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Johnston Press PLC (JPR)

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Tuesday 19 March, 2013

Johnston Press PLC

RESULTS FOR THE 52 WEEKS ENDED 29 DECEMBER 2012

RNS Number : 3099A
Johnston Press PLC
19 March 2013
 

 

 FOR IMMEDIATE RELEASE

19 March 2013

JOHNSTON PRESS PLC

RESULTS FOR THE 52 WEEKS ENDED 29 DECEMBER 2012

 

Johnston Press plc ("Johnston Press" or "the Group"), one of the leading community media groups in the UK and Ireland, announces its results for the 52 week period ended 29 December 2012.

 

Key highlights

 

·      Strategic progress:  2012 saw substantial progress in the implementation of the Group's strategy.  This has made the Group more efficient, and has reduced its cost base and its net debt significantly.  At the same time the re-launch of the Group's print titles is well underway and a robust platform for digital growth is now in place.

 

·      Operating profit:  The operating profit (before non-recurring and IAS 21/39 items) in 2012 was £57.0m.  Taking account of the impact of the negotiated partial cancellation of the News International printing contract (which resulted in a cash receipt of £30m), by adjusting the relevant contribution in each year, the reduction in underlying operating profit for the ongoing business was 4.7%.  The unadjusted decline was 11.6%.

 

·      Aggregate Print and Digital Audience Growth:  The Group has the UK's fastest growing and largest portfolio of regional publisher websites.  The average daily audience grew 29.3% and monthly digital audience 21.0% year-on-year (to over 10m unique users), resulting in an aggregate print and digital audience growth of over 5%.

 

·      Cost efficiencies: The Group achieved year-on-year cost savings of £37.6m in 2012.  This includes savings that were achieved for part of the year and the full year effect of these savings is contributing towards further targeted year-on-year savings in 2013.

 

·      Increased Margins and Debt Reduction:  The Group has increased operating margins to 17.4% in 2012 (2011 17.3%) against the background of a difficult economic environment, and cash generation from operations has remained strong.  This operating cash flow, together with the cash receipt from the partial cancellation of the printing contract with News International, resulted in a reduction in net debt to £319.4m despite the non-recurring refinancing fees and restructuring costs in 2012.

 

 

Key financials


Underlying*



Statutory


2012

2011



2012

2011


£'m

£'m



£'m

£'m

Revenue

328.7    

373.8



358.7^

373.8

Operating profit/(loss)

57.0

64.6



40.4

(107.0)

Profit/(Loss) before tax

12.6

28.4



(6.8)

(143.8)

Net Debt

319.4

351.7



319.4

351.7








Earnings per share(pence)







 basic

3.42

3.50



0.88

(14.24)

 

* before non-recurring and IAS 21/39 items.

^ includes receipt of £30.0m in connection with partial cancellation of contract printing arrangements with News International.

 

Revenues

 

·      Total advertising revenues decreased by 12.7% year-on-year with national display advertising contributing most to the decline, a pattern replicated across the industry as national advertisers reduced marketing spend in the second half of 2012.

 

·      Digital advertising revenues grew by 12.0%. The trend improved across the year with growth in the second half of 14.4% compared with first half growth of 8.4%. The growth in digital employment revenues, reversing recent trends, was particularly encouraging while the growth in local display revenues reflects the significant improvement in our digital audience growth.

 

·      Circulation revenues for the re-launched titles, particularly towards the end of the year, were encouraging, up 7.9% year-on-year in December.  In addition, newspaper sales more generally also remained resilient.  Excluding the planned change of five daily titles to weekly publication (which had significant associated cost savings), circulation revenues declined by 1.1% year on year.  The inclusion of the daily to weekly changes increased this decline to 4%.

 


Costs

 

·      The changes to the business during the year resulted in a very substantial reduction in total operating costs (before non-recurring and IAS 21/39 items) of £37.6m reflecting savings across all areas of the business (with a not unexpected short term revenue impact on some revenue lines) including the consolidation of the Group's printing capacity with the closure of four print sites during the year.

 

Non-recurring items

 

·      The results include a net charge of £16.6m in respect of non-recurring items with the costs of closure of print sites and other restructuring related costs offset by the receipt from the partial cancellation of the News International printing contract.

 

Continued debt reduction

 

·      It remains a key priority of the Board to continue to reduce the level of borrowings.

 

·      The cash flow in the year allowed the business to reduce borrowings to £319.4m at the end of 2012, compared with £351.7m at the start of the year, notwithstanding the non-recurring restructuring costs and costs of refinancing that were incurred in 2012.

 

 

Summary and outlook

 

The challenging trading environment seen in the second half of 2012 has continued into the start of 2013.  Total advertising revenues for the first 10 weeks of 2013 are 15.6% below the same period in the prior year although all categories (with the exception of motor advertising) have shown an improving trend of reducing declines over the 10 week period.  Costs continue to be actively managed mitigating the impact of the revenue shortfall.

 

Commenting on the outlook, the Chief Executive, Ashley Highfield, said:

 

"Good progress has been made in the process of transforming the Group in 2012 and the changes made provide a strong platform for us to build on in 2013 as we invest in refreshing our print portfolio, and simultaneously move our operation to be real-time, digitally led, social, mobile and ever more local. 

 

The economic environment remains challenging, but with the steps that we have taken to improve the effectiveness of the business, to accelerate the growth of our digital revenues, and to continue to manage our costs tightly, we believe that we are well positioned to deliver a strong operating performance in 2013 along with continued strong cash flow.  The on-going development of our trusted local newspaper brands across print and digital remains key to us doing this, allied to the best use of both current and developing technology and the opportunities they can create for us."

 

 

 

 

For further information please contact:

Johnston Press

Ashley Highfield, Chief Executive Officer

Grant Murray, Chief Financial Officer

 

020 7466 5000 (today) or

0131 225 3361 (thereafter)

 

Buchanan

Richard Oldworth/Sophie McNulty/Louise Hadcocks

 

020 7466 5000

 

 

Forward-looking statements

 

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

 

 

 

Chairman's Statement

2012 proved to be another difficult year for local media, but we have worked hard to develop our strategy to compete in a rapidly changing environment.

We laid out our strategic aims for the Group's development last April and are now implementing that vision for the future of our business. The pace of change and innovation increased across the Group during the year and that will continue in 2013. Our Chief Executive Ashley Highfield provides more details of subsequent steps - and future plans - in his report. It is essential that we increase our profitability and use the changes and innovations that we are undertaking to grow revenues. To do so, digital will be key (both in terms of new services and growing our audience reach) but our established print business also has an essential role to play as we continue the relaunch of our titles and focus on improving our subscription rates. All of this will be set against the overriding objective of continuing the huge strides we have made in reducing the Group's debt.

The difficult trading environment which we reported for the early part of 2012 continued throughout the year with the UK economy returning to recession. Digital advertising revenues grew strongly by 12.0% to £20.6 million, but were not sufficient to prevent a decline in total revenues before non-recurring items for the year of £45.2 million (12.1%) to £328.7 million Although our title re-launches and cover price increases resulted in only a 4.0% decline in newspaper sales revenue, print advertising revenues dropped by 14.8% to £181.3 million. The Group's cost performance for the year was outstanding, with non-recurring operating costs down by £37.6 million (12.2%). Our underlying operating profit (before non-recurring and IAS 21/39 items) for 2012 fell by 4.7% after adjusting for the impact of the partial cancellation of our printing arrangements with News International. This contributed (£3.9 million) to the reduction in headline operating profit to £57.0 million (down 11.6% on 2011) and delivered a one-off cash receipt of £30.0 million. There was an operating profit margin of 17.4%, a slight increase on 2011.

Underlying earnings per share (before non-recurring and IAS 21/39 items) were 3.42p, compared to 3.50p in 2011. Net profit after tax was £5.6 million. Cash flow performance was once again strong with net debt at the end of the year of £319.4 million, a reduction of £32.3 million from the start of 2012.

The steps forward that we have made in strategic development this year helped to push our share price to higher levels in the autumn than we had seen for some time, although there is much to do to return it to satisfactory levels. We continue to use excess cash to reduce the Group's debt and, as required under our financing arrangements, no dividend is proposed for the year.

Our industry has once more been in the spotlight with the publication of the Leveson Report. We support the principle of effective redress for complaints relating to the local press and the efforts of the industry to put in place a new system of self-regulation without resorting to legislation which could potentially burden a fragile sector with crippling costs.

At the end of March, Danny Cammiade, who has served as our Chief Operating Officer since 2005, will step down. Danny started his career with TR Beckett which became part of Johnston Press in 1992 and has over 35 years of experience in the newspaper industry. He leaves with our thanks for his work over that time and we wish him well for the future. In accordance with best practice, all of our continuing Board will stand for re-election at our Annual General Meeting on 26 April.

I am satisfied that our Board remains effective and it regularly reviews both the balance of its membership and the issues which it considers when it meets. Its meetings are structured to scrutinise both strategic and operational matters in an atmosphere of constructive challenge and debate. A key feature of our Board's effectiveness is our programme of site visits for all of our Non-Executive Directors.

The Board once again wishes to convey its gratitude to our employees whose hard work has been essential in overcoming the challenges we have faced. Their commitment to the quality of our products has been remarkable during a period of great change and difficult trading conditions.

