the period


17,311

(229,155)

(122)

(211,966)

21,424

(13,729)

(2,084)

5,611











Earnings per share (p)

11









Earnings per share - Basic


2.65

(35.37)

(0.02)

(32.74)

3.42

(2.20)

(0.34)

0.88

Earnings per share - Diluted


2.65

(35.37)

(0.02)

(32.74)

3.40

(2.19)

(0.34)

0.87

1   The presentation of the 29 December 2012 exceptional item numbers has been revised to split out separately exceptional operating expenses of £21,824,000 and exceptional impairment of £24,780,000 to be consistent with the format of current year disclosures.

 

The above revenue and (loss)/profit are derived from continuing operations. The accompanying notes are an integral part of these condensed financial statements.

The comparative period is for the 52 week period ended 29 December 2012.

 

 



 

Group Statement of Comprehensive Income for the 52 week period ended 28 December 2013


Revaluation Reserve

£'000

Translation    Reserve

£'000

   Retained

Earnings

£'000

Total

£'000

Loss for the period

-

-

(211,966)

(211,966)






Other items of comprehensive loss

Items that will not be reclassified subsequently to profit or loss





Actuarial gain on defined benefit pension schemes (net of tax)1

-

-

28,935

28,935

Total items that will not be reclassified subsequently to profit or loss

-

-

28,935

28,935

 

Items that may be reclassified subsequently to profit or loss





Revaluation adjustment

(46)

-

46

-

Exchange differences on translation of foreign operations

-

500

-

500

Deferred tax on exchange differences

-

(188)

-

(188)

Change in deferred tax rate to 20%

-

-

1,131

1,131

Total items that may be reclassified subsequently to profit or loss

(46)

312

1,177

1,443

Total other comprehensive (loss)/profit for the period

(46)

312

30,112

30,378

Total comprehensive loss for the period

(46)

312

(181,854)

(181,588)

 

For the 52 week period ended 29 December 2012










Profit for the period

-

-

5,611

5,611






Other items of comprehensive loss

Items that will not be reclassified subsequently to profit or loss





Actuarial loss on defined benefit pension schemes (net of tax) 1

-

-

(15,877)

(15,877)

Total items that will not be reclassified subsequently to profit or loss

-

-

(15,877)

(15,877)

 

Items that may be reclassified subsequently to profit or loss





Revaluation adjustment

(377)

-

377

-

Exchange differences on translation of foreign operations

-

(645)

-

(645)

Deferred tax on exchange differences

-

133

-

133

Change in deferred tax rate to 23.0%

-

-

(421)

(421)

Total items that may be reclassified subsequently to profit or loss

(377)

(512)

(44)

(933)

Total other comprehensive (loss)/profit for the period

(377)

(512)

(15,921)

(16,810)

Total comprehensive loss for the period

(377)

(512)

(10,310)

(11,199)

1 Relates to actuarial gain of £29,025,000 (2012: loss of £15,877,000) for the Johnston Press Pension Plan (refer note 15), and a net actuarial loss of £90,000 (2012: £nil)  for two other pension related liabilities.

 

 

 

Group Statement of Changes in Equity for the 52 week period ended 28 December 2013                   


Share

Capital

£'000

Share

Premium

£'000

Share-based Payments Reserve

£'000

Revaluation Reserve

£'000

Own

Shares

£'000

Translation Reserve

£'000

Retained

Earnings

 £'000

Total

 £'000

Opening balances

65,081

502,818

18,959

1,783

(5,589)

9,267

(318,402)

273,917

Total comprehensive loss for the period

-

-

-

(46)

-

312

(181,854)

(181,588)

Recognised directly in equity:









Preference share dividends paid

-

-

-

-

-

-

(152)

(152)

Share-based payments charge

-

-

512

-

-

-

-

512

Deferred tax on share-based payment transactions

 

-

 

-

 

20

 

-

 

-

 

-

 

-

 

20

Share capital issued (Note 16)

4,460

11

-

-

-

-

-

4,471

Release on exercise of warrants

-

-

(5,541)

-

-

-

5,541

-

Release of deferred bonus shares

-

-

(374)

-

374

-

-

-

Own shares purchased

-

-

                     -

-

(97)

-

-

(97)

Net changes directly in equity

4,460

11

(5,383)

-

277

-

5,389

4,754

Total movements

4,460

11

(5,383)

(46)

277

312

(176,465)

(176,834)

Equity at the end of the period

69,541

502,829

13,576

1,737

(5,312)

9,579

(494,867)

97,083










For the 52 week period ended 29 December 2012







 










Opening balances

65,081

502,818

17,845

2,160

(5,379)

9,779

(307,940)

284,364

Total comprehensive loss for the period

-

-

-

(377)

-

(512)

(10,310)

(11,199)

Recognised directly in equity:









Preference share dividends paid

-

-

-

-

-

-

(152)

(152)

Share-based payments charge

-

-

606

-

-

-

-

606

Share warrants issued

-

-

551

-

-

-

-

551

Release of deferred bonus shares

-

-

(43)

-

43

-

-

-

Own shares purchased

-

-

-

-

(253)

-

-

(253)

Net changes directly in equity

-

-

1,114

-

(210)

-

(152)

752

Total movements

-

-

1,114

(377)

(210)

(512)

(10,462)

(10,477)

Equity at the end of the period

65,081

502,818

18,959

1,783

(5,589)

9,267

(318,402)

273,917

 

The accompanying notes are an integral part of these condensed financial statements.



 

Group Statement of Financial Position at 28 December 2013


Notes

2013

£'000

2012

£'000

Non-current assets




Intangible assets

12

541,360

742,294

Property, plant and equipment


54,181

127,223

Available for sale investments


970

970

Interests in associates


22

20

Trade and other receivables


6

6

Derivative financial instruments

14

-

2,742



596,539

873,255

Current assets




Assets classified as held for sale


6,625

7,601

Inventories


2,545

2,850

Trade and other receivables


36,718

41,628

Cash and cash equivalents


29,075

32,789

Derivative financial instruments

14

1,108

155



76,071

85,023

Total assets


672,610

958,278

Current liabilities




Trade and other payables


74,013

50,934

Current tax liabilities


752

2,947

Retirement benefit obligation

15

5,700

5,700

Borrowings

13

8,553

8,520

Derivative financial instruments

14

-

99

Short-term provisions


1,796

1,327



90,814

69,527

Non-current liabilities




Borrowings

13

314,863

334,220

Retirement benefit obligation

15

72,634

115,619

Deferred tax liabilities


92,776

160,584

Trade and other payables


136

142

Long-term provisions


4,304

4,269



484,713

614,834

Total liabilities


575,527

684,361

Net assets


97,083

273,917

Equity




Share capital

16

69,541

65,081

Share premium account


502,829

502,818

Share-based payments reserve


13,576

18,959

Revaluation reserve


1,737

1,783

Own shares


(5,312)

(5,589)

Translation reserve


9,579

9,267

Retained earnings


(494,867)

(318,402)

Total equity


97,083

273,917

 

The comparative numbers are as at 29 December 2012.

The condensed financial statements of Johnston Press plc, registered in Scotland (number 15382), were approved by the Board of Directors and authorised for issue on 28 March 2014.

