TIDMRCH
RNS Number : 8223D
Reach PLC
24 February 2020
Reach plc
24 February 2020
Reach plc ('Reach', 'the Company', 'the Group'), the largest
commercial national and regional news publisher in the UK, today
announces its preliminary audited results for the 52-week period
ended 29 December 2019.
SOLID TRADING PERFORMANCE AND YEAR CASH POSITIVE
CUSTOMER VALUE STRATEGY LAUNCHED
Results Adjusted results (1) Statutory results
2019 2018 Change 2019 2018
GBPm GBPm % GBPm GBPm
Revenue 702.5 723.9 (3.0) 702.5 723.9
Operating profit/(loss) 153.4 145.6 5.4 131.7 (107.6)
Profit/(loss) before
tax 150.6 141.9 6.1 120.9 (119.9)
Earnings/(loss) per
share 41.1p 39.2p 4.8 31.8p (41.0)p
Dividends per share 6.55p 6.14p 6.7 6.55p 6.14p
Financial and Operational Highlights
-- Revenue was GBP702.5m (2018: GBP723.9m) benefiting from a
full year of trading of the Express & Star acquisition
-- On a like-for-like basis (2) revenue fell by 5.3%, versus a
fall of 6.6% in 2018, with resilient circulation revenue and
stronger digital growth
-- Strengthened performance in digital (3) with like-for-like
revenue increasing by 13.2% (up 16.4% in H2) and average worldwide
monthly page views growing by 25% year on year to 1.3bn (up 34% in
H2)
-- Significant cost efficiencies delivered during the year
including structural cost savings of GBP12m and incremental
acquisition synergies of GBP16m
-- Adjusted operating profit increased by 5.4% to GBP153.4m with
adjusted operating margin increasing to 21.8% (2018: 20.1%)
-- Statutory operating profit of GBP131.7m (2018: loss of
GBP107.6m) reflecting reduced adjusting operating items versus
2018
-- Accounting pension deficit (IAS 19) fell by GBP52.7m to
GBP295.9m (GBP242.9m net of deferred tax)
-- Strong cash generated from operations (4) of GBP147.4m, up
7.0% year on year, supporting GBP60.0m acquisition term loan
repayment, with year-end cash (5) positive position of GBP20.4m
-- Group refinanced its revolving credit facility with a GBP65m
agreement to December 2023 (no drawings at the end of 2019)
-- Final dividend of 4.05 pence per share, an increase of 7.4%,
giving a total dividend for the year of 6.55 pence per share (2018:
6.14 pence per share), up 6.7%
Current Trading, Outlook and Customer Value Strategy
-- The Group has continued to perform in line with management's
expectations since the year end
-- The Board is confident that the Group will make further good
progress through the rest of the year delivering its
customer-focused objectives and digital growth ambitions
Commenting on the annual results for 2019, Jim Mullen, Chief
Executive Officer of Reach, said:
"I was delighted to join Reach in August 2019 and have been
impressed by the relentless focus on producing award-winning
journalism and content that shapes national and regional
conversations. These are strong foundations on which to invest and
innovate to ensure a sustainable future for our trusted brands.
2019 was a year of good operational and solid financial progress
with record growth in audience numbers, consistently good cash
generation and a strong balance sheet. This, along with
unparalleled scale, underpins our drive to build an intelligent,
relevant and trusted content business for the long term whilst
continuing to deliver for our stakeholders.
Content is at the heart of the new customer value strategy we
are announcing today. We have an unmatched reach in UK media and
will deepen our relationships via increased customer engagement.
Through this, we see significant potential to accelerate the
diversification of our digital revenue and capture more value to
deliver on our sustainable digital growth ambitions."
Notes
(1) Set out in note 19 is the reconciliation between the
statutory and adjusted results. The current period is for the 52
weeks ended 29 December 2019 ('2019') and the comparative period is
for the 52 weeks ended 30 December 2018 ('2018').
(2) Set out in note 21 is the reconciliation between the
statutory and like-for-like revenue. The like-for-like trends for
2019 include Express & Star as if it had been owned from the
beginning of 2018 and exclude from the 2018 comparative the impact
of portfolio changes and the disposal of Communicator
Corporation.
(3) Print revenue comprises circulation, advertising (including digital classified which is predominantly upsold from print), printing (including third party printing contracts) and other (contract publishing, syndication, reader offers and events). Digital revenue comprises the combined display and transactional revenue streams. Set out in note 20 is the reconciliation between the classifications in the prior period to the classifications in the current period.
(4) Cash generated from operations has been extracted from the
consolidated cash flow. An adjusted cash flow is presented in note
22 which reconciles the adjusted operating profit to the net change
in cash and cash equivalents. Set out in note 23 is the
reconciliation between the statutory and adjusted cash flow.
(5) Cash and cash equivalents of GBP20.4m (note 15).
Enquiries
Reach 020 7293 3000
Jim Mullen, Chief Executive Officer
Simon Fuller, Chief Financial Officer and Company
Secretary
Angus Prentice, Interim Investor Relations Director
Tulchan Communications 020 7353 4200
David Allchurch / Giles Kernick
About Reach plc
Reach plc is the largest commercial national and regional news
publisher in the UK, with over 150 national and regional
multi-channel brands including the Mirror, Express, Star, OK!,
New!, Daily Record, Manchester Evening News, Liverpool Echo,
WalesOnline, MyLondon and BelfastLive.
In December 2019, Reach sold 40m newspapers and reached a
digital audience of over 40m people in the UK. For more information
visit: www.reachplc.com .
Results and strategic update presentation
A presentation for analysts and institutional investors will be
held today at Numis Securities, London Stock Exchange building, 10
Paternoster Square, London, EC4M 7LT, starting at 10.30am.
Pre-registration for this event is necessary to comply with
security procedures at the venue. To register your interest in
attending the presentation, please contact Tulchan Communications
either by email ReachPLC@tulchangroup.com or by telephone +44 (0)20
7353 4200.
A conference call facility and live webcast will also be
available for analysts and institutional investors unable to attend
in person. Details are as follows:
-- Conference call - telephone number: 0800 376 7922 or +44
(0)20 7192 8000; conference ID number: 9863544
-- Webcast - URL: https://edge.media-server.com/mmc/p/3i287h2k
A copy of the presentation and a replay recording of the
presentation via audio webcast will be available at
www.reachplc.com later today.
Forward-looking statements
This announcement has been prepared in relation to the financial
results for the 52 weeks ended 29 December 2019. Certain
information contained in this announcement may constitute
'forward-looking statements', which can be identified by the use of
terms such as 'may', 'will', 'would', 'could', 'should', 'expect',
'seek, 'anticipate', 'project', 'estimate', 'intend', 'continue',
'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the
negatives thereof) or words of similar meaning. Forward-looking
statements can be made in writing but also may be made verbally by
members of management of the Company (including, without
limitation, during management presentations to financial analysts)
in connection with this announcement. These forward-looking
statements include all matters that are not historical facts and
include statements regarding the Company's intentions, beliefs or
current expectations concerning, among other things, the Company's
results of operations, financial condition, changes in global or
regional trade conditions, changes in tax rates, liquidity,
prospects, growth and strategies. By their nature, forward-looking
statements involve risks, assumptions and uncertainties that could
cause actual events or results or actual performance or other
financial condition or performance measures of the Company to
differ materially from those reflected or contemplated in such
forward-looking statements. No representation or warranty is made
as to the achievement or reasonableness of and no reliance should
be placed on such forward-looking statements. The forward-looking
statements reflect knowledge and information available at the date
of this announcement and the Company does not undertake any
obligation to update or revise any forward-looking statement,
whether as a result of new information or to reflect any change in
circumstances or in the Company's expectations or otherwise.
Chief Executive's Review
Introduction and early reflections
This is my first annual review since taking over as CEO of Reach
in August 2019. I am delighted to report a successful period of
continuing good operational and financial progress for Reach, one
which has seen the re-focusing of the Company's strategy as we aim
to generate and accelerate our growth for the long term, and the
appointment of a Chief Customer Officer.
My early impressions of Reach are extremely positive and I feel
privileged to lead a business that is laden with excellent
journalistic, creative and operational talent. People are the core
of our business and critical in taking the business forward. Reach
has been on an acquisitive journey that has resulted in the
unrivalled position of being the largest commercial national and
regional news publisher in the UK. Tight cost control has delivered
efficiency and balance sheet strength. However the challenges
facing commercial news and content publishers have been well
documented and I have been asked on several occasions what
attracted me to joining Reach. The short answer is that I saw a
compelling opportunity to drive increasing value as we deepen our
relationship and better engage and understand our customers.
With a revival in readers searching for trusted news and
content, a distribution reach unmatched in UK media and a record
number of anonymous customers engaging on a daily basis, it is
clear to me that there is significant opportunity to develop closer
and better known relationships with our customers to further drive
increased engagement and commercial yield.
The Group's operational and financial resilience is commendable.
Best of all, though, is that Reach is very well positioned to take
advantage of the many real opportunities that we are currently
seeing in our industry. With our strong balance sheet, cost control
and disciplined internal investment, and a print business that is
highly cash generative, we have the capability and opportunity to
create further value from our trusted reader and customer
relationships and thereby further diversify our revenue base. All
of which is additive to our long-standing commitments to our
shareholders and pension schemes.
Overview
Reach delivered a solid financial performance in 2019, with a
good operational performance, and record growth in audience numbers
particularly in the second half of the year.
A refocus on operational management post the successful
integration of the publishing assets of Northern & Shell
('Express & Star') has allowed us to deliver an improved
operating margin and profitability, whilst an improvement in the
rate of decline of print revenue together with strong growth in
digital revenue resulted in an improved Group revenue performance
on a like-for-like basis.
For the 52 weeks ended 29 December 2019, adjusted operating
profit increased by 5.4% to GBP153.4m as a result of our continued
focus on driving operating efficiency and reducing costs. Adjusted
operating margin increased by 1.7 percentage points to 21.8%.
The Company saw reported revenue of GBP702.5m which is a decline
of 3% or GBP21.4m. On a like-for-like basis revenue declined by
5.3% which is an improvement compared to 2018 where the
year-on-year revenue decline was 6.6%. Like-for-like print revenue
fell by 7.9% compared to 8.3% in 2018 but digital revenue
demonstrated strong growth, increasing by 13.2% on a like-for-like
basis compared to 9.6% in 2018. This increase in digital revenue
benefited from strong page view growth, up 25% versus prior year.
The slowdown in the year-on-year decline of print revenue was
helped by resilient circulation revenue which declined by only 4.5%
compared to a fall of 5.1% in 2018. Advertising revenue fell by
19.4% which compares to 16.2% in 2018.
The circulation revenue decline benefited from cover price
increases during the year as well as increased availability, while
the fall in advertising revenue was in part driven by the agreed
reduction in Health Lottery advertising as part of the Express
& Star acquisition. Excluding this effect, advertising revenue
declined by 17.2%.
Cash generation continued strongly during the year and resulted
in the Group becoming debt free with a net cash balance of GBP20.4m
at the financial year-end. The strong cash flows enabled the early
repayment of all our bank financing.
We also successfully refinanced our borrowing arrangements
during the period. The Company's new debt facilities consist of an
undrawn GBP65m non-amortising facility committed to December 2023,
providing Reach with a simple long-term debt capital structure and
a strong financial platform from which to continue delivering upon
the growth objectives of the business.
The provision for dealing with and resolving civil claims in
relation to historical phone hacking and unlawful information
gathering has been increased by GBP11.0m at the year end to reflect
an increase in the estimate of the cost of settling claims. This
brings the total amount charged to the income statement since 2014
to GBP86.5m. At the year end, GBP21.1m of the provision remains
outstanding and this represents the current best estimate of the
amount required to settle the expected claims. Although it is not
possible to provide a range of potential outcomes in respect of
this provision, the Board remains confident that the exposures are
manageable and under control. Due to this uncertainty, a contingent
liability has been highlighted in the financial statements.
Adjusted profit before tax increased by 6.1% to GBP150.6m (2018:
GBP141.9m) while adjusted earnings per share rose by 4.8% to 41.1p
per share (2018: 39.2p per share).
Further details on our financial performance during the year are
provided in the Financial Review.
Our customer-focused future
As a result of our strong financial and operating performance
during the year, combined with the strength of the Company's
balance sheet, we have now established a solid and stable
foundation on which to drive customer focused, sustainable growth
for Reach.
Our news brands have a long heritage of being trusted sources of
news and information. Through our national and regional print
titles we reach 15m UK adults each month. During the last five
years, we have been driving expansion of our national and regional
digital coverage. Our UK monthly online audience in December 2019
was 40m, up 8% on the prior year. To date, we have been very
successful in growing page views of our online news sites. This has
largely been achieved through investing in journalism and content
producers, offering high quality, trusted content particularly on
topical news items, campaigning, sport, celebrity news, royalty
coverage and politics. We've also seen encouraging growth in page
dwell time which is also important to driving yields.
There is much more that we can do. The yield that results from
programmatic or algorithmic advertising has been and will remain a
significant pillar of our growth but we now need to develop a
strategy to capture the value we have in our trusted reader and
customer relationships. To build upon this growing reach we intend
to deliver more value from the increasing depth of our trusted
reader and customer relationships.
The reach and distribution channels of digital and print are all
too often kept separate. What binds them together is the reader and
customer value of those who consume one or more of our brands or
those who engage with our products and services found via our
brands. As an industry, we too often talk about the decline of our
print products, but 15m people read one of our newspapers and
magazines each month. Although it is in decline, our print customer
base is loyal and resilient and coupled with strong growth in our
digital audience, we have an unparalleled reach in the UK of 47m
(combined deduped print and digital reach) and we still remain the
largest commercial national and regional news publisher in the UK.
We have already started the process of getting a better grasp on
our customer cross-over, uniquely identifying print readers and
understanding our digital customers better.
We have continued to invest in our InYourArea brand which will
build upon the distribution of our network to deliver relevant
local content and build direct local customer relationships.
Through the investment in 2019 in our Live sites, we have invested
in journalism to make sure we are further extending our network and
covering areas in the UK where we are not currently present and
where we expect organic growth offers better value returns than
acquisitions.
We plan to bridge the current anonymity of our digital and print
relationships by building known customer relationships. Thus making
content more relevant, advertising more targeted, services more
useful and customer relationships more meaningful and therefore
more valuable. The 47m people we now reach in the UK means we have
a significant base to begin our strategy of building more valuable
customer relationships.
Our competitive position
Looking at the business today, some 84% of the Group's revenue
comes from the print business, yet Reach in 2019 has moved from the
sixth biggest digital asset in the UK to the fifth biggest digital
asset after Google, Facebook, Amazon and Microsoft with 40m unique
users accessing our online content in December 2019 (as measured by
ComScore). In many of the large UK cities we serve, Reach's news
content is relied upon for daily consumption by more than 50% of
the local population. When we take our significant regional and
national print products into account, we have a reach of 47m people
accessing our content.
Amongst the top four of the UK's digital assets, we estimate
that more than 90% of customers have signed up and provided their
data. This has enabled these digital content providers to develop
strong commercial offerings. In contrast, to date less than c.2% of
Reach's customers have given us their consent through registration,
largely because we have not asked for it. This highlights the
initial opportunities we have and the very significant growth
potential we see. Increased customer engagement will come from
driving registration by engaging customers on key verticals and
getting a better understanding of their behaviours and top
interests. This increase in registered users will enable us to
better personalise our offering and introduce these customers to
new products and services.