The outlook for the economies of the UK and Republic of Ireland and our markets is still challenging. That only serves to highlight the need for innovation in our business to continue. We believe that the opportunity is there to do so successfully and return Johnston Press to growth.

Ian Russell

Chairman

 

 

Chief Executive's Report

2012 was my first full year as Chief Executive, one marked by the rapid pace of change in our industry as well as within Johnston Press.

Trading remained very challenging in 2012 with the ongoing effect of structural change in our industry being evident to all. For this reason there can be no let-up in our work to reposition Johnston Press for the modern media environment.

Review of the Year

The year just ended has seen continued recession in the economies of the United Kingdom and Republic of Ireland, with economic challenges in the United Kingdom showing little sign of ending outside of London.

Responding to this macro situation, we have embarked on a year of transformational change at Johnston Press. We have seen the implementation of a number of strategic initiatives focussed on improving efficiencies and saving costs as we continue to reshape the Group for its future as a local media provider. These include reducing the number of contact centres from fourteen to two; consolidating our printing into three sites from seven; off-shoring our pre-press operations; and taking out layers of senior management. These significant changes enabled us to take £37.6m out of the business, some 11.6% of the base cost and helped us to reduce our net debt to £319.4m from £371.7m immediately post re-financing.

There were not-unexpected short term impacts on revenue line items during this transition, but we believe we are now set fair to be able to weather the trend of deteriorating performance in certain advertising categories that we reported in 2011 and that continued into 2012. Like others in our sector, we saw a negative impact from events over the summer, including the Jubilee Bank Holiday, European Football Championships and, in particular, the Olympic Games.

Putting in place the infrastructure, technology and resources to get the top line back to growth was also a priority for 2012, the benefits of which should be felt in H2 of 2013 and beyond. By the end of the year, we had equipped all 1,500 sales staff with Salesforce.com software and 800 with iPads (and over 350 of our journalists with new laptops and smart phones); relaunched 69 redesigned newspapers (on the way to relaunching over 200 titles around five demographic clusters), over 200 mobile websites, 18 tablet apps and 11 phone apps all across iPad/iPhone and Android platforms. We also upgraded all our websites, becoming along the way, one of the UK's fastest growing and largest portfolio of regional publisher websites with average daily audience up 29.3% year-on-year to 560,000. Our plans have also seen many of our staff move to far better accommodation - suitable for our future needs.

The benefits of these changes will be felt during 2013, with 2012 being very much a transitional year during which we grew our digital audience considerably from 8.1 million a month to 9.8 million a month, resulting in an aggregate print and digital audience growth of over 5%. Digital revenues increased 12.0% to £20.6 million, providing a solid base for 2013.

During 2012 our key priorities included reducing our net debt and our operating cost base. Despite £11.8 million of refinancing costs, we reduced our net debt from £351.7 million to £319.4 million during the year and our cost base was reduced by £37.6 million (12.2%) from £309.3 million to £271.7 million. As a result, our operating margins increased slightly to 17.4%.

Our underlying operating profit (before non-recurring and IAS 21/39 items) for 2012 fell by 4.7% after adjusting for the impact of the proactively agreed partial cancellation of the News International printing contract. This change to our arrangements with News International contributed (£3.9 million) to the reduction in the headline profit to £57.0 million (down 11.6% on 2011) but also delivered a significant one-off cash receipt (£30.0 million) to considerably reduce our net debt. We have re-filled most of the vacated capacity. The 4.7% underlying profit decline compares favourably with 2011's decline of 10.3% and the average annual decline between 2006 and 2010 of 19.1%. We are stemming the rate of profit decline, and focussed on the twin financial priorities of returning the Group to profit growth, whilst continuing to pay down debt.

Our teams across the UK and Republic of Ireland have worked hard to deliver compelling and innovative solutions to advertisers, but overall print advertising revenue declined by 14.8% (or 13.5% in respect of ongoing 2013 titles) over the course of the year and remains indicative of the very challenging markets in which we operate. In 2013 our sales teams' challenge is to use the improved technology, tools and propositions that we are putting in place to deliver improved performance.

We saw early signs of this in December, with year-on-year rates for local display and features advertising being down 5.4%, a significant improvement on third and fourth quarter run rates. We have a well-earned reputation in our industry for exceptional cost performance and in 2012 once again our teams delivered with our operating costs falling by £37.6 million year-on-year. The profound change that our industry is experiencing has meant we have continued to need to reduce our workforce and the number of staff employed by the Group fell to just over 4,350 at the end of December, down 23.1% on 2011, inevitably with a degree of disruptive impact.

Our regional organisational structure was radically reshaped in 2012, reducing a two-tier management structure of twenty five Managing Directors to a single structure of just eight Managing Directors. In addition to the consolidation of contact centres, we centralised and/or outsourced our pre-press, web creation and finance functions. This has been implemented with our stated objective of keeping our editorial and sales presence at the heart of the local communities where we publish.

The Group's modern print facilities at Dinnington, Portsmouth and Carn remain state of the art, however changing print demands and the revised terms of our print arrangements have allowed us to look at our operations and rationalise our capacity. As well as the closure of our Isle of Man print facility at the beginning of 2012, our plants at Leeds, Peterborough and Sunderland were also closed during the year.

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

Refinancing

As we reported last April, we successfully refinanced our existing lending facilities through to September 2015. We were able to do so in large part because of our continued focus on reducing debt and that remains a key objective for us in 2013 and beyond. The terms of our facilities provide strong incentives to implement an alternative debt structure by the end of 2014 and further priority to repaying debt is a key consideration.

Strategy Update

Last year, in my first statement as Chief Executive, I laid out the priorities for our strategic development, recognising the key contribution that our printed products will make for many years, while emphasising our need to reinvigorate them, to see them develop further their audiences and bring our use of digital technology to the centre of everything we do. Our management has worked hard to identify the key steps in getting us back to growth - it is now our challenge to ensure we deliver. In 2012 we started our process of relaunching our newspaper titles with 69 being completed by the end of the year. That programme is continuing and by the end of the first half of 2013 we will have completed our relaunch programme covering a total of 227 titles. This is a huge achievement for our team and one that is delivering attractive modern papers which we are confident will appeal to both a wider pool of advertisers and to key demographics and new audiences in our communities. Circulation revenues for relaunched titles, particularly towards the end of the year, were encouraging, up almost 8% in December 2012 against the same period last year. Further, relaunches have helped to drive increases in subscription rates which are now double the rates of our non-relaunched titles - a key objective for us. Subscriptions for our weekly titles have nearly doubled to just under 4% of total circulation while for The Scotsman, they increased from 15% in 2011 to 27% in 2012. Alongside the relaunch of our printed products, new websites are being delivered for all of our titles. Our overall audience (across print, online and mobile) grew in 2012 - a direct result of the steps we are taking. Our journalists (who won 35 awards in 2012) are key to our ambitions to draw ever larger readership to our content by being able to capture stories in words, pictures, graphics and video and publish them in print, on our websites and through an expanding range of media and devices.

We are aiming to ensure our editorial staff have the right equipment, software, training and working environments to operate in this new landscape - a project we are calling Journalism2015. This will be aligned to the development of all our staff through a new performance management and reward process. Our employees are key to our success and I would like to thank them for their dedication through a difficult time.

Digital remains key to our future. After encouraging growth was experienced in 2012 we must ensure we build on this while focusing on our audience quality by driving more loyal and frequent visitors. To do so, as well as the new websites, we have plans to deliver new product offerings across a number of areas as we have already done with the WOW24/7 entertainment What's-On website.

Our combined digital and print offerings are now working well together. The frequency with which we packaged together local online display adverts with print advertising more than trebled over the year to around 40% in 2012 and we were pleased that digital advertising revenues finished the year very strongly. In the coming year we will continue to improve the effectiveness of our sales operation to improve sales of longer series packages to advertisers, across more of our titles and websites, along with growing our local display and features advertising business. The considerable changes we put through the sales force in 2012 inevitably had a temporary disruptive effect on advertising revenues, especially classifieds.

Alongside all of this, we are building new skills and capabilities within our Group to accelerate the delivery of our bigger projects; improve our systems to help share content across the Group and accelerate the growth in our subscriber base; improve the technology we use (including getting better bandwidth to our outlying offices); and upgrade our mobile skills now that a third of our 10 million online users access us via their phones and tablets (up from 5% of online users in 2011). Throughout all of this our focus on costs will remain key and careful choices must be made as to where our resources are concentrated. I am pleased with the change in the business that we have been able to deliver with very careful cost management in 2012. The development of the Group will continue during 2013 at the same time as maintaining that control.

 

Summary

Our work to adapt our business to the changing environment in which we operate continues and we must be increasingly nimble and responsive to the demands it places on us. In the face of an economic outlook which remains difficult we will focus on getting our offering right in order to develop the Group and return it to growth. Our trusted local newspapers and brands remain key in doing this, and must be allied to the best use of both current and developing technology and the opportunities they can create for us. The demand for information about the communities in which people work and live has never been greater and we remain exceptionally well placed to serve that demand. The demand from advertisers to reach those communities in a targeted and cost-effective manner also grows. We are on a clear journey to become the 'one-stop shop' for advertisers and readers across all media in the communities we serve.

Ashley Highfield

Chief Executive Officer

 

 

Operational Review

Restructuring, building our skills set and being prepared and properly equipped to develop further revenue opportunities were the three key themes for the operational teams in 2012 as the Group continued to focus on delivering its strategic aims in print and digital.

