Half-yearly Financial Report
28 September 2020
Reach plc
Reach plc ('Reach', 'the Company', 'the Group'), the largest commercial national and regional news publisher in the UK, today announces its half-yearly results for the 26-week period ended 28 June 2020.
Performing materially ahead of 2020 market expectations
|
Results |
Adjusted results(1) |
Statutory results |
||
|
|
2020 |
2019 |
2020 |
2019 |
|
|
£m |
£m |
£m |
£m |
|
Revenue |
290.8 |
352.6 |
290.8 |
352.6 |
|
Operating profit |
54.9 |
71.3 |
28.9 |
63.7 |
|
Profit before tax |
53.5 |
69.9 |
25.2 |
58.2 |
|
Earnings/(loss) per share |
14.6p |
19.1p |
(0.8)p |
15.9p |
Key highlights
· Strong recovery in digital advertising and increased customer engagement across all channels secured year on year digital revenue (2) growth in Q3 of 12.9%.
· Effective strategic and operational delivery with over 3.5m customer registrations, with new and improved platforms driving record digital audiences and increased page views.
· Transformation programme across editorial, advertising and central operations provides a strong foundation to accelerate customer value strategy, with cost base reduced by at least £35m.
· The Group is currently performing materially ahead of market expectations for the full year though management remain fully aware that COVID-19 still represents a significant macro-economic challenge to the UK economy, with the potential for subsequent negative impacts on the business.
Commenting on the interim results for 2020, Jim Mullen, Chief Executive Officer, Reach plc, said:
"We have seen a strong recovery in the digital advertising market since the worst impacts of COVID-19 in April which has driven a return to healthy digital revenue growth since July, assisted by increased customer engagement and loyalty. This illustrates the significant potential of the customer value strategy as our websites, apps and newsletters attract increased page views from our scale audience, helping to drive forward digital revenues. Circulation sales have also stabilised and shown a gradual recovery during Q2 and Q3.
Following the implementation of the major parts of the transformation programme, Reach now has a strong foundation to drive the next phase of the customer value strategy with increased efficiency and agility in our advertising and editorial operations.
Award-winning journalism and content enable our news brands to shape the daily conversations of millions of people. Moving forward we will see continued momentum from new and improved products. Our strengthened customer insight and innovation teams will assist us in driving stronger and deeper customer relationships, increasing our appeal to advertisers and driving revenue growth. This will enable Reach to continue to deliver for stakeholders over the long-term. With the business currently performing materially ahead of market expectations, the Board is recommending an issue of bonus shares to shareholders."
Financial highlights
· H1 Revenue of £290.8m, down 17.5%, reflecting the impact of COVID-19 on all revenue categories. This compared to a like-for-like fall of 6.3% in the first half of 2019.
· Adjusted operating profit of £54.9m with adjusted operating margin of 18.9% benefitting from strong management action on costs.
· Statutory operating profit of £28.9m impacted by provisions for historical legal issues and historical contract issues with loss per share also impacted by deferred tax charge relating to the reversal of the corporation tax rate decrease.
· Accounting pension deficit (IAS 19 net of deferred tax) decreased by £33.0m to £209.9m, helped by cash contributions and strong asset returns.
· Strong cash generated from operations (3) of £47.9m with half-year net cash (4) positive position of £41.9m reflecting the proactive steps taken to preserve cash. This provides the Group with sufficient cash to fund the transformation, to invest in the customer value strategy and to provide a level of protection in the event of further COVID-19 impacts.
Operational and strategic highlights
· The transformation programme announced in July to reshape the Group into a streamlined, more efficient organisation across editorial, advertising and central operations is now materially complete with anticipated annualised savings of at least £35m. With ongoing uncertainty over third-party print contract renewals and future volumes we will now also review our print capacity requirements during Q4.
· The customer value strategy is deepening engagement with our users and increasing loyalty with average monthly loyal users in March to August increasing by 27.2% year on year. This is delivering a related digital revenue acceleration through increased advertising and content consumption. In Q4 we will introduce a single Reach customer view to enable us to measure the impact of enhanced data on advertising yields.
Current trading and outlook
· For Q3, Group revenue declined by 15.0% year on year, a significant improvement on the 27.5% decline seen in Q2. Print declined by 19.9% in Q3, improving on the 29.5% decline in Q2, helped by gradual improvements in circulation revenue. The digital business grew 12.9% in Q3, compared with a Q2 decline of 14.8%, benefitting from a strong recovery in digital advertising and increased customer engagement across all channels.
· While an interim dividend of 2.50p was paid in 2019, cash dividends remain suspended due to COVID-19 uncertainty. However, with the Group currently performing materially ahead of market expectations for 2020, the Board is recommending a proposed bonus issue to shareholders, in lieu of and with a value equivalent to, an interim dividend of 2.63p, subject to shareholder approval. The Board intends to resume cash dividends at an appropriate time, subject to market conditions.
Enquiries
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Reach |
020 7293 3000 |
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Jim Mullen, Chief Executive Officer Simon Fuller, Chief Financial Officer Ciaran O'Brien, Communications Director |
communication@reachplc.com
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|
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David Allchurch / Giles Kernick |
reachplc@tulchangroup.com |
About Reach plc
Reach plc is the UK's largest commercial news publisher, with over 43 million unique visitors to its live sites and apps during August 2020. Its 150 national and regional news brands including the Mirror, Express, Star, Daily Record, Manchester Evening News, Liverpool Echo, WalesOnline, MyLondon, 48 Live branded sites, local community and information platform InYourArea, and national magazine brands OK! and New!.
For more information visit www. reachplc.com .
Results and strategic update presentation
A conference call facility and live webcast for analysts and institutional investors will be held today at 9am. Details are as follows:
● Conference call - telephone number: 0800 279 6619 or + 44 (0) 2071 928338 ; conference ID number: 4319989
● Webcast - URL: https://edge.media-server.com/mmc/p/x4z4t2vj
A copy of the presentation and a replay recording of the presentation via audio webcast will be available at www.reachplc.com later today.
Notes
(1) Set out in note 18 is the reconciliation between the statutory and adjusted results. The current period is for the 26 weeks ended 28 June 2020 ('2020') and the comparative period is for the 26 weeks ended 30 June 2019 ('2019').
(2) Revenue trends on an actual and like-for-like basis are the same for 2020. Q3 relates to the period from 29 June to 27 September 2020 which September representing the latest estimate of revenues.
(3) Cash generated from operations has been extracted from the consolidated cash flow. An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flow.
(4) Cash and cash equivalents of £66.9m less £25.0m drawings on RCF (note 14).
(5) The Group has implemented IFRS 16 'Leases' with effect from 30 December 2019 using the modified retrospective approach to transition and has accordingly not restated prior periods. Revenue is not impacted by the adoption of IFRS 16. The impact of IFRS 16 on the consolidated Balance Sheet, consolidated Income Statement and consolidated Cash flow Statement is shown in note 2.
Forward looking statements
This announcement has been prepared in relation to the financial results for the 26 weeks ended 28 June 2020. Certain information contained in this announcement may constitute 'forward-looking statements', which can be identified by the use of terms such as 'may', 'will', 'would', 'could', 'should', 'expect', 'seek, 'anticipate', 'project', 'estimate', 'intend', 'continue', 'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the negatives thereof) or words of similar meaning. Forward-looking statements can be made in writing but also may be made verbally by members of management of the Company (including, without limitation, during management presentations to financial analysts) in connection with this announcement. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in global or regional trade conditions, changes in tax rates, liquidity, prospects, growth and strategies. By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance or other financial condition or performance measures of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information or to reflect any change in circumstances or in the Company's expectations or otherwise.
Chief Executive's Review
Strong response to COVID-19, accelerating customer value strategy
Whilst COVID-19 presented operational and financial challenges to Reach during the first half, we enter the final quarter of the year as a strong, profitable business that has accelerated the delivery of the customer value strategy that will drive our future growth.
Reach began the year in the same positive vein with which we finished last year - seeing strong digital growth, increased customer engagement and expected declines in circulation revenues. Then COVID-19 saw reduced levels of advertising and falls in circulation sales, impacting our overall revenues. In April, when the impact of COVID-19 was at its worst, Group revenue fell by 30.5% year on year.
The response of our colleagues to these challenges has been first-class. Within days of lockdown being announced, our IT, HR, finance, editorial, production, commercial and printing teams all adjusted to new ways of working, whether facilitating home working for thousands of colleagues, finalising newspaper production from home or working under required new safety measures in our print facilities.
Throughout the toughest days of lockdown, our commercial teams kept their creativity and team spirits high to continue to deliver for our clients - helping our Solutions team to go on to scoop a Campaign award for Commercial Team of the Year earlier this month.
As the wider economic impacts of lockdown led to reduced advertising levels and double-digit declines in print sales we acted swiftly to protect the business - reducing costs and conserving cash. Once the market had stabilised, we were able to announce a major transformation process - developed and delivered within several months entirely overseen by the Reach management team.
And throughout, we continued to deliver great content, maintain our leading scale digital audience and drive customer loyalty and engagement to record levels. From the Daily Express campaign securing life-saving treatment for cystic fibrosis sufferers to the Daily Mirror's campaign to change the law on organ donation or the Daily Star's Dominic Cummings cut-out mask front page - Reach titles have continued to set the agenda. And our award-winning regional titles have also continued to shape conversations of millions of people - from the Newcastle Chronicle charting the inside story of the failed takeover of Newcastle United to the Liverpool Echo marking Liverpool's Premier League triumph after a 30-year wait. In Scotland the Daily Record campaigned against the Scottish Government's use of algorithms to mark down exam results.
As we accelerated our customer value strategy, great content combined with innovation has produced some exceptional results. We exceeded our original registration target of 2.0m for the end of 2020 by the middle of the year and have continued the impressive growth to now stand at 3.5m registered customers.
In just six months since February, we have increased the percentage of our audience that is registered from around 2% to 8% and maintained our position as the fifth-largest platform in the UK - with only Google, Facebook, Microsoft and Amazon ahead of us. We continue to see record audiences with 42.9m unique visitors in August and a digital market share of 63% of the UK's regional publishing audience.
And the customer loyalty that is so key to our strategy is building. In August we saw an 11% growth in loyal visitors per day compared to June and loyal page views were up 77% in that month compared to the same month last year.
Q3 has seen our digital business return to double-digit revenue growth - a trend that provides great encouragement to the business as we enter the final quarter of the year.
Reach continues to offer a compelling opportunity to drive increasing value as we deepen our relationships with and better engage and understand our customers. We have accelerated our strategic plans and we continue to drive the strategy forward with relentless focus.
Moving forward, the business has a strong foundation from which it can realise its true potential and value. We have established a lower cost base and reorganised the business in a new, agile structure. We continue to deliver a stable market share in print and we are seeing momentum in our customer value strategy. Once fully completed the transformation will improve our adjusted operating margin. We anticipate it will grow further next year, enabling Reach to generate significant levels of cash, enabling us to invest in the customer value strategy, pay down the historic pension deficits, and resume cash dividends at an appropriate time, subject to market conditions .
Overview
Total revenue for the first half was down by 17.5% to £290.8m with the positive start to the year offset by the COVID-19 impact from mid-March to the end of the first half.
Print revenue fell by 20.1% to £241.0m with the more resilient circulation revenue declining by 11.5% and the harder hit print advertising declining by 31.9%.
Digital was much more resilient and only saw a decline of 1.0% over the first half, benefiting from strong growth in the first quarter, followed by declines in Q2 as advertisers withdrew from the market and digital yields fell as a result of less competitive tension in the marketplace. This meant that despite our impressive audience numbers we still saw revenue declines in digital from mid- March for the rest of the first half. Strong digital revenue momentum returned in Q3 with 12.9% year on year growth.
The Group continues to maintain a strong balance sheet with a positive net cash balance of £41.9m reflecting the cash generation of the Group during the crisis and providing a level of protection in the event of any further extensive lockdowns. COVID-19 still represents a significant macro-economic challenge to the UK economy, with the potential for subsequent negative impacts on the business.
Adjusted operating profit of £54.9m and adjusted operating margin of 18.9% benefitted from the strong actions taken in response to COVID-19.
Strong Management Response to COVID-19
Prior to the COVID-19 lockdown Reach had begun the year with continued digital growth and resilient print revenue. In February at our 2019 full year results announcement we detailed the customer value strategy and had a target of 2m customer registrations by the end of 2020.
The COVID-19 lockdown began in mid-March and inevitably had a significant impact on revenues - with lockdown leading to closures of many outlets and significantly reducing footfall in those remaining open. This led to significant year on year declines in print sales for our national and regional print titles. Additionally, advertisers began to withdraw from the marketplace impacting both print and digital at a regional and national level - with the regional market the worst affected. While supermarket and COVID-19 related advertising, including from the financial services sector and Government, helped throughout the lockdown, when COVID-19 was at its worst we saw around 80% of our regional advertisers withdraw from the market.