They were signed on its behalf by:

 

                                               

Ashley Highfield                                                           David King

Chief Executive Officer                                             Chief Financial Officer

The accompanying notes are an integral part of these condensed financial statements.

Group Cash Flow Statement for the 52 week period ended 28 December 2013




Revised1,3


Notes

2013

£'000

2012

£'000

Cash flow from operating activities




Cash generated from operations2,3

17

54,537

80,692

Income tax paid


(2,800)

(4,809)

Net cash inflow from operating activities


51,737

75,883

Investing activities




Interest received


16

120

Dividends received from available for sale investments


378

22

Proceeds on disposal of publishing titles

12

1,965

-

Proceeds on disposal of property, plant and equipment


3,697

8,936

Expenditure on digital intangible assets

12

(3,033)

-

Purchases of property, plant and equipment


(4,320)

(5,171)

Net cash (used in)/received from investing activities


(1,297)

3,907

Financing activities




Dividends paid


(152)

(152)

Interest paid3


(24,803)

(21,837)

Repayment of borrowings


(26,586)

(2,697)

Repayment of loan notes


(6,473)

(23,841)

Financing fees


(514)

(11,826)

Net cash flow from derivatives


-

198

Issue of shares

16

4,471

-

Cash movement relating to own shares held


(97)

(253)

Net cash used in financing activities


(54,154)

(60,408)

Net (decrease)/increase in cash and cash equivalents


(3,714)

19,382

Cash and cash equivalents at the beginning of period


32,789

13,407

Cash and cash equivalents at the end of the period


29,075

32,789

1 The presentation of the 29 December 2012 'cash generated from operations' number has been revised to be consistent with current year disclosures.

2 Includes exceptional cash receipts of £10.0 million (2012: £30.0 million) due to the termination of the News International printing contract in 2012 and 2013.

3 Interest paid in 2012 has been revised to include £4,594,000 that in the prior year was incorrectly classified as 'cash generated from operations'. A subsequent amendment has also been made to note 17 (refer therein). This adjustment did not in any way impact the prior year income statement, assets, liabilities or equity and is purely presentational in nature.

 

The comparative period is for the 52 week period ended 29 December 2012.

The accompanying notes are an integral part of these condensed financial statements.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013

 

1. General Information

The financial information in the Preliminary Results Announcement is derived from but does not represent the full statutory accounts of Johnston Press plc. The statutory accounts for the 52 week period ended 29 December 2012 have been filed with the Registrar of Companies and those for the 52 week period ended 28 December 2013 will be filed following the Company's Annual General Meeting in 2014. The auditor's reports on the statutory accounts for the 52 week periods ended 29 December 2012 and 28 December 2013 were unqualified, however the report on the 52 week period ended 28 December 2013 did include an emphasis of matter regarding a material uncertainty in relation to going concern. Neither report contained a statement under Sections 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated financial statements of Johnston Press Plc have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost convention, except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period. The accounting policies adopted in the preparation of this condensed consolidated financial statement are consistent with those applied by the Group in its audited consolidated financial statements for the period ended 28 December 2013.

Whilst the financial information included in this Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The 2013 Annual Report and Accounts for the 52 weeks ended 28 December 2013 will be made available on the Company's website at www.johnstonpress.co.uk, at the Company's registered office at 108, Holyrood Road, Edinburgh EH8 8AS and sent to shareholders in April 2014.

2. Basis of preparation

The Group's business activities, together with factors likely to affect its future development, performance and financial position and commentary on the Group's financial results, its cash flows, liquidity requirements and borrowing facilities are set out in the Financial Review on pages 10 to 21.

The financial statements have been prepared for the 52 week period ended 28 December 2013. The 2012 information relates to the 52 week period ended 29 December 2012.

3. Adoption of new or amended standards and interpretations in the current year

The following new and revised Standards and Interpretations have been adopted for the 52 week period ended 28 December 2013. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

·   IAS 1 (amended) Presentation of Items of Other Comprehensive Income

·   IFRS 1 (amended) First time adoption of IFRS - Government Loans

·   IFRS 1 (amended) First time adoption of IFRS - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

·   IAS 12 (amended) Deferred Tax: Recovery of Underlying Assets

·   IFRS 7 (amended) Disclosures - Offsetting Financial Assets and Financial Liabilities

·     IAS 32 (amended) Offsetting Financial Assets and Financial Liabilities

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013

(continued)

3. Adoption of new or amended standards and interpretations in the current year (continued)

·   Annual Improvements to IFRS 2009 - 2011 Cycle

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IAS 27 (revised) Separate Financial Statements

IAS 28 (revised) Investments in Associates and Joint Ventures

The following new standards, amendments to standards and interpretations that are expected to impact the Group, which have not been applied in these financial statements, were in issue, and endorsed and applicable to reporting periods commencing from 1 January 2013 onwards. These standards will be applied to the financial statements for the 53 week period commencing 29 December 2013:

IAS 19 (revised 2011) - Employee benefits: is effective for annual periods beginning on or after 1 January 2013. The key changes are the deferral of actuarial gains and losses will no longer be permitted and the deficit should be recognised in full on the balance sheet (subject to any restrictions in IFRIC 14); the finance cost, which is currently the difference between the interest on liabilities and expected return on assets will be replaced by a net interest cost. In most cases the finance cost will increase as the expected return on assets will effectively be based on the discount rate (i.e. the returns available on AA-rated corporate bonds) with no allowance made for any outperformance expected from the Plan's actual asset holding. More disclosure will be required about the risks posed by the Plan. Had the Standard been applied in the current financial year, the Group's loss before tax would have been increased by approximately £5.2 million.

IFRS 13 Fair Value Measurement:is mandatory for annual periods beginning on or after 1 January 2013 with earlier application permitted. Once adopted, IFRS 13 Fair Value Measurement applies whenever another IFRS requires or permits fair value measurements, or disclosures about fair value measurements, with some limited exceptions. The IFRS also applies to measurements such as fair value less costs to sell that are clearly based upon fair value, as well as to disclosures about such items. IFRS 13 provides a consistent framework with a single definition of fair value as 'the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date'. IFRS 13 includes extensive disclosure requirements. The impact on the amounts recognised in the consolidated financial statements has not yet been assessed.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013

(continued)

3. Adoption of new or amended standards and interpretations in the current year (continued)

 

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been endorsed by the EU). 

·   Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities (endorsed 20 November 2013)

·   IAS 36 (amendments) - Recoverable Amount Disclosures for Non-Financial Assets (endorsed 19 December 2013)

·   IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting (endorsed 19 December 2013)

·   IFRIC 21 - Levies (Issued 20 May 2013, endorsement expected Q2 '14 to be effective 1 January 2014)

·   IFRS 9 Financial Instruments amendments (Issued 19 November 2013, endorsement postponed). IFRS 9 will impact the presentation of certain disclosures in the financial statements.

·   IFRS 14 Regulatory Deferral Accounts (Issued 30 January 2014, endorsement expected Q1 '15 to be effective 1 January 2016)

·   Annual Improvements to IFRS's 2010 - 2012 Cycle (Issued 12 December 2013, endorsement expected Q4 '14)

·   Annual Improvements to IFRS's 2011 - 2013 Cycle (Issued 12 December 2013, endorsement expected Q4 '14)

The directors do not expect that the adoption of the standards listed will have a material impact on the financial statements of the Group in future periods.