Perhaps the most challenging undertaking, and potentially the most beneficial in the longer term, was the implementation of a new sales plan during the year to up-skill, reorganise and better focus our face-to-face sales force on meeting local customer needs.

This involved a review of many markets and sales teams to ensure we have the right resources, technology and customer insight to meet the marketing requirements of local consumers. The majority of these customers are small to medium sized enterprises whom we have served for many years and we are now able to offer more defined marketing solutions from the various media platforms we can provide.

The review also included an evaluation of sales skills and measures have subsequently been introduced to ensure that all existing and new employees attain an agreed standard of expertise. This coincides with the appointment of a new Group Commercial Director and restructuring of senior management to provide greater leadership in each of the customer categories.

This has been a significant and challenging project involving a great deal of change but it lays the foundations for the Group's multi-media face-to-face customer engagement programme going forward and will ensure that the organisation benefits from the many digital platforms which have been progressed during the year.

In support of these local initiatives, during the year the Group consolidated its 14 telephone contact centres, which manage inbound and outbound activity, into two better resourced centres in Sheffield and Edinburgh. The implementation of this project was supported by new management teams from the contact centre industry, enhanced technology to manage the volume of enquiries and new customer relationship management systems to provide better customer insight.

These projects have been introduced in preparation for the various business development strategies which are being progressed, including the roll-out of new digital platforms for property and motors, and further progress with the Group's voucher website, DealMonster, which is now operational in 19 towns, cities or regional areas, as well as non-geographical markets for travel and shopping deals. A new site has also been launched for the entertainment market, WOW247.co.uk, to support further the Group's engagement with the local community.

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

All of our local digital platforms can be accessed via a dedicated mobile site. We have 209 websites for our local titles, and a further six sites for e-commerce, such as DealMonster and SmartList. In 2012 we launched tablet apps for 18 titles on iPad, Amazon Kindle Fire and Google Play Android. In addition, 11 titles now have smartphone football apps on both iPhone and Android platforms. These solutions support the programme of change in print products and some of the relaunched newspapers, and were backed by expanded digital activity including the ability to subscribe to the newspaper and digital service for a single price. This will continue as more titles re-launch in 2013.

New leadership took responsibility for sundry revenues such as reader travel and online shops. The premise is unchanged with items offered for sale in our newspaper titles being supported by fulfilment and cross promotion online.

As part of our strategy to ensure our newspapers remain relevant and up-to-date, a programme was introduced during the year to relaunch all the Group's titles. Five newspaper titles changed publishing frequency from daily to weekly, nine titles altered size from broadsheet to tabloid, three free titles became paid-for and a further 47 newspapers (including 10 free titles) were redesigned with the support from industry leading designers. The project is being implemented in four phases with two being completed during the year with the final phases to occur in 2013. Overall, response has been favourable and has created the opportunity to demonstrate value to readers. Each stage has created the opportunity to evaluate and use the experience to improve the next phase of change and has been beneficial to both staff and the communities we serve, with many examples of increased advertising revenues as businesses see the benefit from greater engagement.

The relaunch programme has also created an opportunity to review and improve the product portfolio for each market. In some cases, this has resulted in a decision to close a number of free newspapers and, where it is in the interests of our customers to do so, consolidate bi-weekly newspapers.

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

These various changes within the Group mean a number of markets and centres are now faced with legacy accommodation which does not meet the requirements of the business going forward. To address this, the Group's 'Environment Charter' was introduced. The Charter is a commitment to provide accommodation and technology which will enable staff to conduct their specified tasks, primarily content gathering, in a modern and efficient way which is consistent with a local multi-media community publisher. Accordingly, a programme to enhance technology systems is being rolled out across the Group. 800 iPads and smart phones have been issued to sales staff to provide remote access to the new customer relationship management system allowing them to have far greater insight into our customers' needs. The Group is also equipping 1,700 journalists to enable them to again work remotely in the heart of their local communities. Each journalist will have a laptop and quality smartphone for simple photography and video capture. This initiative will greatly improve the quality, quantity and timeliness of multi-media content available on websites, mobile sites and tablet apps.

Additionally, new accommodation has been provided for staff in a number of locations, including prestigious new offices for The Yorkshire Post in Leeds. It is anticipated that this programme will accelerate during 2013.

This commitment recognises the importance of our staff and, while overall manning levels were reduced during the year, we continue to invest in training and development along with further improvements to Group-wide communication. The Group's weekly e-newsletter and website, The Word, is well received with nearly 90% of staff saying it is a useful source of Group information. In addition, we launched a staff satisfaction survey in 2012 to identify areas of improvement such as career development, recognition, training and leadership. One of the outcomes of this survey was the introduction of a new annual Johnston Press plc awards scheme, to recognise and celebrate media and commercial excellence in our staff.

 

 

Performance Review

The operating profit* margin increased slightly to 17.4% (2011: 17.3%) with an operating profit* for the year of £57.0 million (2011: £64.6 million).

The trading environment in the Group's markets continued to be difficult during 2012. Advertising revenues in particular remained under pressure. Total Group revenues* declined by £45.2 million (12.1%) but this decline was mitigated by the management of the cost base which was reduced by £37.6 million (12.2%). The operating profit margin increased slightly to 17.4% (2011: 17.3%) with an operating profit for the year of £57.0 million (2011: £64.6 million).

There were a number of key transactions and actions that influenced financial performance in 2012, all of which are discussed further in this review. These include:

·          Refinancing of our lending facilities in April 2012;

·          Further restructuring of our cost base;

·          Closure of four print presses;

·          Launch of new digital initiatives;

·          Partial termination of our print contract with News International; and

·          Relaunch of titles, and changing publication of five daily titles to weekly.

Total Revenue

The vast majority of the decline in total revenues was due to reduced print advertising. Indeed, after adjusting for the contract print revenues associated with the agreed cancellation of part of our contract with News International and the effect of the planned change of five titles from daily to weekly, the balance of the decline in Group revenues is almost entirely attributable to reduced print advertising with other revenue categories remaining relatively stable. Taken together the other non-advertising categories were down 11.0%, but after adjusting for the contract printing and daily-to-weekly changes the non-advertising decline reduces to 6.6%.

Advertising Revenue

Display advertising

Total display advertising in print and online declined by 11.9% (2011: 3.0%). Of this, the decline in local display was 8.9% with national display revenues down 18.6% year-on-year. The decline in national display revenues was consistent throughout the year and was seen throughout the industry as large national advertisers reduced marketing spend. The declines seen in local display principally related to the second half of 2012 and were particularly impacted by the effect of the economy on advertiser confidence. Local display revenues are the focus of our sales effectiveness project; we expect to see significant upside from this project in 2013.

Table 1

Performance Summary for 2012 and 2011

(Before non-recurring and IAS 21/39 Items)

 


2012

2011

%


£'m

£'m

change

Advertising revenues




Print advertising

181.3

212.9

(14.8)

Digital advertising

20.6

18.4

12.0

Total advertising revenues

201.9

231.3

(12.7)

Other revenues




Newspaper sales

91.8

95.6

(4.0)

Contract printing

20.3

29.0

(30.0)

Other

14.7

17.9

(17.9)

Total other revenues

126.8

142.5

(11.0)

Total revenues

328.7

373.8

(12.1)

Operating costs

(271.7)

(309.2)

12.2

Operating profit

57.0

64.6

(11.6)

Operating margin

17.4%

17.3%


*          Before non-recurring and IAS 21/39 items .

 

Classified advertising

Overall classified revenues declined by 13.3% in 2012 and again the declines in the second half of the year were greater than the first reflecting the changing economic conditions across the year. Within this, employment revenues declined 14.7%. Digital employment revenues are making an increasing contribution to this category, but both print and digital continue to be affected by the depressed employment market in much of the UK and Republic of Ireland.

The other classified categories also experienced declines in the year. Property, with a reduction of 10.7%, showed the smallest decline, but this was still a larger decline than the prior year (2011: decline of 7.6%). The decreases in motors and other classifieds, of 18.0% and 12.3% respectively, while reflecting the lack of new car sales in the year and the general economic conditions, also reflect the migration of these advertising categories to online advertising. There was also some impact from consolidating the contact centres into two locations; however the benefits of this project are expected to be seen in 2013.

Print advertising

Total print advertising in the year declined by 14.8% compared with the 9.7% reduction in 2011. This was primarily due to national print display revenues being down by 19.3% and employment print revenues being down by 22.1%, although these employment revenues now only represent 8.0% of total print revenues.

The economic environment affected other classified advertising also with year on year declines being seen across all categories. While property declined by 11.3% and other classified advertising by 14.1% compared with 2011 there was an improving trend in the final quarter. Local display was 11.9% lower than 2011 with motors showing a year on year decline of 18.1%.