Importantly, we already have much of the necessary technical
resource in house. While there will be need for some technology
investment in the future, we do not currently anticipate
significant capex spend. We have a sophisticated content management
system which we will continue to develop to enhance reader
experiences when they visit our websites and apps. Our ad stack is
optimised to deliver maximum revenue from advertising which is
relevant to readers. As we develop our strategy, we will work with
partners whose technology allows us to deliver our plans
effectively and sustainably.
Our print titles are well managed with editorial conviction and
still consistently produce award-winning journalism that shape the
national and regional conversation. In 2019, amongst a number of
campaigns pioneered by Reach titles:
-- In 2019 the Daily Mirror continued its long history of
special editions, campaigns and agenda-setting reporting. The title
decided the best and bravest way to explore the issues facing
today's teenagers was to allow a group of young people to edit the
Mirror in print and online for a day. A team of 20 teenagers took
control of all content in the ground breaking NextGen edition. This
same bold approach saw the Mirror devote an entire issue to the
global climate crisis. It featured brilliant reporting from
Northern Canada, India and Ghana; the launch of a campaign to plant
a million trees; analysis from across the UK on our changing
environment; and bespoke advertising from numerous existing and new
clients. The paper even turned its masthead green for a day.
-- The Daily Express waged a hard-fought and successful campaign
to save the lives of isolated and helpless Cystic Fibrosis
sufferers. Launching in February 2019, the paper demanded sufferers
be given access to wonder drugs Orkambi and Symkevi following
deadlock between the NHS and US drug giant Vertex. By giving the
sick a banner to unify behind, the Express shattered the stalemate
meaning thousands of gravely-ill patients will live out their dream
of a healthier, happier future. The fight continues. The paper has
now launched a campaign for the cutting-edge Cystic Fibrosis wonder
drug Trikafta to be made available on the NHS as soon as
possible.
-- Scotland has the highest rate of drug-related deaths anywhere
in Europe, prompting the Daily Record to ask some fundamental
questions about the crisis. After speaking to key voices across all
areas of the debate and travelling to Portugal, a country which had
experienced and addressed similar problems, the Record concluded it
was time to start treating drug addiction as a health issue rather
than a crime. The highlight of the campaign was the Record's front
page with the headline 'DECRIMINALISE DRUG USE'. This has since
become the official policy of the Scottish government, which is
trying to put pressure on the Prime Minister to devolve the powers
to Holyrood.
-- The Manchester Evening News ('MEN') played a leading role in
ensuring the North of England was a major factor in the 2019
General Election. Joining with more than 30 regional titles, the
MEN spearheaded the 'Power up the North' campaign after exposing
funding inequality that had actively widened the gap between North
and South. With a huge audience amplified by national media
attention, this unique collaboration ensured both major political
parties went into the campaign with key policy pledges for the
North. That narrative has accelerated post-Election and we remain
central to ensuring promises are delivered.
-- Plastic waste has been a widely-discussed topic in recent
years. In 2019, WalesOnline ran the 'Wales Against Plastics'
campaign to shed light on the damage done by plastic waste to the
Welsh landscape, from beaches to ancient woodlands. The news site
called on councils to increase recycling and limit
environmentally-damaging landfill, and highlighted Welsh businesses
who were reducing their plastic packaging. It also asked readers to
pledge to reduce their plastic waste, while offering practical
advice on how to do so. Furthermore, the WalesOnline team organised
their own clean-ups with editorial staff and members of the public
at Swansea Bay beach and Aberavon beach, during which they cleaned
up more than 30 bin bags worth of litter.
The titles within our portfolio represent a diverse set of
opinions across the political spectrum which is arguably unmatched
in the UK media landscape and as such are geographically,
demographically and through the audience in which they represent a
true reflection of our readers and customer. This is a rich base of
customer information to build a customer value strategy.
Our customer value strategy
This is the start of a customer value strategy to build upon our
significant reach and engage directly with our customers,
essentially adding depth to the breadth we already have. This is in
addition to our continuing operating efficiency, commitment to our
core purpose of publishing first class journalism and content, and
delivering on our pension and shareholder obligations. With that in
mind, we are committed to the continuation of paying a progressive
dividend and meeting our pension obligations. We will therefore
continue to strive to deliver sustainable growth in revenue, profit
and cash flow by layering our customer value strategy on to our
operational efficiency initiative and better leverage our
significant distribution and reach. Content is at the heart of this
strategy and we will build an intelligent and relevant content
business for the long term. We will continue to keep a tight
control on capital investment with ongoing discipline being a key
principle. Reach will better harness our talent and teams, and
become a more data-driven and customer-centric organisation with a
unified single view of the customer across Reach. To deliver this,
our vision is 'Touching lives, shaping conversations and stirring
emotions... our trusted brands connect people to the world. Every
minute, every day.'
Current trading, outlook and customer value strategy
The Group has continued to perform in line with management's
expectations since the year end. The Board is confident that the
Group will make further good progress through the rest of the year
delivering its customer-focused objectives and digital growth
ambitions.
Jim Mullen
Chief Executive Officer
24 February 2020
Business Review
A year of progress, with improved digital momentum
2019 performance has been encouraging, with improvements across
a range of financial and operational metrics, and provides a solid
base for the future. Strong growth in digital audience drove an
improved digital like-for-like revenue trend, whilst like-for-like
circulation revenue decline (and therefore print revenue decline)
trends improved due to targeted product and availability
investment. We continue to deliver improvements for our customers
through our brands, content and experience, as well as being
focused on driving efficiencies across our business and delivering
returns to shareholders while meeting our agreed pension
obligations.
Strategic progress
Set out below is a summary of the progress made during 2019 in
pursuing our strategy to maximise cash flow from print while
accelerating digital audience and revenue:
Maximise cash flow from print
We continue to enhance the content and distribution of our print
brands as we seek to support circulation revenue:
-- Editorial improvements were made to the Daily Express,
increasing its pagination by eight pages per day including four
pages of puzzles, which has proved popular with readers;
-- Following the success of the Sunday edition of the Liverpool
Echo, in February we launched the Manchester Evening News on a
Sunday with negligible increase in resource required, again
demonstrating the efficiency of our editorial and publishing
operating model;
-- The OK! bumper pack comprising OK!, New and Star magazines
has been evolved with Star magazine being replaced with a 7-day TV
listings magazine ('Star TV') which is a re-branded version of 'We
Love TV' which already appears in the Daily Mirror on Saturday.
This has added value to the OK! bumper pack at a lower cost;
and
-- We continue to innovate our products with the Daily Mirror
publishing two special editions during the year:
o The Daily Mirror Next Gen Edition, published in May, was
written and edited by young people from schools across the country,
providing a platform for their voices to be heard more clearly and
highlighting the issues that they felt passionate about. This
special edition proved particularly popular amongst our
advertisers, including SEAT, who were masthead sponsors for the
edition.
o The Daily Mirror Climate Issue, published in November,
reported from Britain and around the globe on the climate crisis
threatening our planet, telling the stories of those lives already
impacted by floods and fires, and by rising sea levels and
temperatures. This issue also saw the launch of our 'Million Mirror
Trees' planting campaign.
We also continue to implement operational efficiency
improvements designed to optimise the print cost base:
-- Delivered structural cost savings of GBP12m, GBP2m ahead of
our target of GBP10m, including optimising our printing supply
chain and evolving our printing processes;
-- Completed the integration of Express & Star, delivering
savings on an annualised basis of GBP23m (GBP3m delivered in 2018,
an incremental GBP16m delivered in 2019 with a further incremental
GBP4m being delivered in 2020 ); and
-- We also continue to review our portfolio of regional titles
and closed three titles during the year.
Accelerate digital audience and revenue
Reach is currently the fifth largest digital asset in the UK and
we continue to grow our digital reach. Through our digital
distribution channels, our content reached over 40m unique users in
December 2019 and we reach over 50% of the population in the big
cities that we serve on a weekly basis.
We recorded strong organic growth in our digital audience
through the course of 2019, with the number of page views
accelerating in the second half of the year. Average worldwide
monthly page views in 2019 grew by 25% year on year to 1.3bn (up
34% in H2).
We launched two new embeds across all online publications in our
network. The 'Don't Miss' and 'Most Read' embeds are designed to
improve recirculation by providing relevant in-article
recommendations to our readers.
The Manchester Evening News ('MEN') became the first-ever UK
regional news site to break the 1bn views mark in a single year.
With over 750m views on desktop and mobile, plus a further 250m on
its app, the MEN hit this milestone at the end of November
2019.
During the year, we opened new digital-only sites in areas or
segments where we do not currently have a print presence such as
Business Live and Cork Beo which brings together all our regional
business coverage onto a single site.
Apart from our websites, we also have a stable of podcasts,
including our hugely successful Blood Red Liverpool podcast, with
monthly listens growing steadily. We launched several new podcasts
during the year on topics including mental health and
parenting.
In November, we announced a significant expansion of our digital
network of regional news sites under the 'Live' brand, committing
to at least seven new launches in 2020 and hiring 46 journalists
into permanent positions. New launch areas include Bolton,
Bradford, County Durham, Newport, North Yorkshire, Sheffield and
Sunderland. This expansion represents further growth of our proven
model and brings Reach journalism to even more communities across
the country, demonstrating our commitment.
Since the year end, we announced a further investment in digital
reach with more than 50 new jobs for our personalised hyper local
news platform InYourArea, which has shown rapid growth since its
launch in 2017. InYourArea already has 2.5m engaged users and
consistently shows double-digit monthly growth, evidence of our
continuing ability to lead in the hyper local news sector.
We recognise that digital audience growth alone is insufficient
and we must build our digital revenue alongside it, which we have
done with like-for-like digital revenue increasing by 13.2%, an
acceleration year on year .
Key initiatives that continue to drive digital revenue growth
include:
-- Audience engagement to deliver higher page views and
optimisation of the advertising yield for each page impression and
each page;
-- Strong revenue growth from InYourArea where we have a range
of self-serve products for local advertisers including estate
agents, jobs, local deals and a business membership and directory;
and
-- Growth and development of our Ozone commercial partnership
with News UK, The Telegraph and The Guardian, offering quality
audiences at scale in a brand safe, transparent and trustworthy
environment.
At the end of January 2020, Maureen McDonagh joined from
Facebook in a new role as Chief Customer Officer. Maureen is
responsible for delivering a joined-up data and customer strategy,
working closely with the digital teams at Reach and steering a
range of customer-focused objectives.
Beyond digital revenue, we continue seeking ways to diversify,
for example, through events (leveraging our association with Brand
Events), our book publishing business and Reach Sport (our sports
media publishing business), which handled the publication of all
the match day programmes for all the Rugby World Cup fixtures held
this year in Japan.
Merger and acquisition opportunities
We will continue to consider merger and acquisition
opportunities which accelerate progress in the delivery of our
strategy and where the financial and business cases meet our
requirements. These opportunities could be to provide further
industry consolidation, increase our digital footprint or audience
scale, develop our product set or to monetise our existing
audience.
Sustainable growth
We believe growth from digital and new revenue streams will
offset print declines on an aggregate basis, leading to a future
stabilisation of revenue. This, combined with our inbuilt and
relentless focus on maximising efficiency, gives the Board
confidence that the delivery of sustainable growth in revenue,
profit and cash flow is achievable in the future, for the benefit
of all stakeholders.
Our colleagues
Our thanks go to all our colleagues for their valuable
contribution to the solid financial and operating performance of
Reach during 2019.
Financial Review
Solid financial progress and strong business fundamentals
The Group delivered a solid trading performance in 2019, with
improved revenue trends and the delivery of significant cost
savings resulting in an improvement in adjusted operating profit.
The balance sheet strengthened with all bank debt repaid, a
positive cash balance of GBP20.4m and a reduced IAS 19 pension
deficit, while the strong cash flows continue to support the
payment of a progressive dividend and our ongoing obligations to
funding the pension scheme deficits.
Trading performance
Improved revenue mix
On a like-for-like basis, revenue declined by 5.3% compared to a
like-for-like fall of 6.6% in 2018. Within this, print revenue fell
by 7.9% (2018: down 8.3%) and digital revenue showed stronger
growth, increasing by 13.2% (2018: up 9.6%). Total revenue fell by
3.0% to GBP702.5m benefiting from the acquisition of Express &
Star .
Print revenue fell by 5.1% or GBP32.0m to GBP591.3m (2018:
GBP623.3m). On a like-for-like basis, print revenue declined by
7.9% (2018: down 8.3%), with the more resilient circulation revenue
declining by 4.5%. Circulation revenue now accounts for 61.2% of
print revenue, while the more structurally challenged advertising
revenue declined by 19.4%. The circulation revenue decline was
part-mitigated by cover price increases and availability
investment, while the advertising decline was impacted by the
agreed reduction in Health Lottery advertising as part of the
Express & Star acquisition (excluding this effect, advertising
declined by 17.2%).
Circulation volumes for the Group's national daily titles
(excluding the impact of sampling) fell by 12.6% which compares to
a decline for the UK tabloid market of 9.8%. The Group's national
Sunday titles (excluding the impact of sampling) fell by 14.6%
which compares to a decline for the UK tabloid market of 10.7%.
Volume declines for our regional titles were 14.1% for paid-for
dailies, 21.2% for paid-for weeklies and 4.6% for paid-for Sundays.
Our regional Sunday volumes were improved by the launch of MEN on
Sunday which if excluded volume declines were 14.1%. The
circulation volumes for the paid-for magazines, OK! and New!,
continued to face challenging trading. The circulation volume trend
versus the market average have been impacted by cover price
differentials and strategy.
The like-for-like decline in advertising revenue reflects the
impact of the reduction in Health Lottery advertising and the
absence of the FIFA World Cup, which was in June and July in the
prior year. Our nationally sourced advertising performed better
than locally sourced advertising, which still suffers the drag of
declining classified advertising. Print advertising volume market
share on the Group's national titles on a like-for-like basis was
broadly similar to 2018.
Printing like-for-like revenue increased by 6.6% benefiting from
new printing contracts and additional services to existing
customers .
Other like-for-like revenue increased by 1.8% including the
benefit from the printing and distribution of programmes for the
Rugby World Cup.
Digital revenue comprises the combined display and transactional
revenue streams which are predominantly directly driven by page
views. We have accelerated our digital audience growth,
establishing ourselves as a digital player of true scale and we
continue to find ways to monetise this scale and reach. Digital
revenues were GBP107.0m in 2019 (2018: GBP91.3m).
Digital revenue on a like-for-like basis was up by 13.2%
(compared to 9.6% in the 2018) , benefiting from page view growth
with revenue growth accelerating from 9.7% in the first half to
16.4% in the second half. The growth in the first half was impacted
by our digital audience continuing to be negatively impacted by the
changes in Facebook and Google algorithms in early 2018, while the
second half benefited from our digital initiatives.
Average monthly worldwide page views in 2019 grew by 25% year on
year to 1.3bn. The first half saw page view growth of 15% while the
second half saw accelerated page view growth of 34%. In 2019 mobile
page views grew by 37% while desktop page views fell by 4%.
Other revenue is derived from our specialist digital recruitment
websites. In 2018 this also included revenue from our specialist
digital marketing services business, which was disposed of in
September 2018, and from third-party rental and other services
income to tenants in Canary Wharf, which ended as we terminated sub
leases following our move from four to two floors in June 2018.