Faced with these significant impacts and the ongoing uncertainty surrounding the length of lockdown and impact of the pandemic, the Board agreed to a series of short-term measures to reduce costs and conserve cash. The aim of these short term actions was to protect the business and its news titles from the significant uncertainty created by the pandemic.
A number of cash conservation measures were introduced including the removal of discretionary spend, renegotiations with suppliers and cancellations of orders. In addition to this a 10% pay reduction was introduced for most colleagues with the Board, along with some members of the senior editorial and management team, taking a pay reduction of 20%. All annual bonus schemes for 2020 were suspended and 20% of Reach colleagues were furloughed. In addition pension fund contributions were deferred for three months and the 2019 final dividend was cancelled.
These measures ensured short-term protection for the business during the worst-impacted months of COVID-19. However, it became clear that in order to ensure the business could not just survive ongoing uncertainty but be in a position to thrive in the new market conditions, more radical changes to the business were required. Given this, in July we announced the transformation programme and acceleration of our customer value strategy.
Transformation and acceleration of our customer value strategy
Whilst an important outcome from the transformation is a much lower cost base and higher operating margin, at its heart the change is about maximising the Reach business model. Historically Reach has operated in a siloed fashion whether between regional and national or print and digital, with the central corporate team operating as a separate division. As a business that is committed to accelerating our customer value strategy we are seeking to maximise our business model and become a much more agile and efficient organisation.
The changes run throughout the organisation with the Executive team adopting a culture of data-led analysis, constructive challenge and swift decision-making aimed at ensuring rapid delivery of our strategic goals across the business.
Transformation and acceleration of our customer value strategy (continued)
The transformation has done away with the distinction between regional and national products with Reach operating as one editorial operation. The new Reach Newswire is enabling content to be shared across the organisation and to be tailored and adapted for each title or website.
Operating under more flexible working arrangements, most of our editorial teams now operate across print and digital with analytics being constantly monitored to ensure content responds to readers' demand.
Advertising and editorial teams work closely together to attract new business, giving clients an understanding of the breadth of Reach's mainstream audience - a key reason behind Reach scooping the Campaign Award for Commercial Team of the Year in August. Our award-winning journalism and content enable our news brands to shape the daily conversations of millions of people.
An important aspect of the transformation was to gear the costs of the business to the new market conditions post-COVID-19 and the planned cost reductions, including redundancies, will save the business at least £35m annually at an estimated one-off cost of £20m. Thankfully these changes were achieved with fewer compulsory redundancies than originally planned thanks to extensive redeployment and voluntary redundancies.
Despite the changes, the dedication and focus of our teams has enabled the business to continue to accelerate its strategy with customer registrations at 3.5m at the end of September - up from 2.5m in early July and just 0.8m in January.
In June we saw 1.64 billion page views, up 28.3% year on year with 3.3m loyal visitors a day across all platforms. Our NHS Heroes site attracted over 0.4m people to send messages of support to NHS workers. InYourArea had grown to 0.8m registered users in early July and now stands at 1.3m registered users.
Strong recovery in digital revenue, steady improvement in circulation sales
Since June the increased audience engagement has contributed to strong year on year improvement in digital revenues, illustrating the potential of the customer value strategy announced in February. In Q3 digital revenue grew by 12.9% year on year. Circulation revenue declined by just 12.7% year on year during Q3 - a significant improvement from the 18.2% year on year decline seen during Q2 when the COVID-19 impact was at its worst.
The Group continues to deliver strong levels of cash generation and has a strong balance sheet which means we can continue to invest in the business and are in a better place to react to any further impacts from metropolitan, regional or more extensive lockdowns. We continue to be aware of the possibility of further macro-economic impacts due to COVID-19 and consequently the steps that may need to be taken to protect our business.
With the Group currently performing materially ahead of market expectations for 2020, the Board is recommending a proposed bonus issue to shareholders, in lieu of and with a value equivalent to, an interim dividend of 2.63p, subject to shareholder approval. The Board intends to resume cash dividends at an appropriate time, subject to market conditions.
In recognition of their contribution and achievements during a challenging year, and to ensure all Reach colleagues have an opportunity to share in the future success of the Group, the Company is proposing, subject to shareholder approval, to award shares to colleagues (up to a value of £400) during Q4 and to launch a sharesave scheme in 2021. By implementing an all-employee share plan, the Company can utilise the treasury shares it holds, conserving cash and ensuring there is no dilution of share capital.
Moving forward Reach has established a strong, agile structure with a lower cost base and is focussed on continuing the momentum in our customer value strategy which positions us well to build on our position as the fifth largest digital platform in the UK. With increased customer engagement we are well placed to continue our digital growth, while our print titles continue to attract a large audience and to generate cash for further investment in new and enhanced products as well as provide returns to stakeholders.
Jim Mullen
Chief Executive Officer
28 September 2020
Financial Review
Performance of the Group impacted by the COVID-19 outbreak
Group performance in the period has been impacted by the COVID-19 outbreak. Having started well with encouraging digital growth and improved print declines, the COVID-19 crisis began impacting the business from mid-March.
Year on Year Revenue Change | January % | February % | Q1 % | Q2 % | HY % |
(9.3) | (8.4) | (10.7) | (29.5) | (20.1) | |
Digital | 15.3 | 24.6 | 13.7 | (14.8) | (1.0) |
Group | (5.8) | (4.0) | (7.4) | (27.5) | (17.5) |
*Revenue trends on an actual and like-for-like basis are the same for 2020.
Revenue declines in January and February were 5.8% and 4.0% respectively which compares to like-for-like declines for the first half of 2019 of 6.3%. March began consistent with these earlier months but was significantly impacted by the COVID-19 outbreak from the middle of March as the UK entered into lockdown. This resulted in the Q1 decline being 7.4%. April when the impact of COVID-19 was at its worst saw Group revenue declines of 30.5% with print down 31.8% and digital down 22.5%. The impact lessened in May and then further into June as the lockdown restrictions eased. Group revenue in June declined by 23.9% in June with print down 26.7% and digital down 4.9%. The improvement in the trend has continued into Q3.
The Group has continued to maintain a strong balance sheet with adequate liquidity. The positive net cash balance of £41.9m is an increase of £21.5m on the prior year end reflecting the continuing profitability of the Group and our proactive steps taken to preserve cash. This represents a cash balance of £66.9m less £25.0m which was drawn from the Group's revolving credit facility of £65.0m.
Trading performance
Impacted by the COVID-19 outbreak
Revenue declined by 17.5% compared to a like-for-like fall of 6.3% in the first half of 2019, impacted by the COVID-19 outbreak. Within this, print revenue fell by 20.1% (2019: down 8.2%) and digital revenue fell by 1.0% (2019: up 9.7%).
Print revenue fell by 20.1% to £241.0m, with the more resilient circulation revenue declining by 11.5% while advertising revenue declined by 31.9% due to the significant impact on print advertising volumes. Circulation revenue now accounts for 68.0% of print revenue.
Circulation volumes for the Group's national daily titles (excluding the impact of sampling) fell by 18.9% which compares to a decline for the UK tabloid market excluding The Sun of 15.4%. The Group's national Sunday titles (excluding the impact of sampling) fell by 17.6% which compares to a decline for the UK tabloid market excluding The Sun on Sunday of 15.3%. Volume declines for our regional titles were 18.2% for paid-for dailies, 27.3% for paid-for weeklies and 24.4% for paid-for Sundays. The circulation volumes for the paid-for magazines, OK! and New!, continued to face challenging trading. The circulation volume trend versus the market average have been impacted by cover price differentials and inflation strategy.
Our nationally sourced advertising performed better than locally sourced advertising. Nationally while volumes declined in a number of sectors there were some sectors which continued to advertise. The impact on locally sourced advertising was greater with the majority of advertisers not advertising at all combined with much reduced classified adverts.
Printing revenue decreased by 40.1% driven by a reduction of contract print as third parties reduced volumes or suspended publications.
Other revenue decreased by 35.8% driven by reduced enterprise revenues such as holidays and from the cancellation of events and reduction in other contract printing particularly sports programmes.
Digital revenue comprises the combined display and transactional revenue streams which are predominantly directly driven by page views. We enjoyed significant page view growth in the period with average monthly worldwide page views growing by 45% year on year to 1.7bn. Mobile page views grew by 55% and desktop page views grew by 13%. This was more than offset by the impact of COVID-19 on yields as the volume of advertisers reduced significantly which resulted in digital revenues being marginally down by 1.0% to £48.2m.
Other revenue is derived from our specialist digital recruitment websites.
Delivery of significant cost savings
Statutory operating costs fell by £27.8m to £261.7m due to reduced volumes and key cost mitigation actions that the Group has taken as a result of the pandemic. A key priority for the Group is maintaining quality journalism whilst ensuring the commercial viability and profitability of our brands into the future. To achieve this we continue to drive efficiencies which we expect to not adversely impact our products. The Group tightly manages the cost base with cost savings delivered through natural mitigation where volumes decline, day-to-day management interventions and structural costs savings which permanently remove costs.
Labour costs were £109.0m (reduction of £12.7m versus 2019) with savings from ongoing cost actions and additionally from staff going on furlough (benefit of £4.5m) and pay reductions in Q2.
Newsprint costs were £23.3m (reduction of £16.9m versus 2019) with savings from reduced volumes. Price inflationary pressures seen in recent years have eased more recently.
Depreciation was £13.5m (increase of £2.5m versus 2019) as the Group recorded depreciation on right-of-use assets recognised at the beginning of 2020 as result of the IFRS 16 'Leases' adoption.
Other costs were £115.9m (reduction of £0.7m versus 2019) driven by reduction in activity and in discretionary spend as a result of the pandemic together with savings from ongoing cost actions and as a result of the IFRS 16 'Leases' adoption, substantively offset by the increase in adjusted items.
The total impact of the items excluded from adjusted operating costs was a charge of £25.5m (2019: £7.2m). Operating adjusted items comprise restructuring charges in respect of cost reduction measures of £3.0m (2019: £6.1m), a £5.0m (2019: nil) increase in the provision for dealing with and resolving civil claims in relation to historical phone hacking, pension administrative expenses of £2.0m (2019: £1.1m) and a historic property development onerous contract charge of £15.5m (2019: nil).
The transformation plans announced in July are reshaping the business into a streamlined, efficient organisation with more focussed editorial, advertising and central operations. Editorial have moved to a more centralised structure bringing together national and regional teams across print and digital to significantly increase efficiency and remove duplication while maintaining the strong editorial identity of our news brands. In advertising and central operations, the Group has moved to fewer locations and a simpler management structure, with costs geared to current market conditions. These actions will deliver at least £35m in annualised savings going forward with an estimated restructuring charge of £20m in the second half of this year.
Statutory results
The statutory operating profit of £28.9m for the half year compares to a statutory operating profit of £63.7m in the prior year being impacted by COVID-19 and provisions for historical matters (notes 8 and 15) .
Statutory financing costs were £3.7m (2019: £5.5m) reflecting the reduction in the pension finance charge on a lower opening pension deficit.
The statutory tax charge of £27.6m (2019: £11.2m) comprises a current tax charge of £4.3m (2019: £10.8m) and a deferred tax charge of £23.3m (2019: £0.4m). The deferred tax charge includes a debit of £19.0m relating to the remeasurement of the deferred tax balances due to the reversal of the planned decrease in the corporation tax rate from 19% to 17%.
Statutory loss after tax amounted to £2.4m compared to a profit after tax of £47.0m and statutory loss per share for the period of 0.8 pence per share compares to a statutory earnings per share of 15.9 pence in the prior half year.
Adjusted results
Adjusted operating profit declined by 23.0% to £54.9m. Adjusted operating margin decreased by 1.3 percentage points from 20.2% in the first half of 2019 to 18.9% in the first half of 2020.
The continued strong cash flows generated by the business ensured that interest on bank borrowings was £0.6m, a decrease of £0.9m from the prior year due to repayment of term loan borrowings drawn to fund the acquisition of Express & Star. The decrease of £0.9m more than offset the interest on lease liability charge of £0.8m following the recognition of operating leases on the balance sheet from the beginning of the year as a result of the adoption of IFRS 16 'Leases'.
The adjusted tax charge of £10.3m (2019: £13.4m) represents 19.3% (2019: 19.2%) of adjusted profit before tax. The rate is broadly in line with the statutory tax rate of 19.0%. Adjusted profit after tax decreased by £13.3m or 23.5% to £43.2m and adjusted earnings per share decreased by 4.5 pence or 23.6% to 14.6 pence.