Table 2

Print and Digital Advertising Revenue Analysis

 


52 week period


First half to June


Second half to December


2012

2011

%


2012

2011

%


2012

2011

%


£'m

£'m

change


£'m

£'m

change


£'m

£'m

change

Employment

21.8

25.6

(14.7)


12.4

14.4

(13.6)


9.4

11.2

(16.1)

Property

27.9

31.2

(10.7)


15.7

17.3

(9.7)


12.2

13.9

(11.9)

Motors

17.1

20.8

(18.0)


9.4

11.2

(16.3)


7.7

9.6

(19.8)

Other classifieds

49.4

56.4

(12.3)


26.3

29.2

(9.9)


23.1

27.2

(15.0)

Total classified advertising

116.2

134.0

(13.3)


63.8

72.1

(11.6)


52.4

61.9

Display advertising

85.7

97.3

(11.9)


43.9

48.6

(9.8)


41.8

48.7

(14.0)

Total advertising

201.9

231.3

(12.7)


107.7

120.7

(10.9)


94.2

110.6

(14.7)

Digital revenues

This was an important year for the Group's digital activities, with an increased focus on this area resulting in an overall 12.0% growth in digital revenues to £20.6 million. Within this, digital employment revenues stabilised, resulting in a 1.4% revenue growth in this category (compared with a 9.2% decline in the previous year). In addition, local digital display revenues grew 38.6% year-on-year providing a significant improvement in monetisation of the digital audience growth. A number of new digital enterprises in the year also contributed to the overall revenue growth, including a new venture with Zoopla for online property revenues and a partnership with motors.co.uk to boost digital motors revenues. The focus on digital revenues in 2012 has shown encouraging revenue growth, which is anticipated to accelerate further in 2013.

Non-Advertising Revenues

The reduction in the Group's circulation revenues in the year of 4.0% to £91.8 million was due almost entirely to the planned change of five daily titles to weekly publication. Contract print revenues were affected by the negotiated reduction in external revenues from News International in exchange for a receipt of £30.0 million which has been accounted for as a non-recurring item. In the absence of this, contract print revenues were broadly in line year-on-year. Taking account of the cost savings associated with the daily to weekly publication changes and the contract print reduction, the overall impact of these changes should improve both the efficiency and profitability of the remaining activities.

Operating Costs

Total operating costs (cost of sales and operating expenses) for the Group excluding non-recurring and IAS 21/39 items were £271.7 million, a saving of £37.6 million from 2011. This reflects savings across all parts of the business with significant initiatives implemented to further restructure the operations to make them more efficient. These initiatives include the consolidation and centralisation of the Group's contact centres and the restructuring of senior management. There were significant savings in production costs due to the closure of the printing plants at Leeds, Peterborough and Sunderland during the year, as well as the reduced costs from the five titles that changed from daily to weekly format (which offsets the impact of lower newspaper sales revenues from the change).

Non-recurring and IAS 21/39 Items

In addition to the trading results discussed above, a number of items have been identified as non-recurring either due to the nature of the item or their significance. Total net non-recurring items before tax were £16.6 million (2011: £171.5 million, including an impairment of intangibles of £163.7 million). Non-recurring items in 2012 included:

·          The receipt of £30.0 million in respect of the negotiated partial cancellation of the contract print arrangements with News International. The receipt has been treated as non-recurring revenue.

·          Due to the closure of the Peterborough and Sunderland print presses during the year, the book value of the print presses affected has been written down to the estimated realisable value on disposal. A non-recurring charge of £17.2 million has been recognised due to the write down.

·          A £1.5 million credit was recognised resulting from a pension exchange exercise. Further details are provided below in the pensions section.

·          Restructuring costs of £24.4 million were incurred as the Group continued to change the way in which it carried out its business to drive efficiencies and cost savings. This resulted in a number of redundancies, the costs of which have been recorded as a non-recurring item.

·          A £7.5 million charge from writing down the value of property held for sale to the net realisable value in the current market.

·          A gain of £1.0 million from the sale of a significant property.

The only non-recurring items that involved significant cash outflows for the Group in 2012 were the restructuring costs of £24.4 million.

IAS 21/39 items relate to the fair value movement in the Group's derivative financial instruments (primarily interest rate caps and foreign exchange call options) as well as the retranslation of the Group's US dollar and Euro denominated borrowings. The net charge for the year was £2.8 million (2011: £0.7 million). Further details are shown in Note 6c.

Finance Income and Costs

Finance costs in the year were £42.1 million (2011: £38.5 million). The increase from the previous year reflects the increased cost of borrowing as a result of the finance arrangements that were negotiated in April 2012, including the increased level of payment-in-kind (PIK) interest.

The interest charge in the year reflects a blended rate of 11.7%, which includes PIK. This is an increase on the 9.9% blended rate in 2011 and is due to the increased rates following the April refinancing, as well as the expiry of cross currency swaps in early 2012 which had beneficial foreign exchange rates included that could not be repeated in the current market. The charge in the Income Statement also includes £4.1 million in respect of the amortisation of the fees associated with the Group's finance facilities.

The Group's exposure to the US dollar interest and principal payments on the private placement loan notes are hedged from a currency perspective through foreign exchange call options.

The net finance expense on pension assets and liabilities was £2.5 million (2011: income of £2.3 million). This was due to the interest rate on the fund liabilities being higher than the expected return on the pension fund assets.

Loss Before Tax

The Group's loss before tax was £6.8 million (2011: loss before tax of £143.8 million). The significant difference between 2012 and 2011 was the non-recurring impairment expense recognised in 2011 of £163.7 million. Other differences between 2012 and 2011 included the reduction in operating profit before non-recurring items in 2012 of £7.5 million, higher net non-recurring operating charges (excluding impairment of intangibles) of £8.8 million, an increase of £3.6 million in interest charges and the pension interest expense of £2.5 million compared to income of £2.3 million in 2011.

Tax Rate

The Group tax rate for the year, excluding non-recurring and IAS 21/39 items and before the impact of the deferred tax rate change, was 25.8%, slightly higher than the UK tax rate of 24.5%.

 

Earnings Per Share and Dividends

Basic earnings per share was 0.88p, compared with a loss of 14.24p in 2011. The improvement in basic earnings per share reflects the following reasons:

·          There was no impairment charge in 2012, whereas in 2011 an impairment charge of £163.7 million was recognised;

·          A reduction in the underlying operating profit before non-recurring and IAS 21/39 items of £7.5 million;

·          A £3.6 million increase in finance costs under the new lending facilities due to higher interest rates;

·          IAS 21/39 movements in 2012 were a charge of £2.8 million compared to a charge of £0.7 million in 2011;

·          There was a net pension finance charge of £2.5 million in 2012 compared to finance income of £2.3 million in 2011; and

·          The impact of tax credits of £12.4 million.

Excluding non-recurring and IAS 21/39 items, the underlying earnings per share at the basic level of 3.42p was down from the previous year's comparative of 3.50p due to the lower operating profit and higher interest charges.

There will be no ordinary dividend payment relating to 2012. This reflects the Group's focus on further reducing the debt levels of the business and is also in line with the Group's finance arrangements which preclude the payment of dividends until the ratio of net debt to EDITDA falls below 2.5 times.

Cashflow, Financing and Net Debt

Net debt at 29 December 2012 was £319.4 million, a reduction of £32.3 million on the prior year. The Group remained highly cash generative throughout the year, with net cash received from operating activities of £71.3 million including £30.0 million received from News International. The cash was primarily used for cash interest payments of £17.2 million, the cost of refinancing our finance facilities of £11.8 million and to repay borrowings of £26.5 million. The Group maintained tight control of capital expenditure with £5.2 million spent, while proceeds received from the disposal of surplus assets (primarily property sales and the disposal of closed presses) were £8.9 million.

The Group successfully concluded negotiations with its lenders regarding the renewal and extension of its finance facilities in April 2012. A secured initial facility of £393.0 million was agreed, amending the previous arrangements and extending the maturity of the facilities to September 2015.

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

In addition to the cash interest, a PIK margin accumulates and is payable at the end of the facility. The PIK margin rate is again based on the absolute amount of the debt outstanding and leverage multiples and reduces based on agreed ratchets. If the loan facilities are fully repaid prior to 31 December 2014, the rate of the PIK margin accrued throughout the period of the agreement will be recalculated at a substantially reduced rate.

There is an agreed repayment schedule of £70.0 million over three years with £5.0 million originally scheduled for 2012. Following the News International receipt discussed above, £20.0 million of the scheduled repayments have been repaid early, with £45.0 million remaining as at the balance sheet date. In addition, a pay-if-you-can (PIYC) repayment schedule was agreed totalling £60.0 million over three years, of which £2.0 million was paid ahead of schedule in 2012.

Five-year share warrants over the Company's share capital have been issued to the Group's lenders. Warrants for 2.5% of the Company's share capital were issued on completion of the new financing arrangements and a further 5.0% were issued in September 2012. In addition, the exercise period for the 5.0% warrants issued to the lenders in August 2009 was extended to make the expiry of all the warrants coterminous in September 2017. As a result, warrants equivalent to a total of 12.5% of the Company's issued ordinary share capital have been issued. No warrants were exercised during 2012.

Net Asset Position

At the period end, the Group had net assets of £273.9 million, a decrease of £10.4 million on the prior year. The movements in the net asset position from the prior year included a reduction in total liabilities of £28.0 million and an increase in cash on hand of £19.4 million, offset by decreases in property, plant and equipment (including assets held for sale) of £39.6 million, inventory of £1.9 million, derivative financial instruments of £8.8 million and trade and other receivables of £7.1 million.