Delivery of significant cost savings
Statutory operating costs fell by GBP254.1m to GBP578.2m due to
there being no impairment charge compared to a charge of GBP200.0m
in the prior year together with lower pension and restructuring
charges and the benefit of cost savings despite the inclusion of
Express & Star costs for an additional two months.
A key priority for the Group is maintaining quality journalism
whilst ensuring the commercial viability and profitability of our
brands into the future. To achieve this we continue to drive
efficiencies which we expect to not adversely impact our products.
The Group tightly manages the cost base with cost savings delivered
through natural mitigation where volumes decline, day-to-day
management interventions, structural costs savings which
permanently remove costs and synergy savings relating to the
acquisition of Express & Star. In 2019, the Group delivered
structural cost savings of GBP12m, GBP2m ahead of our target of
GBP10m and completed the integration of Express & Star,
delivering savings on an annualised basis of GBP23m (GBP3m
delivered in 2018, an incremental GBP16m delivered in 2019 with a
further incremental GBP4m being delivered in 2020).
These savings have been achieved by a series of initiatives
across the business, including editorial, commercial, printing,
senior management structures and back office functions. We also
drive longer term infrastructure and operational benefits by
reducing office space, moving data centres to the cloud, alongside
investing in new and improved systems. In addition to cost savings,
we drive further optimisation initiatives through maximising the
utilisation of our printing network by securing new or retaining
existing print contracts or securing external printing for our
newspapers where appropriate, managing the profitability of our
titles and closing titles where there is no path to
sustainability.
Labour costs were GBP240.1m (reduction of GBP5.8m versus 2018)
with savings from print-related staff reductions partly offset by
the additional two months of Express & Star and an increase in
digital focused resource, alongside inflationary increases.
Newsprint costs were GBP73.1m (reduction of GBP2.5m versus 2018)
with savings from reduced volumes and closures mostly offset by the
additional two months of Express & Star and newsprint price
increases (increase in H2 2018 and H1 2019 though reduction in H2
2019). Price inflationary pressures seen in recent years have eased
more recently.
Depreciation was GBP21.5m (reduction of GBP0.8m versus 2018) as
capital expenditure continues to be below depreciation, with
minimal capex required for our print sites and expected for digital
development.
Other costs were GBP243.5m (reduction of GBP245.0m on 2018)
driven by reduced operating adjusted items of GBP225.6m
(principally, the prior year impairment). The remaining reduction
of GBP19.4m is driven by print costs actions more than offsetting
the additional two months of Express & Star and an increase in
digital focused costs and inflationary increases.
The total impact of the items excluded from adjusted operating
costs was a charge of GBP27.3m (2018: GBP252.9m). Operating
adjusted items comprise restructuring charges in respect of cost
reduction measures of GBP10.7m (2018: GBP20.0m), a GBP11.0m (2018:
GBP12.5m) increase in the provision for dealing with and resolving
civil claims in relation to historical phone hacking, pension
administrative expenses of GBP2.9m (2018: GBP3.0m) and an
impairment of a printing press of GBP2.7m (2018: nil). In 2018,
operating adjusted items also included a non-cash impairment of
goodwill publishing rights and titles and freehold buildings of
GBP200.0m, pension past service costs for Guaranteed Minimum
Pension equalisation of GBP15.8m and a charge for other items of
GBP1.6m.
Statutory results
The statutory operating profit of GBP131.7m for the year
compares to a statutory operating loss of GBP107.6m in the prior
year which was impacted by a non-cash impairment charge.
Statutory financing costs were GBP10.9m (2018: GBP12.4m)
reflecting the reduction in the pension finance charge on a lower
opening pension deficit and the reduction in finance costs as
borrowings drawn to fund the acquisition of Express & Star have
been repaid.
The statutory tax charge of GBP26.6m (2018: credit of GBP0.3m)
comprises a current tax charge of GBP15.9m (2018: GBP17.2m) and a
deferred tax charge of GBP10.7m (2018: credit of GBP17.5m).
Statutory profit after tax amounted to GBP94.3m compared to a
loss after tax of GBP119.6m and statutory earnings per share for
the year of 31.8 pence per share compares to a statutory loss per
share of 41.0 pence in the prior year.
Adjusted results
The acquisition of Express & Star coupled with our continued
focus on tightly managing the cost base ensured we delivered a
solid performance, with adjusted operating profit growing by 5.4%
or GBP7.8m to GBP153.4m. Adjusted operating margin increased by 1.7
percentage points from 20.1% in 2018 to 21.8% in 2019 reflecting
our optimisation strategy.
The continued strong cash flows generated by the business
ensured that finance costs were GBP2.9m, a decrease of GBP0.9m from
the prior year due to repayment of term loan borrowings drawn to
fund the acquisition of Express & Star.
The adjusted tax charge of GBP28.9m (2018: GBP27.7m) represents
19.2% (2018: 19.5%) of adjusted profit before tax. The rate is
broadly in line with the statutory tax rate of 19.0%.
Adjusted profit after tax increased by GBP7.5m or 6.6% to
GBP121.7m and adjusted earnings per share increased by 1.9 pence or
4.8% to 41.1 pence.
Reconciliation of statutory to adjusted results
Operating Pension
Statutory adjusted finance Adjusted
results items charge results
GBPm GBPm GBPm GBPm
-------------------------- -------------- -------------- ---------- -------------
Revenue 702.5 - - 702.5
Operating profit 131.7 21.7 - 153.4
Profit before tax 120.9 21.7 8.0 150.6
Profit after tax 94.3 20.9 6.5 121.7
Basic earnings per share
(p) 31.8 7.1 2.2 41.1
-------------------------- -------------- -------------- ---------- -------------
The Group excludes from the adjusted results operating adjusted
items (note 5) and the pension finance charge (note 14). Adjusting
items relate to costs or incomes that derive from events or
transactions that fall within the normal activities of the Group,
but are excluded from the Group's adjusted profit measures,
individually or, if of a similar type in aggregate, due to their
size and/or nature in order to better reflect management's view of
the performance of the Group.
Items are adjusted for where they relate to material items in
the year (impairment, restructuring, disposals) or relate to
historic liabilities (historical legal issues, defined benefit
pension schemes which are all closed to future accrual). These
include items which have occurred for a number of years and may
continue in future years. Management exclude these from the results
that it uses to manage the business and on which bonuses are based
to reflect the underlying performance of the business and believes
that the adjusted results, presented alongside the statutory
results, provides users with additional useful information.
Restructuring charges incurred to deliver cost reduction
measures relate to the transformation of the business from print to
digital, together with costs to deliver synergies. These costs are
principally severance related, but may also include system
integration costs. They are included in adjusted items on the basis
that they are material and can vary considerably each year,
distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost
associated with dealing with and resolving civil claims for
historical phone hacking and unlawful information gathering. This
is included in adjusted items as the amounts are material, it
relates to historical matters and movements in the provision can
vary year to year.
Impairments to non-current assets arise following impairment
reviews or where a decision is made to close or retire printing
assets. These non-cash items are included in adjusted items on the
basis that they are material and vary considerably each year,
distorting the underlying performance of the business.
The Group's pension schemes are all closed to new members and to
future accrual and are therefore not related to the current
business. The pension administration expenses and the pension
finance charge are included in adjusted items as the amounts are
significant and they relate to the historical pension commitment.
Additionally, the charge in respect of Guaranteed Minimum Pension
equalisation was included in adjusted items last year as the amount
was material and it related to the historical pension
commitment.
Other items may be included in adjusted items if they are
material, such as transaction costs incurred on significant
acquisitions or the profit or loss on the sale of subsidiaries,
associates or freehold buildings. They are included in adjusted
items on the basis that they are material and can vary considerably
each year, distorting the underlying performance of the
business.
Balance Sheet
Positive cash balance at year end
Net debt reduced by GBP61.2m from GBP40.8m net debt at the prior
end to a net cash position of GBP20.4m at the year end.
In December 2019, the Group repaid early the remaining GBP39.7m
drawing on the Acquisition Term Loan ('ATL') from cash reserves.
With the repayment of GBP20.3m in the first half of the year, the
ATL has been fully settled.
The Group also cancelled the previous amortising Revolving
Credit Facility ('RCF') and entered into a new four-year GBP65m
non-amortising RCF. This is to provide the necessary resources to
continue to invest in the future strategy. The Group had no
drawings at the reporting date on the RCF.
Deferred consideration of GBP59.0m in respect of the acquisition
of Express & Star is included in trade and other payables. Of
this amount, GBP18.9m is classified as current liabilities (payable
on 28 February 2020) and GBP40.1m is classified as non-current
liabilities (payable GBP16.0m on 28 February 2021, GBP17.1m on 28
February 2022 and GBP7.0m on 28 February 2023). There are no
conditions attached to the payment of the deferred consideration
and the transaction was structured such that no interest accrues on
these payments.
The strong cash flows generated by the Group provide resilience
and financial flexibility to invest in the business, meet pension
funding obligations and pay a progressive dividend.
Historical legal issues
The historical legal issues provision relates to the cost
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering. In
April 2019, the law changed in respect of conditional fee
agreements, the effect of which was to limit from that date the
extent to which a claimant's law firm can recover a premium in
legal costs for success. During the year the Group has progressed
and settled a number of claims and also seen new claims come
forward, a number of which were advanced immediately prior to this
change. The Group has also been required to provide further invoice
information to claimant's lawyers in respect of certain suppliers
to the Group over a period of time.
The provision has been increased by GBP11.0m at the year end to
reflect an increase in the estimate of the cost of settling claims.
At the year end, GBP21.1m of the provision remains outstanding and
this represents the current best estimate of the amount required to
settle the expected claims. There are three parts to the provision:
known claims, potential future claims and common court costs. The
estimates are based on historical trends and experience of claims
and costs. The provision is expected to be utilised over the next
few years. The Group has recorded an increase in the provision in
each of the last five years which highlights the challenges in
making a best estimate. Certain cases and other matters relating to
the issue are subject to court proceedings, the dynamics of which
continue to evolve, and the outcome of those proceedings could have
an impact on how much is required to settle the remaining claims
and on the number of claims. It is not possible to provide a range
of potential outcomes in respect of this provision. Due to this
uncertainty, a contingent liability has been highlighted in note
18.
Reduction in accounting pension deficit
The IAS 19 pension deficit in respect of the Group's six defined
benefit pension schemes fell by GBP52.7m to GBP295.9m (GBP242.9m
net of deferred tax). Group contributions, strong asset returns and
a reduction in the expected rate of improvement in mortality have
been mostly offset by an unfavourable movement in financial
assumptions driven by a fall in the discount rate and higher
inflation increases.
Group contributions to the defined benefit pension schemes in
the year were GBP48.9m (2018: GBP90.1m including a contribution of
GBP41.2m to the Express & Star schemes relating to the
acquisition). Contributions have been agreed at GBP48.9m for 2020,
GBP56.1m per annum for 2021 to 2023, GBP55.3m per annum for 2024 to
2026 and GBP53.3m for 2027.
Changes in the accounting pension deficit do not have an
immediate impact on the agreed funding commitments. The next
valuation for funding of all six pension schemes will be as at 31
December 2019 and this is required to be completed by 31 March
2021, although we anticipate this to be completed by 31 December
2020.
Cash Flow
Continued good cash generation
Cash flows from operating activities were GBP147.4m (2018:
GBP137.8m), an increase of 7.0%. Net debt of GBP40.8m at the end of
last year moved to a cash balance of GBP20.4m due to the GBP61.2m
of cash flow before debt repayments.
Restructuring payments were GBP13.6m (2018: GBP18.1m) which
included the completion of the integration of Express & Star.
Restructuring costs in 2020 are expected to be GBP5m.
Capital expenditure was GBP3.9m (2018: GBP11.2m) which is more
in line with the expected annual run rate as the Group is fully
invested in its print plants and expenses costs relating to
digital. Spend was higher in 2018 as it included expenditure in
connection with the reduction in floors at Canary Wharf and costs
relating to a new finance system.
The Group presents an adjusted cash flow which reconciles the
adjusted operating profit to the net change in cash and cash
equivalents. Set out in note 23 is the reconciliation between the
statutory and the adjusted cash flow.
The adjusted operating cash flow was GBP133.1m (2018: GBP132.9m)
which is before historical legal issues payments (GBP3.5m),
dividends (GBP18.6m), pension funding payments (GBP48.9m), debt
repayment (GBP60.0m) and additional purchase of shares in an
associate (GBP0.9m). After these, the net increase in cash balances
was GBP1.2m.
Dividends
The Board proposes a final dividend of 4.05 pence per share for
2019, an increase of 7.4%, bringing the total dividend for 2019 to
6.55 pence per share, an increase of 6.7%. The final dividend,
which is subject to approval by shareholders at the Annual General
Meeting on 7 May 2020, will be paid on 5 June 2020 to shareholders
on the register at 11 May 2020.
The Board continues to adopt a progressive dividend policy which
is aligned to the free cash generation of the Group. The free cash
generation for this purpose is the net cash flow generated by the
Group before the repayment of debt, dividend payments, other
capital returns to shareholders and additional contributions made
to the defined benefit pension schemes as a result of any
substantial increase in dividends and/or capital returns to
shareholders. Based on the Board's expectation of future cash
flows, the Board expects dividends to increase by at least 5% per
annum.
Simon Fuller
Chief Financial Officer and Company Secretary
24 February 2020
Statement of Directors' Responsibilities
The directors are responsible for preparing the Preliminary
Audited Results Announcement in accordance with applicable laws and
regulations. The responsibility statement below has been prepared
in connection with the Company's full Annual Report for the 52
weeks ended 29 December 2019. Certain points thereof are not
included within this Preliminary Audited Results Announcement.
The directors confirm to the best of their knowledge:
a) the consolidated financial statements, which have been
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit and
loss of the Group; and
b) the Preliminary Audited Results Announcement includes a fair
review of the development and performance of the business and the
position of the Group together with a description of the principal
risks and uncertainties that it faces.
By order of the Board of Directors
Simon Fuller
Chief Financial Officer and Company Secretary
24 February 2020
Consolidated income statement
for the 52 weeks ended 29 December 2019 (52 weeks ended 30
December 2018)
Adjusted Adjusted
Adjusted Items Statutory Adjusted Items Statutory
2019 2019 2019 2018 2018 2018
notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- ----------- --------- ------------ ----------- ---------- ------------
Revenue 4 702.5 - 702.5 723.9 - 723.9
Cost of sales (370.7) - (370.7) (377.4) - (377.4)
------------------------- -------- ----------- --------- ------------ ----------- ---------- ------------
Gross profit 331.8 - 331.8 346.5 - 346.5
Distribution costs (53.0) - (53.0) (61.2) - (61.2)
Administrative expenses (127.2) (27.3) (154.5) (140.8) (252.9) (393.7)
Share of results of
associates 13 1.8 5.6 7.4 1.1 (0.3) 0.8
Operating profit/(loss) 153.4 (21.7) 131.7 145.6 (253.2) (107.6)
Interest income 6 0.1 - 0.1 0.1 - 0.1
Pension finance charge 14 - (8.0) (8.0) - (8.6) (8.6)
Finance costs 7 (2.9) - (2.9) (3.8) - (3.8)
------------------------- -------- ----------- --------- ------------ ----------- ---------- ------------
Profit/(loss) before
tax 150.6 (29.7) 120.9 141.9 (261.8) (119.9)
Tax (charge)/credit 8 (28.9) 2.3 (26.6) (27.7) 28.0 0.3
------------------------- -------- ----------- --------- ------------ ----------- ---------- ------------
Profit/(loss) for the
period attributable
to equity holders of
the parent 121.7 (27.4) 94.3 114.2 (233.8) (119.6)
Earnings/(loss) per 2019 2019 2018 2018
share notes Pence Pence Pence Pence
------------------------- -------- ----------- --------- ------------ ----------- ---------- ------------
Earnings/(loss) per
share - basic 10 41.1 31.8 39.2 (41.0)
Earnings/(loss) per
share - diluted 10 40.6 31.5 39.0 (41.0)
------------------------- -------- ----------- --------- ------------ ----------- ---------- ------------
The above results were derived from continuing operations. Set
out in note 19 is the reconciliation between the statutory and
adjusted results.