 

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.

The Group continues to assess the impact of adopting the above new or amended standards and interpretations in future accounting periods.

 

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

 

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Exceptional items

Exceptional items include significant transactions such as the costs associated with restructuring of businesses along with material items including for example revenue received on the termination of significant print contracts, significant pension related costs, the disposal or exit of a significant property directly linked to restructuring and impairment of intangible and tangible assets together with the associated tax impact. The Company considers such items are material to the Income Statement and their separate disclosure is necessary for an appropriate understanding of the Group's financial performance.  These items have been presented as a separate column in the Group Income Statement.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013

(continued)

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty (continued)

Valuation of publishing titles on acquisition

The Group's policies require that a fair value at the date of acquisition be attributed to the publishing titles owned by each acquired entity. The Group's management uses its judgement to determine the fair value attributable to each acquired publishing title taking into account the consideration paid, the earnings history and potential of the title, any recent similar transactions, industry statistics such as average earnings multiples and any other relevant factors.

The publishing titles are considered to have indefinite economic lives due to the historic longevity of the brands and the ability to evolve the brands in the changing media environment.

Assets held for sale

Where a property or a significant item of equipment (such as a print press or property no longer required as part of Group operations) is marketed for sale, management is highly committed to the sale and the asset is available for immediate sale, the Group classifies that asset as held for sale. If the asset is expected to be sold within twelve months, the asset is classed as a current asset. The value of the asset is held at the lower of the net book value or the expected realisable sale value. The Directors have estimated the sale values based on the current price that the asset is being marketed at and advice from independent property agents. The actual sale proceeds may differ from the estimate.

 

Provisions for onerous leases and dilapidations

Where the Group exits a rented property, an estimate of the anticipated total future cost payable under the terms of the operating lease, including rentals, rates and other related expenses, is charged to the Income Statement at the point of exit as an onerous lease. Where there is a break clause in the contract, rentals are provided for up to that point. In addition, an estimate is made of the likelihood of sub-letting the premises and any rentals that would be receivable from a sub tenant. Where receipt of sub-lease rentals is considered reasonable, these amounts are deducted from the rentals payable by the Group under the lease and provision charged for the net amount.

Under the terms of a number of property leases, the Group is required to return the property to its original condition at the lease expiry date. The Group has estimated the expected costs of these dilapidations and charged these costs to the Income Statement. No discounting has been applied to the provision as the effect of the discounting is not considered material.

Valuation of share-based payments 

The Group estimates the expected value of equity-settled share-based payments and this is charged through the Income Statement over the vesting periods of the relevant awards. The cost is estimated using a Black-Scholes valuation model. The Black-Scholes calculations are based on a number of assumptions and are amended to take account of estimated levels of share vesting and exercise.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the period end date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013

(continued)

4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty (continued)

 

Impairment of publishing titles and print presses

Determining whether publishing titles are impaired requires an estimation of the value in use of the cash generating units (CGUs) to which these assets are allocated. Key areas of judgement in the value in use calculation include the identification of appropriate CGUs, estimation of future cash flows expected to arise from each CGU, the long-term growth rates and a suitable discount rate to apply to cash flows in order to calculate present value. The Group has identified its CGUs based on the seven geographic regions in which it operates. This is considered to be the lowest level at which cash inflows generated are largely independent of the cash inflows from other groups of assets and has been consistently applied in the current and prior periods. £202.4 million impairment loss has been recognised in 2013 (2012: nil). The carrying value of publishing titles at 28 December 2013 was £538.5 million (2012: £742.3 million). Details of the impairment reviews that the Group performs are provided in Note 12.

Determining whether print presses are impaired requires an estimation of the value in use of each print site.  The value in use calculation requires the Group to estimate the future cash flows expected to arise from the print sites and a suitable discount rate in order to calculate present value.

 

Valuation of pension liabilities

The Group records in its Statement of Financial Position a liability equivalent to the deficit on the Group's defined benefit pension schemes. This liability is determined with advice from the Group's actuarial advisers each year and can fluctuate based on a number of factors, some of which are outside the control of management. The main factors that can impact the valuation include:

·   the discount rate used to discount future liabilities back to the present date, determined each year from the yield on corporate bonds;

·   the actual returns on investments experienced as compared to the expected rates used in the previous valuation;

·   the actual rates of salary and pension increase as compared to the expected rates used in the previous valuation;

·   the forecast inflation rate experienced as compared to the expected rates used in the previous valuation; and

·   mortality assumptions.

Details of the assumptions used to determine the liability at 28 December 2013 are set out in Note 15.

 

5. Business segments

Information reported to the Chief Executive Officer for the purpose of resource allocation and assessment of segment performance is focussed on the two areas of Publishing (in print and online) and Contract Printing. Geographical segments are not presented as the primary segment is the UK which is greater than 90% of Group activities.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

 

6. Segment Information              

a) Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment:






Revised1


Publishing 2013

£'000

Contract printing

2013

£'000

Eliminations 2013

£'000

Group

2013

£'000

Publishing 2012

£'000

Contract  

printing  

2012

 £'000

  Eliminations 2012

£'000

Group

2012

 £'000

Revenue









Print advertising

157,057

-

-

157,057

181,257

-

-

181,257

Digital advertising

24,529

-

-

24,529

20,606

-

-

20,606

Newspaper sales

87,658

-

-

87,658

91,763

-

-

91,763

Contract printing

-

11,206

-

11,206

-

18,371

-

18,371

Other

10,759

1,590

-

12,349

14,812

1,882

-

16,694

Total external sales

280,003

12,796

-

292,799

308,438

20,253

-

328,691

Inter-segment sales2

-

39,436

(39,436)

-

-

53,019

(53,019)

-

Exceptionals

-

10,000

-

10,000

-

30,000

-

30,000

Total revenue

280,003

62,232

(39,436)

302,799

308,438

103,272

(53,019)

358,691










Operating (loss)/profit









Segment result before exceptional items

 

50,495

 

4,384

 

-

 

54,879

51,554

5,491

-

57,045

Exceptional items

(246,458)

(54,091)

-

(300,549)

(22,667)

6,063

-

(16,604)

Net segment result

(195,963)

(49,707)

-

(245,670)

28,887

11,554

-

40,441

Investment income




394




148

Net finance expense on pension assets/liabilities




(1,576)




(2,471)

IAS 21/39 adjustments




(177)




(2,760)

Finance costs




(39,808)




(42,129)

Share of results of associates




2




6

Loss before tax




(286,835)




(6,765)










Tax




74,869




12,376

(Loss)/profit for the period




(211,966)




5,611

1 The presentation of the 29 December 2012 exceptional item numbers has been revised to be consistent with current year disclosures.

2 Inter-segment sales are charged at prevailing market prices.

 

The segment result represents the (loss)/profit earned by each segment without allocation of the share of results of associates, investment income, finance costs (including in relation to pension assets and liabilities) and income tax expense. This is the measure reported to the Group's Chief Executive Officer for the purpose of resource allocation and assessment of segment performance.