Reconciliation of statutory to adjusted results
|
|
Statutory results £m |
Operating adjusted items £m |
Pension finance charge £m |
Tax £m |
Adjusted results £m |
|
Revenue |
290.8 |
- |
- |
- |
290.8 |
|
Operating profit |
28.9 |
26.0 |
- |
- |
54.9 |
|
Profit before tax |
25.2 |
26.0 |
2.3 |
- |
53.5 |
|
(Loss)/profit after tax |
(2.4) |
24.7 |
1.9 |
19.0 |
43.2 |
|
Basic (loss)/earnings per share (p) |
(0.8) |
8.4 |
0.6 |
6.4 |
14.6 |
The Group excludes from the adjusted results: operating adjusted items (note 5), pension finance charge (note 13) and tax changes arising from changes in the corporation tax rate (note 8). Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group.
Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals, tax rate changes) or relate to historic liabilities (historical legal and contract issues, defined benefit pension schemes which are all closed to future accrual). These include items which have occurred for a number of years and may continue in future years. Management exclude these from the results that it uses to manage the business and on which bonuses are based to reflect the underlying performance of the business and believes that the adjusted results, presented alongside the statutory results, provides users with additional useful information.
Restructuring charges incurred to deliver cost reduction measures relate to the transformation of the business from print to digital, together with costs to deliver synergies. These costs are principally severance related, but may also include system integration costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.
Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.
The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment. Additionally, the charge in respect of Guaranteed Minimum Pension equalisation was included in adjusted items last year as the amount was material and it related to the historical pension commitment.
The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament. The impact of the change in rates are included in adjusted items on the basis that when they occur they are material, distorting the underlying performance of the business.
Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contract issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
Balance Sheet
Strong cash generation
Net cash increased by £21.5m from £20.4m at the prior year end to a net cash position of £41.9m at the half-year. Cash balances were £66.9m offset by £25.0m drawings on the four-year £65m non-amortising revolving credit facility which was drawn in March 2020. The drawdown was repaid in August 2020. The positive cash position and strong liquidity reflects the Group's proactive steps to preserve cash during the COVID-19 outbreak.
IFRS 16 'Leases' implementation
The Group has implemented IFRS 16 with effect from 30 December 2019, the first day of the current accounting period, using the modified retrospective approach to transition and has accordingly not restated prior periods. The impact of the implementation has been to recognise the Group's previous operating lease commitments in respect of property and vehicles onto the balance sheet. This has resulted in a Right-of-use Asset being recognised on the balance sheet of £45.6m at 30 December 2019 representing the lease liabilities of £48.6m less £3.0m of prepaid and accrued lease related balances. Lease liabilities of £48.6m were also recognised on the balance sheet at 30 December 2019. As a result of applying IFRS 16 the Group has recognised depreciation and interest costs, rather than rental expenses for its lease commitments. This has resulted in a £0.4m positive impact to adjusted and statutory operating profit and £0.4m negative impact on adjusted and statutory profit before tax. IFRS 16 has no impact on the consolidated cash flow statement apart from changing the classification of rental payments from operating to financing activities. Further details of the impact of IFRS 16 and its implementation are detailed in note 2.
Historical legal issues
The provision has been increased by £5.0m at the half year to reflect an increase in the estimate of the cost of settling claims. At the period end, £25.2m of the provision remains outstanding and this represents the current best estimate of the amount required to settle the expected claims. There are three parts to the provision: known claims, potential future claims and common court costs. The estimates are based on historical trends and experience of claims and costs. The provision is expected to be utilised over the next few years. The Group has recorded an increase in the provision in each of the last five years which highlights the challenges in making a best estimate. Certain cases and other matters relating to the issue are subject to court proceedings, the dynamics of which continue to evolve, and the outcome of those proceedings could have an impact on how much is required to settle the remaining claims and on the number of claims. It is not possible to provide a range of potential outcomes in respect of this provision. Due to this uncertainty, a contingent liability has been highlighted in note 17.
Historical contract issues
A charge of £15.5m has been made in the half year reflecting a historic property development onerous contract. In 2018 the Group sold part of its freehold property in Liverpool with total net proceeds of £6.6m resulting in an accounting profit of £2.3m being included in operating adjusted items. The Group also entered into a joint venture to develop the property into a hotel and retail/office space. As a result of COVID-19 the development has incurred significant time delays and cost overruns, with no certainty as to the amount that could be incurred on completion of the development and insufficient contractual protections based on the historical agreement. A new agreement has been reached with the joint venture party to limit the exposure to the Group to £15.5m. A one-off provision of £15.5m has been made in the half year results and the £15.5m was paid to the joint venture party in September 2020. The Group has no further exposure in respect of this development.
Decrease in accounting pension deficit
The IAS 19 pension deficit in respect of the Group's six defined benefit pension schemes decreased by £34.3m to £261.6m (by £33.0m to £209.9m net of deferred tax). The reduction was driven by Group contributions and strong asset returns being in excess of an unfavourable movement in financial assumptions driven by a decrease in the discount rate and an update to the scheme demographic assumptions following analysis undertaken by the actuaries to the schemes. The Group has taken actuarial advice and has updated the approach to determining the bond constituents for the determination of the discount rate which is explained in note 13. Changes in the accounting pension deficit do not have an immediate impact on the agreed funding commitments. The next valuation for funding of all six pension schemes as at 31 December 2019 is underway and this would usually be completed by 31 March 2021. The year end accounting will take into account the progress made on the valuations as appropriate.
Group contributions in respect of the defined benefit pension schemes in the first half were £22.0m (2019: £24.5m). As part of the key mitigation actions resulting from the COVID-19, the Group agreed with the Trustees a deferment of its pension contributions for April, May and June amounting to £12.2m. Of this amount 80% (£9.8m) was paid over to an escrow account and 20% (£2.4m) was retained in the business. The Group could have drawn on the amounts in escrow if certain conditions were met up to 28 June 2020. None of the conditions were met and the 80% was released to the pension schemes in July 2020. The amount in escrow at 28 June 2020 (£9.8m) has been included in pension contributions and is reflected as a reduction in the pension deficit at the half year date. The 20% of the deferment (£2.4m) remained in cash at the half year balance sheet date. Following the continued strong liquidity, the remaining 20% was paid over to the schemes in September 2020.
Deferred consideration
Deferred consideration in respect of the acquisition of Express & Star is included in trade and other payables. Payment of the first payment of £18.9m was made on 28 February 2020. Of the remaining amount of £40.1m, £16.0m is classified as current liabilities (payable on 28 February 2021) and £24.1m is classified as non-current liabilities (£17.1m on 28 February 2022 and £7.0m on 28 February 2023).
Cash Flow
Continued good cash generation
Cash generated from operations on a statutory basis were £78.2m (2019: £70.4m). Working capital movements were positive as the Group collected the year end debtors which are higher than the debtors at the end of June which are impacted by the reduced revenues. This also includes a £5.2m benefit from the adoption of IFRS 16 'Leases' where operating lease payments are now shown in financing activities (but has no impact on the change in cash and cash equivalents).
The Group presents an adjusted cash flow which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and the adjusted cash flow. The adjusted operating cash flow was £63.5m (2019: £65.2m) which is before historical legal issues payments (£0.9m), pension funding payments (£22.0m comprising £12.2m paid to the schemes in Q1 and £9.8m paid into escrow in Q2), deferred consideration payments (£18.9m) and additional purchase of shares in PA Media Group (£0.2m).
Dividends
After due consideration on 26 March 2020, the Board announced that it would no longer propose a final dividend for the financial year ending 2019. While the Board recognises the importance of dividends to shareholders, given the uncertainty around the COVID-19 crisis and the fact that the Group accessed the Government's Job Protection scheme, it was decided that it would be inappropriate to pay a dividend at that time.
While an interim dividend of 2.50p was paid in 2019, cash dividends remain suspended due to COVID-19 uncertainty. With the Group currently performing materially ahead of market expectations for 2020, the Board is recommending a proposed bonus issue to shareholders, in lieu of and with a value equivalent to, an interim dividend of 2.63p, subject to shareholder approval. The Board intends to resume cash dividends at an appropriate time, subject to market conditions.
Other Items
Principal risks and uncertainties
The Group recognises the importance of the effective understanding and management of risk in enabling us to identify factors, both external and internal that may materially affect our ability to achieve our goals. There is an ongoing process for the identification, evaluation and management of the principal risks faced by the Group, including emerging risks. Appropriate mitigating actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process. All risks are considered in the context of the changing regulatory and compliance landscape, and enabling the continuity of our operations.
These principal risks and uncertainties, the risk appetite in relation to these and the resulting actions are set out in the Reach plc 2019 Annual Report which is available on our website at www.reachplc.com .
The principal risks and uncertainties continue to be: Print revenue decline acceleration; Insufficient digital revenue growth; Lack of funding capability; Inability to recruit and retain talent; Customer data management challenges; Brand reputation damage; Cyber security breach; Health and safety issue; Supply chain failure and Macro-economic deterioration.
A number of the principal risks and uncertainties have been impacted by COVID-19. The Group took a number of mitigating actions to minimise the impact of the outbreak, including the announcement in April to cancel the 2019 dividend, reduce salaries, furlough staff and agree a deferment of pension contributions and in July to transform the business and accelerate the customer value strategy and will continue to monitor this risk closely. The impact on the Group's revenues has gradually improved since April and we have accelerated our customer value strategy. There remains uncertainty around when circulation and advertising revenues will return to more normalised levels. COVID-19 still represents a significant macro-economic challenge to the UK economy, with the potential for subsequent negative impacts on the business.
There also remains uncertainty around the UK's exit from the European Union. In 2019, the Group undertook exercise to evaluate the potential impact and a number of mitigating actions can be taken in the event of, for example, larger than expected revenue declines, operational supply chain challenges or legislative changes. As the impact of the UK's exit from the European Union becomes clearer, we will continue to evolve our response to mitigate any impacts.
We have a strong record of delivering additional cost savings when faced with unexpected revenue deficits.
Going concern statement
The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2019 Annual Report. Further information is set out in the Group's 2019 Annual Report.
At the half year, the directors have reviewed the assessment, particularly as a result of the COVID-19 outbreak. The Group has faced reductions in revenue ahead of the declines expected but the Group has taken a number of mitigating actions to protect profits and cash flow. The Group has a strong balance sheet and liquidity with a net cash positive position of £41.9m. This represents a cash balance of £66.9m less £25.0m which has been drawn from the Group's revolving credit facility of £65.0m.
Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.
Statement of directors' responsibilities
The directors are responsible for preparing the half-yearly financial report in accordance with applicable laws and regulations. The directors confirm to the best of their knowledge:
a) that the interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely:
i. an indication of important events that have occurred during the first six months and their impact on the interim condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
ii. material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
b) the interim condensed consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole.
By order of the Board of Directors
Simon Fuller
Chief Financial Officer
28 September 2020
Condensed interim consolidated financial statements
Consolidated income statement
for the 26 weeks ended 28 June 2020 (26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019)
|
|
notes |
Adjusted 26 weeks ended 28 June 2020 (unaudited) £m |
Adjusted Items 26 weeks ended 28 June 2020 (unaudited) £m |
Statutory 26 weeks ended 28 June 2020 (unaudited) £m |
Adjusted 26 weeks ended 30 June 2019 (unaudited) £m |
Adjusted Items 26 weeks ended 30 June 2019 (unaudited) £m |
Statutory 26 weeks ended 30 June 2019 (unaudited) £m |
Adjusted 52 weeks ended 29 December 2019 (audited) £m |
Adjusted Items 52 weeks ended 29 December 2019 (audited) £m |
Statutory 52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
4 |
290.8 |
- |
290.8 |
352.6 |
- |
352.6 |
702.5 |
- |
702.5 |
|
Cost of sales |
|
(153.9) |
- |
(153.9) |
(191.7) |
- |
(191.7) |
(370.7) |
- |
(370.7) |
|
Gross profit |
|
136.9 |
- |
136.9 |
160.9 |
- |
160.9 |
331.8 |
- |
331.8 |
|
Distribution costs |
|
(23.5) |
- |
(23.5) |
(27.6) |
- |
(27.6) |
(53.0) |
- |
(53.0) |
|
Administrative expenses |
|
(58.8) |
(25.5) |
(84.3) |
(63.0) |
(7.2) |
(70.2) |
(127.2) |
(27.3) |
(154.5) |
|
Share of results of associates |
|
0.3 |
(0.5) |
(0.2) |
1.0 |
(0.4) |
0.6 |
1.8 |
5.6 |
7.4 |
|
Operating profit |
|
54.9 |
(26.0) |
28.9 |
71.3 |
(7.6) |
63.7 |
153.4 |
(21.7) |
131.7 |
|
Interest income |
6 |
- |
- |
- |
0.1 |
- |
0.1 |
0.1 |
- |
0.1 |
|
Pension finance charge |
13 |
- |
(2.3) |
(2.3) |
- |
(4.1) |
(4.1) |
- |
(8.0) |
(8.0) |
|
Finance costs |
7 |
(1.4) |
- |
(1.4) |
(1.5) |
- |
(1.5) |
(2.9) |
- |
(2.9) |
|
Profit before tax |
|
53.5 |
(28.3) |
25.2 |
69.9 |
(11.7) |
58.2 |
150.6 |
(29.7) |
120.9 |
|
Tax charge |
8 |
(10.3) |
(17.3) |
(27.6) |
(13.4) |
2.2 |
(11.2) |
(28.9) |
2.3 |
(26.6) |
|
Profit/(loss) for the period attributable to equity holders of the parent |
|
43.2 |
(45.6) |
(2.4) |
56.5 |
(9.5) |
47.0 |
121.7 |
(27.4) |
94.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
notes |
2020 Pence |
|
2020 Pence |
2019 Pence |
|
2019 Pence |
2019 Pence |
|
2019 Pence |
|
Earnings/(loss) per share - basic |
10 |
14.6 |
|
(0.8) |
19.1 |
|
15.9 |
41.1 |
|
31.8 |
|
Earnings/(loss) per share - diluted |
10 |
14.4 |
|
(0.8) |
19.0 |
|
15.8 |
40.6 |
|
31.5 |
The above results were derived from continuing operations. Set out in note 18 is the reconciliation between the statutory and adjusted results.