Consolidated statement of comprehensive income
for the 52 weeks ended 29 December 2019 (52 weeks ended 30
December 2018)
2019 2018
notes GBPm GBPm
------------------------------------- -------- ------- --------
Profit/(loss) for the period 94.3 (119.6)
------------------------------------- -------- ------- --------
Items that will not be reclassified
to profit and loss:
Actuarial gain on defined benefit
pension schemes 14 14.7 4.6
Tax on actuarial gain on defined
benefit pension schemes 8 (2.8) (0.8)
Share of items recognised by
associates 13 (11.2) 3.2
------------------------------------- -------- ------- --------
Other comprehensive income
for the period 0.7 7.0
Total comprehensive income/(loss)
for the period 95.0 (112.6)
------------------------------------- -------- ------- --------
Consolidated cash flow statement
for the 52 weeks ended 29 December 2019 (52 weeks ended 30
December 2018)
2019 2018
notes GBPm GBPm
------------------------------------------------- -------- ------- -------
Cash flows from operating activities
Cash generated from operations 11 147.4 137.8
Pension deficit funding payments 14 (48.9) (90.1)
Income tax paid (11.7) (12.5)
------------------------------------------------- -------- ------- -------
Net cash inflow from operating activities 86.8 35.2
------------------------------------------------- -------- ------- -------
Investing activities
Interest received 0.1 0.1
Dividends received from associated undertakings 13 0.5 -
Proceeds on disposal of property, plant and
equipment 0.5 6.6
Purchases of property, plant and equipment (3.9) (11.2)
Acquisition of subsidiary undertakings - (43.1)
Proceeds on disposal of subsidiary undertaking - 6.4
Acquisition of associated undertaking 13 (0.9) (4.5)
Net cash used in investing activities (3.7) (45.7)
Financing activities
Dividends paid 9 (18.6) (17.5)
Interest paid on borrowings (3.3) (3.8)
Draw down on bank borrowings - 80.0
Repayment of bank borrowings 15 (60.0) (45.0)
Net cash (used in)/received from financing
activities (81.9) 13.7
------------------------------------------------- -------- ------- -------
Net increase in cash and cash equivalents 1.2 3.2
------------------------------------------------- -------- ------- -------
Cash and cash equivalents at the beginning
of the period 15 19.2 16.0
------------------------------------------------- -------- ------- -------
Cash and cash equivalents at the end of the
period 15 20.4 19.2
------------------------------------------------- -------- ------- -------
Consolidated statement of changes in equity
for the 52 weeks ended 29 December 2019 (52 weeks ended 30
December 2018)
Retained
Share Capital earnings
Share premium Merger redemption and other
capital account reserve reserve reserves Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
At 31 December 2017 (28.3) (606.7) (37.9) (4.4) 10.5 (666.8)
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Loss for the period - - - - 119.6 119.6
Other comprehensive income
for the period - - - - (7.0) (7.0)
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Total comprehensive loss for
the period - - - - 112.6 112.6
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Issue of shares (2.6) - (17.4) - - (20.0)
Merger reserve transfer - - 37.9 - (37.9) -
Credit to equity for equity-settled
share-based payments - - - - (1.0) (1.0)
Dividends paid - - - - 17.5 17.5
At 30 December 2018 (30.9) (606.7) (17.4) (4.4) 101.7 (557.7)
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Profit for the period - - - - (94.3) (94.3)
Other comprehensive income
for the period - - - - (0.7) (0.7)
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Total comprehensive income
for the period - - - - (95.0) (95.0)
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Credit to equity for equity-settled
share-based payments - - - - (1.1) (1.1)
Dividends paid - - - - 18.6 18.6
--------
At 29 December 2019 (30.9) (606.7) (17.4) (4.4) 24.2 (635.2)
------------------------------------- ---------- ---------- ---------- ------------- ----------- --------
Consolidated balance sheet
at 29 December 2019 (at 30 December 2018)
2019 2018
notes GBPm GBPm
--------------------------------------------- -------- -------- --------
Non-current assets
Goodwill 12 42.0 42.0
Other intangible assets 12 810.0 810.0
Property, plant and equipment 224.9 246.2
Investment in associates 13 21.9 25.3
Retirement benefit assets 14 31.2 10.2
Deferred tax assets 55.9 69.8
1,185.9 1,203.5
--------------------------------------------- -------- -------- --------
Current assets
Inventories 5.9 6.3
Trade and other receivables 116.4 108.4
Cash and cash equivalents 15 20.4 19.2
--------------------------------------------- -------- -------- --------
142.7 133.9
--------------------------------------------- -------- -------- --------
Total assets 1,328.6 1,337.4
--------------------------------------------- -------- -------- --------
Non-current liabilities
Trade and other payables (40.1) (59.0)
Borrowings 15 - (39.7)
Retirement benefit obligations 14 (327.1) (358.8)
Deferred tax liabilities (159.3) (159.7)
Provisions 16 (20.5) (4.1)
(547.0) (621.3)
--------------------------------------------- -------- -------- --------
Current liabilities
Trade and other payables (122.2) (111.3)
Borrowings 15 - (20.3)
Current tax liabilities 8 (8.7) (4.5)
Provisions 16 (15.5) (22.3)
(146.4) (158.4)
--------------------------------------------- -------- -------- --------
Total liabilities (693.4) (779.7)
--------------------------------------------- -------- -------- --------
Net assets 635.2 557.7
--------------------------------------------- -------- -------- --------
Equity
Share capital 17 (30.9) (30.9)
Share premium account 17 (606.7) (606.7)
Merger reserve 17 (17.4) (17.4)
Capital redemption reserve 17 (4.4) (4.4)
Retained earnings and other reserves 17 24.2 101.7
--------------------------------------------- -------- -------- --------
Total equity attributable to equity holders
of the parent (635.2) (557.7)
--------------------------------------------- -------- -------- --------
Notes to the consolidated financial statements
for the 52 weeks ended 29 December 2019 (52 weeks ended 30
December 2018)
1 . General information
The financial information, which comprises the Consolidated
income statement, the Consolidated statement of comprehensive
income, the Consolidated cash flow statement, the Consolidated
statement of changes in equity and the Consolidated balance sheet
and related notes ('Consolidated Financial Statements') in the
Preliminary Audited Results announcement is derived from but does
not represent the full statutory accounts of Reach plc. The
statutory accounts for the 52 weeks ended 30 December 2018 have
been filed with the Registrar of Companies and those for the 52
weeks ended 29 December 2019 will be filed following the Annual
General Meeting on 7 May 2020. The auditors' reports on the
statutory accounts for the 52 weeks ended 30 December 2018 and for
the 52 weeks ended 29 December 2019 were unqualified, do not
include reference to any matters to which the auditors drew
attention by way of emphasis of matter without qualifying the
reports and do not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006.
Whilst the financial information included in this Preliminary
Audited 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
Preliminary Audited Results announcement constitutes a
dissemination announcement in accordance with Section 6.3 of the
Disclosure and Transparency Rules (DTR). The Annual Report for the
52 weeks ended 29 December 2019 will be available on the Company's
website at www.reachplc.com and at the Company's registered office
at One Canada Square, Canary Wharf, London E14 5AP before the end
of March 2020 and will be sent to shareholders who have elected to
receive a hard copy with the documents for the Annual General
Meeting to be held on 7 May 2020.
The financial information has been prepared for the 52 weeks
ended 29 December 2019 and the comparative period has been prepared
for the 52 weeks ended 30 December 2018. Throughout this report,
the financial information for the 52 weeks ended 29 December 2019
is referred to and headed 2019 and for the 52 weeks ended 30
December 2018 is referred to and headed 2018. The presentational
and functional currency of the Group is Sterling. The Company
presents the results on a statutory and adjusted basis and revenue
trends on a statutory and like-for-like basis as described in note
2.
2. Accounting polices
Basis of preparation
The financial information has been prepared in accordance with
IFRS as adopted by the European Union. These standards are subject
to ongoing amendment by the International Accounting Standards
Board and by the European Union and are therefore subject to
change. As a result, the financial information contained herein
will need to be updated for any subsequent amendment to IFRS or any
new standards that are issued. The financial information has been
prepared under the historical cost convention as modified by the
revaluation of financial assets held at fair value through profit
and loss.
The accounting policies used in the preparation of the
Consolidated Financial Statements for the 52 weeks ended 29
December 2019 have been consistently applied to all the periods
presented except for the changes in accounting policy noted below.
These Consolidated Financial Statements have been prepared on a
going concern basis.
Going concern basis
The directors have made appropriate enquires and consider that
the Group has adequate resources to continue in operational
existence for the foreseeable future, which comprises the period of
at least 12 months from the date of approval of the financial
statements.
In accordance with LR 9.8.6(3) of the Listing Rules, and in
determining whether the Group's annual consolidated financial
statements can be prepared on a going concern basis, the directors
considered all factors likely to affect its future development,
performance and its financial position, including cash flows,
liquidity position and borrowing facilities, and the principal
risks and uncertainties relating to its business activities.
Having considered all the factors impacting the Group's
businesses, including downside sensitivities (relating to trading
and cash flows), the directors are satisfied that the Group will be
able to operate within the terms and conditions of the Group's
financing facilities for the foreseeable future.
The directors have reasonable expectations that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the Group's annual
consolidated financial statements.
Changes in accounting policy
The same accounting policies, presentation and methods of
computation are followed in the condensed consolidated financial
statements as applied in the Group's latest annual consolidated
financial statements.
The Group has not adopted any new standards and interpretations
during the current financial period which began on 31 December
2018. Other than IFRS 16 'Leases', the standards and
interpretations in issue and which will be adopted for periods
beginning on or after 1 January 2019, are not expected to have a
material impact on the Group.
IFRS 16 'Leases' will be adopted by the Group in the current
financial year. The Group will apply the simplified transition
approach (modified retrospective approach) and will recognise the
lease liability on transition at the present value of the remaining
lease payments, discounted using the incremental borrowing rate at
the date of transition. The Group will not restate comparatives and
the cumulative effect of initially applying IFRS 16 will be
recognised as an adjustment to opening reserves at the date of
transition. The Group estimates that the application of IFRS 16
will result in the recognition of a lease liability of around
GBP45m and a right-of-use asset of around GBP44m, along with the
derecognition of onerous lease provisions of around GBP1m and other
working capital balances (including lease incentives) of around
GBP3m, which results in an overall adjustment to opening reserves
of approximately around GBP3m. Based on a constant portfolio of
leases as at 29 December 2019 i.e. leases in place as at the
current financial reporting date, the Group expects that profit
before tax will be lower by around GBP1m. This is due to an
increase in depreciation expense of around GBP8m on the right-of
use asset and an additional interest expense of around GBP1m on the
lease liability, offset by the removal of the rental expense of
around GBP8m. There will be no impact on cash flows, although the
presentation of the cash flow statement will change, with an
increase in net cash inflows from operating activities being offset
by an increase in net cash outflows from financing activities.
Alternative performance measures
The Company presents the results on a statutory and adjusted
basis and revenue trends on a statutory and like-for-like basis.
The Company believes that the adjusted basis and like-for-like
trends will provide investors with useful supplemental information
about the financial performance of the Group, enable comparison of
financial results between periods where certain items may vary
independent of business performance, and allow for greater
transparency with respect to key performance indicators used by
management in operating the Group and making decisions. Although
management believes the adjusted basis is important in evaluating
the Group, they are not intended to be considered in isolation or
as a substitute for, or as superior to, financial information on a
statutory basis. The alternative performance measures are not
recognised measures under IFRS and do not have standardised
meanings prescribed by IFRS and may be different to those used by
other companies, limiting the usefulness for comparison purposes.
Note 19 sets out the reconciliation between the statutory and
adjusted results. Note 21 shows the reconciliation between the
statutory and like-for-like revenues. An adjusted cash flow is
presented in note 22 which reconciles the adjusted operating profit
to the net change in cash and cash equivalents. Set out in note 23
is the reconciliation between the statutory and adjusted cash
flow.
Adjusting items
Adjusting items relate to costs or incomes that derive from
events or transactions that fall within the normal activities of
the Group, but are excluded from the Group's adjusted profit
measures, individually or, if of a similar type in aggregate, due
to their size and/or nature in order to better reflect management's
view of the performance of the Group. The adjusted profit measures
are not recognised profit measures under IFRS and may not be
directly comparable with adjusted profit measures used by other
companies. Details of adjusting items are set out in note 19.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed
below:
Provisions (notes 8, 16 and 18)
There is uncertainty as to liabilities arising from the outcome
or resolution of the ongoing historical legal issues and in
addition there is uncertainty as to the amount of expenditure that
may be tax deductible and additional tax liabilities may fall due
in relation to earlier years. Provisions are measured at the best
estimate of the expenditure required to settle the obligation based
on the assessment of the related facts and circumstances at each
reporting date.
Retirement benefits (note 14)
Actuarial assumptions adopted and external factors can
significantly impact the surplus or deficit of defined benefit
pension schemes. Valuations for funding and accounting purposes are
based on assumptions about future economic and demographic
variables. These result in risk of a volatile valuation deficit and
the risk that the ultimate cost of paying benefits is higher than
the current assessed liability value. Advice is sourced from
independent and qualified actuaries in selecting suitable
assumptions at each reporting date.
Impairment review (note 12)
There is uncertainty in the value-in-use calculation. The most
significant area of uncertainty relates to expected future cash
flows for each cash-generating unit. Determining whether the
carrying values of assets in a cash-generating unit are impaired
requires an estimation of the value in use of the cash-generating
unit to which these have been allocated. The value-in-use
calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value. Projections are
based on both internal and external market information and reflect
past experience. The discount rate reflects the weighted average
cost of capital of the Group.
Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
described above, management has made the following judgements that
have the most significant effect on the amounts recognised in the
financial statements:
Indefinite life assumption in respect of publishing rights and
titles (note 12)
There is judgement required in continuing to adopt an indefinite
life assumption in respect of publishing rights and titles. The
directors consider publishing rights and titles (with a carrying
amount of GBP810.0m) have indefinite economic lives due to the
longevity of the brands and the ability to evolve them in an ever
changing media landscape. At each reporting date management review
the suitability of this assumption.
Identification of cash-generating units (note 12)
There is judgement required in determining the cash-generating
unit relating to our Publishing brands. At each reporting date
management review the interdependency of revenues across our
portfolio of Publishing brands to determine the appropriate
cash-generating unit. The Group operates its Publishing brands such
that a majority of the revenues are interdependent and revenue
would be materially lower if brands operated in isolation. As such,
management do not consider that an impairment review at an
individual brand level is appropriate or practical. As the Group
continues to centralise revenue generating functions and has moved
to a matrix operating structure over the past few years all of the
individual brands in Publishing have increased revenue
interdependency and are assessed for impairment as a single
Publishing cash-generating unit.