 

b) Segment assets


2013

 £'000  

2012

£'000 

Assets



Publishing

638,679

855,372

Contract printing

32,823

99,039

Total segment assets

671,502

954,411

Unallocated assets

1,108

3,867

Consolidated total assets

672,610

958,278

 

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of available-for-sale investments and derivative financial instruments. 



 

 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

6. Segment Information (continued)

c) Other segment information


Publishing 2013

 £'000

Contract printing 2013 

£'000

Group 

2013

 £'000

Publishing 2012 

£'000

Contract printing

 2012

  £'000

Group 

2012 

£'000

Additions to property, plant and equipment

4,320

-

4,320

4,912

180

5,092

Depreciation and amortisation expense

4,108

3,644

7,752

5,077

7,638

12,715

Impairment of property, plant and equipment

1,443

62,252

63,695

-

17,239

17,329

Net impairment of intangibles

202,427

-

202,427

-

-

-

 

7. Exceptional Items


2013

 £'000

2012

£'000

Revenue



Termination of print contract

10,000

30,000

Total revenue - exceptional items

10,000

30,000




Operating expenses



Operating expenses - pensions



Pension protection fund contribution

(4,408)

-

Section 75 pension debt

(1,268)

-

IAS 19 past service gain (Note 15)

-

1,540




Operating expenses - restructuring costs



Redundancy costs

(24,444)

(21,582)

Lease termination costs, empty property and dilapidations

(5,843)

(1,610)

Other restructuring costs

(2,773)

(1,211)




Operating expenses - gain on disposal



Gain on sale of assets

199

986




Operating expenses - other

(1,219)

53




Total exceptional expenses

(39,756)

(21,824)




Impairment of intangible assets, property, plant and equipment and assets held for sale



Intangible assets (Note 12)

(202,427)

-

Property, plant and equipment

(63,695)

(17,239)

Assets held for sale

(4,671)

(7,541)

Total impairment of intangible assets, property, plant and equipment and assets held for sale

(270,793)

(24,780)




Total operating expenses and impairment

(310,549)

(46,604)




Total exceptional items

(300,549)

(16,604)

 



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

7. Exceptional Items (continued)

 

Revenue                             

The Group has recognised revenue of £10.0 million (2012: £30.0 million) during the period as a result of a termination fee payable on the final aspect of a long term contract with News International. The prior year income represents an earlier termination of aspects of the contract.

 

Operating expenses - pensions                               

During 2013, the pension regulator has requested payment of PPF levies amounting to £3.1 million and £3.2 million for the years ending 31 March 2013 and 31 March 2014 respectively, £1.3 million of which will be settled by the Johnston Press Pension Plan, leaving £6.3 million (2012: nil) payable by the Company, in accordance with the agreed Schedule of Contributions. £4.4 million has been charged to the income statement for the period to 28 December 2013. Additionally, the Group incurred a Section 75 debt amounting to £1.3 million (2012: nil) following the wind up of certain companies in prior years. In 2012, the Group offered a number of existing pensioners the opportunity to take part in a pension exchange where, for a higher pension today, they forgo a proportion of future increases. This resulted in a gain of £1.5 million.

 

Operating expenses - restructuring costs                            

Restructuring costs primarily relate to various reorganisation processes designed to reduce the size and cost of overhead functions (2013: £24.4 million, 2012: £21.6 million), early lease termination costs (2013: £3.0 million, 2012: £nil), empty property costs (2013: £1.4 million, 2012: £1.4), dilapidations (2013: £1.4m, 2012: £0.2) and other associated legal and consulting fees (2013: £2.8 million, 2012: £1.2 million)   .              

                               

Operating expenses - gain on disposal                 

During 2012, the Group recognised a gain of £1.0 million from the disposal of a significant property.                     

Operating expenses - other                       

The Group incurred other operating expenses of £0.7 million (2012: £nil) relating to to legal fees in relation to the exploration of refinancing and £0.5 million (2012: £nil) relating to legal fees for an aborted disposal.                   

Impairment of intangible assets, property, plant and equipment and assets held for sale                           

In the period ended 28 December 2013, an impairment of £202.4 million (2012: £nil) was recognised by the Group for publishing titles largely due to changes in the discount and growth rate assumptions applicable to the business and sector as a whole.

 

The Group also incurred charges for write down in the value of presses and property assets (2013: £68.4 million, 2012: £24.8 million). During the period, as a result of structural rationalisations, increased centralisation, divisional and title reorganisations and closure of specific operations particularly presses, the Group carried out a review of the recoverable amount of its print manufacturing plant and related equipment. These assets are used in the Group's print segment. The review led to the recognition of an impairment loss of £62.3 million which has been recognised in the Income Statement. The Group also estimated the fair value less costs to sell of its print plant and related equipment, which is based on the recent market prices of assets with similar age and obsolescence. The fair value less costs to sell is less than the value in use and hence the recoverable amount of the relevant assets has been determined on the basis of their value in use. The discount rate used in measuring value in use was 12% per annum.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

7. Exceptional Items (continued)

Additional impairment losses recognised in respect of property, plant and equipment in the period amounted to £1.4 million. These losses reflect the Group's future expected use of the asset, resulting in value in use reflecting the cash flows from proposed disposal of the asset.  Those assets have been impaired in full and belong to the Group's publishing segment. The impairment losses have been included in the Income Statement in the cost of sales line item.

 

Tax-effect of exceptional items

The Group has disclosed a £71.3 million tax credit in relation to the total exceptional items of £300.5 million.  The tax credit is primarily attributable to the deferred tax adjustment relating to the impairment of intangible assets of £64.6 million (including credit relating to reduction in deferred tax rate to 20%), and deductible restructuring costs tax credit of £7.7 million.

 

8. Operating (Loss)/Profit


2013

£'000

2012

£'000

Operating (loss)/profit is shown after charging/(crediting):



Depreciation of property, plant and equipment

7,543

12,715

Exceptional write down in value of presses

63,695

17,239

Write down of assets classified as held for sale)



  Exceptionals

4,671

7,541

  Operating

-

276

Profit on disposal of property, plant and equipment:



  Operating disposals

(1,068)

(695)

  Exceptional disposals

(199)

(986)

  Assets held for sale disposals

-

(390)

Movement in allowance for doubtful debts

(1,019)

(2,069)

Staff costs excluding redundancy costs

113,461

131,526

Redundancy costs

24,444

21,582

Auditor's remuneration:



  Audit services



    Company and Group accounts

173

120

    Subsidiaries

240

240

Operating lease charges:



  Plant and machinery

1,887

1,847

  Other

5,040

3,841

Rentals received on sub-let property

(115)

(221)

Net foreign exchange gains

(146)

(59)

Cost of inventories recognised as expense

27,720

36,111

Write down of inventories

-

647

 

Profit on disposal of property, plant and equipment - operating disposals

The Group operates a large portfolio of properties, and regularly exits and renews leases, as well as sale and leaseback of freehold properties. Profits of £0.6 million in 2013 (2012: £0.7 million) were included in operating profits from property sales. There were nine such sales in 2013. Similar profits are expected to be earned in 2014.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

8. Operating (Loss)/Profit (continued)

Staff costs shown above include £3,710,000 (2012: £2,284,000) relating to remuneration of Directors. In addition to the auditor's remuneration shown above, the auditor received the following fees for non-audit services.