The Group has applied the IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings and other reserves at the date of initial application (see note 2).
Consolidated statement of comprehensive income
for the 26 weeks ended 28 June 2020 (26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019)
|
|
notes |
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
|
(Loss)/profit for the period |
|
(2.4) |
47.0 |
94.3 |
|
|
|
|
|
|
|
Items that will not be reclassified to profit and loss: |
|
|
|
|
|
Actuarial gain/(loss) on defined benefit pension schemes |
13 |
16.6 |
(18.9) |
14.7 |
|
Tax on actuarial gain/(loss) on defined benefit pension schemes |
8 |
(3.1) |
3.2 |
(2.8) |
|
Deferred tax credit resulting from change in tax rate |
8 |
5.9 |
- |
- |
|
Share of items recognised by associates |
|
- |
- |
(11.2) |
|
Other comprehensive income/(loss) for the period |
|
19.4 |
(15.7) |
0.7 |
|
|
|
|
|
|
|
Total comprehensive income for the period |
|
17.0 |
31.3 |
95.0 |
The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings and other reserves at the date of initial application (see note 2).
Consolidated cash flow statement
for the 26 weeks ended 28 June 2020 (26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019)
|
|
notes |
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
11 |
78.2 |
70.4 |
147.4 |
|
Pension deficit funding payments |
13 |
(22.0) |
(24.5) |
(48.9) |
|
Income tax paid |
|
(8.3) |
(3.8) |
(11.7) |
|
Net cash inflow from operating activities |
|
47.9 |
42.1 |
86.8 |
|
Investing activities |
|
|
|
|
|
Interest received |
|
- |
0.1 |
0.1 |
|
Dividends received from associated undertakings |
|
- |
0.1 |
0.5 |
|
Proceeds on disposal of property, plant and equipment |
|
0.3 |
- |
0.5 |
|
Purchases of property, plant and equipment |
|
(1.8) |
(1.6) |
(3.9) |
|
Acquisition of subsidiary undertaking |
|
(18.9) |
- |
- |
|
Acquisition of associate undertaking |
|
(0.2) |
- |
(0.9) |
|
Net cash used in investing activities |
|
(20.6) |
(1.4) |
(3.7) |
|
Financing activities |
|
|
|
|
|
Dividends paid |
|
- |
(11.2) |
(18.6) |
|
Interest paid on borrowings |
|
(0.6) |
(1.6) |
(3.3) |
|
Drawdown/(repayment of) bank borrowings |
|
25.0 |
(20.3) |
(60.0) |
|
Repayments of obligations under leases |
|
(5.2) |
- |
- |
|
Net cash received from/(used in) financing activities |
|
19.2 |
(33.1) |
(81.9) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
46.5 |
7.6 |
1.2 |
|
Cash and cash equivalents at the beginning of the period |
14 |
20.4 |
19.2 |
19.2 |
|
Cash and cash equivalents at the end of the period |
14 |
66.9 |
26.8 |
20.4 |
The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings and reserves at the date of initial application (see note 2).
Consolidated statement of changes in equity
for the 26 weeks ended 28 June 2020 (26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019)
|
|
Share capital £m |
Share premium account £m |
Merger reserve £m |
Capital redemption reserve £m |
Retained earnings and other reserves £m |
Total £m |
|
|
|
|
|
|
|
|
|
At 29 December 2019 (audited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
24.2 |
(635.2) |
|
Loss for the period |
- |
- |
- |
- |
2.4 |
2.4 |
|
Other comprehensive income for the period |
- |
- |
- |
- |
(19.4) |
(19.4) |
|
Total comprehensive income for the period |
- |
- |
- |
- |
(17.0) |
(17.0) |
|
Credit to equity for equity-settled share-based payments |
- |
- |
- |
- |
(0.6) |
(0.6) |
|
At 28 June 2020 (unaudited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
6.6 |
(652.8) |
|
|
|
|
|
|
|
|
|
At 30 December 2018 (audited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
101.7 |
(557.7) |
|
Profit for the period |
- |
- |
- |
- |
(47.0) |
(47.0) |
|
Other comprehensive loss for the period |
- |
- |
- |
- |
15.7 |
15.7 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
(31.3) |
(31.3) |
|
Credit to equity for equity-settled share-based payments |
- |
- |
- |
- |
(0.4) |
(0.4) |
|
Dividends paid |
- |
- |
- |
- |
11.2 |
11.2 |
|
At 30 June 2019 (unaudited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
81.2 |
(578.2) |
|
|
|
|
|
|
|
|
|
At 30 December 2018 (audited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
101.7 |
(557.7) |
|
Profit for the period |
- |
- |
- |
- |
(94.3) |
(94.3) |
|
Other comprehensive income for the period |
- |
- |
- |
- |
(0.7) |
(0.7) |
|
Total comprehensive loss for the period |
- |
- |
- |
- |
(95.0) |
(95.0) |
|
Credit to equity for equity-settled share-based payments |
- |
- |
- |
- |
(1.1) |
(1.1) |
|
Dividends paid |
- |
- |
- |
- |
18.6 |
18.6 |
|
At 29 December 2019 (audited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
24.2 |
(635.2) |
The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings and reserves at the date of initial application (see note 2).
Consolidated balance sheet
at 28 June 2020 (at 30 June 2019 and 29 December 2019)
|
|
notes |
29 June 2020 (unaudited) £m |
30 June 2019 (unaudited) £m |
29 December 2019 (audited) £m |
|
Non-current assets |
|
|
|
|
|
Goodwill |
12 |
42.0 |
42.0 |
42.0 |
|
Other intangible assets |
12 |
810.0 |
810.0 |
810.0 |
|
Property, plant and equipment |
|
216.4 |
236.8 |
224.9 |
|
Right-of-use assets |
|
42.6 |
- |
- |
|
Investment in associates |
|
21.9 |
25.8 |
21.9 |
|
Retirement benefit assets |
13 |
74.6 |
19.8 |
31.2 |
|
Deferred tax assets |
|
55.0 |
68.2 |
55.9 |
|
|
|
1,262.5 |
1,202.6 |
1,185.9 |
|
Current assets |
|
|
|
|
|
Inventories |
|
5.1 |
6.1 |
5.9 |
|
Trade and other receivables |
|
91.9 |
110.2 |
116.4 |
|
Cash and cash equivalents |
14 |
66.9 |
26.8 |
20.4 |
|
|
|
163.9 |
143.1 |
142.7 |
|
Total assets |
|
1,426.4 |
1,345.7 |
1,328.6 |
|
Non-current liabilities |
|
|
|
|
|
Trade and other payables |
|
(24.1) |
(40.1) |
(40.1) |
|
Borrowings |
|
- |
(39.7) |
- |
|
Lease liabilities |
|
(38.4) |
- |
- |
|
Retirement benefit obligations |
13 |
(336.2) |
(368.0) |
(327.1) |
|
Deferred tax liabilities |
|
(178.9) |
(159.6) |
(159.3) |
|
Provisions |
15 |
(17.5) |
(3.5) |
(20.5) |
|
|
|
(595.1) |
(610.9) |
(547.0) |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
(107.8) |
(132.5) |
(122.2) |
|
Borrowings |
14 |
(25.0) |
- |
- |
|
Lease liabilities |
14 |
(6.4) |
- |
- |
|
Current tax liabilities |
8 |
(4.7) |
(7.2) |
(8.7) |
|
Provisions |
15 |
(34.6) |
(16.9) |
(15.5) |
|
|
|
(178.5) |
(156.6) |
(146.4) |
|
Total liabilities |
|
(773.6) |
(767.5) |
(693.4) |
|
Net assets |
|
652.8 |
578.2 |
635.2 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
16 |
(30.9) |
(30.9) |
(30.9) |
|
Share premium account |
16 |
(606.7) |
(606.7) |
(606.7) |
|
Merger reserve |
16 |
(17.4) |
(17.4) |
(17.4) |
|
Capital redemption reserve |
16 |
(4.4) |
(4.4) |
(4.4) |
|
Retained earnings and other reserves |
16 |
6.6 |
81.2 |
24.2 |
|
Total equity attributable to equity holders of the parent |
|
(652.8) |
(578.2) |
(635.2) |
The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings and reserves at the date of initial application (see note 2).
Notes to the consolidated financial statements
for the 26 weeks ended 28 June 2020 (26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019)
1 . General information
The financial information in respect of the 52 weeks ended 29 December 2019 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies and is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com. The auditors' report was unqualified, did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The financial information for the 26 weeks ended 28 June 2020 and the 26 weeks ended 30 June 2019 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been audited. No statutory accounts for these periods have been delivered to the Registrar of Companies.
This half-yearly financial report constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules.
The auditors, PricewaterhouseCoopers LLP, have carried out a review of the condensed set of financial statements and their report is set out at the end of this announcement.
The half-yearly financial report was approved by the directors on 28 September 2020. This announcement is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com.
2 . Accounting policies
Basis of preparation
The Group's annual consolidated financial statements are prepared in accordance with IFRS as adopted by the European Union. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual profit or loss.
Going concern
These condensed consolidated financial statements have been prepared on a going concern basis as set out in the Financial Review in this half-yearly financial report.
Changes in accounting policy
Other than the adoption of IFRS 16 'Leases' the same accounting policies, presentation and methods of computation are followed in the interim condensed consolidated financial statements as applied in the Group's latest annual consolidated financial statements.
IFRS 16 has been applied by the Group in the 26 weeks ending 28 June 2020 and supersedes the current lease guidance including IAS 17 and the related interpretation.
Nature of change
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on balance sheet model as the distinction between operating and finance leases is removed. The only exceptions are short-term and low-value leases. At the commencement date of a lease, a lessee will recognise a lease liability for the future lease payments and an asset representing the right to use the underlying asset during the lease term (right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of use asset.
Impact on the Group
The standard has impacted the accounting for the Group's operating leases relating to leased properties and leased vehicles. The Group has applied the simplified transition approach (modified retrospective approach) and recognised the lease liability on transition at the present value of the remaining lease payments, discounted using its incremental borrowing rate of 3.3% at the date of transition. On initial adoption, right-of-use assets have been measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. Lease incentives (e.g. rent-free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities, whereas under IAS 17, a lease incentive liability was recognised and amortised as a rental expense on a straight-line basis. Short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense to the income statement.
Practical Expedients applied on adoption
In its initial application of IFRS 16, the Group has used the following practical expedients allowed by the standard:
· Applied a single discount rate to a portfolio of leases with similar characteristics;
· Relied on its assessment of whether a lease is onerous by applying IAS 37 immediately before the date of initial application;
· Not recognised leases whose lease term end within 12 months of the adoption date of 30 December 2019;
· Excluded initial direct costs from the measurement of right-of-use assets at the date of initial application; and
· Used hindsight in determining the lease term if the contract contains options to extend or terminate the lease.
The following table reconciles the minimum lease commitments for the 52 weeks ended 29 December 2019 to the amount of lease liabilities recognised on initial adoption at 30 December 2019.
|
|
|
£m |
|
Operating lease commitment at 29 December 2019 as shown in the consolidated financial statements |
|
52.2 |
|
Discount using the incremental borrowing rate |
|
(7.1) |
|
Discounted using the incremental borrowing rate |
|
45.1 |
|
Less: short-term leases of one year or less from the date of application |
|
(0.7) |
|
Add: adjustments as a result of a different treatment of termination options |
|
4.2 |
|
Lease liability recognised at 30 December 2019 (classified as current £6.3m and non-current £42.3m) |
|
48.6 |
Impact on the primary statements
Impact on the consolidated income statement
As a result of applying IFRS 16, the Group has recognised depreciation and interest costs, rather than rental expenses for leases that are within the scope of IFRS 16 and which were classified previously as operating leases. In the 26 weeks ended 28 June 2020, the Group recognised £3.5m of additional depreciation charges and £0.8m of interest costs in respect of these leases instead of recognising the rental expense of £3.9m. This resulted in a £0.4m positive impact to adjusted and statutory operating profit and £0.4m negative impact on adjusted and statutory profit before tax.