3. Segments
Segments are identified on the basis of internal reports about
components of the Group that are regularly reviewed by the Board
and chief operating decision maker (executive directors) to
allocate resources to the segments and to assess their performance.
The Board and chief operating decision maker are not provided with
an amount for total assets by segment. The Group's operations are
primarily located in the UK and the Group is not subject to
significant seasonality during the year.
Following recent acquisitions and disposals and changes to the
management structure, management have reviewed the segment
disclosure and have concluded that the performance of the Group
should be presented as a single reporting segment. As such the
previously reported segments of Publishing, Printing, Specialist
Digital and Central are no longer reported and the Group presents
the Group as a single reporting segment.
4. Revenue
To better reflect how we view and operate the business, the
Group amended the presentation of revenues in 2019, aligning our
revenue streams with the strategy. Print revenue comprises
circulation, advertising (including digital classified which is
predominantly upsold from print), printing (including third party
printing contracts) and other (contract publishing, syndication,
reader offers and events); this corresponds to the part of our
strategy focused on maximising cash flow from print. Digital
revenue comprises the combined display and transactional revenue
streams; this corresponds to the part of our strategy focused on
accelerating digital audience and revenue. Other revenue comprises
revenue from our specialist digital recruitment websites. Note 18
sets out the reconciliation between the classifications in the
prior period to the classifications in the current period.
2019 2018
GBPm GBPm
--------------- ------ ------
Print 591.3 623.3
--------------- ------ ------
Circulation 361.7 362.1
Advertising 152.5 189.0
Printing 38.5 35.6
Other 38.6 36.6
--------------- ------ ------
Digital 107.0 91.3
Other 4.2 9.3
Total revenue 702.5 723.9
--------------- ------ ------
The Group's operations are located primarily in the UK. The
Group's revenue by location of customers is set out below:
2019 2018
GBPm GBPm
---------------------------- ------ ------
UK and Republic of Ireland 700.9 721.9
Continental Europe 1.5 1.8
Rest of World 0.1 0.2
---------------------------- ------ ------
Total revenue 702.5 723.9
---------------------------- ------ ------
The Group has two customers where revenues represent more than
10% of total revenue. These two customers represent the majority of
the circulation revenue.
5. Operating adjusted items
2019 2018
GBPm GBPm
-------------------------------------------------------- ------- --------
Impairment of goodwill, publishing rights and titles
and freehold buildings (note 12) - (200.0)
Pension administrative expenses and past service costs
for GMP equalisation (note 14) (2.9) (18.8)
Restructuring charges in respect of cost reduction
measures (note 16) (10.7) (20.0)
Provision for historical legal issues (note 16) (11.0) (12.5)
Other (2.7) (1.6)
-------------------------------------------------------- ------- --------
Operating adjusted items included in administrative
expenses (27.3) (252.9)
Operating adjusted items included in share of results
of associates (note 13) 5.6 (0.3)
-------------------------------------------------------- ------- --------
Total operating adjusted items (21.7) (253.2)
-------------------------------------------------------- ------- --------
Other in 2019 relates to an impairment of a printing press in
Saltire which has been mothballed. In 2018, other included:
amortisation of intangible assets of GBP0.2m, transaction costs of
GBP6.3m and a charge relating to property carrying value of GBP0.8m
less profit on disposal of property of GBP2.3m and profit on
disposal of subsidiary undertaking of GBP3.4m.
6. Interest income
2019 2018
GBPm GBPm
---------------------------------- ------ ------
Interest income on bank deposits 0.1 0.1
---------------------------------- ------ ------
7. Finance costs
2019 2018
GBPm GBPm
-------------------------------------------- ------ ------
Interest on bank overdrafts and borrowings (2.9) (3.8)
-------------------------------------------- ------ ------
8. Tax
2019 2018
GBPm GBPm
------------------------------------------------------------ ------- -------
Corporation tax charge for the period (15.9) (17.2)
Current tax charge (15.9) (17.2)
------------------------------------------------------------ ------- -------
Deferred tax (charge)/credit for the period (9.9) 17.5
Prior period adjustment (0.8) -
------------------------------------------------------------ ------- -------
Deferred tax (charge)/credit (10.7) 17.5
------------------------------------------------------------ ------- -------
Tax (charge)/credit (26.6) 0.3
------------------------------------------------------------ ------- -------
Reconciliation of tax (charge)/credit % %
Standard rate of corporation tax (19.0) 19.0
Tax effect of items that are not deductible in determining
taxable profit (3.3) (19.5)
Tax effect of items that are not taxable in determining
taxable profit - 0.7
Prior period adjustment (0.8) -
Tax effect of share of results of associates 1.1 0.1
Tax (charge)/credit rate (22.0) 0.3
------------------------------------------------------------ ------- -------
The standard rate of corporation tax for the period is 19%
(2018: 19%). The tax effect of items that are not deductible in
determining taxable profit includes certain costs where there is
uncertainty as to their deductibility. The current tax liabilities
amounted to GBP8.7m (2018: GBP4.5m) at the reporting date and
include net provisions of GBP2.7m (2018: GBP1.3m). At the reporting
date the maximum amount of the unprovided tax exposure relating to
uncertain tax items is some GBP5m (2018: GBP7m).
The tax on actuarial gains on defined benefit pension schemes
taken to the consolidated statement of comprehensive income is a
deferred tax charge of GBP2.8m (2018: charge of GBP0.8m comprising
a deferred tax charge of GBP8.7m and a current tax credit of
GBP7.9m).
9. Dividends
2019 2018
Pence Pence
per share per share
---------------------------------------------------------- ----------- -----------
Dividends paid per share and recognised as distributions
to equity holders in the period 6.27 5.92
---------------------------------------------------------- ----------- -----------
Dividend proposed per share but not paid nor included
in the accounting records 4.05 3.77
---------------------------------------------------------- ----------- -----------
The Board proposes a final dividend for 2019 of 4.05 pence per
share. An interim dividend for 2019 of 2.50 pence per share was
paid on 27 September 2019 bringing the total dividend in respect of
2019 to 6.55 pence per share. The 2019 final dividend payment is
expected to amount to GBP12.0m.
On 10 May 2019 the final dividend proposed for 2018 of 3.77
pence per share was approved by shareholders at the Annual General
Meeting and was paid on 7 June 2019.
Total dividends paid in 2019 were GBP18.6m (2018 final dividend
payment of GBP11.2m and 2019 interim dividend payment of
GBP7.4m).
10. Earnings per share
Basic earnings per share is calculated by dividing profit for
the period attributable to equity holders of the parent by the
weighted average number of ordinary shares during the period and
diluted earnings per share is calculated by adjusting the weighted
average number of ordinary shares in issue on the assumption of
conversion of all potentially dilutive ordinary shares.
2019 2018
Thousand Thousand
--------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares for basic
earnings per share 296,138 291,478
Effect of potential dilutive ordinary shares in respect
of share awards 3,457 1,571
Weighted average number of ordinary shares for diluted
earnings per share 299,595 293,049
--------------------------------------------------------- ---------- ----------
The weighted average number of potentially dilutive ordinary
shares not currently dilutive was 3,526,324 (2018: 3,964,133).
2019 2018
Statutory earnings/(loss) per share Pence Pence
Earnings/(loss) per share - basic 31.8 (41.0)
Earnings/(loss) per share - diluted 31.5 (41.0)
--------------------------------------- ------- -------
2019 2018
Adjusted earnings per share Pence Pence
------------------------------- ------- -------
Earnings per share - basic 41.1 39.2
Earnings per share - diluted 40.6 39.0
------------------------------- ------- -------
Set out in note 19 is the reconciliation between the statutory
and adjusted results.
11. Cash flows from operating activities
2019 2018
GBPm GBPm
----------------------------------------------------------- ----- -------
Operating profit/(loss) 131.7 (107.6)
Depreciation of property, plant and equipment 21.5 22.3
Impairment charge - 200.0
Amortisation of intangible assets - 0.2
Share of results of associates (7.4) (0.8)
Charge for share-based payments 1.1 1.0
Loss/(profit) on disposal of land and buildings 0.3 (1.5)
Profit on disposal of subsidiary undertaking - (3.4)
Impairment of fixed assets 2.7 -
Write-off of fixed assets 0.2 0.5
Pension administrative expenses 2.9 3.0
Pension past service costs - 15.8
Operating cash flows before movements in working capital 153.0 129.5
Decrease in inventories 0.4 0.1
Increase in receivables (7.8) (2.9)
Increase in payables 1.8 11.1
----------------------------------------------------------- ----- -------
Cash flows from operating activities 147.4 137.8
----------------------------------------------------------- ----- -------
12. Goodwill and other intangible assets
The Group had three cash-generating units at the prior reporting
date (Publishing excluding Express & Star, Express & Star
and Digital Classified Recruitment). The Express & Star
business has been fully integrated within the Publishing business
such that the cash inflows are largely interdependent and they have
been combined into a single cash-generating unit. This reflects the
scale of advertising packages sold across all titles and websites
and reflects the group wide nature of our printing operations and
the wholesale and distribution contracts. At the reporting date the
Group has two cash-generating units (Publishing and Digital
Classified Recruitment).
The carrying value of goodwill and other intangible assets
is:
Publishing
rights and Intangible
Goodwill titles assets
GBPm GBPm GBPm
Opening and closing carrying value 42.0 810.0 852.0
------------------------------------ --------- ------------ -----------
Goodwill of GBP42.0m comprises Publishing GBP35.9m and Digital
Classified Recruitment GBP6.1m. Publishing rights and titles
comprises Publishing GBP810.0m.
There is judgement required in continuing to adopt an indefinite
life assumption in respect of publishing rights and titles. The
directors consider publishing rights and titles (with a carrying
amount of GBP810.0m) have indefinite economic lives due to the
longevity of the brands and the ability to evolve them in an ever
changing media landscape. The Group has grown digital revenue in
recent years and is focused on investing to continue the growth for
the coming years. The directors believe growth from digital and new
revenue streams will offset print declines on an aggregate basis,
leading to a future stabilisation of revenue. This, combined with
our inbuilt and relentless focus on maximising efficiency, gives
the Board confidence that the delivery of sustainable growth in
revenue, profit and cash flow is achievable in the future.
There is judgement required in determining the cash-generating
units. At each reporting date management review the interdependency
of revenues across our Publishing brands to determine the
appropriate cash-generating unit. The Group operates its Publishing
brands such that a majority of the revenues are interdependent and
revenue would be materially lower if brands operated in isolation.
As such, management do not consider that an impairment review at an
individual brand level is appropriate or practical. As the Group
continues to centralise revenue generating functions and has moved
to a matrix operating structure over the past few years all of the
individual brands in Publishing have increased revenue
interdependency and are assessed for impairment as a single
Publishing cash-generating unit.
The Group tests the carrying value of assets at the
cash-generating unit level for impairment annually or more
frequently if there are indicators that assets might be impaired.
The review is undertaken by assessing whether the carrying value of
assets is supported by their value in use which is calculated as
the net present value of future cash flows derived from those
assets, using cash flow projections. If an impairment charge is
required this is allocated first to reduce the carrying amount of
any goodwill allocated to the cash-generating unit and then to the
other assets of the cash-generating unit but subject to not
reducing any asset below its recoverable amount.
The impairment review concluded that no impairment charge was
required in 2019. In 2018, the total impairment charge for the year
was GBP200.0m (GBP187.1m net of deferred tax). The charge was
allocated to goodwill (GBP92.5m), publishing rights and titles
(GBP95.0m) and freehold buildings (GBP12.5m). Of the GBP200.0m
impairment charge, GBP150.0m was charged at the 2018 half year and
a further GBP50.0m was charged at the 2018 year end.
For the 2019 impairment review, the Group prepared cash flow
projections for each cash-generating unit using the latest
forecasts and projections. The growth rates for the first
three-year period are internal projections based on both internal
and external market information and reflect past experience of and
the risk associated with each asset. For the Publishing
cash-generating unit, projections for a further seven years have
been prepared as this is the period over which the transformation
to digital can be assessed. For the Digital Classified Recruitment
cash-generating unit the three year projections have been used.
Cash flow projections beyond the respective periods used for each
cash-generating unit are extrapolated based on estimated growth
rates which do not exceed the average long-term growth rates for
the relevant markets. The long-term growth rates beyond the 10-year
period have been assessed at 0% based on the Board's view of the
cash-generating unit's market position and maturity of the relevant
market. We continue to believe that there are significant longer
term benefits of our scale local digital audiences and there are
opportunities to grow revenue and profit in the longer term.
The discount rate reflects the weighted average cost of capital
of the Group . The current post-tax and equivalent pre-tax discount
rate used in respect of all cash-generating units is 11.1% and
13.5% respectively.
The impairment review is highly sensitive to reasonably possible
changes in key assumptions used in the value-in-use calculations.
For the Publishing cash-generating unit a combination of reasonably
possible changes in key assumptions such as print revenue declining
at a faster rate than projected, digital revenue growth being
significantly lower than projected or the scale of cost saving
initiatives being delivered being lower than forecast, could lead
to an impairment in the Publishing cash-generating unit. If these
sensitivities led to a 22% reduction in cash flows in each of the
years in the 10 year period this would lead to the removal of the
headroom. Alternatively an increase in the discount rate by 3.6
percentage points would lead to the removal of the headroom. For
the Digital Classified Recruitment cash-generating unit, a 23%
reduction in cash flows or an increase in the discount rate by 3.5
percentage points would lead to the removal of the headroom.
13. Investment in associates
The carrying value of investments in associates is set out
below:
PA Media Other Total PA Media Other Total
2019 2019 2019 2018 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- ------ ------- --------- ------ ------
Opening balance 20.2 5.1 25.3 16.2 0.6 16.8
Investment 0.9 - 0.9 - 4.5 4.5
Dividends received - (0.5) (0.5) - - -
Share of results: 7.0 0.4 7.4 0.8 - 0.8
------------------------------ --------- ------ ------- --------- ------ ------
Results before adjusted
items 1.3 0.5 1.8 1.3 (0.2) 1.1
Adjusted items 5.7 (0.1) 5.6 (0.5) 0.2 (0.3)
------------------------------ --------- ------ ------- --------- ------ ------
Share of other comprehensive
(loss)/income (10.9) (0.3) (11.2) 3.2 - 3.2
------------------------------ --------- ------ ------- --------- ------ ------
Closing balance 17.2 4.7 21.9 20.2 5.1 25.3
------------------------------ --------- ------ ------- --------- ------ ------
Information on principal associate:
Company County of incorporation Class of shares Shareholding Accounting year end
PA Media Group Limited UK Ordinary 23.54% 31 December
------------------------ ---------------- ------------- --------------------
The table below provide summarised financial information for PA
Media Group Limited which is material to the Group. The information
disclosed reflects the amounts presented in the financial
statements and management accounts of the associate as amended to
reflect adjustments made when using the equity method, including
fair value adjustments and modifications for differences in
accounting policy.