 


2013

£'000

2012

 £'000

Audit-related assurance services

55

95

Taxation compliance services

68

49

Other taxation advisory services

5

28

Other services

6

69


134

241

 

All non-audit services were approved by the Audit Committee. The Audit Committee considers that these non-audit services have not impacted the independence of the audit process. In addition, an amount of £19,000 (2012: £19,000) was paid to the external auditor for the audit of the Group's pension scheme.    

 

9. Finance costs

 



a) Net finance expense on pension assets/liabilities



Interest on pension liabilities (Note 15)

22,227

22,708

Expected return on pension assets (Note 15)

(20,651)

(20,237)


1,576

2,471




b) Finance costs



Interest on bank overdrafts and loans

23,504

26,944

Payment-in-kind interest accrual

12,148

11,048

Amortisation of term debt issue costs

4,156

4,137


39,808

42,129

 

c) IAS 21/39 items

All movements in the fair value of derivative financial instruments are recorded in the Income Statement. In the current period, this movement was a net charge of £1.7 million (2012: charge of £7.3 million), consisting of a realised net credit of £nil million (2012: £0.2 million) and an unrealised charge of £1.7 million (2012: £7.5 million). The retranslation of foreign denominated debt at the period end resulted in a net credit of £1.5 million (2012: £4.5 million) being recorded in the Income Statement. The retranslation of the Euro denominated publishing titles held at fair value is shown in the Statement of Comprehensive Income.

 

10. Tax


2013

£'000

2012

£'000

Current tax



-

3,541

Adjustment in respect of prior periods

617

130


617

3,671






(12,693)

(4,168)

(1,629)

191

(41,667)

-

Credit relating to reduction in deferred tax rate to 20% (2012: 23.0%)

(19,497)

(12,070)


(75,486)

(16,047)

Total tax credit for the period

(74,869)

(12,376)

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

10. Tax (continued)

UK corporation tax is calculated at 23.25% (2012: 24.5%) of the estimated assessable loss for the period. The 23.25% basic tax rate applied for the 2013 period was a blended rate due to the tax rate of 24.0% in effect for the first quarter of 2013, changing to 23.0% from 1 April 2013 under the 2012 Finance Act. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdiction. The Group has recognised a £19.5 million tax credit as a result of the change to the UK deferred tax rate from 23% to 20% being the substantively enacted rate at the balance sheet date..

 

The tax credit for the period can be reconciled to the loss per the Income Statement as follows:


2013

£'000

%

2012

£'000

%

Loss before tax

(286,835)

100.0

(6,765)

100.0






Tax at 23.25% (2012: 24.5%)

(66,689)

23.3

(1,657)

24.5

Tax effect of expenses that are non-deductible in determining taxable profit

7,125

(2.5)

2,130

(31.5)

Tax effect of income that is non-taxable in determining taxable profit

-

-

(793)

11.7

Tax effect of investment income

(88)

-

(5)

-

Effect of other tax rates

2,780

(1.0)

(302)

(4.5)

Adjustment in respect of prior periods

(1,008)

0.4

321

(4.7)

Unrecognised deferred tax assets

2,508

(0.9)

-

-

Effect of reduction in deferred tax rate to 20.0% (2012: 23.0%)

(19,497)

6.8

(12,070)

178.4

Tax credit for the period and effective rate

(74,869)

26.1

(12,376)

182.8

 

11. Earnings per Share

The calculation of earnings per share is based on the following (losses)/profits and weighted average number of shares:


2013

£'000

2012

£'000

Earnings






(Loss)/profit for the period

(211,966)

5,611

Preference dividend

(152)

(152)

Earnings for the purposes of basic and diluted earnings per share

(212,118)

5,459

Exceptional and IAS 21/39 items (after tax)

229,277

15,813

Earnings for the purposes of adjusted earnings per share

17,159

21,272

 





2013

No. of shares

2012

No. of shares

Number of shares



Weighted average number of ordinary shares for the purposes of basic earnings per share

647,803,578

621,758,744




Effect of dilutive potential ordinary shares:



- warrants and employee share options

-

2,594,333

- deferred bonus shares

-

1,788,822

Number of shares for the purposes of diluted earnings per share

647,803,578

626,141,899

Earnings per share (p)



Basic

(32.74)

0.88

Adjusted

2.65

3.42

Diluted - see below

(32.74)

0.87

 



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

11. Earnings per share (continued)

 

The weighted average number of ordinary shares above are shown excluding owns shares held.

 

Adjusted EPS figures are presented to show the effect of excluding exceptional and IAS 21/39 items from earnings per share. Diluted earnings per share are presented when a company could be called upon to issue shares that would decrease net profit or increase loss per share.

 

As explained in Note 16, the preference shares qualify as equity under IAS 32. In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of earnings per share.

 

12. Intangible Assets




 Publishing

 titles

£'000

 Digital intangible

 assets

£'000

Total

£'000

Cost












Opening balance



1,308,677

-

1,308,677

Additions



-

3,033

3,033

Disposals



(7,034)

-

(7,034)

Exchange movements



634

-

634

Closing balance



1,302,277

3,033

1,305,310







Accumulated impairment losses and amortisation












Opening balance



566,383

-

566,383

Amortisation for the period



-

209

209

Disposals



(5,069)

-

(5,069)

Impairment losses for the period



202,427

-

202,427

Closing balance



763,741

209

763,950







Carrying amount












Opening balance



742,294

-

742,294

Closing balance



538,536

2,824

541,360

 

The exchange movement above reflects the impact of the exchange rate on the valuation of publishing titles denominated in Euros at the period end date.

 

During 2013, the Group disposed of Petersfield Post, Goole Courier and Selby Times publishing titles for total consideration of £1.9m.  At the time of disposal, the Directors assessed these titles were held at their fair value due to previous impairment write-downs incurred.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

12. Intangible assets (continued)

 

Publishing titles

 

The carrying amount of publishing titles by cash generating unit (CGU) is as follows:                   


2012

£'000

Impairment

£'000

Disposal

£'000

Translation

£'000

2013   

£'000

Scotland

56,013

(3,886)

-

-

52,127

North

272,190

(53,418)

(1,541)

-

217,231

Northwest

93,201

(31,689)

-

-

61,512

Midlands

168,190

(48,108)

-

-

120,082

South

60,602

(13,887)

(424)

-

46,291

Northern Ireland

73,422

(37,597)

-

62

35,887

Republic of Ireland

18,676

(13,842)

-

572

5,406

Total carrying amount of publishing titles

742,294

(202,427)

(1,965)

634

538,536

 

The Group tests the carrying value of publishing titles held within the publishing operating segment for impairment annually or more frequently if there are indications that they might be impaired. The publishing titles are grouped by CGUs, being the lowest levels for which there are separately identifiable cash flows independent of the cash inflows from other groups of assets.

 

The recoverable amounts of the CGUs are determined from value in use calculations, with the exception of the Republic of Ireland publishing titles which are valued at fair value less cost of sales, due to the intended disposal of these publishing titles.  The publishing titles have not been reported as assets held for sale as the completion of the transaction does not meet the strict criteria to deem it highly probable. The key assumptions for the value in use calculations are:

 

·   the discount rate;

·   expected changes in underlying revenues and direct costs during the period; and 

·   growth rates.

