2013 Profit Upgrade and Impairment
4 February 2014
2013 Profit Upgrade and Impairment
Trinity Mirror plc is today issuing an update in respect of the unaudited results for the 52 weeks ended 29 December 2013 ahead of announcing the audited results for 2013 on 13 March 2014. The figures quoted in this announcement are unaudited. The normal year end results processes are in progress and the financial results are subject to finalisation, final approval by the Board and completion of the audit.
Key Highlights
· The Board anticipates adjusted* results for 2013 to be ahead of expectations driven by better than anticipated trading in November and December with Group revenue across the two months falling by only 1% compared to the same period in 2012. Digital revenue across the two months for the Publishing division increased by 32%. As a result we expect adjusted* operating profit for 2013 to be ahead of market expectations by some 4% and adjusted* earnings per share to be marginally over 5% ahead of market expectations
· Trading for the current year has started in line with our expectations
· Strong cash flows continued throughout 2013 which enabled the early payment of £9 million of pension deficit funding which was due in 2014
· The Group undertakes an annual review of the carrying value of the Group's consolidated goodwill and intangible assets for impairment. As a result of a change in assumptions, particularly around the discount rate, the Board expects a non cash impairment charge of around £225 million in respect of the Group's goodwill and intangible assets held on the consolidated balance sheet. Whilst this charge does not impact the Group's adjusted* results, the measure the Board believes best reflects the Group's financial performance, it reduces statutory profits
· The change in assumptions is also expected to lead to a separate non cash impairment charge in the Company balance sheet of around £700 million in respect of the investments in subsidiary companies held by the Company. This charge will result in a negative profit and loss account reserve in the Company's balance sheet. It will not affect the statutory or adjusted* Group results
· In order to maintain the flexibility to consider any future return of capital to shareholders, including dividends, alongside continued investment and funding of the Group's pension schemes, the Board will seek, around the time of the 2013 results announcement, a court approved capital reduction to eliminate any negative balance on the profit and loss account in the Company's balance sheet
Commenting on the announcement, Simon Fox, Chief Executive, Trinity Mirror plc, said:
"I am pleased with the Group's performance for 2013, which is ahead of our expectations following a better than anticipated end to the year.
The impairment charges are driven by technical accounting requirements. They do not relate to or impact the progress we are making with our strategy and I continue to believe that the business has significant long term potential.
In the meantime trading for the start of 2014 is in line with our expectations."
*Adjusted items relate to the exclusion of non-recurring items, the amortisation of intangible assets, the retranslation of foreign currency borrowings, the impact of fair value changes on derivative financial instruments, the pension finance charge, the pension administrative expenses and the impact of tax legislation changes.
2013 Results
|
|
H1 |
Jul-Oct |
Oct YTD |
Nov/Dec |
Dec YTD |
|
|
% |
% |
% |
% |
% |
|
Circulation |
(6) |
(1) |
(4) |
(1) |
(4) |
|
Advertising |
(13) |
(11) |
(12) |
(3) |
(10) |
|
Printing |
(2) |
- |
(1) |
2 |
(1) |
|
Other |
(6) |
2 |
(3) |
6 |
(1) |
|
Revenue |
(9) |
(5) |
(7) |
(1) |
(6) |
|
Publishing Digital Revenue |
(10) |
8 |
(3) |
32 |
3 |
Revenue in November and December was down 1% year on year with growth of 2% in December, a significant improvement on the performance for the first 10 months of 2013 when revenue fell by 7%. Strong digital revenue growth of 32% for the Publishing division, coupled with growth in printing and other revenue substantially offset a marginal decline in circulation revenues and a much improved 3% decline in print advertising.
The better than anticipated revenue performance in the last two months of 2013 provides confidence that adjusted* operating profit for 2013 will be ahead of market expectations by some 4%. In addition, the benefit of reduced interest costs contributes to expected adjusted* earnings per share for 2013 to be ahead of market expectations by marginally over 5%.
Current Trading and Outlook
2014 has started in line with our expectations with revenue in January falling by 4% and digital revenue for our Publishing division increasing by 32% year on year.
Whilst we expect continued month on month volatility, at this early stage in the year we anticipate an improvement in trends as we progress through 2014. Although newsprint prices have increased for the first half of 2014, in addition to an increase in the second half of 2013, we expect further structural cost savings of £10 million and ongoing cost mitigation actions to ensure that the Group has adequate headroom for investment whilst supporting profits and cash flows.