Pensions

The Group's defined benefit pension deficit increased by £17.3 million over the year. The increase in the deficit was the result of the following factors both positive and negative:

·          While investment markets remained volatile during 2012, returns were greater than those assumed by £8.3 million;

·          There was a further reduction in the discount rate applied to the scheme liabilities which resulted in an increase in the value of liabilities of £32.2 million;

·          A decrease in the assumptions relating to inflation has resulted in a £8.4 million reduction in liabilities; and

·          In 2012 (following similar exercises in 2011), the Group offered a number of existing pensioners the opportunity to take part in a pension exchange where, for a higher pension today, they forgo a proportion of future increases. This resulted in a gain of £1.5 million (2011: £1.9 million).

Other movements of £3.3 million made up the balance of the increase in the deficit.

The pension fund was also subject to a triennial valuation carried out as at 31 December 2010. The result of this valuation gave rise to a new schedule of contributions and funding plan to reduce the deficit. As a result, the annual level of contributions under the new schedule increased from £2.2 million to £5.7 million with effect from 1 June 2012. The £5.7 million annual contributions are payable until 31 December 2024.

Factors Affecting Future Group Performance

The performance of the Group will continue to be affected by the economic conditions in the UK and Ireland, and the on-going cyclical downturn as indicated by the current low growth in GDP, employment, property transactions, new car sales and the levels of consumer confidence. However, the outlook for the Group will also depend on a number of other factors, including:

·          Successful implementation of the Group's new strategy;

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

·          Maintaining market leadership in existing markets;

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

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

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

 

Liquidity and Going Concern

The Board has undertaken a recent and thorough review of the Group's forecasts and associated risks. These forecasts extend for a period beyond one year from the date of approval of these financial statements. The extent of this review reflected the economic outlook and the current revenue and cost trends, together with the on-going volatility in advertising revenues. The forecasts make key assumptions, based on information available to the Directors, around:

·          Future advertising trends which show reducing declines in 2013, consistent with current market views with stabilisation in 2014.

·          Further cost reduction measures to reflect lower revenues and the on-going re-engineering of the business.

·          Continued growth in digital revenues.

·          Increase in newspaper sales revenue performance following the title relaunch.

·          Cash inflows on the disposal of surplus properties.

Following a thorough review of these forecasts and projections and after taking account of reasonable downside scenarios to the key assumptions underlying these forecasts, the Directors are satisfied the Group will be able to operate within the terms of its financing agreement and covenants.

The Directors have a reasonable expectation that the Group will have adequate resources to continue in operation for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

 

Directors' Responsibility Statement

We confirm to the best of our knowledge:

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

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

On behalf of the Board

 

Ashley Highfield

Grant Murray

Chief Executive Officer

Chief Financial Officer

19 March 2013

19 March 2013

 

 

Group Income Statement

For the 52 week period ended 29 December 2012

 



2012


2011



Before





Before






non-





non-






recurring





recurring






and

Non-




and

Non-





IAS 21/39

recurring

IAS



IAS 21/39

recurring

IAS




items

items

21/39

Total


items

items

21/39

Total


Notes

£'000

£'000

£'000

£'000


£'000

£'000

£'000

£'000

Revenue

4

328,691

30,000

-

358,691


373,845

-

-

373,845

Cost of sales


(207,868)

-

-

(207,868)


(235,143)

-

-

(235,143)

Gross profit


120,823

30,000

-

150,823


138,702

-

-

138,702

Operating expenses

5

(63,778)

(46,604)

-

(110,382)


(74,150)

(7,836)

-

(81,986)

Impairment of intangibles

5/9

-

-

-

-


-

(163,695)

-

(163,695)

Total operating expenses


(63,778)

(46,604)

-

(110,382)


(74,150)

(171,531)

-

(245,681)

Operating profit/(loss)


57,045

(16,604)

-

40,441


64,552

(171,531)

-

(106,979)

Investment income


148

-

-

148


67

-

-

67

Net finance (expense)/ income on pension assets/liabilities

6a

(2,471)

-

-

(2,471)


2,250

-

-

2,250

Change in fair value of hedges

6c

-

-

(7,297)

(7,297)


-

-

(676)

(676)

Retranslation of USD debt

6c

-

-

4,275

4,275


-

-

(285)

(285)

Retranslation of Euro debt

6c

-

-

262

262


-

-

285

285

Finance costs

6b

(42,129)

-

-

(42,129)


(38,475)

-

-

(38,475)

Share of results of associates


6

-

-

6


10

-

-

10

Profit/(loss) before tax


12,599

(16,604)

(2,760)

(6,765)


28,404

(171,531)

(676)

(143,803)

Tax

7

8,825

2,875

676

12,376


(6,371)

61,058

179

54,866

Profit/(loss) for the period


21,424

(13,729)

(2,084)

5,611


22,033

(110,473)

(497)

(88,937)

Earnings per share (p)

8










Earnings per share - Basic


3.42

(2.20)

(0.34)

0.88


3.50

(17.66)

(0.08)

(14.24)

Earnings per share - Diluted


3.40

(2.19)

(0.34)

0.87


3.50

(17.66)

(0.08)

(14.24)

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

The comparative period is for the 52 week period ended 31 December 2011.

 

Group Statement of Comprehensive Income

For the 52 week period ended 29 December 2012

 



Hedging and




Revaluation

Translation

Retained



Reserve

Reserve

Earnings

Total


£'000

£'000

£'000

£'000

Profit for the period

-

-

5,611

5,611

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

-

-

(15,877)

(15,877)

Revaluation adjustment

(377)

-

377

-

Exchange differences on translation of foreign operations

-

(645)

-

(645)

Deferred tax on exchange differences

-

133

-

133

Change in deferred tax rate to 23.0%

-

-

(421)

(421)

Total comprehensive loss for the period

(377)

(512)

(10,310)

(11,199)






For the 52 week period ended 31 December 2011










Loss for the period

-

-

(88,937)

(88,937)

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

-

-

(36,306)

(36,306)

Revaluation adjustment

(85)

-

85

-

Exchange differences on translation of foreign operations

-

(847)

-

(847)

Deferred tax on exchange differences

-

214

-

214

Change in deferred tax rate to 25.0%

-

-

(992)

(992)

Total comprehensive loss for the period

(85)

(633)

(126,150)

(126,868)

 

Group Statement of Changes in Equity

For the 52 week period ended 29 December 2012

 




Share-based



Hedging and




Share

Share

Payments

Revaluation

Own

Translation

Retained



Capital

Premium

Reserve

Reserve

Shares

Reserve

Earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Opening balances

65,081

502,818

17,845

2,160

(5,379)

9,779

(307,940)

284,364

Total comprehensive profit for the period

-

-

-

(377)

-

(512)

(10,310)

(11,199)

Recognised directly in equity:









Preference share dividends paid

-

-

-

-

-

-

(152)

(152)

Share-based payments charge

-

-

606

-

-

-

-

606

Share warrants issued

-

-

551

-

-

-

-

551

Release of deferred bonus payments

-

-

(43)

-

43

-

-

-

Own shares purchased

-

-

-

-

(253)

-

-

(253)

Net changes directly in equity

-

-

1,114

-

(210)

-

(152)

752

Total movements

-

-

1,114

(377)

(210)

(512)

(10,462)

(10,447)

Equity at the end of the period

65,081

502,818

18,959

1,783

(5,589)

9,267

(318,402)

273,917










For the 52 week period ended 31 December 2011


















Opening balances

65,081

502,818

17,273

2,245

(5,004)

10,412

(181,638)

411,187

Total comprehensive loss for the period

-

-

-

(85)

-

(633)

(126,150)

(126,868)

Recognised directly in equity:









Preference share dividends paid

-

-

-

-

-

-

(152)

(152)

Share-based payments charge

-

-

572

-

-

-

-

572

Own shares purchased

-

-

-

-

(375)

-

-

(375)

Net changes directly in equity

-

-

572

-

(375)

-

(152)

45

Total movements

-

-

572

(85)

(375)

(633)

(126,302)

(126,823)

Equity at the end of the period

65,081

502,818

17,845

2,160

(5,379)

9,779

(307,940)

284,364

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



Group Statement of Financial Position

At 29 December 2012

 



2012

2011


Notes

£'000

£'000

Non-current assets




Intangible assets

9

742,294

742,851

Property, plant and equipment


127,223

171,154

Available for sale investments


970

970

Interests in associates


20

14

Trade and other receivables


6

6

Derivative financial instruments

11

2,742

-



873,255

914,995

Current assets




Assets classified as held for sale


7,601

3,238

Inventories


2,850

4,709

Trade and other receivables


41,628

48,730

Cash and cash equivalents


32,789

13,407

Derivative financial instruments

11

155

11,657



85,023

81,741

Total assets


958,278

996,736

Current liabilities




Trade and other payables


50,934

42,958

Current tax liabilities


2,947

4,244

Retirement benefit obligation

12

5,700

2,200

Borrowings

10

8,520

372,094

Derivative financial instruments

11

99

1,056

Short-term provisions


1,327

-



69,527

422,552

Non-current liabilities




Borrowings

10

334,220

-

Derivative financial instruments

11

-

306

Retirement benefit obligation

12

115,619

101,790

Deferred tax liabilities


160,584

181,609

Trade and other payables


142

148

Long-term provisions


4,269

5,967



614,834

289,820

Total liabilities


684,361

712,372

Net assets


273,917

284,364

Equity




Share capital

13

65,081

65,081

Share premium account


502,818

502,818

Share-based payments reserve


18,959

17,845

Revaluation reserve


1,783

2,160

Own shares


(5,589)

(5,379)

Hedging and translation reserve


9,267

9,779

Retained earnings


(318,402)

(307,940)

Total equity


273,917

284,364

The comparative numbers are as at 31 December 2011.