Impact on consolidated cash flow statement
As a result of applying IFRS 16, in the 26 weeks ended 28 June 2020, the Group has increased net cash flow from operating activities by £5.2m and reduced its net cash from financing activities by £5.2m.
Impact on consolidated balance sheet
|
|
|
29 December 2019 (audited) £m |
IFRS 16 adjustment 2019 £m |
29 December 2019 (unaudited) £m |
|
Non-current assets |
|
|
|
|
|
Goodwill |
|
42.0 |
- |
42.0 |
|
Other intangible assets |
|
810.0 |
- |
810.0 |
|
Property, plant and equipment |
|
224.9 |
- |
224.9 |
|
Right-of-use-asset |
|
- |
45.61 |
45.6 |
|
Investment in associates |
|
21.9 |
- |
21.9 |
|
Retirement benefit assets |
|
31.2 |
- |
31.2 |
|
Deferred tax assets |
|
55.9 |
- |
55.9 |
|
|
|
1,185.9 |
45.6 |
1,231.5 |
|
Current assets |
|
|
|
|
|
Inventories |
|
5.9 |
- |
5.9 |
|
Trade and other receivables |
|
116.4 |
(0.6)2 |
115.8 |
|
Cash and cash equivalents |
|
20.4 |
- |
20.4 |
|
|
|
142.7 |
(0.6) |
142.1 |
|
Total assets |
|
1,328.6 |
45.0 |
1,373.6 |
|
Non-current liabilities |
|
|
|
|
|
Trade and other payables |
|
(40.1) |
- |
(40.1) |
|
Lease liabilities |
|
- |
(42.3)3 |
(42.3) |
|
Retirement benefit obligations |
|
(327.1) |
- |
(327.1) |
|
Deferred tax liabilities |
|
(159.3) |
- |
(159.3) |
|
Provisions |
|
(20.5) |
- |
(20.5) |
|
|
|
(547.0) |
(42.3) |
(589.3) |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
(122.2) |
3.24 |
(119.0) |
|
Lease liabilities |
|
- |
(6.3)5 |
(6.3) |
|
Current tax liabilities |
|
(8.7) |
- |
(8.7) |
|
Provisions |
|
(15.5) |
0.46 |
(15.1) |
|
|
|
(146.4) |
(2.7) |
(149.1) |
|
Total liabilities |
|
(693.4) |
(45.0) |
(738.4) |
|
Net assets |
|
635.2 |
- |
635.2 |
|
|
|
|
|
|
|
Total equity attributable to equity holders of the parent |
|
(635.2) |
- |
(635.2) |
1 Right-of-use asset recognised representing the right to use the asset over the lease term.
2 Adjustment mainly in respect of prepaid rent.
3 Non-current element of the lease liability recognised.
4 Adjustment in respect of accruals related to leases.
5 Current element of the lease liability recognised.
6
Adjustment in respect of the onerous lease provision.
Alternative performance measures
The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis. The Company believes that the adjusted basis and like-for-like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 18 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flow.
Adjusting items
Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Details of adjusting items are set out in notes 5 and 18.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty 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:
Provisions (notes 8 and 15)
There is uncertainty as to liabilities arising from the outcome or resolution of the ongoing historical legal issues and in addition there is uncertainty as to the amount of expenditure that may be tax deductible and additional tax liabilities may fall due in relation to earlier years. Provisions are measured at the best estimate of the expenditure required to settle the obligation based on the assessment of the related facts and circumstances at each reporting date.
Retirement benefits (note 13)
Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. These result in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.
Impairment review (note 12)
There is uncertainty in the value-in-use calculation. The most significant area of uncertainty relates to expected future cash flows for each cash-generating unit. Determining whether the carrying values of assets in a cash-generating unit are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Projections are based on both internal and external market information and reflect past experience. The discount rate reflects the weighted average cost of capital of the Group.
Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies, described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:
Indefinite life assumption in respect of publishing rights and titles (note 12)
There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £810.0m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever changing media landscape. At each reporting date management review the suitability of this assumption.
Identification of cash-generating units (note 12)
There is judgement required in determining the cash-generating unit relating to our Publishing brands. At each reporting date management review the interdependency of revenues across our portfolio of Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.
3. Segments
The performance of the Group is presented as a single reporting segment as this is the basis of internal reports regularly reviewed by the Board and chief operating decision maker (executive directors) to allocate resources and to assess performance. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.
4. Revenue
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
|
|
| |
241.0 | 301.8 | 591.3 | |
Circulation | 163.9 | 185.1 | 361.7 |
Advertising | 53.1 | 78.0 | 152.5 |
Printing | 11.8 | 19.7 | 38.5 |
Other | 12.2 | 19.0 | 38.6 |
Digital | 48.2 | 48.7 | 107.0 |
Other | 1.6 | 2.1 | 4.2 |
Total revenue | 290.8 | 352.6 | 702.5 |
The Group's operations are located primarily in the UK. The Group's revenue by location of customers is set out below:
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
|
|
| |
UK and Republic of Ireland | 290.3 | 351.8 | 700.9 |
Continental Europe | 0.4 | 0.7 | 1.5 |
Rest of World | 0.1 | 0.1 | 0.1 |
Total revenue | 290.8 | 352.6 | 702.5 |
5. Operating adjusted items
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
Pension administrative expenses (note 13) | (2.0) | (1.1) | (2.9) |
Restructuring charges in respect of cost reduction measures (note 15) | (3.0) | (6.1) | (10.7) |
Provision for historical legal issues (note 15) | (5.0) | - | (11.0) |
Provision for historical property development (note 15) | (15.5) | - | - |
Other (a) | - | - | (2.7) |
Operating adjusted items included in administrative expenses | (25.5) | (7.2) | (27.3) |
Operating adjusted items included in share of results of associates (b) | (0.5) | (0.4) | 5.6 |
Total operating adjusted items | (26.0) | (7.6) | (21.7) |
(a) Other in 2019 related to an impairment of printing press in Saltire which was mothballed.
(b) Group's share of operating adjusted items incurred by PA Group, Brand Events and the Independent Star in Ireland.
6. Interest income
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
Interest income on bank deposits | - | 0.1 | 0.1 |
7. Finance costs
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
Interest on bank overdrafts and borrowings | (0.6) | (1.5) | (2.9) |
Interest on lease liability | (0.8) | - | - |
Finance costs | (1.4) | (1.5) | (2.9) |
8. Tax
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
Corporation tax charge for the period | (4.3) | (10.8) | (15.9) |
Current tax charge | (4.3) | (10.8) | (15.9) |
Deferred tax charge for the period | (4.3) | (0.4) | (9.9) |
Deferred tax charge for rate change | (19.0) | - | - |
Prior period adjustments | - | - | (0.8) |
Deferred tax charge | (23.3) | (0.4) | (10.7) |
Tax charge | (27.6) | (11.2) | (26.6) |
|
|
|
|
Reconciliation of tax charge | % | % | % |
Standard rate of corporation tax | (19.0) | (19.0) | (19.0) |
Tax effect of items that are not deductible in determining taxable profit | (27.9) | (0.4) | (3.3) |
Change in rate of corporation tax | (62.5) | - | - |
Prior period adjustment | - | - | (0.8) |
Tax effect of share of results of associates | (0.1) | 0.2 | 1.1 |
Tax charge rate | (109.5) | (19.2) | (22.0) |
The standard rate of corporation tax for the period is 19% (2019: 19%). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax liabilities amounted to £4.7m (26 weeks ended 30 June 2019: £7.2m and 52 weeks ended 29 December 2019: £8.7m) at the reporting date and include net provisions of £4.7m (26 weeks ended 30 June 2019: £1.1m and 52 weeks ended 29 December 2019: £2.7m). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £5m (26 weeks ended 30 June 2019: £7m and 52 weeks ended 29 December 2019: £5m).
The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament. The reversal of the change in rate from 19% to 17% in 2020 has been accounted for in the current year resulting in a £19.0m debit in the consolidated income statement and a £5.9m credit in the consolidated statement of comprehensive income.
The tax on actuarial gains or losses on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a deferred tax charge of £3.1m (26 weeks ended 30 June 2019: credit of £3.2m and 52 weeks ended 29 December 2019: charge of £2.8m).
9. Dividends
26 weeks ended 28 June 2020 (unaudited) Pence Per share | 26 weeks ended 30 June 2019 (unaudited) Pence Per share | 52 weeks ended 29 December 2019 (audited) Pence Per share | |
Dividends paid per share and recognised as distributions to equity holders in the period | - | 3.77 | 6.27 |
Dividend proposed per share but not paid nor included in the accounting records | - | 2.50 | 4.05 |
The final dividend proposed for 2019 of 4.05 pence per share was withdrawn by the directors as a result of the COVID-19 outbreak.
On 10 May 2019 the final dividend proposed for 2018 of 3.77 pence per share was approved by shareholders at the Annual General Meeting and was paid on 7 June 2019. An interim dividend for 2019 of 2.50 pence per share was paid on 27 September 2019. Total dividend payment in 2019 amounted to £18.6m (2018 final dividend payment of £11.2m and 2019 interim dividend payment of £7.4m).
10. Earnings per share
Basic earnings per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period and diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.
26 weeks ended 28 June 2020 (unaudited) Thousand | 26 weeks ended 30 June 2019 (unaudited) Thousand | 52 weeks ended 29 December 2019 (audited) Thousand | |
|
|
|
|
Weighted average number of ordinary shares for basic earnings per share | 296,475 | 296,032 | 296,138 |
Effect of potential dilutive ordinary shares in respect of share awards | 3,596 | 1,798 | 3,457 |
Weighted average number of ordinary shares for diluted earnings per share | 300,071 | 297,830 | 299,595 |
The weighted average number of potentially dilutive ordinary shares not currently dilutive was 5,354,112 (30 June 2019: 5,879,561 and 29 December 2019: 3,526,324).
Statutory earnings per share | 2020 Pence | 2019 Pence | 2019 Pence |
|
|
|
|
(Loss)/earnings per share - basic | (0.8) | 15.9 | 31.8 |
(Loss)/earnings per share - diluted | (0.8) | 15.8 | 31.5 |
Adjusted earnings per share | 2020 Pence | 2019 Pence | 2019 Pence |
|
|
|
|
Earnings per share - basic | 14.6 | 19.1 | 41.1 |
Earnings per share - diluted | 14.4 | 19.0 | 40.6 |
Set out in note 18 is the reconciliation between the statutory and adjusted results.
11. Cash generated from operations
| 26 weeks ended 28 June 2020 (unaudited) £m | 26 weeks ended 30 June 2019 (unaudited) £m | 52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
Operating profit | 28.9 | 63.7 | 131.7 |
Depreciation of property, plant and equipment | 13.5 | 11.0 | 21.5 |
Share of results of associates | 0.2 | (0.6) | (7.4) |
Charge for share-based payments | 0.7 | 0.4 | 1.1 |
Profit on disposal of land and buildings | - | - | 0.3 |
Impairment of fixed assets | - | - | 2.7 |
Write-off of fixed assets | - | - | 0.2 |
Pension administrative expenses | 2.0 | 1.1 | 2.9 |
Operating cash flows before movements in working capital | 45.3 | 75.6 | 153.0 |
Decrease in inventories | 0.8 | 0.2 | 0.4 |
Decrease/(increase) in receivables | 23.7 | (1.8) | (7.8) |
Increase/(decrease) in payables | 8.4 | (3.6) | 1.8 |
Cash generated from operations | 78.2 | 70.4 | 147.4 |
12. Goodwill and other intangible assets
The carrying value of goodwill and other intangible assets is:
|
|
Goodwill £m |
Publishing rights and titles £m |
Total Intangible assets £m |
|
|
|
|
|
|
Opening carrying value |
42.0 |
810.0 |
852.0 |
|
Closing carrying value |
42.0 |
810.0 |
852.0 |
The Group has two cash-generating units (Publishing and Digital Classified Recruitment). Goodwill of £42.0m comprises Publishing £35.9m and Digital Classified Recruitment £6.1m. Publishing rights and titles comprises Publishing £810.0m.