As a result, expectations for 2014 remain unchanged.
Financing
Strong cash flows continued throughout 2013 and net debt on a contracted basis fell below £100 million in December 2013. This is marginally higher than previous guidance as the Group accelerated pension deficit funding payments of £9 million from 2014 to December 2013. Therefore pension deficit funding payments in 2013 were £19 million, which is £9 million higher than previous guidance. The early payment of pension contributions provides the most efficient use of capital over the short term due to the low returns available on cash balances.
Impairment and Capital Reduction
In accordance with IAS 36 (Impairment of Assets), we undertake an annual review of the carrying value of the Group's consolidated goodwill and publishing rights and titles for impairment. The review is undertaken by comparing the carrying value of the Group's consolidated goodwill and publishing rights and titles with their value in use which is calculated by discounting the future cash flows of the individual cash generating units.
The value in use model is very sensitive to minor changes in assumptions such as the discount rate and future cash flows expectations. For the 2013 year end review the most significant change has been the discount rate expected to be applied to future cash flows of 11.0% which compares to 7.4% for the 2012 year end review. The increase in the discount rate is driven by changes in the market expectations of the capital structure and the cost of debt and equity for the print media sector. In addition, the Group's capital structure reflects these changes as leverage continues to fall with an increase in equity value.
The change in assumptions, in particular the discount rate, is expected to conclude that the value in use of certain cash generating units is lower than the carrying value of the goodwill and publishing rights and titles relating to these cash generating units resulting in an estimated non cash impairment charge of around £225 million (£180 million net of deferred tax). Whilst this charge does not impact the Group's adjusted* results or cash position, it reduces the Group's statutory profits.
In accordance with FRS 11 (Impairment of Fixed Assets and Goodwill), the Group also undertakes an annual review of the carrying value of investments in subsidiary companies held by the Company. As a result of changes in the assumptions underpinning the value in use calculation, in particular the discount rate increasing to 11.0%, an estimated non cash impairment charge of around £700 million is expected against the carrying value of investments held by the Company. This impairment is higher than that in respect of the consolidated balance sheet, as the value in use of a number of cash generating units were substantially higher than their carrying value and whilst this could not be taken into account in the review of the carrying value of the Group's consolidated goodwill and publishing rights and titles, it supported the higher carrying value of investments held by the Company.
Although there is no cash impact arising from the impairment of investments held by the Company, nor does it impact the statutory or adjusted* results for the Group, the expected impairment of the carrying value of investments in the Company would result in there being a negative balance on the profit and loss account of some £520 million (2012: £199 million positive profit and loss reserve).
In order to maintain future flexibility to consider the return of capital to shareholders, including dividends, alongside continued investment and the funding of the Group's pension schemes, the Board will seek a court approved capital reduction to eliminate the deficit on the Company's profit and loss account after announcing the audited results for 2013. Prior to applying to the court to cancel part of the share premium account, which has a balance of £1,122 million, to eliminate the negative reserves, the Company will require a special resolution of the Company's shareholders to approve the reduction in the capital of the Company. The Board anticipates that around the time of the 2013 results announcement it will give notice of a General Meeting for this purpose. Subject to the confirmation of the court, the reduction of capital is expected to become effective during the first half of 2014.
These impairment charges do not impact the financial covenants contained in the Company's financing agreements.
Enquiries:
Trinity Mirror plc
Simon Fox, Chief Executive 020 7293 3553
Vijay Vaghela, Group Finance Director 020 7293 3553
Brunswick
Mike Smith, Partner 020 7404 5959
Nick Cosgrove, Director 020 7404 5959
Forward looking statements
This release contains certain forward looking statements. The statements contained in this release are based on current plans, estimates and projections and the knowledge and information available to the Company's directors at the date it was prepared and therefore the facts stated and views expressed may change after that date. By their nature, forward looking statements are subject to inherent risks, uncertainties and other factors which could cause actual results and developments to differ materially from those anticipated. To the extent that this release contains any statement dealing with any time after the date of its preparation such statement is merely predictive and speculative as it relates to events and circumstances which are yet to occur. The Company undertakes no obligation to update these forward looking statements.
This information is provided by RNS
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