 

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs.  The discount rate applied to the future cash flows in 2013 was 12.0% (2012: 11.0%) for the CGUs in the United Kingdom and 15.9% (2012:11.0%) for the CGU in the Republic of Ireland. The discount rate reflects management's view of the current risk profile of the underlying assets being valued with regard to the current economic environment and the risks that the regional media industry is facing.

 

Changes in underlying revenue and direct costs are based on past practices and expectations of future changes in the market. These include changes in demand for print and digital, circulation, cover prices, advertising rates as well as movement in newsprint and production costs and inflation.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

12. Intangible assets (continued)

 

Discounted cash flow forecasts are prepared using:

 

·   the most recent financial budgets and projections approved by management for 2014 which reflect management's current experience and future expectations of the markets the CGUs operate in; 

·   net cash inflows for 2015 to 2033 that are extrapolated based on an estimated annual long-term growth rate of 1.0%;

·   a discounted residual value of 5 times the final year's cash flow; and

·   capital expenditure cash flows to reflect the cycle of capital investment required. 

The present value of the cash flows is then compared to the carrying value of the asset to determine if there is any impairment loss.

 

The total net impairment charge recognised in 2013 was £202.4 million (2012: net impairment charge of £nil). The Impairment charge for the period comprises £53.4m in the North, £48.1m in Midlands, £37.6m in Northern Ireland, £31.7m in the Northwest, £13.9m in the South, £13.8m in the Republic of Ireland and £3.9m in Scotland. 

 

The Group has conducted sensitivity analysis on the impairment test of each CGU's carrying value. A decrease in the long term growth rate of 0.5% would result in an impairment for the Group of £10.3 million and an increase in the discount rate of 0.5% would result in an impairment of £20.0 million.

 


Growth rate sensitivity £'000

Discount rate sensitivity

£'000

Scotland

1,092

2,110

North

3,997

7,720

Northwest

1,081

2,087

Midlands

2,114

4,084

South

1,098

2,121

Northern Ireland

734

1,417

Republic of Ireland

219

461

Total potential impairment from sensitivity analysis

10,335

20,000

               

 

Digital intangible assets

Digital intangible assets primarily relates to the new design of the Group's 196 local websites and the development of a Customer Relationship Management (CRM) capability. The websites form the core platform for the Group's digital revenue activities whereas the CRM capability will enable the Group to accelerate the growth of its subscriber base. These assets are being amortised over a period of three years.  Amortisation for the year has been charged through cost of sales.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

13. Borrowings

Borrowings shown at amortised cost at the period end were:


2013

£'000

2012

£'000

Bank loans

200,851

227,316

Private placement loan notes

110,994

119,162

Payment-in-kind interest accrual

20,372

8,535

Total borrowings excluding term debt issue costs

332,217

355,013

Term debt issue costs

(8,801)

(12,273)

Total borrowings

323,416

342,740

 

The borrowings are disclosed in the financial statements as:


2013

£'000

2012

£'000

Current borrowings

8,553

8,520

Non-current borrowings

314,863

334,220

Total borrowings

323,416

342,740

 

The Group's net debt1 is:


2013

£'000

2012

£'000

Gross borrowings as above

323,416

342,740

Cash and cash equivalents

(29,075)

(32,789)

Impact of currency hedge instruments

(1,104)

(2,854)

Net debt including currency hedge instruments

293,237

307,097

Term debt issue costs

8,801

12,273

Net debt excluding term debt issue costs

302,038

319,370

 

1 Net debt is a non statutory term presented to show the Group's borrowings net of cash equivalents, fair value of foreign exchange options and term debt issue costs. 

 

Analysis of borrowings by currency:


Total

£'000

Sterling

£'000

Euros

£'000

US dollars

£'000

At 28 December 2013





Bank loans

200,851

188,318

12,533

-

Private placement loan notes

110,994

32,179

-

78,815

Term debt issue costs

(8,801)

(8,801)

-

-

Payment-in-kind interest accrual

20,372

15,084

-

5,288


323,416

226,780

12,533

84,103






At 29 December 2012





Bank loans

227,316

215,015

12,301

-

Private placement loan notes

119,162

33,956

-

85,206

Term debt issue costs

(12,273)

(12,273)

-

-

Payment-in-kind interest accrual

8,535

6,342

-

2,193


342,740

243,040

12,301

87,399

 



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

13. Borrowings (continued)

 

Bank loans

The Group has credit facilities with a number of banks. The total facility at 28 December 2013 is £225.2 million (2012:£237.5million) of which £24.4 million is unutilised at the balance sheet date (2012: £10.0 million). The credit facilities are provided under two separate tranches as detailed below.

·   Facility A - a revolving credit facility of £55.0 million. This facility includes a bank overdraft facility of £10.0 million (2012: £10.0 million). The loans can be drawn down for three month terms with interest payable at LIBOR plus a maximum cash margin of 5.00% (2012: 5.00%).

·   Facility B - a term loan facility of £170.2 million (2012: £182.5 million), which can be drawn in Sterling or Euros. Interest is payable quarterly at LIBOR plus a cash margin of up to 5.00% (2012: 5.00%).

In accordance with the credit agreements in place, the Group hedges a portion of the bank loans via interest rate swaps exchanging floating rate interest for fixed rate interest and interest rate caps. At the balance sheet date, borrowings of £nil million (2012: £30.0 million) were arranged at fixed rate, while a further £180.0 million borrowings (2012: £180.0) were hedged through interest rate caps.

 

Private placement loan notes

The Group has total private placement loan notes at 28 December 2013 of £32.3 million and $130.7 million (2012: £34.0 million and $137.8 million). Interest is payable quarterly at fixed coupon rates up to 10.30% (2012: 10.30%) depending on covenants.

The private placement loan notes consist of:

·   £32.3 million at a coupon rate of up to 10.30% (2012: £34.0 million at a coupon rate of up to 10.30%)

·   $55.7 million at a coupon rate of up to 9.75% (2012: $58.7 million at a coupon rate of up to 9.75%)

·   $26.6 million at a coupon rate of up to 10.18% (2012: $28.1 million at a coupon rate of up to 10.18%)

·   $48.4 million at a coupon rate of up to 10.28% (2012: $51.0 million at a coupon rate of up to 10.28%)

 

In order to hedge the Group's exposure to US dollar exchange rate fluctuations, the Group has in place foreign exchange options. These options allow the Group to purchase US dollars at a set exchange rate, hedging the Group's cash flow risk if the market rate falls below the set rate. The options are in place to cover all interest payments and scheduled principal repayments due on the US denominated private placement notes.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

13. Borrowings (continued)

Repayments

All facilities are due for full repayment on 30 September 2015.

Scheduled repayments are due every six months in relation to both the bank loans and private placement loan notes. Scheduled repayments total £70.0 million from 30 June 2012 to 30 June 2015. As at 28 December 2013 £30.0 million remained payable, with £5.0 million paid on 31 December 2013.

A schedule of pay-if-you-can (PIYC) repayments are also agreed for both the bank loans and private placement notes totalling £60.0 million up to 30 June 2015. As at 28 December 2013 £52.5 million remained payable, with £7.5 million paid on 31 December 2013.