2019 2018
GBPm GBPm
--------------------------------------------------- -------- -------
Non-current assets 25.3 57.3
Current assets 73.2 55.5
--------------------------------------------------- -------- -------
Total Assets 98.5 112.8
Current liabilities (25.3) (19.0)
--------------------------------------------------- -------- -------
Total Liabilities (25.3) (19.0)
--------------------------------------------------- -------- -------
Net assets 73.2 93.8
--------------------------------------------------- -------- -------
Group's share of net assets 17.2 20.2
--------------------------------------------------- -------- -------
Revenue 73.4 70.4
Profit for period after tax 32.5 3.7
--------------------------------------------------- -------- -------
Group's share of associates profit for the period 7.0 0.8
--------------------------------------------------- -------- -------
The financial statements of PA Media Group Limited are made up
to 31 December each year. For the purposes of applying the equity
method of accounting, the audited financial statements of PA Group
Limited for the year ended 31 December 2018 together with the
management accounts up to the end of December 2019 have been used
with appropriate year-end adjustments made. Included in the share
of operating adjusted items of associates is a GBP6.7m (2018: nil)
profit on our share of the after tax profit on disposal of a
building less after tax restructuring charges of GBP0.3m (2018:
GBP0.1m) and after tax amortisation charge of GBP0.7m (2018:
GBP0.4m). The share of other comprehensive loss of GBP10.9m (2018:
profit GBP3.2m) relates primarily to pensions. Included in the
current year is the impact of the purchase of a buy-in policy by
the Trustees.
14. Retirement benefit schemes
Defined contribution pension schemes
The Group operates a defined contribution pension scheme for
qualifying employees: The Reach Pension Plan (the 'RPP'). The two
Group Personal Pension Plans for Express & Star employees were
closed on 31 March 2019 with all members given the opportunity to
join the RPP on 1 April 2019. The assets of the RPP scheme where
employees have an individual account at Fidelity are held
separately from those of the Group in funds under the control of
Trustees.
The current service cost charged to the consolidated income
statement for the year of GBP17.7m ( 2018: GBP14.9m) represents
contributions paid by the Group at rates specified in the scheme
rules. All amounts that were due have been paid over to the schemes
at all reporting dates.
Defined benefit pension schemes
Background
The defined benefit pension schemes operated by the Group are
all closed to future accrual. The Group has six defined benefit
pension schemes:
-- Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension
Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme
(the 'Trinity Scheme') and the Midland Independent Newspapers
Pension Scheme (the 'MIN Scheme'); and
-- Express & Star schemes (the 'E&S Schemes'): the
Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the
Express Newspapers Senior Management Pension Fund (the 'ENSM
Scheme') and the West Ferry Printers Pension Scheme (the 'WF
Scheme').
Characteristics
The defined benefit pension schemes provide pensions to members,
which are based on the final salary pension payable, normally from
age 65 (although some schemes have some pensions normally payable
from an earlier age) plus surviving spouses or dependants benefits
following a member's death. Benefits increase both before and after
retirement either in line with statutory minimum requirements or in
accordance with the scheme rules if greater. Such increases are
either at fixed rates or in line with retail or consumer prices but
subject to upper and lower limits. All of the schemes are
independent of the Group with assets held independently of the
Group. They are governed by Trustees who administer benefits in
accordance with the scheme rules and appropriate UK legislation.
The schemes each have a professional or experienced independent
trustee as their chairman with generally half of the remaining
Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across all of the schemes at the reporting date, the uninsured
liabilities related 60% to current pensioners and their spouses or
dependants and 40% related to deferred pensioners. The average term
from the reporting date to payment of the remaining uninsured
benefits is expected to be around 18 years. Uninsured pension
payments in 2019, excluding lump sums and transfer value payments,
were GBP70m and these are projected to rise to an annual peak in
2031 of GBP99m and reducing thereafter.
Funding arrangements
The funding of the Group's schemes is subject to UK pension
legislation as well as the guidance and codes of practice issued by
the Pensions Regulator. Funding targets are agreed between the
Trustees and the Group and are reviewed and revised usually every
three years. The funding targets must include a margin for prudence
above the expected cost of paying the benefits and so are different
to the liability value for IAS 19 purposes. The funding deficits
revealed by these triennial valuations are removed over time in
accordance with an agreed recovery plan and schedule of
contributions for each scheme.
The funding valuations of the schemes: at 31 December 2016 for
the MGN Scheme showed a deficit of GBP476.0m, for the Trinity
Scheme showed a deficit of GBP78.0m and for the MIN Scheme showed a
deficit of GBP68.2m; at 5 April 2017 for the EN88 Scheme showed a
deficit of GBP69.8m and for the ENSM Scheme showed a deficit of
GBP3.2m; and at 31 December 2017 for the WF Scheme showed a deficit
of GBP6.5m.
The deficits in all schemes are expected to be removed before or
in 2027 by a combination of the contributions and asset returns.
Contributions (which include funding for pensions administrative
expenses) are payable monthly. The Group paid GBP48.9m into the
defined benefit pension schemes in 2019 (2018: GBP90.1m including
an initial pension contribution of GBP41.2m paid into the E&S
Schemes in connection with the acquisition of Express &
Star).
Remaining contributions per the current schedule of
contributions are for GBP48.9m in 2020, GBP56.1m per annum in 2021
to 2023, GBP55.3m per annum in 2024 to 2026 and GBP53.3m in
2027.
The Group has agreed that in respect of dividend payments in
2018, 2019 and 2020 that additional contributions would be paid at
75% of the excess if dividends paid in 2018 were above 6.16 pence
per share. For 2019 and 2020 the threshold increases in line with
the increase in dividends capped at 10% per annum.
The future deficit funding commitments are linked to the
three-yearly actuarial valuations. There is no link to the IAS 19
valuations which use different actuarial assumptions and are
updated at each reporting date. The next valuation for funding of
all six defined benefit pension schemes will be as at 31 December
2019 and this is required to be completed by 31 March 2021,
although we expect this to be completed by 31 December 2020.
Although the funding commitments do not generally impact the IAS
19 position, IFRIC 14 guides companies to consider for IAS 19
disclosures whether any surplus can be recognised as a balance
sheet asset and whether any future funding commitments in excess of
the IAS 19 liability should be provisioned for. Based on the
interpretation of the rules for each of the defined benefit pension
schemes, the Group considers that it has an unconditional right to
any potential surplus on the ultimate wind-up after all benefits to
members have been paid of all of the schemes except the WF Scheme.
Under IFRIC 14 it is therefore appropriate to recognise any IAS 19
surpluses which may emerge in future and not to recognise any
potential additional liabilities in respect of future funding
commitments of all of the schemes except for the WF Scheme. For the
WF Scheme at the reporting date, the assets are surplus to the IAS
19 benefit liabilities. However, to allow for IFRIC 14, the Group
recognises a deficit of the value of its future deficit
contribution commitment to the scheme in line with the schedule of
contributions in force at the reporting date.
The calculation of Guaranteed Minimum Pension ('GMP') is set out
in legislation and members of pension schemes that were contracted
out of the State Earnings-Related Pension Scheme ('SERPS') between
6 April 1978 and 5 April 1997 will have built up an entitlement to
a GMP. GMPs were intended to broadly replicate the SERPS pension
benefits but due to their design they give rise to inequalities
between men and women, in particular, the GMP for a male comes into
payment at age 65 whereas for a female it comes into payment at the
age of 60 and GMPs typically receive different levels of increase
to non GMP benefits. On 26 October 2018, the High Court handed down
its judgement in the Lloyds Trustees vs Lloyds Bank plc and Others
case relating to the equalisation of member benefits for the gender
effects of GMP equalisation. This judgement creates a precedent for
other UK defined benefit schemes with GMPs. The judgement confirmed
that GMP equalisation was required for the period 17 May 1990 to 5
April 1997 and provided some clarification on legally acceptable
methods for achieving equalisation. An allowance for GMP
equalisation was first included within liabilities at 30 December
2018 and was recognised as a charge for past service costs in the
income statement. The estimate is subject to change as we undertake
more detailed member calculations and/or as a result of future
legal judgements. There have been no significant developments in
2019 with further guidance expected in 2020
Risks
Valuations for funding and accounting purposes are based on
assumptions about future economic and demographic variables. This
results in risk of a volatile valuation deficit and the risk that
the ultimate cost of paying benefits is higher than the current
assessed liability value.
The main sources of risk are:
-- Investment risk: a reduction in asset returns (or assumed future asset returns);
-- Inflation risk: an increase in benefit increases (or assumed future increases); and
-- Longevity risk: an increase in average life spans (or assumed life expectancy).
These risks are managed by:
-- Investing in insured annuity policies: the income from these
policies exactly matches the benefit payments for the members
covered, removing all of the above risks. At the reporting date the
insured annuity policies covered 12% of total liabilities;
-- Investing a proportion of assets in other classes such as
government and corporate bonds and in liability driven investments:
changes in the values of the assets aim to broadly match changes in
the values of the uninsured liabilities, reducing the investment
risk, however some risk remains as the durations of the bonds are
typically shorter than that of the liabilities and so the values
may still move differently. At the reporting date non-equity assets
amounted to 85% of assets excluding the insured annuity
policies;
-- Investing a proportion of assets in equities: with the aim of
achieving outperformance and so reducing the deficits over the long
term. At the reporting date this amounted to 15% of assets
excluding the insured annuity policies; and
-- The gradual sale of equities over time to purchase additional
annuity policies or liability matching investments: to further
reduce risk as the schemes, which are closed to future accrual,
mature.
Pension scheme accounting deficits are snapshots at moments in
time and are not used by either the Group or Trustees to frame
funding policy. The Group and Trustees are aligned in focusing on
the long-term sustainability of the funding policy which aims to
balance the interests of the Group's shareholders and members of
the schemes. The Group and Trustees are also aligned in reducing
pensions risk over the long term and at a pace which is affordable
to the Group.
The E&S Schemes and the Trinity Scheme have an accounting
surplus at the reporting date. For the WF Scheme this is before
allowing for the IFRIC 14 asset ceiling. Across the MGN and MIN
Schemes, the invested assets are expected to be sufficient to pay
the uninsured benefits due up to 2044, based on the reporting date
assumptions. The remaining uninsured benefit payments, payable from
2045, are due to be funded by a combination of asset outperformance
and the deficit contributions currently scheduled to be paid up to
2027.
For the MGN and MIN Schemes, actuarial projections at the
year-end reporting date show removal of the combined accounting
deficit by the end of 2025 due to scheduled contributions and asset
returns at the current target rate. From this point, the assets are
projected to be sufficient to fully fund the liabilities on the
accounting basis.
The Group is not exposed to any unusual, entity specific or
scheme specific risks. Other than the impact of GMP equalisation,
there were no plan amendments, settlements or curtailments in 2019
or 2018 which resulted in a pension cost.
Results
For the purposes of the Group's consolidated financial
statements, valuations have been performed in accordance with the
requirements of IAS 19 with scheme liabilities calculated using a
consistent projected unit valuation method and compared to the
estimated value of the scheme assets at 29 December 2019.
The assets and liabilities of the schemes as at the reporting
date are:
TM Schemes E&S Schemes Total
GBPm GBPm GBPm
----------------------------------------------------------- ---------- ----------- ---------
Present value of uninsured scheme liabilities (1,809.6) (528.3) (2,337.9)
Present value of insured scheme liabilities (176.2) (149.8) (326.0)
----------------------------------------------------------- ---------- ----------- ---------
Total present value of scheme liabilities (1,985.8) (678.1) (2,663.9)
----------------------------------------------------------- ---------- ----------- ---------
Invested and cash assets at fair value 1,487.2 587.6 2,074.8
Value of liability matching insurance
contracts 176.2 149.8 326.0
----------------------------------------------------------- ---------- ----------- ---------
Total fair value of scheme assets 1,663.4 737.4 2,400.8
----------------------------------------------------------- ---------- ----------- ---------
Funded (deficit)/surplus (322.4) 59.3 (263.1)
Impact of IFRIC 14 - (32.8) (32.8)
Net scheme (deficit)/surplus (322.4) 26.5 (295.9)
----------------------------------------------------------- ---------- ----------- ---------
Based on actuarial advice, the assumptions used in calculating
the scheme liabilities and the actuarial value of those liabilities
are:
2019 2018
-------------------------------------------------------- ----- -----
Financial assumptions (nominal % pa)
Discount rate 1.94 2.76
Retail price inflation rate 2.96 3.20
Consumer price inflation rate 2.01 2.00
Rate of pension increase in deferment 2.17 2.22
Rate of pension increases in payment (weighted average
across the schemes) 3.31 3.39
-------------------------------------------------------- ----- -----
Mortality assumptions - future life expectancies from
age 65 (years)
Male currently aged 65 21.7 21.6
Female currently aged 65 24.0 23.5
Male currently aged 55 21.5 22.3
Female currently aged 55 24.0 24.3
-------------------------------------------------------- ----- -----
The estimated impact on the IAS 19 liabilities and on the IAS 19
deficit at the reporting date, due to a reasonably possible change
in key assumptions over the next year, are set out in the table
below:
Effect on Effect on
liabilities deficit
GBPm GBPm
--------------------------------------------- ------------ ---------
Discount rate +/- 0.5% pa -200/+220 -185/+200
Retail price inflation rate +/- 0.5% pa +42/-41 +31/-29
Consumer price inflation rate +/- 0.5% pa +53/-50 +53/-50
Life expectancy at age 65 +/- 1 year +150/-145 +130/-125
--------------------------------------------- ------------ ---------
The RPI sensitivity impacts the rate of increases in deferment
for some of the pensions in the EN88 Scheme and the ENSM Scheme and
some of the pensions in payment for all schemes except the MGN
Scheme. The CPI sensitivity impacts the rate of increases in
deferment for some of the pensions in most schemes and the rate of
increases in payment for some of the pensions in payment for all
schemes.
The effect on the deficit is usually lower than the effect on
the liabilities due to the matching impact on the value of the
insurance contracts held in respect of some of the liabilities.
Each assumption variation represents a reasonably possible change
in the assumption over the next year but might not represent the
actual effect because assumption changes are unlikely to happen in
isolation.
The estimated impact of the assumption variations make no
allowance for changes in the values of invested assets that would
arise if market conditions were to change in order to give rise to
the assumption variation. If allowance were made, the estimated
impact would likely be lower as the values of invested assets would
normally change in the same directions as the liability values.