There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £810.0m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever changing media landscape. The Group has grown digital revenue in recent years and is focused on investing to continue the growth for the coming years. The directors believe growth from digital and new revenue streams will offset print declines on an aggregate basis, leading to a future stabilisation of revenue. This, combined with our inbuilt and relentless focus on maximising efficiency, gives the Board confidence that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future.
There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.
The Group tests the carrying value of assets at the cash-generating unit level for impairment annually or more frequently if there are indicators that assets might be impaired. The review is undertaken by assessing whether the carrying value of assets is supported by their value in use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount.
The impact on revenues due to COVID-19 is a triggering event which requires an impairment review to be performed at the half year. The impairment review concluded that no impairment charge was required.
For the 2020 half year impairment review of the cash-generating units, the Group prepared cash flow projections using the latest forecasts and projections. The forecasts for 2020 and 2021 are internal projections based on the impact of COVID-19 on the revenues and the associated reduction in costs as a result of the revenue declines. Projections for a further nine years have been prepared as this is the period over which the transformation to digital can be assessed. The projections are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates for the relevant markets. The long-term growth rates beyond the 10-year period have been assessed at 0% based on the Board's view of the market position and maturity of the relevant market. We continue to believe that there are significant longer term benefits of our scale national and local digital audiences and there are opportunities to grow revenue and profit in the longer term.
The discount rate reflects the weighted average cost of capital of the Group . The current post-tax and equivalent pre-tax discount rate used in respect of all cash-generating units is 11.1% and 13.7% respectively.
The impairment review is highly sensitive to reasonably possible changes in key assumptions used in the value-in-use calculations. There is increased uncertainty due to COVID-19. For the Publishing cash-generating unit a combination of reasonably possible changes in key assumptions such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected or the scale of cost saving initiatives being delivered being lower than forecast, could lead to an impairment in the Publishing cash-generating unit. If these sensitivities led to an 11% reduction in cash flows in each of the years in the 10 year period this would lead to the removal of the headroom. Alternatively an increase in the discount rate by 1.4 percentage points would lead to the removal of the headroom. For the Digital Classified Recruitment cash-generating unit, a 23% reduction in cash flows in each of the years in the 10 year period this would lead to the removal of the headroom. Alternatively an increase in the discount rate by 3.5 percentage points would lead to the removal of the headroom.
13. Retirement benefit schemes
Defined contribution pension schemes
The Group operates a defined contribution pension scheme for qualifying employees: The Reach Pension Plan (the "RPP"). The assets of the RPP scheme where employees have an individual account at Fidelity are held separately from those of the Group in funds under the control of Trustees.
The current service cost charged to the consolidated income statement for the period of £8.7m ( 26 weeks ended 30 June 2019: £8.6m and 52 weeks ended 29 December 2019: £17.7m) represents contributions paid by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.
Defined benefit pension schemes
Background
The defined benefit pension schemes operated by the Group are all closed to future accrual. The Group has six defined benefit pension schemes:
· Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN Scheme'); and
· Express & Star schemes (the 'E&S Schemes'): the Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the Express Newspapers Senior Management Pension Fund (the 'ENSM Scheme') and the West Ferry Printers Pension Scheme (the 'WF Scheme').
Characteristics
The defined benefit pension schemes provide pensions to members, which are based on the final salary pension payable, normally from age 65 (although some schemes have some pensions normally payable from an earlier age) plus surviving spouses or dependants benefits following a member's death. Benefits increase both before and after retirement either in line with statutory minimum requirements or in accordance with the scheme rules if greater. Such increases are either at fixed rates or in line with retail or consumer prices but subject to upper and lower limits. All of the schemes are independent of the Group with assets held independently of the Group. They are governed by Trustees who administer benefits in accordance with the scheme rules and appropriate UK legislation. The schemes each have a professional or experienced independent trustee as their chairman with generally half of the remaining Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across all of the schemes at the reporting date, the uninsured liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners. The average term from the reporting date to payment of the remaining uninsured benefits is expected to be around 16 years. Uninsured pension payments in 2019, excluding lump sums and transfer value payments, were £70m and from the end of 2019 were projected to rise to an annual peak in 2031 of £99m and reducing thereafter.
Funding arrangements
The funding of the Group's schemes is subject to UK pension legislation as well as the guidance and codes of practice issued by the Pensions Regulator. Funding targets are agreed between the Trustees and the Group and are reviewed and revised usually every three years. The funding targets must include a margin for prudence above the expected cost of paying the benefits and so are different to the liability value for IAS 19 purposes. The funding deficits revealed by these triennial valuations are removed over time in accordance with an agreed recovery plan and schedule of contributions for each scheme.
The funding valuations of the schemes: at 31 December 2016 for the MGN Scheme showed a deficit of £476.0m, for the Trinity Scheme showed a deficit of £78.0m and for the MIN Scheme showed a deficit of £68.2m; at 5 April 2017 for the EN88 Scheme showed a deficit of £69.8m and for the ENSM Scheme showed a deficit of £3.2m; and at 31 December 2017 for the WF Scheme showed a deficit of £6.5m. The next valuation for funding of all six defined benefit pension schemes as at 31 December 2019 is ongoing and would usually be completed by 31 March 2021. There is no direct link to the IAS 19 valuations which use different actuarial assumption derivation methodologies (although a number of assumptions are consistent) and are updated at each reporting date.
At the prior year end, the deficits in all schemes were expected to be removed before or in 2027 by a combination of the contributions and asset returns. Contributions (which include funding for pensions administrative expenses) are payable monthly. Contributions per the current schedule of contributions are for £48.9m in 2020, £56.1m per annum in 2021 to 2023, £55.3m per annum in 2024 to 2026 and £53.3m in 2027. Group contributions to the defined benefit pension schemes in the first half were £22.0m (2019: £24.5m). As part of the key mitigation actions resulting from the COVID-19, the Group agreed with the Trustees a deferment of its pension contributions for April, May and June amounting to £12.2m. Of this amount 80% (£9.8m) was paid over to an escrow account and 20% (£2.4m) was retained in the business. The Group could have drawn on the amounts in escrow if certain conditions were met up to 28 June 2020. None of the conditions were met and the 80% was released to the pension schemes in July 2020. The amount in escrow at 28 June 2020 (£9.8m) has been included in pension contributions and is reflected as a reduction in the pension deficit at the half year date. The 20% of the deferment (£2.4m) remained in cash at the half year balance sheet date. Following the continued strong liquidity, the remaining 20% was paid over to the schemes in September 2020.
The Group has agreed that in respect of dividend payments in 2018, 2019 and 2020 that additional contributions would be paid at 75% of the excess if dividends paid in 2018 were above 6.16 pence per share. For 2019 and 2020 the threshold increases in line with the increase in dividends capped at 10% per annum.
The future deficit funding commitments are linked to the three-yearly actuarial valuations. Although the funding commitments do not generally impact the IAS 19 position, IFRIC 14 guides companies to consider for IAS 19 disclosures whether any surplus can be recognised as a balance sheet asset and whether any future funding commitments in excess of the IAS 19 liability should be provisioned for. Based on the interpretation of the rules for each of the defined benefit pension schemes, the Group considers that it has an unconditional right to any potential surplus on the ultimate wind-up after all benefits to members have been paid of all of the schemes except the WF Scheme. Under IFRIC 14 it is therefore appropriate to recognise any IAS 19 surpluses which may emerge in future and not to recognise any potential additional liabilities in respect of future funding commitments of all of the schemes except for the WF Scheme. For the WF Scheme at the reporting date, the assets are surplus to the IAS 19 benefit liabilities. However, to allow for IFRIC 14, the Group recognises a deficit of the value of its future deficit contribution commitment to the scheme in line with the schedule of contributions in force at the reporting date.
The calculation of Guaranteed Minimum Pension ('GMP') is set out in legislation and members of pension schemes that were contracted out of the State Earnings-Related Pension Scheme ('SERPS') between 6 April 1978 and 5 April 1997 will have built up an entitlement to a GMP. GMPs were intended to broadly replicate the SERPS pension benefits but due to their design they give rise to inequalities between men and women, in particular, the GMP for a male comes into payment at age 65 whereas for a female it comes into payment at the age of 60 and GMPs typically receive different levels of increase to non GMP benefits. On 26 October 2018, the High Court handed down its judgement in the Lloyds Trustees vs Lloyds Bank plc and Others case relating to the equalisation of member benefits for the gender effects of GMP equalisation. This judgement creates a precedent for other UK defined benefit schemes with GMPs. The judgement confirmed that GMP equalisation was required for the period 17 May 1990 to 5 April 1997 and provided some clarification on legally acceptable methods for achieving equalisation. An allowance for GMP equalisation was first included within liabilities at 30 December 2018 and was recognised as a charge for past service costs in the income statement. The estimate is subject to change as we undertake more detailed member calculations and/or as a result of future legal judgements. There have been no significant developments since then with further guidance expected in the remainder of 2020 or 2021.
Risks
Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value.
The main sources of risk are:
· Investment risk: a reduction in asset returns (or assumed future asset returns);
· Inflation risk: an increase in benefit increases (or assumed future increases); and
· Longevity risk: an increase in average life spans (or assumed life expectancy).
These risks are managed by:
· Investing in insured annuity policies: the income from these policies exactly matches the benefit payments for the members covered, removing all of the above risks. At the reporting date the insured annuity policies covered 12% of total liabilities;
· Investing a proportion of assets in other classes such as government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the reporting date non-equity assets amounted to 84% of assets excluding the insured annuity policies;
· Investing a proportion of assets in equities: with the aim of achieving outperformance and so reducing the deficits over the long term. At the reporting date this amounted to 16% of assets excluding the insured annuity policies; and
· The gradual sale of equities over time to purchase additional annuity policies or liability matching investments: to further reduce risk as the schemes, which are closed to future accrual, mature.
Pension scheme accounting deficits are snapshots at moments in time and are not used by either the Group or Trustees to frame funding policy. The Group and Trustees are aligned in focusing on the long-term sustainability of the funding policy which aims to balance the interests of the Group's shareholders and members of the schemes. The Group and Trustees are also aligned in reducing pensions risk over the long term and at a pace which is affordable to the Group.
The E&S Schemes and the Trinity Scheme have an accounting surplus at the reporting date. For the WF Scheme this is before allowing for the IFRIC 14 asset ceiling. Across the MGN Scheme and MIN Scheme, at the 2019 year end the invested assets were expected to be sufficient to pay the uninsured benefits due up to 2044, based on the 2019 year end assumptions. The remaining uninsured benefit payments, payable from 2045, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid up to 2027. For the MGN and MIN Schemes, actuarial projections at the year-end reporting date show removal of the combined accounting deficit by the end of 2025 due to scheduled contributions and asset returns at the current target rate. From this point, the assets are projected to be sufficient to fully fund the liabilities on the accounting basis. The Group is not exposed to any unusual, entity specific or scheme specific risks. Other than the impact of GMP equalisation, there were no plan amendments, settlements or curtailments in 2020 or 2019 which resulted in a pension cost.
Results
For the purposes of the Group's consolidated financial statements, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at 28 June 2020.
The assets and liabilities of the schemes as at the reporting date are:
|
|
TM Schemes £m |
E&S Schemes £m |
Total £m |
|
|
|
|
|
|
Present value of uninsured scheme liabilities |
(1,907.1) |
(540.7) |
(2,447.8) |
|
Present value of insured scheme liabilities |
(170.8) |
(148.1) |
(318.9) |
|
Total present value of scheme liabilities |
(2,077.9) |
(688.8) |
(2,766.7) |
|
Invested and cash assets at fair value |
1,599.8 |
622.6 |
2,222.4 |
|
Value of liability matching insurance contracts |
170.8 |
148.1 |
318.9 |
|
Total fair value of scheme assets |
1,770.6 |
770.7 |
2,541.3 |
|
Funded (deficit)/surplus |
(307.3) |
81.9 |
(225.4) |
|
Impact of IFRIC 14 |
- |
(36.2) |
(36.2) |
|
Net scheme (deficit)/surplus |
(307.3) |
45.7 |
(261.6) |
Based on actuarial advice, the assumptions used in calculating the scheme liabilities and the actuarial value of those liabilities are:
|
|
28 June 2020 £m |
30 June 2019 £m |
28 December 2019 £m |
|
Financial assumptions (nominal % pa) |
|
|
|
|
Discount rate |
1.66 |
2.25 |
1.94 |
|
Retail price inflation rate |
2.82 |
3.21 |
2.96 |
|
Consumer price inflation rate |
1.97 |
2.21 |
2.01 |
|
Rate of pension increase in deferment |
2.11 |
2.38 |
2.17 |
|
Rate of pension increases in payment (weighted average across the scheme's) |
3.23 |
3.40 |
3.31 |
|
Mortality assumptions - future life expectancies from age 65 (years) |
|
|
|
|
Male currently aged 65 |
21.8 |
21.4 |
21.7 |
|
Female currently aged 65 |
24.1 |
23.3 |
24.0 |
|
Male currently aged 55 |
21.6 |
22.0 |
21.5 |
|
Female currently aged 55 |
24.1 |
24.1 |
24.0 |
The discount rate should be chosen to be equal to the yield available on "high quality" corporate bonds of appropriate term and currency. The yields available on corporate bonds generally fell in the first half by around 0.5% pa. The Group has taken actuarial advice and has updated the approach to determining the bond constituents for the determination of the discount rate. The bond constituents used for the 2020 interim disclosures have been taken from a new Bloomberg classification system which counteracted the fall in the discount rate by around 0.2% pa. The discount rate for 2019 was derived from classification information at an entity level provided by Bloomberg. Bloomberg have recently offered an alternative classification system called BCLASS, which provides classification information on each individual security and which Bloomberg describes as the "fixed income standard". BCLASS also enables the inclusion of bonds issued by corporate special purpose vehicles, thereby increasing the size of the universe used to determine the discount rate. Our actuaries have determined an appropriate market bond yield based on a BCLASS extract from Bloomberg which excludes securities labelled under the following categories treated as non-corporate: Treasury, Government-related, Securitised, or Municipal. The RPI and CPI differential has reduced from 0.95% to 0.85% to reflect actuarial advice that the expected future differential has reduced following the Government's consultation on amending RPI in the long term.