In addition, the Company is required to make mandatory repayments equivalent to 75% of the net proceeds of certain asset disposals with the remaining 25% payable to the Johnston Press Pension Plan (note 15). During the period, the Company made repayments totalling £3.5 million in respect of asset disposals.

Covenant reset

On 27 December 2013, the Company and its lenders agreed to reset its financial covenants until maturity in September 2015.  A fee of £0.5 million was paid to the lenders on completion of this agreement. This fee has been capitalised and amortised over the period to maturity.

Payment-in-kind interest

In addition to the cash margin payable on the bank facilities and private placement loan notes, a payment-in-kind (PIK) margin accumulates and is payable at the end of the facility. The PIK accrues at a maximum margin of 4.0% depending on the absolute amount of debt outstanding and leverage multiples. If the facilities are fully repaid prior to 31 December 2014, the rate at which the PIK margin accrued throughout the period of the agreement will be recalculated at a substantially reduced rate.

 

Refinancing

The Company announced on 27 December 2013 that it had reset its financial covenants through to the maturity of its debt facilities in September 2015 and intends to pursue a refinancing of its debt facilities in 2014. On 3 March 2014 the Company announced that as part of a proposed refinancing of its debt facilities it is considering a range of options including a potential equity fundraising. Since then, the Company has made good progress evaluating a number of options, including a potential equity fundraising which would be interconditional with a refinancing of its debt facilities and restructuring its pension arrangements. There can be no certainty that a refinancing of its debt facilities will be concluded in 2014, nor that an equity fundraising will proceed.

 

No adjustments have been made to the financial statements to reflect any early repayment that may arise from a refinancing.

 

Interest rates:

The weighted average interest rates paid over the course of the year were as follows:


2013

%

2012

%

Bank overdrafts

5.5

5.5

Bank loans

10.6

11.3

Private placement loan notes

13.9

12.5


11.7

11.7

 



 

 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

14. Derivative Financial Instruments

Derivatives that are carried at fair value are as follows:


2013

£'000

2012

£'000

Interest rate swaps - current liability

-

(99)

Interest rate caps - current asset

4

-

Interest rate caps - non-current asset

-

43

Foreign exchange options - current asset

1,104

155

Foreign exchange options - non-current asset

-

2,699

Total derivative financial instruments

1,108

2,798

 

15. Retirement Benefit Obligation

Throughout 2013 the Group operated the Johnston Press Pension Plan (JPPP), together with the following schemes:

·   A defined contribution scheme for the Republic of Ireland, the Johnston Press (Ireland) Pension Scheme.

·   An ROI industry-wide final salary scheme for journalists which was closed on 31 October 2012 and a final salary scheme for a small number of employees in Limerick which has been closed to future accruals since 2010. Consequently, the Group's obligation to these schemes is included in Long Term Provisions and the details shown below exclude these schemes.

The JPPP is in two parts, a defined contribution scheme and a defined benefit scheme. The latter is closed to new members and closed to future accrual in 2010. The assets of the schemes are held separately from those of the Group. The contributions are determined by a qualified actuary on the basis of a triennial valuation using the projected unit method. The contributions to the defined benefit scheme are fixed annual amounts with the intention of eliminating the deficit. Based on the outcome of the triennial valuation at 31 December 2010, the fixed annual contribution amount is £5.7 million from 1 June 2012 under the schedule of contributions agreed between the Company and the JPPP Trustees. These were paid in full during the period. In accordance with the amended and restated finance agreement dated 24 April 2012, the Company is required to make additional contributions equivalent to 25% of the net proceeds of certain asset disposals. During the period, the Company made additional contributions of £1.2 million following the disposal of such qualifying assets. As the defined benefit scheme has been closed to new members for a considerable period the last deferred member is scheduled to retire in 35 years with, at current mortality assumptions, the last pension paid in around 80 years (based on the mortality assumptions used for the 2010 triennial valuation). On a discounted basis the duration of the pension liabilities is circa 20 years. The financial information provided below relates to the defined benefit element of the JPPP.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

 

15. Retirement Benefit Obligation (continued)

During 2011 and 2012, the Company carried out pension exchange exercises whereby a number of pensioner members were made an offer by the Company to exchange some of their future pension increases for a one-off increase in pension, where the new uplifted amount would no longer be eligible for increases in payment. There was no such exercise in 2013.

The composition of the trustees of the JPPP is made up of an independent Chairman, a number of member nominated (by ballot) trustees and several Company appointed trustees. Half of the trustees are nominated by members of the JPPP, both current employees and pensioner members. The trustees appoint their own advisers and administrators of the Plan. Discussions take place with the Executive Directors of the Company to agree matters such as the contribution rates.

The defined contribution schemes provide for employee contributions between 2-6% dependent on age and position in the Group, with higher contributions from the Group. In addition, the Group bears the majority of the administration costs and also life cover.

The pension cost charged to the Income Statement for the defined contribution schemes and Irish schemes in 2013 was £4,550,000 (2012: £6,724,000).

 

Major assumptions re JPPP pension scheme:


2013

2012

Discount rate

4.65%

4.5%

Expected return on scheme assets

5.5%

5.6%

Future pension increases



Deferred revaluations (CPI)

2.4%

1.9%

Pensions in payment (RPI)

3.4%

2.8%

Life expectancy



Male

22.1

23.1 years

Female

24.1

23.1 years

 

The valuation of the defined benefit scheme's funding position is dependent on a number of assumptions and is therefore sensitive to changes in the assumptions used. The impact of variations in the key assumptions are detailed below:

·   A change in the discount rate of 0.1% pa would change the value of liabilities by approximately 1.5% or £7.6 million.

·   A change in the life expectancy by a 10% adjustment to the base table mortality rates would change liabilities by approximately 2.4% or £11.9 million.

·   A change in the inflation rate of 0.1% pa would change the value of the liabilities by 0.8% or £4.0 million.

 

Amounts recognised in the Income Statement in respect of defined benefit schemes:


2013

£'000

2012

£'000

Net interest expense

1,576

2,471

Past service gain (note 15)

-

(1,540)


1,576

931

 



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

 

15. Retirement Benefit Obligation (continued)

There was no current service cost in 2013 (2012: £nil) as the Defined Benefit scheme was closed to future accrual in 2010.

An actuarial gain of £37,695,000 (2012: loss of £21,065,000) has been recognised in the Group Statement of Comprehensive Income in the current period. This has been shown net of deferred tax of £8,670,000 (2012: £5,188,000). The cumulative amount of actuarial gains and losses recognised in the Group Statement of Comprehensive Income since the date of transition to IFRS is a loss of £67,835,000 (2012: loss of £105,530,000). The actual return on scheme assets was a £50,989,000 profit (2012: £28,494,000 profit).

Amounts included in the Statement of Financial Position:


2013

£'000

2012

£'000

Present value of defined benefit obligations

498,640

504,111

Fair value of plan assets

(420,306)

(382,792)

Total liability recognised in the Statement of Financial Position

78,334

121,319

Amount included in current liabilities

(5,700)

(5,700)

Amount included in non-current liabilities

72,634

115,619

 

The amounts of contributions committed to be paid to the scheme during 2014 is £5,700,000 (2013: £5,700,000) plus share of asset disposal proceeds, as agreed as part of the formal actuarial valuation undertaken as at 31 December 2010.