The financial statements of Johnston Press plc, registered number 15382, were approved by the Board of Directors and authorised for issue on 19 March 2013.

They were signed on its behalf by:

 

Ashley Highfield

Grant Murray

Chief Executive Officer

Chief Financial Officer

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



Group Cash Flow Statement

For the 52 week period ended 29 December 2012

 



2012

2011


Notes

£'000

£'000

Cash generated from operations

14

76,098

71,207

Income tax paid


(4,809)

(3,282)

Net cash in from operating activities


71,289

67,925

Investing activities




Interest received


120

51

Dividends received from available for sale investments


22

-

Dividends received from associated undertakings


-

25

Proceeds on disposal of property, plant and equipment


8,936

2,589

Purchases of property, plant and equipment


(5,171)

(1,802)

Net cash received from investing activities


3,907

863

Financing activities




Dividends paid


(152)

(152)

Interest paid


(17,243)

(25,629)

Repayment of borrowings


(2,697)

(28,371)

Repayment of loan notes


(23,841)

(6,363)

Financing fees


(11,826)

(53)

Net cash flow from derivatives


198

-

Purchase of own shares


(253)

(375)

Decrease in bank overdrafts


-

(5,550)

Net cash used in financing activities


(55,814)

(66,493)

Net increase in cash and cash equivalents


19,382

2,295

Cash and cash equivalents at the beginning of period


13,407

11,112

Cash and cash equivalents at the end of the period


32,789

13,407

The comparative period is for the 52 week period ended 31 December 2011.

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

 

Notes to the Consolidated Financial Statements

For the 52 week period ended 29 December 2012

1. General Information

The financial information in the Preliminary Results Announcement is derived from but does not represent the full statutory accounts of Johnston Press plc. The statutory accounts for the 52 week period ended 31 December 2011 have been filed with the Registrar of Companies and those for the 52 week period ended 29 December 2012 will be filed following the Group's Annual General meeting on 26 April 2013. The auditor's reports on the statutory accounts for the 52 week period ended 31 December 2011 and 29 December 2012 were unqualified, and do not contain a statement under Sections 498 (2) or (3) of the Companies Act 2006.

Whilst the financial information included in this Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The 2012 Annual Report and Accounts for the 52 weeks ended 29 December 2012 will be made available on the Company's website at www.johnstonpress.co.uk, at the Company's registered office at 108 Holyrood Road, Edinburgh EH8 8AS and sent to shareholders in late April 2012.

2. Adoption of New and Revised Standards

The following new and revised Standards and Interpretations have been adopted for the period ended 29 December 2012. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

·          Amendments to IFRS 7 Financial Instruments: Disclosures - The amendments increase the disclosure requirements for transactions involving the transfer of financial assets in order to provide greater transparency around risk exposures when financial assets are transferred. There has been no impact on the financial position or performance of the Group.

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

·          IFRS 1 (amended) Government Loans

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

·          IAS 19 (revised) Employee Benefits

·          IFRS 9 Financial Instruments

·          IFRS 10 Consolidated Financial Statements

·          IFRS 10, IFRS 12 and IAS 27 (amended) Investment entities

·          IFRS 11 Joint Arrangements

·          IFRS 12 Disclosure of Interests in Other Entities

·          IFRS 13 Fair Value Measurement

·          IAS 1 Presentation of Financial Statements

·          IAS 27 (revised) Separate Financial Statements

·          IAS 28 (revised) Investments in Associates and Joint Ventures

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

The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods, except as follows:

·          IFRS 7 (amended) will increase the disclosure requirements where netting arrangements are in place for financial assets and financial liabilities;

·          IFRS 9 will impact both the measurement and disclosures of Financial Instruments;

·          IFRS 12 will impact the disclosure of interests the Group has in other entities;

·          IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures; and

·          IAS 19 (revised) will impact the measurement of the various components representing movements in the defined benefit pension obligation and associated disclosures, but not the Group's total obligation. It is likely that following the replacement of expected returns on plan assets with a net finance cost in the Income Statement, the profit for the period will be reduced and accordingly other comprehensive income increased.

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

3. Business Segments

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

4. Segment Information

a) Segment revenues and results

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

 



Contract




Contract




Publishing

printing

Eliminations

Group

Publishing

printing

Eliminations

Group


2012

2012

2012

2012

2011

2011

2011

2011


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Revenue









External sales

308,438

20,253

-

328,691

344,863

28,982

-

373,845

Inter-segment sales*

-

53,019

(53,019)

-

-

61,030

(61,030)

-

Total revenue before non-recurring items

308,438

73,272

(53,019)

328,691

344,863

90,012

(61,030)

373,845

Result









Segment result before non-recurring items

51,554

5,491

-

57,045

57,026

7,526

-

64,552

Non-recurring items

(22,667)

6,063

-

(16,604)

(164,656)

(6,875)

-

(171,531)

Net segment result

28,887

11,554

-

40,441

(107,630)

651

-

(106,979)

Investment income




148




67

Net finance (expense)/income on pension assets/liabilities




(2,471)




2,250

IAS 21/39 adjustments




(2,760)




(676)

Finance costs




(42,129)




(38,475)

Share of results of associates




6




10

Loss before tax




(6,765)




(143,803)

Tax




12,376




54,866

Profit/(loss) for the period




5,611




(88,937)

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

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

b) Segment assets

 


2012

2011


£'000

£'000

Assets



Publishing

855,372

851,548

Contract printing

99,039

132,561

Total segment assets

954,411

984,109

Unallocated assets

3,867

12,627

Consolidated total assets

958,278

996,736

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

c) Other segment information

 



Contract



Contract



Publishing

printing

Group

Publishing

printing

Group


2012

2012

2012

2011

2011

2011


£'000

£'000

£'000

£'000

£'000

£'000

Additions to property, plant and equipment

4,912

180

5,092

1,604

192

1,796

Depreciation expense (inc. non-recurring items)

5,077

24,877

29,954

7,618

15,529

23,147

Net impairment of intangibles

-

-

-

163,695

-

163,695

5. Non-recurring Items

 


2012

2011


£'000

£'000

Revenue



Termination of print contract

30,000

-

Expenses



Impairment of intangible assets (Note 9)

-

(163,695)

Gain on sale of assets

986

-

Gain on sale of assets held for sale

-

288

Write down in value of assets held for sale

(7,541)

(600)

Costs from the termination of print contract

(92)

-

Return on previously written down available for sale investments

145

-

Restructuring costs of existing business including redundancy costs

(24,403)

(4,293)

Write down in value of presses in existing businesses

(17,239)

(5,161)

IAS 19 past service gain (Note 12)

1,540

1,930

Total non-recurring expenses

(46,604)

(171,531)

Total non-recurring items

(16,604)

(171,531)

The Group received £30.0 million during the year from News International for the partial termination of a long-term contract to provide printing facilities. The write down of value in presses of £17.2 million represents accelerated depreciation charges from the closure of the Peterborough and Sunderland printing presses to record these at their net realisable sale values.

 


2012

2011


£'000

£'000

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



Depreciation of property, plant and equipment

12,715

17,986

Non-recurring write down in value of presses

17,239

5,161

Write down of assets classified as held for sale



Non-recurring

7,541

600

Recurring

276

-

Profit on disposal of property, plant and equipment:



Operating disposals

(695)

(487)

Non-recurring disposals

(986)

-

Assets held for sale disposals

(390)

(288)

Movement in allowance for doubtful debts

(2,069)

(1,852)

Redundancy costs

21,582

3,938

Staff costs excluding redundancy costs

131,526

147,806

Auditors' remuneration:



Audit services



Group

120

110

Subsidiaries

240

240

Operating lease charges:



Plant and machinery

1,847

1,301

Other

3,841

4,510

Rentals received on sub-let property

221

313

Net foreign exchange gains

(59)

(30)

Cost of inventories recognised as expense

36,111

43,494

Write down of inventories

647

-

Staff costs shown above include £2,284,000 (2011: £2,517,000) relating to remuneration of Directors.

 

In addition to the auditors' remuneration shown above, the auditors received the following fees for non-audit services.

 


2012

2011


£'000

£'000

Audit-related assurance services

95

54

Taxation compliance services

49

85

Other taxation advisory services

28

58

Other services

69

72


241

269

All non-audit services were approved by the Audit Committee. The Audit Committee considers that these non-audit services have not impacted the independence of the audit process.

In addition, an amount of £19,000 (2011: £18,000) was paid to the external auditors for the audit of the Group's pension scheme.

6. Finance Costs

 


2012

2011


£'000

£'000

a) Net finance expense/(income) on pension assets/liabilities



Interest on pension liabilities (Note 12)

22,708

23,612

Expected return on pension assets (Note 12)

(20,237)

(25,862)


2,471

(2,250)




b) Finance costs



Interest on bank overdrafts and loans

26,944

25,496

Payment-in-kind interest accrual

11,048

7,693

Amortisation of term debt issue costs

4,137

5,286


42,129

38,475

c) IAS 21/39 items

All movements in the fair value of derivative financial instruments are recorded in the Income Statement. In the current period, this movement was a net charge of £7.3 million (2011: charge of £0.7 million), consisting of a realised net credit of £0.2 million and an unrealised charge of £7.5 million.