The estimated impact on the IAS 19 liabilities and on the IAS 19 deficit at the reporting date, due to a reasonably possible change in key assumptions over the next year, are set out in the table below:
|
|
Effect on
liabilities |
Effect on
deficit |
|
Discount rate +/- 0.5% pa |
-210/+230 |
-190/+210 |
|
Retail price inflation rate +/- 0.5% pa |
+43/-41 |
+31/-30 |
|
Consumer price inflation rate +/- 0.5% pa |
+54/-51 |
+54/-51 |
|
Life expectancy at age 65 +/- 1 year |
+164/-160 |
+143/-140 |
The RPI sensitivity impacts the rate of increases in deferment for some of the pensions in the EN88 Scheme and the ENSM Scheme and some of the pensions in payment for all schemes except the MGN Scheme. The CPI sensitivity impacts the rate of increases in deferment for some of the pensions in most schemes and the rate of increases in payment for some of the pensions in payment for all schemes.
The effect on the deficit is usually lower than the effect on the liabilities due to the matching impact on the value of the insurance contracts held in respect of some of the liabilities. Each assumption variation represents a reasonably possible change in the assumption over the next year but might not represent the actual effect because assumption changes are unlikely to happen in isolation.
The estimated impact of the assumption variations make no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.
The amount included in the consolidated income statement, consolidated statement of comprehensive income and consolidated balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes is as follows:
|
Consolidated income statement
|
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
Pension administrative expenses |
(2.0) |
(1.1) |
(2.9) |
|
Pension finance charge |
(2.3) |
(4.1) |
(8.0) |
Defined benefit cost recognised in income statement |
(4.3) |
(5.2) |
(10.9) |
|
Consolidated statement of comprehensive income |
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
Actuarial gain due to liability experience |
34.1 |
5.4 |
24.9 |
|
Actuarial loss due to liability assumption changes |
(163.6) |
(216.9) |
(271.8) |
|
Total liability actuarial loss |
(129.5) |
(211.5) |
(246.9) |
|
Returns on scheme assets greater than discount rate |
149.5 |
194.3 |
261.9 |
|
Change in impact of IFRIC 14 |
(3.4) |
(1.7) |
(0.3) |
|
Total gain/(loss) recognised in statement of comprehensive income |
16.6 |
(18.9) |
14.7 |
|
Consolidated balance sheet |
28 June 2020 (unaudited) £m |
30 June 2019 (unaudited) £m |
29 December 2019 (audited) £m |
|
|
|
|
|
|
Present value of uninsured scheme liabilities |
(2,447.8) |
(2,328.8) |
(2,337.9) |
|
Present value of insured scheme liabilities |
(318.9) |
(327.8) |
(326.0) |
|
Total present value of scheme liabilities |
(2,766.7) |
(2,656.6) |
(2,663.9) |
|
Invested and cash assets at fair value |
2,222.4 |
2,014.8 |
2,074.8 |
|
Value of liability matching insurance contracts |
318.9 |
327.8 |
326.0 |
|
Total fair value of scheme assets |
2,541.3 |
2,342.6 |
2,400.8 |
|
Funded deficit |
(225.4) |
(314.0) |
(263.1) |
|
Impact of IFRIC 14 |
(36.2) |
(34.2) |
(32.8) |
|
Net scheme deficit |
(261.6) |
(348.2) |
(295.9) |
|
|
|
|
|
|
Non- current assets - retirement benefit assets |
74.6 |
19.8 |
31.2 |
|
Non- current liabilities - retirement benefit obligations |
(336.2) |
(368.0) |
(327.1) |
|
Net scheme deficit |
(261.6) |
(348.2) |
(295.9) |
|
|
|
|
|
|
Net scheme deficit included in consolidated balance sheet |
(261.6) |
(348.2) |
(295.9) |
|
Deferred tax included in consolidated balance sheet |
51.7 |
63.4 |
53.0 |
|
Net scheme deficit after deferred tax |
(209.9) |
(284.8) |
(242.9) |
|
Movement in net scheme deficit |
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
Opening net scheme deficit |
(295.9) |
(348.6) |
(348.6) |
|
Contributions |
22.0 |
24.5 |
48.9 |
|
Consolidated income statement |
(4.3) |
(5.2) |
(10.9) |
|
Consolidated statement of comprehensive income |
16.6 |
(18.9) |
14.7 |
|
Closing net scheme deficit |
(261.6) |
(348.2) |
(295.9) |
|
Changes in the present value of scheme liabilities |
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
Opening present value of scheme liabilities |
(2,663.9) |
(2,462.8) |
(2,462.8) |
|
Interest cost |
(25.3) |
(33.1) |
(66.3) |
|
Actuarial gain- experience |
34.1 |
5.4 |
24.9 |
|
Actuarial (loss)/gain - change to demographic assumptions |
(64.3) |
9.7 |
42.7 |
|
Actuarial loss - change to financial assumptions |
(99.3) |
(226.6) |
(314.5) |
|
Benefits paid |
52.0 |
50.8 |
112.1 |
|
Closing present value of scheme liabilities |
(2,766.7) |
(2,656.6) |
(2,663.9) |
|
Changes in impact of IFRIC 14
|
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
Opening impact of IFRIC 14 |
(32.8) |
(32.5) |
(32.5) |
|
Increase in impact of IFRIC 14 |
(3.4) |
(1.7) |
(0.3) |
|
Closing impact of IFRIC 14 |
(36.2) |
(34.2) |
(32.8) |
|
Changes in the fair value of scheme assets
|
26 weeks ended 28 June 2020 (unaudited) £m |
26 weeks ended 30 June 2019 (unaudited) £m |
52 weeks ended 29 December 2019 (audited) £m |
|
|
|
|
|
|
Opening fair value of scheme assets |
2,400.8 |
2,146.7 |
2,146.7 |
|
Interest income |
23.0 |
29.0 |
58.3 |
|
Actual return on assets greater than discount rate |
149.5 |
194.3 |
261.9 |
|
Contributions by employer |
22.0 |
24.5 |
48.9 |
|
Benefits paid |
(52.0) |
(50.8) |
(112.1) |
|
Administrative expenses |
(2.0) |
(1.1) |
(2.9) |
|
Closing fair value of scheme assets |
2,541.3 |
2,342.6 |
2,400.8 |
|
Fair value of scheme assets |
28 June 2020 (unaudited) £m |
30 June 2019 (unaudited) £m |
29 December 2019 (audited) £m |
|
|
|
|
|
|
UK equities |
43.5 |
40.6 |
49.2 |
|
US equities |
134.6 |
122.5 |
128.6 |
|
Other overseas equities |
184.4 |
272.1 |
191.1 |
|
Property |
21.9 |
43.5 |
24.4 |
|
Corporate bonds |
282.8 |
266.2 |
242.1 |
|
Fixed interest gilts |
132.5 |
103.9 |
184.2 |
|
Index linked gilts |
84.7 |
43.6 |
71.9 |
|
Liability driven investment |
1,080.3 |
531.7 |
773.9 |
|
Cash and other |
257.7 |
590.7 |
409.4 |
|
Invested and cash assets at fair value |
2,222.4 |
2,014.8 |
2,074.8 |
|
Value of insurance contracts |
318.9 |
327.8 |
326.0 |
|
Fair value of scheme assets |
2,541.3 |
2,342.6 |
2,400.8 |
The majority of the scheme assets have quoted prices in active markets. Scheme assets include neither direct investments in the Company's ordinary shares nor any property assets occupied nor other assets used by the Group.
14. Net cash
The net cash for the Group is as follows:
|
|
29 December 2019 (audited) £m |
Cash flow £m |
Loans drawn £m |
IFRS 16 opening adjustment £m |
IRFS 16 movement £m |
28 June 2020 (unaudited) £m |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Revolving credit facility |
- |
- |
(25.0) |
- |
- |
(25.0) |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
20.4 |
21.5 |
25.0 |
- |
- |
66.9 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (Under IAS 17) |
20.4 |
21.5 |
- |
- |
- |
41.9 |
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Lease liabilities |
- |
- |
- |
(42.3) |
3.9 |
(38.4) |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Lease liabilities |
- |
- |
- |
(6.3) |
(0.1) |
(6.4) |
|
|
|
|
|
|
|
|
|
|
|
Net (debt) (Under IFRS 16) |
20.4 |
21.5 |
- |
(48.6) |
3.8 |
(2.9) |
|
The Group had drawings of £25m at the reporting date on the four year non-amortising £65m revolving credit facility, which expires in December 2023 and is subject to four covenants: Net Worth, Interest Cover, Net Debt to EBITDA and Cash Flow all of which were met at the half year.
The Group has implemented IFRS 16 'Leases' with effect from 30 December 2019 using the modified retrospective approach to transition and has accordingly not restated prior periods. The impact of the implementation has been to recognise the Group's previous operating lease commitments in relation to properties and vehicles as lease liabilities on the balance sheet at the initial date of application at 30 December 2019 (see note 2). Total lease liabilities at 28 June 2020 are £44.8m.
Acquisition deferred consideration
Deferred consideration in respect of the acquisition of Express & Star is included in trade and other payables. Payment of the first payment of £18.9m was made on 28 February 2020. Of the remaining amount of £40.1m, £16.0m is classified as current liabilities (payable on 28 February 2021) and £24.1m is classified as non-current liabilities (£17.1m on 28 February 2022 and £7.0m on 28 February 2023). There are no conditions attached to the payment of the deferred consideration and the transaction was structured such that no interest accrues on these payments. However, under the sale and purchase agreement the Group has the right to offset agreed claims arising from a breach of warranties and indemnities and can also offset any shortfalls on the contracted advertising from the Health Lottery. The deferred consideration has not been discounted as we do not believe that the impact of such discounting is material.
15. Provisions
|
|
Share-based payments£m |
Property £m |
Restructuring £m |
Historical legal issues £m |
Other £m |
Total £m |
|
|
|
|
|
|
|
|
|
At 29 December 2019 (audited) |
(0.7) |
(5.7) |
(1.4) |
(21.1) |
(7.1) |
(36.0) |
|
IFRS 16 adjustment |
- |
0.4 |
- |
- |
- |
0.4 |
|
Released/(charged) to income statement |
0.2 |
- |
(3.0) |
(5.0) |
(15.9) |
(23.7) |
|
Utilisation of provision |
0.1 |
0.8 |
3.9 |
0.9 |
1.5 |
7.2 |
|
At 28 June 2020 (unaudited) |
(0.4) |
(4.5) |
(0.5) |
(25.2) |
(21.5) |
(52.1) |
The provisions have been analysed between current and non-current as follows:
|
|
28 June 2020 (unaudited) £m |
30 June 2019 (unaudited) £m |
29 December 2019 (audited) £m |
|
|
|
|
|
|
Current |
(34.6) |
(16.9) |
(15.5) |
|
Non-current |
(17.5) |
(3.5) |
(20.5) |
|
|
(52.1) |
(20.4) |
(36.0) |
The share-based payments provision relates to National Insurance obligations attached to the future crystallisation of awards. This provision will be utilised over the next three years.
The property provision relates to future committed costs related to occupied, let and vacant properties. A majority of the provision will be utilised over the next two years and reflects the remaining term of the leases or expected period of vacancy.
The restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. This provision is expected to be utilised within the next year.