The amount included in the consolidated income statement,
consolidated statement of comprehensive income and consolidated
balance sheet arising from the Group's obligations in respect of
its defined benefit pension schemes is as follows:
2019 2018
Consolidated income statement GBPm GBPm
----------------------------------------------------- ------- -------
Pension administrative expenses (2.9) (3.0)
Past service costs - (15.8)
Pension finance charge (8.0) (8.6)
Defined benefit cost recognised in income statement (10.9) (27.4)
----------------------------------------------------- ------- -------
Consolidated statement of comprehensive income 2019 2018
GBPm GBPm
Actuarial gain due to liability experience 24.9 7.0
Actuarial (loss)/gain due to liability assumption changes (271.8) 98.7
------------------------------------------------------------ ------- ------
Total liability actuarial (loss)/gain (246.9) 105.7
Returns on scheme assets greater/(less) than discount
rate 261.9 (98.0)
Impact of IFRIC 14 (0.3) (3.1)
------------------------------------------------------------ ------- ------
Total gain recognised in statement of comprehensive
income 14.7 4.6
------------------------------------------------------------ ------- ------
Consolidated balance sheet 2019 2018
GBPm GBPm
---------------------------------------------------------- ---------- ----------
Present value of uninsured scheme liabilities (2,337.9) (2,145.3)
Present value of insured scheme liabilities (326.0) (317.5)
---------------------------------------------------------- ---------- ----------
Total present value of scheme liabilities (2,663.9) (2,462.8)
---------------------------------------------------------- ---------- ----------
Invested and cash assets at fair value 2,074.8 1,829.2
Value of liability matching insurance contracts 326.0 317.5
---------------------------------------------------------- ---------- ----------
Total fair value of scheme assets 2,400.8 2,146.7
---------------------------------------------------------- ---------- ----------
Funded deficit (263.1) (316.1)
Impact of IFRIC 14 (32.8) (32.5)
---------------------------------------------------------- ---------- ----------
Net scheme deficit (295.9) (348.6)
---------------------------------------------------------- ---------- ----------
Non-current assets - retirement benefit assets 31.2 10.2
Non-current liabilities - retirement benefit obligations (327.1) (358.8)
---------------------------------------------------------- ---------- ----------
Net scheme deficit (295.9) (348.6)
---------------------------------------------------------- ---------- ----------
Net scheme deficit included in consolidated balance
sheet (295.9) (348.6)
Deferred tax included in consolidated balance sheet 53.0 64.5
---------------------------------------------------------- ---------- ----------
Net scheme deficit after deferred tax (242.9) (284.1)
---------------------------------------------------------- ---------- ----------
Movement in net scheme deficit 2019 2018
GBPm GBPm
--------------------------------------------------------- -------- --------
Opening net scheme deficit (348.6) (377.6)
Acquisition of subsidiary undertakings pensions schemes - (38.3)
Contributions 48.9 90.1
Consolidated income statement (10.9) (27.4)
Consolidated statement of comprehensive income 14.7 4.6
--------------------------------------------------------- -------- --------
Closing net scheme deficit (295.9) (348.6)
--------------------------------------------------------- -------- --------
Changes in the present value of scheme liabilities 2019 2018
GBPm GBPm
----------------------------------------------------------------- ---------- ----------
Opening present value of scheme liabilities (2,462.8) (1,929.2)
Acquisition of subsidiary undertakings pension schemes - (682.7)
Past service cost loss - (18.7)
Interest cost (66.3) (61.4)
Actuarial gain - experience 24.9 7.0
Actuarial gain - change to demographic assumptions 42.7 16.6
Actuarial (loss)/gain - change to financial assumptions (314.5) 82.1
Benefits paid 112.1 123.5
----------------------------------------------------------------- ---------- ----------
Closing present value of scheme liabilities (2,663.9) (2,462.8)
----------------------------------------------------------------- ---------- ----------
2019 2018
Impact of IFRIC 14 GBPm GBPm
--------------------------------------------------------- ------ ------
Opening impact of IFRIC 14 (32.5) -
Acquisition of subsidiary undertakings pension schemes - (29.4)
Increase in impact of IFRIC 14 (0.3) (3.1)
Closing impact of IFRIC 14 (32.8) (32.5)
--------------------------------------------------------- ------ ------
2019 2018
Changes in the fair value of scheme assets GBPm GBPm
--------------------------------------------------------- ------- -------
Opening fair value of scheme assets 2,146.7 1,551.6
Acquisition of subsidiary undertakings pension schemes - 673.8
Past service cost gain - 2.9
Interest income 58.3 52.8
Actual return on assets greater/(less) than discount
rate 261.9 (98.0)
Contributions by employer 48.9 90.1
Benefits paid (112.1) (123.5)
Administrative expenses (2.9) (3.0)
Closing fair value of scheme assets 2,400.8 2,146.7
--------------------------------------------------------- ------- -------
Fair value of scheme assets 2019 2018
GBPm GBPm
----------------------------------------- ------- -------
UK equities 49.2 37.4
US equities 128.6 99.5
Other overseas equities 191.1 275.8
Property 24.4 37.5
Corporate bonds 242.1 287.8
Fixed interest gilts 184.2 127.1
Index linked gilts 71.9 48.6
Liability driven investment 773.9 459.1
Cash and other 409.4 456.4
----------------------------------------- ------- -------
Invested and cash assets at fair value 2,074.8 1,829.2
Value of insurance contracts 326.0 317.5
----------------------------------------- ------- -------
Fair value of scheme assets 2,400.8 2,146.7
----------------------------------------- ------- -------
A majority of the scheme assets have quoted prices in active
markets. Scheme assets include neither direct investments in the
Company's ordinary shares nor any property assets occupied nor
other assets used by the Group.
15. Net debt
The net debt for the Group is as follows:
30 December Cash Loans 29 December
2018 flow repaid 2019
GBPm GBPm GBPm GBPm
--------------------------- ------------ ------ -------- ------------
Non-current liabilities
Acquisition Term Loan (39.7) - 39.7 -
--------------------------- ------------ ------ -------- ------------
(39.7) - 39.7 -
--------------------------- ------------ ------ -------- ------------
Current liabilities
Acquisition Term Loan (20.3) - 20.3 -
(20.3) - 20.3 -
--------------------------- ------------ ------ -------- ------------
Debt (60.0) - 60.0 -
--------------------------- ------------ ------ -------- ------------
Current assets
Cash and cash equivalents 19.2 61.2 (60.0) 20.4
--------------------------- ------------ ------ -------- ------------
Cash and cash equivalents 19.2 61.2 (60.0) 20.4
--------------------------- ------------ ------ -------- ------------
Net debt (40.8) 61.2 - 20.4
--------------------------- ------------ ------ -------- ------------
The Group repaid the Acquisition Term Loan in full during the
year with GBP20.3m repaid in the first half (originally due in
December 2019 and GBP39.7m repaid in the second half (originally
due GBP20.3m in December 2020 and GBP19.4m in December 2022). The
Group cancelled the previous amortising Revolving Credit Facility
('RCF') and entered into new four year non-amortising GBP65m RCF.
The Group had no drawings at the reporting date on the RCF.
Acquisition deferred consideration
Deferred consideration of GBP59.0m in respect of the acquisition
of Express & Star is included in trade and other payables in
non-current liabilities amounting to GBP40.1m (payable GBP16.0m on
28 February 2021, GBP17.1m on 28 February 2022 and GBP7.0m on 28
February 2023) and in current liabilities amounting to GBP18.9m
(payable on 28 February 2020). There are no conditions attached to
the payment of the deferred consideration and the transaction was
structured such that no interest accrued on these payments.
However, under the sale and purchase agreement the Group has the
right to offset agreed claims arising from a breach of warranties
and indemnities and can also offset any shortfalls on the
contracted advertising from the Health Lottery. The deferred
consideration has not been discounted as we do not believe that the
impact of such discounting is material.
16. Provisions
Share-based Historical
payments Property Restructuring legal issues Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------ ----------- ---------------- -------------- -------- --------
At 30 December
2018 (0.1) (6.6) (4.3) (13.6) (1.8) (26.4)
Charged to income
statement (0.6) (1.7) (10.7) (11.0) (4.2) (28.2)
Reclassification - (0.4) - - (2.8) (3.2)
Utilisation of
provision - 3.0 13.6 3.5 1.7 21.8
At 29 December
2019 (0.7) (5.7) (1.4) (21.1) (7.1) (36.0)
------------------- ------------ ----------- ---------------- -------------- -------- --------
The reclassification relates to amounts previously included in
accruals now more appropriately included in provisions.
The provisions have been analysed between current and
non-current as follows:
2019 2018
GBPm GBPm
------------- ------- -------
Current (15.5) (22.3)
Non-current (20.5) (4.1)
------------- ------- -------
(36.0) (26.4)
------------- ------- -------
The share-based payments provision relates to National Insurance
obligations attached to the future crystallisation of awards. This
provision will be utilised over the next three years.
The property provision relates to onerous property leases and
future committed costs related to occupied, let and vacant
properties. A majority of the provision will be utilised over the
next two years and reflects the remaining term of the leases or
expected period of vacancy.
The restructuring provision relates to restructuring charges
incurred in the delivery of cost reduction measures. This provision
is expected to be utilised within the next year.
The historical legal issues provision relates to the cost
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering. In
April 2019, the law changed in respect of conditional fee
agreements, the effect of which was to limit from that date the
extent to which a claimant's law firm can recover a premium in
legal costs for success. During the year the Group has progressed
and settled a number of claims and also seen new claims come
forward, a number of which were advanced immediately prior to this
change. The Group has also been required to provide further invoice
information to claimant's lawyers in respect of certain suppliers
to the Group over a period of time.
The provision has been increased by GBP11.0m at the year end to
reflect an increase in the estimate of the cost of settling claims.
At the year end, GBP21.1m of the provision remains outstanding and
this represents the current best estimate of the amount required to
settle the expected claims. There are three parts to the provision:
known claims, potential future claims and common court costs. The
estimates are based on historical trends and experience of claims
and costs. The provision is expected to be utilised over the next
few years. The Group has recorded an increase in the provision in
each of the last five years which highlights the challenges in
making a best estimate. Certain cases and other matters relating to
the issue are subject to court proceedings, the dynamics of which
continue to evolve, and the outcome of those proceedings could have
an impact on how much is required to settle the remaining claims
and on the number of claims. It is not possible to provide a range
of potential outcomes in respect of this provision. Due to this
uncertainty, a contingent liability has been highlighted in note
18.
The other provision relates to libel and other matters and is
expected to be utilised over the next two years.
17. Share capital and reserves
The share capital comprises 309,286,317 allotted, called-up and
fully paid ordinary shares of 10p each. In 2018, the Company issued
25,826,746 shares (at 77.4 pence) relating to the acquisition of
Express & Star. The Company holds 10,017,620 shares as Treasury
shares.
The share premium reflects the premium on issued ordinary
shares. The merger reserve comprises the premium on the shares
allotted in relation to the acquisition of Express & Star. The
capital redemption reserve represents the nominal value of the
shares purchased and subsequently cancelled under share buy-back
programmes. Cumulative goodwill written off to retained earnings
and other reserves in respect of continuing businesses acquired
prior to 1998 is GBP25.9m (2018: GBP25.9m). On transition to IFRS,
the revalued amounts of freehold properties were deemed to be the
cost of the asset and the revaluation reserve has been transferred
to retained earnings and other reserves.
Shares purchased by the Reach Employee Benefit Trust are
included in retained earnings and other reserves at GBP3.7m (2018:
GBP4.3m). During the year, 522,572 were released relating to grants
made in prior years (2018: 480,280).
During the year, awards relating to 2,970,531 shares were
granted to executive directors on a discretionary basis under the
Long Term Incentive Plan (2018: 1,529,406). The exercise price of
each award is GBP1. The awards vest after three years, subject to
the continued employment of the participant and satisfaction of
certain performance conditions, and are required to be held for a
further two years.
During the year, awards relating to 2,593,910 shares were
granted to senior managers on a discretionary basis under the
Senior Management Incentive Plan (2018: 1,709,295). The exercise
price of each award is GBP1. The awards vest after three years,
subject to the continued employment of the participant and
satisfaction of certain performance conditions.
During the year, awards relating to 77,399 shares were granted
to executive directors under the Restricted Share Plan (2018: nil).
The awards vest after three years.
18. Contingent liabilities
There is the potential for further liabilities to arise from the
outcome or resolution of the ongoing historical legal issues (note
16). At this stage, due to the uncertainty in respect of the
nature, timing or measurement of any such liabilities, we are
unable to reliably estimate how these matters will proceed and
their financial impact.
19. Reconciliation of statutory to adjusted results
52 weeks ended 29 December 2019
Operating Pension
adjusted finance
Statutory items charge Adjusted
results (a) (b) results
GBPm GBPm GBPm GBPm
-------------------------- -------------- ------------ ----------- -------------
Revenue 702.5 - - 702.5
Operating profit 131.7 21.7 - 153.4
Profit before tax 120.9 21.7 8.0 150.6
Profit after tax 94.3 20.9 6.5 121.7
Basic earnings per share
(p) 31.8 7.1 2.2 41.1
-------------------------- -------------- ------------ ----------- -------------
52 weeks ended 30 December 2018
Operating Pension
adjusted finance
Statutory items charge Adjusted
results (a) (b) results
GBPm GBPm GBPm GBPm
------------------------- -------------- ------------ ----------- -------------
Revenue 723.9 - - 723.9
Operating (loss)/profit (107.6) 253.2 - 145.6
(Loss)/profit before
tax (119.9) 253.2 8.6 141.9
(Loss)/profit after
tax (119.6) 226.8 7.0 114.2
Basic (loss)/earnings
per share (p) (41.0) 77.8 2.4 39.2
------------------------- -------------- ------------ ----------- -------------
(a) Operating adjusted items relate to the items charged or
credited to operating profit as set out in note 5.
(b) Pension finance charge relating to the defined benefit
pension schemes as set out in note 14.
Set out in note 2 is the rationale for the alternative
performance measures adopted by the Group. The reconciliations in
this note highlight the impact on the respective components of the
income statement. Items are adjusted for where they relate to
material items in the year (impairment, restructuring, disposals)
or relate to historic liabilities (historical legal issues, defined
benefit pension schemes which are all closed to future
accrual).
Restructuring charges incurred to deliver cost reduction
measures relate to the transformation of the business from print to
digital, together with costs to deliver synergies. These costs are
principally severance-related, but can also include system
integration costs. They are included in adjusted items on the basis
that they are material and can vary considerably each year,
distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost
associated with dealing with and resolving civil claims for
historical phone hacking and unlawful information gathering. This
is included in adjusted items as the amounts are material, it
relates to historical matters and movements in the provision can
vary year to year.
Impairments to non-current assets arise following impairment
reviews or where a decision is made to close or retire printing
assets. These non cash items are included in adjusted items on the
basis that they are material and vary considerably each year,
distorting the underlying performance of the business.
The Group's pension schemes are all closed to new members and to
future accrual and are therefore not related to the current
business. The pension administration expenses and the pension
finance charge are included in adjusted items as the amounts are
significant and they relate to the historical pension commitment.
Additionally, the charge in respect of Guaranteed Minimum Pension
equalisation was included in adjusted items last year as the amount
was material and it related to the historical pension
commitment.
Other items may be included in adjusted items if they are
material, such as transaction costs incurred on significant
acquisitions or the profit or loss on the sale of subsidiaries,
associates or freehold buildings. They are included in adjusted
items on the basis that they are material and vary considerably
each year, distorting the underlying performance of the
business.
20. Reconciliation of statutory revenue categories
2018 Categories 52 weeks 52 weeks 2019 Categories
ended ended
30 December 30 December
2018 Reclassification 2018
GBPm GBPm GBPm
------------------------- -------------- ------------------- -------------- ------------------
Publishing Print 575.4 47.9 623.3 Print
------------------------- -------------- ------------------- -------------- ------------------
Circulation 362.1 - 362.1 Circulation
Advertising 176.7 12.3 189.0 Advertising
Printing - 35.6 35.6 Printing
Other 36.6 - 36.6 Other
------------------------- -------------- ------------------- -------------- ------------------
Publishing Digital 103.6 (12.3) 91.3 Digital
------------------------- -------------- ------------------- -------------- ------------------
Display & Transactional 91.3 - 91.3
Classified 12.3 (12.3) -
------------------------- -------------- ------------------- -------------- ------------------
Printing 35.6 (35.6) -
Specialist Digital 8.0 (8.0) -
Central 1.3 8.0 9.3 Other
Total revenue 723.9 - 723.9 Total revenue
------------------------- -------------- ------------------- -------------- ------------------
21. Reconciliation of statutory to like-for-like revenue
52 weeks 52 weeks
ended ended
30 December 30 December
2018 (a) (b) (c) 2018
GBPm GBPm GBPm GBPm GBPm
--------------- ------------- ------- ------- ------- -------------
Print 623.3 26.7 (8.1) - 641.9
--------------- ------------- ------- ------- ------- -------------
Circulation 362.1 17.5 (0.9) - 378.7
Advertising 189.0 7.3 (7.1) - 189.2
Printing 35.6 0.5 - - 36.1
Other 36.6 1.4 (0.1) - 37.9
--------------- ------------- ------- ------- ------- -------------
Digital 91.3 3.2 - - 94.5
Other 9.3 - - (3.6) 5.7
Total revenue 723.9 29.9 (8.1) (3.6) 742.1
--------------- ------------- ------- ------- ------- -------------
(a) Inclusion of Express & Star (acquired on 28 February
2018) assuming owned by the Group from the beginning of 2018.