The retranslation of foreign denominated debt at the period end resulted in a net credit of £4.5 million (2011: net credit of £nil) being recorded in the Income Statement. The retranslation of the Euro denominated publishing titles is shown in the Statement of Comprehensive Income.

7. Tax

 


2012

2011


£'000

£'000

Current tax



Charge for the period

3,541

5,527

Adjustment in respect of prior periods

130

(1,657)


3,671

3,870




Deferred tax



Credit for the period

(4,168)

(16)

Adjustment in respect of prior periods

191

231

Deferred tax adjustment relating to the impairment of publishing titles

-

(44,041)

Credit relating to reduction in deferred tax rate to 23.0% (2011: 25.0%)

(12,070)

(14,910)


(16,047)

(58,736)

Total tax credit for the period

(12,376)

(54,866)

UK corporation tax is calculated at 24.5% (2011: 26.5%) of the estimated assessable profit/(loss) for the period. The 24.5% basic tax rate applied for the 2012 period was a blended rate due to the tax rate of 26.0% in effect for the first quarter of 2012, changing to 24.0% from 1 April 2012 under the 2012 Finance Act. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdiction.

The Group has recognised a £12.1 million tax credit as a result of the change to the UK deferred tax rate from 25% to 23%.

 

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

 


2012


2011



£'000

%

£'000

%

Loss before tax

(6,765)

100.0

(143,803)

100.0

Tax at 24.5% (2011: 26.5%)

(1,657)

(24.5)

(38,108)

(26.5)

Tax effect of share of results of associate

-

-

(5)

-

Tax effect of expenses that are





non-deductible in determining taxable profit

2,130

(31.5)

-

-

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

(793)

 11.7

(65)

-

Tax effect of investment income

(5)

-

7

-

Effect of different tax rates of subsidiaries

(302)

(4.5)

(359)

(0.2)

Adjustment in respect of prior periods

321

(4.7)

(1,426)

(1.0)

Effect of reduction in deferred tax rate to 23.0% (2011: 25.0%)

(12,070)

178.4

(14,910)

(10.4)

Tax credit for the period and effective rate

(12,376)

182.8

(54,866)

(38.1)

8. Earnings per Share

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

 


2012

2011


£'000

£'000

Earnings



Profit/(loss) for the period

5,611

(88,937)

Preference dividend

(152)

(152)

Earnings for the purposes of basic and diluted earnings per share

5,459

(89,089)

Non-recurring and IAS 21/39 items (after tax)

15,813

110,970

Earnings for the purposes of underlying earnings per share

21,272

21,881

 


2012

2011


No. of shares

No. of shares

Number of shares



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

621,758,744

625,711,881

Effect of dilutive potential ordinary shares:



- warrants and employee share options

2,594,333

-

- deferred bonus shares

1,788,822

-

Number of shares for the purposes of diluted earnings per share

626,141,899

625,711,881

Earnings per share (p)



Basic

0.88

(14.24)

Underlying

3.42

3.50

Diluted - see below

0.87

(14.24)

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

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

As explained in Note 13, the preference shares qualify as equity under IAS 32. In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of earnings per share.

9. Intangible Assets

 


Publishing titles £'000

Cost


Opening balance

1,309,234

Exchange movements

(557)

Closing balance

1,308,677

Accumulated impairment losses


Opening balance

(566,383)

Impairment losses for the period

-

Closing balance

(566,383)

Carrying amount


Opening balance

742,851

Closing balance

742,294

The exchange movement above reflects the impact of the exchange rate on the valuation of publishing titles denominated in Euros at the period end date. It is partially offset by a decrease in the euro borrowings.

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

 


2012

2011


£'000

£'000

Scotland

56,013

58,575

North

272,190

279,223

Northwest

93,201

104,561

Midlands

168,190

168,731

South

60,602

45,267

Northern Ireland

73,422

63,042

Republic of Ireland

18,676

23,452

Total carrying amount of publishing titles

742,294

742,851

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

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are:

·          the discount rate;

·          expected changes to selling prices and direct costs during the period; and

·          growth rates.

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The discount rate applied to future cash flows in 2012 was 11.0% (2011: 11.0%). The discount rate reflects management's view of the current risk profile of the underlying assets being valued with regard to the current economic environment and the risks that the regional media industry are facing.

Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. These include changes in cover prices, advertising rates as well as movement in newsprint and production costs and inflation.

Discounted cash flow forecasts are prepared using:

·          the most recent financial budgets and projections approved by management for 2013 - 2015 which reflect management's current experience and future expectations of the markets the CGUs operate in;

·          cash flows for 2016 to 2032 that are extrapolated based on an estimated annual long-term growth rate of 1.0%;

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

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

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

The total net impairment charge recognised in 2012 was £nil (2011: net impairment charge of £163.7 million).

The net nil impairment charge in the period comprises further impairment of £25.8 million primarily in the North and North West of England, offset by the reversal of past impairment in the South of England and Northern Ireland.

The Group has conducted sensitivity analysis on the impairment test of each CGU's carrying value. A decrease in the long term growth rate of 0.5% would result in an impairment for the Group of £18.8 million and an increase in the discount rate of 0.5% would result in an impairment of £31.0 million.

 


Growth rate

Discount rate


sensitivity

sensitivity


£'000

£'000

Scotland

1,238

2,032

North

7,163

11,756

Northwest

2,103

3,451

Midlands

3,814

6,260

South

2,432

3,991

Northern Ireland

1,732

2,843

Republic of Ireland

367

693

Total potential impairment from sensitivity analysis

18,849

31,027

 

10. Borrowings

Borrowings shown at amortised cost at the period end were:

 


2012

2011


£'000

£'000

Bank loans

227,316

218,252

Private placement loan notes

119,162

141,556

Term debt issue costs

(12,273)

(4,041)

Payment-in-kind interest accrual

8,535

16,327

Total borrowings

342,740

372,094

The borrowings are disclosed in the financial statements as:

 


2012

2011


£'000

£'000

Current borrowings

8,520

372,094

Non-current borrowings

334,220

-

Total borrowings

342,740

372,094

The Group's borrowings at the end of the previous period were classed as current borrowings, due to the lending facilities maturing on 30 September 2012. These facilities were renegotiated in April 2012 and now expire on 30 September 2015.

The Group's net debt is:

 


2012

2011


£'000

£'000

Gross borrowings as above

342,740

372,094

Cash and cash equivalents

(32,789)

(13,407)

Impact of currency hedge instruments

(2,854)

(11,065)

Net debt including currency hedge instruments

307,097

347,622

Term debt issue costs

12,273

4,041

Net debt excluding term debt issue costs

319,370

351,663

Analysis of borrowings by currency:

 


Total

Sterling

Euros

US dollars


£'000

£'000

£'000

£'000

At 29 December 2012





Bank loans

227,316

215,015

12,301

-

Private placement loan notes

119,162

33,956

-

85,206

Term debt issue costs

(12,273)

(12,273)

-

-

Payment-in-kind interest accrual

8,535

6,342

-

2,193


342,740

243,040

12,301

87,399

At 31 December 2011





Bank loans

218,252

205,689

12,563

-

Private placement loan notes

141,556

39,050

-

102,506

Term debt issue costs

(4,041)

(4,041)

-

-

Payment-in-kind interest accrual

16,327

12,094

-

4,233


372,094

252,792

12,563

106,739

Finance facilities

On 24 April 2012, the Group entered into an amended and restated finance agreement for credit facilities with bank lenders and private placement loan note holders until 30 September 2015. The facility is secured and share warrants over 12.5% of the Company's share capital have been issued to the lenders and note holders. 5.0% of the warrants were issued in August 2009, and a further 7.5% were issued in 2012, with all warrants expiring 30 September 2017. Interest rates are based on the absolute amount of debt outstanding and leverage multiples, with reductions based on agreed ratchets.

 

Bank loans

The Group has credit facilities with a number of banks. The total facility at 29 December 2012 is £237.5 million (2011: £273.9 million) of which £10.0 million is unutilised at the balance sheet date (2011: £55.0 million). The credit facilities are provided under two separate tranches as detailed below.

·          Facility A - a revolving credit facility of £55.0 million. This facility includes a bank overdraft facility of £10.0 million (2011: £10.0 million). The loans can be drawn down for three month terms with interest payable at LIBOR plus a maximum cash margin of 5.00% (2011: 4.15%).

·          Facility B - a term loan facility of £182.5 million (2011: £218.9 million), which can be drawn in Sterling or Euros. Interest is payable quarterly at LIBOR plus a cash margin of up to 5.00% (2011: 4.15%).

In accordance with the credit agreements in place, the Group hedges a portion of the bank loans via interest rate swaps exchanging floating rate interest for fixed rate interest and interest rate caps. At the balance sheet date, borrowings of £30.0 million (2011: £200.0 million) were arranged at fixed rate, while a further £180.0 million borrowings (2011: £nil) were hedged through interest rate caps.

 

Private placement loan notes

The Group has total private placement loan notes at 29 December 2012 of £34.0 million and $137.8 million (2011: £39.1 million and $158.2 million). Interest is payable quarterly at fixed coupon rates up to 10.30% (2011: 9.45%) depending on covenants.