The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. The provision has been increased by £5.0m at the half year to reflect an increase in the estimate of the cost of settling claims. At the period end, £25.2m of the provision remains outstanding and this represents the current best estimate of the amount required to settle the expected claims. There are three parts to the provision: known claims, potential future claims and common court costs. The estimates are based on historical trends and experience of claims and costs. The provision is expected to be utilised over the next few years. The Group has recorded an increase in the provision in each of the last five years which highlights the challenges in making a best estimate. Certain cases and other matters relating to the issue are subject to court proceedings, the dynamics of which continue to evolve, and the outcome of those proceedings could have an impact on how much is required to settle the remaining claims and on the number of claims. It is not possible to provide a range of potential outcomes in respect of this provision. Due to this uncertainty, a contingent liability has been highlighted in note 17.
Other provisions include a charge of £15.5m made in the half year reflecting a historic property development , which as a result of COVID-19 has become onerous. In 2018 the Group sold part of its freehold property in Liverpool with total net proceeds of £6.6m resulting in an accounting profit of £2.3m being included in operating adjusted items. The Group also entered into a joint venture to develop the property into a hotel and retail/office space. As a result of COVID-19 the development has incurred significant time delays and cost overruns, with no certainty as to the amount that could be incurred on completion of the development and insufficient contractual protections based on the historical agreement. A new agreement has been reached with the joint venture party to limit the exposure to the Group to £15.5m. A one-off provision of £15.5m has been made in the half year results and the £15.5m has been paid to the joint venture party. The Group has no further exposure in respect of this development. The remaining other provisions relates to libel and other matters and is expected to be utilised over the next two years.
16. Share capital and reserves
The share capital comprises 309,286,317 allotted, called-up and fully paid ordinary shares of 10p each. The Company holds 10,017,620 shares as Treasury shares. The share premium reflects the premium on issued ordinary shares. The merger reserve comprises the premium on the shares allotted in relation to the acquisition of Express & Star. The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buy-back programmes. Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9m (2019: £25.9m). On transition to IFRS, the revalued amounts of freehold properties were deemed to be the cost of the asset and the revaluation reserve has been transferred to retained earnings and other reserves.
Shares purchased by the Reach Employee Benefit Trust are included in retained earnings and other reserves at £2.8m (30 June 2019: £3.8m and 29 December 2019: £3.7m) . During the period, 629,178 were released relating to grants made in prior years (26 weeks ended 30 June 2019: 425,946 and 52 weeks ended 29 December 2019: 522,572) .
During the period, 1,218,530 awards were granted to Executive Directors on a discretionary basis under the Long Term Incentive Plan (26 weeks ended 30 June 2019: 1,998,167 and 52 weeks ended 29 December 2019: 2,970,531 ). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions and are required to be held for a further two years.
During the period, 2,163,246 awards were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019: 2,593,910). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.
During the period, 50,618 awards were granted to senior managers under the Restricted Share Plan ( 26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019: 77,399). The awards vest after three years. During the period, 60,000 awards were granted to senior managers under the Senior Management Incentive Plan ( 26 weeks ended 30 June 2019 and 52 weeks ended 29 December 2019: nil). The awards vest after three years.
17. Contingent liabilities
There is the potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues (note 15). At this stage, due to the uncertainty in respect of the nature, timing or measurement of any such liabilities, we are unable to reliably estimate how these matters will proceed and their financial impact.
18. Reconciliation of statutory to adjusted results
26 weeks ended 28 June 2020 (unaudited)
|
|
Statutory results £m |
Operating adjusted items (a) £m |
Pension finance charge (b) £m |
Tax (c) £m |
Adjusted results £m |
|
Revenue |
290.8 |
- |
- |
- |
290.8 |
|
Operating profit |
28.9 |
26.0 |
- |
- |
54.9 |
|
Profit before tax |
25.2 |
26.0 |
2.3 |
- |
53.5 |
|
(Loss)/profit after tax |
(2.4) |
24.7 |
1.9 |
19.0 |
43.2 |
|
Basic (loss)/earnings per share (p) |
(0.8) |
8.4 |
0.6 |
6.4 |
14.6 |
26 weeks ended 30 June 2019 (unaudited)
|
|
Statutory results £m |
Operating adjusted items (a) £m |
Pension finance charge (b) £m |
Tax (c) £m |
Adjusted results £m |
|
Revenue |
352.6 |
- |
- |
- |
352.6 |
|
Operating profit |
63.7 |
7.6 |
- |
- |
71.3 |
|
Profit before tax |
58.2 |
7.6 |
4.1 |
- |
69.9 |
|
Profit after tax |
47.0 |
6.2 |
3.3 |
- |
56.5 |
|
Basic earnings per share (p) |
15.9 |
2.1 |
1.1 |
- |
19.1 |
52 weeks ended 29 December 2019 (audited)
|
|
Statutory results £m |
Operating adjusted items (a) £m |
Pension finance charge (b) £m |
Tax (c) £m |
Adjusted results £m |
|
Revenue |
702.5 |
- |
- |
- |
702.5 |
|
Operating profit |
131.7 |
21.7 |
- |
- |
153.4 |
|
Profit before tax |
120.9 |
21.7 |
8.0 |
- |
150.6 |
|
Profit after tax |
94.3 |
20.9 |
6.5 |
- |
121.7 |
|
Basic earnings per share (p) |
31.8 |
7.1 |
2.2 |
- |
41.1 |
(a) Operating adjusted items relate to the items charged or credited to operating profit as set out in note 5.
(b) Pension finance charge relating to the defined benefit pension schemes as set out in note 13.
(c) Tax items relate to the impact of tax legislation changes due to the change in the future corporation tax rate on the opening deferred tax position as set out in note 8.
Set out in note 2 is the rationale for the alternative performance measures adopted by the Group. The reconciliations in this note highlight the impact on the respective components of the income statement. Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals, tax rate changes) or relate to historic liabilities (historical legal and contract issues, defined benefit pension schemes which are all closed to future accrual).
Restructuring charges incurred to deliver cost reduction measures relate to the transformation of the business from print to digital, together with costs to deliver synergies. These costs are principally severance related, but may also include system integration costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.
Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.
The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment. Additionally, the charge in respect of Guaranteed Minimum Pension equalisation was included in adjusted items last year as the amount was material and it related to the historical pension commitment.
The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament. The impact of the change in rates are included in adjusted items on the basis that when they occur they are material, distorting the underlying performance of the business.
Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contract issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
19. Adjusted cash flow
|
|
28 June 2020 (unaudited) £m |
30 June 2019 (unaudited) £m |
29 December 2019 (audited) £m |
Adjusted operating profit |
54.9 |
71.3 |
153.4 |
Depreciation |
13.5 |
11.0 |
21.5 |
Adjusted EBITDA |
68.4 |
82.3 |
174.9 |
|
Net interest paid |
(0.6) |
(1.5) |
(3.2) |
|
Income tax paid |
(8.3) |
(3.8) |
(11.7) |
|
Restructuring payments |
(3.9) |
(7.7) |
(13.6) |
|
Net capital expenditure |
(1.5) |
(1.6) |
(3.4) |
|
Repayments of obligations under leases |
(5.2) |
- |
- |
|
Working capital and other |
14.6 |
(2.5) |
(9.9) |
|
Adjusted operating cash flow |
63.5 |
65.2 |
133.1 |
|
Historical legal issues payments |
(0.9) |
(1.6) |
(3.5) |
|
Dividends paid |
- |
(11.2) |
(18.6) |
|
Pension funding payments |
(22.0) |
(24.5) |
(48.9) |
|
Adjusted net cash flow |
40.6 |
27.9 |
62.1 |
|
Bank facility net borrowings/(repayment) |
25.0 |
(20.3) |
(60.0) |
|
Acquisition related cash flow |
(19.1) |
- |
(0.9) |
|
Net increase in cash and cash equivalents |
46.5 |
7.6 |
1.2 |
20. Reconciliation of statutory to adjusted cash flow
26 weeks ended 28 June 2020 | 2020 |
|
| 2020 |
|
| Stat | (a) | (b) | Adjusted |
|
| £m | £m | £m | £m |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations | 78.2 | (15.6) | 0.9 | 63.5 | Adjusted operating cash flow |
Pension deficit funding payments | (22.0) | - | - | (22.0) |
|
| - | - | (0.9) | (0.9) | Historical legal issues payments |
Income tax paid | (8.3) | 8.3 | - | - |
|
Net cash inflow from operating activities | 47.9 |
|
|
|
|
Investing activities |
|
|
|
|
|
Proceeds on disposal of property, plant and equipment | 0.3 | (0.3) | - | - |
|
Purchases of property, plant and equipment | (1.8) | 1.8 | - | - |
|
Acquisition of Subsidiary undertakings | (18.9) | - | - | (18.9) | Deferred consideration of E&S acquisition |
Acquisition of associate undertaking | (0.2) | - | - | (0.2) |
|
Net cash used in investing activities | (20.6) |
|
|
|
|
Financing activities |
|
|
|
|
|
Dividends paid | - | - | - | - |
|
Interest paid on borrowings | (0.6) | 0.6 | - | - |
|
Increase in bank borrowings | 25.0 | - | - | 25.0 |
|
Repayments of obligations under leases | (5.2) | 5.2 | - | - |
|
Net cash used in financing activities | 19.2 |
|
|
|
|
Net increase in cash and cash equivalents | 46.5 | - | - | 46.5 |
|
26 weeks ended 30 June 2019 | 2019 |
|
| 2019 |
|
| Stat | (a) | (b) | Adjusted |
|
| £m | £m | £m | £m |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations | 70.4 | (6.8) | 1.6 | 65.2 | Adjusted operating cash flow |
Pension deficit funding payments | (24.5) | - | - | (24.5) |
|
| - | - | (1.6) | (1.6) | Historical legal issues payments |
Income tax paid | (3.8) | 3.8 | - | - |
|
Net cash inflow from operating activities | 42.1 |
|
|
|
|
Investing activities |
|
|
|
|
|
Interest received | 0.1 | (0.1) | - | - |
|
Dividends received | 0.1 | (0.1) | - | - |
|
Purchases of property, plant and equipment | (1.6) | 1.6 | - | - |
|
Net cash used in investing activities | (1.4) |
|
|
|
|
Financing activities |
|
|
|
|
|
Dividends paid | (11.2) | - | - | (11.2) |
|
Interest paid on borrowings | (1.6) | 1.6 | - | - |
|
Repayment of bank borrowings | (20.3) | - | - | (20.3) |
|
Net cash used in financing activities | (33.1) |
|
|
|
|
Net increase in cash and cash equivalents | 7.6 | - | - | 7.6 |
|
|
52 weeks ended 29 December 2019 |
2019 |
|
|
2019 |
|
|
|
Stat |
(a) |
(b) |
Adjusted |
|
|
|
£m |
£m |
£m |
£m |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
Cash generated from operations |
147.4 |
(17.8) |
3.5 |
133.1 |
Adjusted operating cash flow |
|
Pension deficit funding payments |
(48.9) |
- |
- |
(48.9) |
|
|
|
- |
- |
(3.5) |
(3.5) |
Historical legal issues payments |
|
Income tax paid |
(11.7) |
11.7 |
- |
- |
|
|
Net cash inflow from operating activities |
86.8 |
|
|
|
|
|
Investing activities |
|
|
|
- |
|
|
Interest received |
0.1 |
(0.1) |
- |
- |
|
|
Dividends received |
0.5 |
(0.5) |
- |
- |
|
|
Proceeds on disposal of property, plant and equipment |
0.5 |
(0.5) |
- |
- |
|
|
Purchases of property, plant and equipment |
(3.9) |
3.9 |
- |
- |
|
|
Acquisition of associate undertaking |
(0.9) |
- |
- |
(0.9) |
|
|
Net cash used in investing activities |
(3.7) |
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Dividends paid |
(18.6) |
- |
- |
(18.6) |
|
|
Interest paid on borrowings |
(3.3) |
3.3 |
- |
- |
|
|
Repayment of bank borrowings |
(60.0) |
- |
- |
(60.0) |
|
|
Net cash used in financing activities |
(81.9) |
|
|
|
|
|
Net increase in cash and cash equivalents |
1.2 |
- |
- |
1.2 |
|
(a) Items included in the statutory cash flow on separate lines which for the adjusted cash flow are included in adjusted operating cash flow.
(b) Payments in respect of historical legal issues (2019 and 2020) is shown separately in the adjusted cash flow.
Independent review report to Reach plc
Report on the Condensed interim consolidated financial statements
Our conclusion
We have reviewed Reach plc's Condensed interim consolidated financial statements (the "interim financial statements") in the Half-Yearly Financial Report of Reach plc for the 26 week period ended 28 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the Consolidated balance sheet as at 28 June 2020;
· the Consolidated income statement and Consolidated statement of comprehensive income for the period then ended;
· the Consolidated cash flow statement for the period then ended;
· the Consolidated statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Yearly Financial Report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual consolidated financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half-Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Half-Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 September 2020
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