The Pension Fund Trustees are taking professional advice, including actuarial input, to determine whether any employer debt is payable to the Plan following the previous cessation of five participating employers. At period end, £1.3 million has been provided for.

The levy payable by the Pension Fund to the Pension Protection Fund for the year to 31 March 2013 was £3.1 million and for the year to 31 March 2014 is £3.2 million. The Group has committed to the Pension Fund to underwrite any annual charge in excess of £0.7 million. The Group has paid £1.5 million during the period and at period end has accrued £1.0 million in connection with the year to 31 March 2013 and a further £1.9 million has been provided for the nine month period to 28 December 2013 within trade and other payables. It is expected that this levy will continue in 2014.  The level of increase in charges is not known at this point.

 

During the period the Pension Fund Trustees have agreed to carry out a formal actuarial valuation at 31 December 2012 effective as at one year ahead of the next planned valuation date of 31 December 2013.  The outcome of the review will not be formalised until after the reporting date.  The Trustees have indicated that they will seek an increase in the committed annual contributions. The Trustees are also consulting with the Group about planned changes to the Investment strategy of the Plan to reduce the level of risk.



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

 

15. Retirement Benefit Obligation (continued)

 

Movements in the present value of defined benefit obligations:


2013

£'000

2012

£'000

Balance at the start of the period

504,111

472,708




Interest costs

22,227

22,708

Age related rebates

511

630

Changes in assumptions underlying the defined benefit obligations

(7,357)

29,322

Past service gain

-

(1,540)

Benefits paid

(20,852)

(19,717)

Balance at the end of the period

498,640

504,111

 

Movements in the fair value of plan assets:


2013

£'000

2012

£'000

Balance at the start of the period

382,792

368,718




Expected return on plan assets

20,651

20,237

Actual return less expected return on plan assets

30,338

8,257

Contributions from the sponsoring companies

6,866

4,667

Age related rebates

511

630

Benefits paid

(20,852)

(19,717)

Balance at the end of the period

420,306

382,792

 

Analysis of the plan assets and the expected rate of return:


Expected return

Fair value of assets


2013

%

2012

%

2013

£'000

2012

£'000

Equity instruments

6.8

6.8

268,394

240,011

Debt instruments

3.6

3.8

115,370

100,674

Property

4.8

4.8

11,366

17,991

Other assets

1.7

2.7

25,176

24,116


5.5

5.6

420,306

382,792

 

Five year history:


2013

£'000

2012

£'000

2011

£'000

2010

£'000

2009

£'000

Fair value of scheme assets

420,306

382,792

368,718

385,309

362,006

Present value of defined benefit obligations

(498,640)

(504,111)

(472,708)

(446,095)

(446,114)

Deficit in the plan

(78,334)

(121,319)

(103,990)

(60,786)

(84,108)







Experience adjustments on scheme liabilities






Amount (£'000)

7,357

(29,332)

(22,524)

2,925

(100,425)

Percentage of plan liabilities (%)

1.5%

(5.8%)

(4.8%)

0.7%

(22.5%)







Experience adjustments on scheme assets

Amounts (£'000)

 

30,338

8,257

(27,060)

11,139

29,137

Percentage of plan assets (%)

7.5%

2.2%

(7.3%)

2.9%

8.0%

 



 

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

 

16. Share Capital


2013 

£'000

2012

£'000

Issued



684,352,165 Ordinary Shares of 10p each (2012: 639,746,083)

68,435

63,975

756,000 13.75% Cumulative Preference Shares of £1 each (2012: 756,000)

756

756

349,600 13.75% 'A' Preference Shares of £1 each (2012: 349,600)

350

350

Total issued share capital

69,541

65,081

 

The Company has only one class of ordinary shares which has no right to fixed income. All the preference shares carry the right, subject to the discretion of the Company to distribute profits, to a fixed dividend of 13.75% and rank in priority to the ordinary shares. Given the discretionary nature of the dividend right, the preference shares are considered to be equity under IAS 32.

During the period 44,428,306 ordinary shares of 10p each were issued following the exercise of share warrants, generating £4,443,000 of cash for the Company.

 

At the balance sheet date 35,193,717 warrants were outstanding.

 

In addition, 177,776 ordinary shares of 10p each were issued during the period following exercises under the Group Savings Related Share Option Scheme, generating £28,000 of cash for the Company.

 

17. Notes to the Cash Flow Statement




Revised1


Note

2013

£'000

2012

£'000

Operating (loss)/profit


(245,670)

40,441

Adjustments for:




Impairment of publishing titles

7

202,427

-

Write down of printing presses and property, plant and equipment

7

63,695

17,239

Write down of assets held for sale

7

4,671

7,817

Amortisation of intangible assets


209

-

Depreciation of D    Depreciation charges

8

7,543

12,715

Currency differences

8

(146)

(59)

Charge from share-based payments


512

606

Gain on disposal of property, plant and equipment


(1,267)

(2,047)

Exceptional pension protection fund contribution


2,908

-

Exceptional Section 75 pension debt


1,268

-

Exceptional redundancy costs2


17,820

2,617

Exceptional legal and other professional fees


1,169

-

Pension funding contributions

15

(6,866)

(4,668)

IAS 19 past service gain (exceptional)


-

(1,540)

Movement in long-term provisions


377

119

 

Working capital changes:




Decrease in inventories


305

1,859

Decrease in receivables


4,910

6,769

Increase/(decrease) in payables2


672

(1,176)

Cash generated from operations


54,537

80,692

1 The presentation of the 29 December 2012 'exceptional redundancy costs' and 'increase/(decrease) in payables' numbers has been revised to be consistent with current year disclosures.

2 Amounts decreased by £2,617,000 to correct prior year classification. This has been accounted for as a non cash item, as 'exceptional redundancy costs'.

3 Amounts increased by £4,594,000 to correct prior year classification. This has been recorded as 'interest paid' on the face of the primary cash flow statement. This adjustment did not in any way impact the prior year income statement, assets, liabilities or equity and is purely presentational in nature..

 

Cash and cash equivalents (which are presented as a single class of assets on the face of the Statement of Financial Position comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

Notes to the Condensed Consolidated Financial Statements for the 52 week period ended 28 December 2013 (continued)

 

18. Post Balance Sheet Events

 

Discussions are at an advanced stage in relation to the possible sale of the Group's 14 regional newspapers in the Republic of Ireland which include the Leinster Leader, the Donegal Democrat, the Limerick Leader and the Kilkenny People, and certain freehold property interests, fixtures, fittings and vehicles as announced on 2 December 2013.

 

The value in use for the Irish assets reflects expected disposal proceeds on the basis that at the balance sheet date, discussions were well progressed and management's intention was committed to selling the assets.

 

The assets, included in the proposed disposal, have not been reported as assets held for sale given the sale does not meet the strict criteria that the sale must be deemed "highly probable" and neither Board or bank approval has been achieved.

 

 

This announcement does not constitute an offer of securities for sale within the United States or any other jurisdiction. Securities can be offered or sold within the United States only pursuant to a registration with the US Securities and Exchange Commission or an exemption from registration. The Company does not intend to register any offer of securities for sale within the United States.


 


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