(b) Exclusion of West Midlands Metro following ending of
franchise agreement in December 2018 and other portfolio changes in
2018.
(c) Exclusion of Communication Corp (sold on 26 September 2018).
There are no like-for-like adjustments relating to 2019
revenue.
22. Adjusted cash flow
2019 2018
GBPm GBPm
------------------------------------------- ------- -------
Adjusted operating profit 153.4 145.6
Depreciation 21.5 22.3
------------------------------------------- ------- -------
Adjusted EBITDA 174.9 167.9
Net interest paid (3.2) (3.7)
Income tax paid (11.7) (12.5)
Restructuring payments (13.6) (18.1)
Net capital expenditure (3.4) (4.6)
Working capital and other (9.9) 3.9
Adjusted operating cash flow 133.1 132.9
Historical legal issues payments (3.5) (9.6)
Dividends paid (18.6) (17.5)
Pension funding payments (48.9) (48.9)
Adjusted net cash flow 62.1 56.9
Bank facility net (repayment)/borrowings (60.0) 35.0
Acquisition related cash flow (0.9) (95.1)
Proceeds on disposal of a business - 6.4
------------------------------------------- ------- -------
Net increase in cash and cash equivalents 1.2 3.2
------------------------------------------- ------- -------
23. Reconciliation of statutory to adjusted cash flow
52 weeks ended 29 December 2019 2019
2019
Stat (a) (b) Adjusted
GBPm GBPm GBPm GBPm
-------------------------------- ------- ------- ------ ---------
Cash flows from operating
activities
Adjusted operating
Cash generated from operations 147.4 (17.8) 3.5 133.1 cash flow
Pension deficit funding
payments (48.9) - - (48.9)
Historical legal issues
- - (3.5) (3.5) payments
Income tax paid (11.7) 11.7 - -
-------------------------------- -------
Net cash inflow from operating
activities 86.8
-------------------------------- -------
Investing activities -
Interest received 0.1 (0.1) - -
Dividends received 0.5 (0.5) - -
Proceeds on disposal of
property, plant and equipment 0.5 (0.5) - -
Purchases of property,
plant and equipment (3.9) 3.9 - -
Acquisition of associate
undertaking (0.9) - - (0.9)
Net cash used in investing
activities (3.7)
Financing activities
Dividends paid (18.6) - - (18.6)
Interest paid on borrowings (3.3) 3.3 - -
Repayment of bank borrowings (60.0) - - (60.0)
Net cash used in financing
activities (81.9)
-------------------------------- ------- ------- ------ ---------
Net increase in cash and
cash equivalents 1.2 - - 1.2
-------------------------------- ------- ------- ------ ---------
52 weeks ended 30 December 2018 2018
2018
Stat (a) (b) (c) Adjusted
GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ------- ------ ------- ---------
Cash flows from operating
activities
Adjusted operating
Cash generated from operations 137.8 (20.8) 15.9 - 132.9 cash flow
Pension deficit funding
payments (90.1) - - 41.2 (48.9)
Historical legal issues
- - (9.6) - (9.6) payments
Income tax paid (12.5) 12.5 - - -
-------------------------------- -------
Net cash inflow from operating
activities 35.2
-------------------------------- -------
Investing activities
Interest received 0.1 (0.1) - - -
Proceeds on disposal of
property, plant and equipment 6.6 (6.6) - - -
Purchases of property,
plant and equipment (11.2) 11.2 - - -
Acquisition of subsidiary
undertakings (43.1) - (6.3) (45.7) (95.1) Express & Star acquisition
Proceeds on disposal of
subsidiary undertaking 6.4 - - - 6.4
Acquisition of associate
undertaking (4.5) - - 4.5 -
Net cash used in investing
activities (45.7)
Financing activities
Dividends paid (17.5) - - - (17.5)
Interest paid on borrowings (3.8) 3.8 - - -
Draw down on bank borrowings 80.0 - - (80.0) -
Net bank borrowings
Repayment of bank borrowings (45.0) - - 80.0 35.0 change
Net cash received from
financing activities 13.7
-------------------------------- ------- ------- ------ ------- ---------
Net increase in cash and
cash equivalents 3.2 - - - 3.2
-------------------------------- ------- ------- ------ ------- ---------
(a) Items included in the statutory cash flow on separate lines
which for the adjusted cash flow are included in adjusted operating
cash flow.
(b) Payments in respect of historical legal issues (2018 and
2019) and transaction costs (2018) are shown separately in the
adjusted cash flow.
(c) Items related to the Express & Star acquisition shown as
a single item in the adjusted cash flow.
Risks and Uncertainties
The Group recognises the importance in effective understanding
and management of risk in enabling us to identify factors, both
external and internal, that may materially affect our ability to
achieve our goals. There is an ongoing process for the
identification, evaluation and management of the principal risks
faced by the Group, including emerging risks. Appropriate
mitigating actions are in place to minimise the impact of the risks
and uncertainties which are identified as part of the risk process.
The principal risks and uncertainties, together with mitigating
actions and developments in the year, are set out below. All risks
are considered in the context of the changing regulatory and
compliance landscape, and enabling the continuity of our
operations. In the Annual Report this year, the Group has included
a refreshed risks and uncertainties disclosure. This includes a
more granular view of risks, as opposed to new risks, from the risk
register following on from review sessions with the senior
management team.
Principal risks and uncertainties
RISK DESCRIPTION MITIGATION UPDATE
PRINT REVENUE Structural changes in the traditional Strategic development led by an NO CHANGE
DECLINE publishing industry have led to experienced Board and Senior Management
ACCELERATION ongoing decline in print team. Renewed strategic
advertising and circulation revenues. focus.
Investment Committee established to
Macroeconomic factors may contribute approve business plans when reviewed
to a larger than expected decline. against strategic
KPIs.
A lack of appropriate strategic focus
results in accelerated revenue loss Re-energised strategic focus to develop
for existing products. digital revenue streams through taking
a more customer
centric focus.
Continued tactical measures to minimise
print revenue declines and to maintain
profits by
taking appropriate cash mitigation
measures.
Governance structures enable ongoing
review of performance against targets
and strategic KPIs
including a weekly structured trading
meeting.
Senior Management are incentivised with
performance-related rewards to deliver
our strategic
goals.
Acquisition, joint venture and other
corporate development opportunities,
which are aligned
to our strategy, continue to be
considered (including industry
consolidation and non-organic
digital opportunities).
--------------------------------------- ---------------------------------------- -------------------
INSUFFICIENT A failure to grow digital revenues
DIGITAL quickly enough to offset print
REVENUE declines.
GROWTH
--------------------------------------- ---------------------------------------- -------------------
RISK DESCRIPTION MITIGATION UPDATE
LACK OF The main financial risk is the lack of funding capability PENSIONS NO CHANGE
FUNDING to meet business needs. This may
CAPABILITY be caused by a lack of working capital, unexpected Regular reporting to the Board. PENSIONS
increases in interest rates or increased
liabilities, in particular: Collaborative relationship and regular meetings with Trustees. We remain
committed
* Pension deficits grow at such a rate such that annual Ongoing review of options to de-risk pension liabilities. to addressing
funding costs consume a disproportionate level of our
profit. HISTORICAL LEGAL ISSUES historical
pension
Ongoing historical legal issues claim level monitoring and deficits
management. and continue
* Volume and level of claims may continue to have to make
significant cost implications. Standing item on Board agenda. significant
payments to
Working with external lawyers on civil claims and related the schemes.
investigations. Next
triennial
FINANCING valuation
to be agreed
Strong cash generating business with a current focus on future in 2020.
financing.
HISTORICAL
Committed loan facilities are in place to 2023 to deliver our LEGAL ISSUES
strategy.
We continue
Regular cash flow forecasting, monitoring through Treasury to deal with
reporting processes. the
historical
Limited hedging exposure. legal issues
in a
Appropriate bad debt insurance protection. professional
and efficient
manner
although
the final
outcome of
the civil
claims
remains
uncertain.
FUNDING
New facility
with banking
syndicate
in place.
----------------------------------------------------------------- ------------------------------------------------------------------- --------------
INABILITY The inability to recruit, develop and retain talent with the Ongoing considerations of: NO CHANGE
TO RECRUIT appropriate skills, knowledge * Digital capabilities of workforce
AND RETAIN and experience compromises our ability to deliver strategic Retention
TALENT business plans. and
* Turnover levels recruitment
of
appropriately
* Pay and benefits skilled
digital
staff will
* Opportunities to expand talent pool (for example, remain an
outside London) ongoing
challenge,
particularly
* Recruitment channels used in London.
The skillsets
required to
deliver our
evolved
strategy
amplifies
this risk
further.
----------------------------------------------------------------- ------------------------------------------------------------------- --------------
RISK DESCRIPTION MITIGATION UPDATE
CUSTOMER Our evolved strategy relies on the Group wide GDPR INCREASE
DATA MANAGEMENT appropriate, secure and GDPR governance structures,
CHALLENGES compliant storage and usage policies and processes The ongoing
of customer data with clear are in place alongside focus and
permissions in place. Storage and compulsory challenge
usage of data in a non-compliant awareness training for remains on
manner may result in reputational our staff. embedding
or financial damage. processes
Externally facing and ensuring
websites have all been that the consideration
updated to make them of data protection
compliant and the forms part
impact on of 'business
audience and, as usual'
potentially, revenue is thinking.
being closely Our evolved
monitored. customer centric
strategy brings
Specific GDPR the risk into
consideration being sharper focus.
built into upcoming
strategic initiatives. The effect
on data protection
Appointment of a Chief law arising
Customer Data Officer from the UK's
to provide central exit from
group-wide oversight of the European
how Union is unclear
customer data is at present
utilised. and will continue
to be monitored.
To appoint a formal
Data Protection Officer
(DPO) given
increasingly data
centric nature of
the business.
------------------------------------ ----------------------------------- ------------------------
BRAND REPUTATION Damage to reputation arising from Recruitment of highly experienced NO CHANGE
DAMAGE employee actions or behaviours, and capable people into key senior
including breaches of regulations management roles. There remains
or best practice guidelines. awareness
Governance structures provide that an indiscretion
Editorial errors, behaviours or clear accountability for could lead
tone leads to loss of readership, compliance with all laws and to significant
damaged reputation and legal regulations. financial
proceedings. and reputational
Policies and procedures are damage.
An incident which has an adverse designed to meet all relevant
impact on the environment. requirements. In editorial,
we are aware
Employees trained to comply with of the heightened
all relevant legislation. risk created
in a digital
Ongoing consideration of upcoming led environment
legislative changes and emerging due to the
trends. 24/7 nature
of operation
and the need
to move with
pace.
------------------------------------ ----------------------------------- ------------------------
RISK DESCRIPTION MITIGATION UPDATE
CYBER SECURITY A cyber security incident which leads All business-critical systems are INCREASE
BREACH to a serious data breach or the loss well established and are supported
of systems/data by appropriate disaster We recognise
and reputational damage. recovery plans. the need for
continued
Regular reviews assess our cyber security
vulnerability and our ability to investment
re-establish operations in the against an
event of a failure. ever changing
technological
The technical infrastructure landscape.
supporting the websites is within
the cloud and the sites have Our evolved
been designed effectively providing strategy,
adequate resilience and continued with an increased
performance in the event focus on customer
of a significant failure. data, potentially
increases
Further investment to be made to the impact
enhance cyber security of a cyber
infrastructure and training. security breach.
-------------------------------------- ------------------------------------- ----------------------
HEALTH AND A health and safety incident within Clear Health and Safety policies and NO CHANGE
SAFETY ISSUE one of our sites which results in procedures consistently applied
death or injury to an across the Group. We have received
employees or others. the Gold Award
All parts of the group are serviced from the Royal
An incident which has an adverse by professionally qualified and Prevention
impact on the safety and security of experienced Health and of Accidents
our employees. Safety Managers and Occupational (ROSPA) Occupational
Health service providers. Health and
Safety awards
All printing plants have been scheme for
externally assessed and certified as 15 consecutive
compliant with relevant years, resulting
standards. in the Order
of Distinction.
Internal and external auditing is
ongoing to ensure continuing
compliance across our print
and publishing sites.
-------------------------------------- ------------------------------------- ----------------------
RISK DESCRIPTION MITIGATION UPDATE
SUPPLY CHAIN Our print products rely Well established long-term relationships with NO CHANGE
FAILURE on a small number of trusted suppliers.
key suppliers (for A decreasing
example newsprint, Strong ongoing management and/or monitoring of number of
wholesalers providers including: key suppliers
and distributors) and and an
may be adversely * IT Providers increasing
affected operationally number of
and financially by outsourced
changes to * Outsourced ad production and planning arrangements
supplier dynamics. in place
means
Specifically, from an * Wholesalers and distributors it becomes
IT and Digital increasingly
perspective, We depend important
on the reliability and * Newsprint suppliers to stabilise
capability and optimise
of key information arrangements
systems and technology * Manufacturing maintenance and parts providers and ensure
supplied by third party appropriate
providers. A major contingency
failure, * Global digital partners. plans are
a breach, or prolonged in place.
performance issues
could have an adverse This risk
impact on the business. Business continuity/disaster recovery plans in will continue
place, including at key partners. to be
considered
Industry wide response likely should key common in the
elements of the publishing supply chain be context
compromised. of the wider
'Business
Ongoing review of the operating model, including Interruption'
the assessment of alternative options. risk.
In IT, governance oversight arrangements and
committee structures are in place covering areas
such as risk management, change control, security
and service delivery.
Measures to reduce the reliance on key staff at IT
providers.
Appropriate contractual protections in place.
------------------------ --------------------------------------------------------------- --------------
MACRO-ECONOMIC Macro-economic factors Ongoing focus on macro-economic factors which may affect our NO CHANGE
DETERIORATION may have a negative business. Examples include inflation
impact on several areas rate increases, interest rate changes, increased borrowing As the impact
of our business which costs, exchange rate fluctuations of the UK's
may and legislative changes. exit from
restrict our ability to the European
protect profit levels. Specifically, the uncertainty around the UK's exit from the Union becomes
European Union prompted a Group clearer, we
These include an wide exercise to evaluate the potential impact and a number of will continue
adverse effect on mitigating actions can be taken to evolve
commercial revenue, in the event of, for example, larger than expected revenue our response
increase in pension declines, operational supply chain to mitigate
deficit levels, challenges or legislative changes. The assessment of our risk any impacts.
increasing supply chain exposure remains under review.
costs and other cost We have a
pressures arising from strong record
any devaluation of of delivering
Sterling additional
given the UK centric cost savings
nature of our when faced
operations. with
unexpected
revenue
deficits.
------------------------ --------------------------------------------------------------- --------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKNBBABKDKBB
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