The private placement loan notes consist of:

·          £34.0 million at a coupon rate of up to 10.30% (2011: £39.1 million at a coupon rate of up to 9.45%)

·          $58.7 million at a coupon rate of up to 9.75% (2011: $67.4 million at a coupon rate of up to 8.9%)

·          $28.1 million at a coupon rate of up to 10.18% (2011: $32.2 million at a coupon rate of up to 9.33%)

·          $51.0 million at a coupon rate of up to 10.28% (2011: $58.6 million at a coupon rate of up to 9.43%)

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

Repayments

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

Scheduled repayments are due every six months in relation to both the bank loans and private placement loan notes. Scheduled repayments total £70.0 million from 30 June 2012 to 30 June 2015; however following the News International receipt, part of the scheduled repayments were brought forward to November 2012 with only £40.0 million scheduled repayments remaining.

In addition, there is a pay-if-you-can (PIYC) repayment schedule agreed for both the bank loans and private placement notes totalling £60.0 million up to 30 June 2015. £2.0 million of the PIYC payments were made ahead of schedule in 2012.

Payment-in-kind interest

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

At the date of the refinancing, previously accrued PIK totalling £18.8 million was capitalised and added to the outstanding borrowings under the bank loans and private placement loan notes. Accordingly, the PIK accrual at 29 December 2012 only reflects PIK accrued since 24 April 2012.

 

Interest rates:

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

 


2012

2011


%

%

Bank overdrafts

5.5

4.6

Bank loans

11.3

10.4

Private placement loan notes

12.5

9.0


11.7

9.9

11. Derivative Financial Instruments

Derivatives that are carried at fair value are as follows:

 


2012

2011


£'000

£'000

Interest rate swaps - current liability

(99)

(1,056)

Interest rate swaps - non-current liability

-

(306)

Interest rate caps - non-current asset

43

-

Cross currency swaps - current asset

-

11,657

Foreign exchange options - current asset

155

-

Foreign exchange options - non-current asset

2,699

-

Total derivative financial instruments

2,798

10,295

12. Retirement Benefit Obligation

Throughout 2012 the Group operated the Johnston Press Pension Plan (JPPP), together with the following schemes:

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

·          An ROI industry-wide final salary scheme for journalists which was closed on 31 October 2012 and a final salary scheme for a small number of employees in Limerick which has been closed to future accruals since 2010. There are no additional financial implications to the Group if these schemes are terminated. Consequently, the Group's obligation to these schemes is included in Long Term Provisions and the details shown below exclude these schemes.

The JPPP is in two parts, a defined contribution scheme and a defined benefit scheme. The latter is closed to new members and closed to future accrual. The assets of the schemes are held separately from those of the Group. The contributions are determined by a qualified actuary on the basis of a triennial valuation using the projected unit method. The contributions to the defined benefit scheme are fixed annual amounts with the intention of eliminating the deficit. Based on the outcome of the triennial valuation at 31 December 2010, the fixed annual contribution amount is £5.7 million from 1 June 2012 under the schedule of contributions agreed between the Company and the JPPP Trustees. As the defined benefit scheme has been closed to new members for a considerable period the last deferred member is scheduled to retire in 35 years with, at current mortality assumptions, the last pension paid in around 80 years (based on the mortality assumptions used for the 2010 triennial valuation). On a discounted basis the duration of the pension liabilities is circa 20 years. The financial information provided below relates to the defined benefit element of the JPPP.

During 2012 and 2011, the Company carried out pension exchange exercises whereby a number of pensioner members were made an offer by the Company to exchange some of their future pension increases for a one-off increase in pension, where the new uplifted amount would no longer be eligible for increases in payment. The impact of this was a non-recurring credit in the Group Income Statement of £1.5 million in the year (2011: credit of £1.9 million).

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

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

The pension cost charged to the Income Statement for the defined contribution schemes and Irish schemes in 2012 was £6,724,000 (2011: £7,343,000).

 

Major assumptions:

 


2012

2011

Discount rate

4.5%

4.9%

Expected return on scheme assets

5.6%

5.6%

Future pension increases



Deferred revaluations (CPI)

1.9%

2.0%

Pensions in payment (RPI)

2.8%

2.9%

Life expectancy



Male

23.1 years

23.1 years

Female

23.1 years

23.3 years

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

·          A change in the discount rate of 0.1% pa would change the value of liabilities by approximately 1.7% or £8.1 million.

·          A change in the life expectancy by one year would change liabilities by approximately 3.0% or £14.6 million.

·          A change in the inflation rate of 0.1% pa would change the value of the liabilities by 1.1% or £5.6 million.

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

 


2012

2011


£'000

£'000

Net interest expense/(income)

2,471

(2,250)

Past service gain

(1,540)

(1,930)


931

(4,180)

There was no current service costs in 2012 (2011: £nil) as the Defined Benefit scheme was closed to future accrual in 2010.

An actuarial loss of £21,065,000 (2011: loss of £49,584,000) has been recognised in the Group Statement of Comprehensive Income in the current period. This has been shown net of deferred tax of £5,188,000 (2011: £13,278,000). The cumulative amount of actuarial gains and losses recognised in the Group Statement of Comprehensive Income since the date of transition to IFRS is a loss of £105,530,000 (2011: loss of £84,465,000). The actual return on scheme assets was a £28,494,000 profit (2011: £1,198,000 loss).

Amounts included in the Statement of Financial Position:

 


2012

2011


£'000

£'000

Present value of defined benefit obligations

504,111

472,708

Fair value of plan assets

(382,792)

(368,718)

Total liability recognised in the Statement of Financial Position

121,319

103,990

Amount included in current liabilities

(5,700)

(2,200)

Amount included in non-current liabilities

115,619

101,790

The amounts of contributions expected to be paid to the scheme during 2013 is £5,700,000 (2011: £2,200,000 annually rising to £5,700,000 annually from 1 June 2012).

Movements in the present value of defined benefit obligations:

 


2012

2011


£'000

£'000

Balance at the start of the period

472,708

446,095

Interest costs

22,708

23,612

Age related rebates

630

74

Changes in assumptions underlying the defined benefit obligations

29,322

22,524

Past service gain

(1,540)

(1,930)

Benefits paid

(19,717)

(17,667)

Balance at the end of the period

504,111

472,708

 

Movements in the fair value of plan assets:

 


2012

2011


£'000

£'000

Balance at the start of the period

368,718

385,309

Expected return on plan assets

20,237

25,862

Actual return less expected return on plan assets

8,257

(27,060)

Contributions from the sponsoring companies

4,667

2,200

Age related rebates

630

74

Benefits paid

(19,717)

(17,667)

Balance at the end of the period

382,792

368,718

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

 


Expected return


Fair value of assets


2012

2011


2012

2011


%

%


£'000

£'000

Equity instruments

6.8

6.8


240,011

224,549

Debt instruments

3.8

3.8


100,674

98,816

Property

4.8

4.8


17,991

21,754

Other assets

2.7

2.6


24,116

23,599


5.6

5.6


382,792

368,718

Five year history:

 


2012

2011

2010

2009

2008


£'000

£'000

£'000

£'000

£'000

Present value of defined benefit obligations

504,111

472,708

446,095

446,114

340,060

Fair value of scheme assets

(382,792)

(368,718)

(385,309)

(362,006)

(321,849)

Deficit in the plan

121,319

103,990

60,786

84,108

18,211

Experience adjustments on scheme liabilities






Amount (£'000)

(29,332)

(22,524)

2,925

(100,425)

80,193

Percentage of plan liabilities (%)

(5.8%)

(4.8%)

0.7%

(22.5%)

23.6%

Experience adjustments on scheme assets






Amounts (£'000)

8,257

(27,060)

11,139

29,137

(92,340)

Percentage of plan assets (%)

2.2%

(7.3%)

2.9%

8.0%

(28.7%)

13. Share Capital

 


2012

2011


£'000

£'000

Issued



639,746,083 Ordinary Shares of 10p each (2011: 639,746,083)

63,975

63,975

756,000 13.75% Cumulative Preference Shares of £1 each (2011: 756,000)

756

756

349,600 13.75% 'A' Preference Shares of £1 each (2011: 349,600)

350

350

Total issued share capital

65,081

65,081

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

Since the balance sheet date, 2,796,518 ordinary shares of 10p each have been issued following the exercise of a number of share warrants.

At the balance sheet date 79,622,023 warrants were outstanding.



14. Notes to the Cash Flow Statement

 


2012

2011


£'000

£'000

Operating profit/(loss)

40,441

(106,979)

Adjustments for:



Impairment of intangibles - non-recurring

-

163,695

Depreciation of property, plant and equipment (including write-downs)

29,954

23,147

Write down in carrying value of assets held for sale

7,817

600

Currency differences

(59)

(360)

Charge from share-based payments

606

572

Profit on disposal of property, plant and equipment

(2,047)

(775)

Movement in long-term provisions

119

(679)

Net pension funding contributions

(4,668)

(2,200)

IAS 19 past service gain (non-recurring)

(1,540)

(1,930)

Operating cash flows before movements in working capital

70,623

75,091

Decrease/(increase) in inventories

1,859

(178)

Decrease in receivables

6,769

1,431

Decrease in payables

(3,153)

(5,137)

Cash generated from operations

76,098

71,207

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

 


This information is provided by RNS
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