Source - RNS
RNS Number : 1039L
Johnston Press PLC
17 April 2018
 

Johnston Press: FINANCIAL RESULTS 2017

Tuesday 17 APRIL, 2018 - EMBARGOED TO 07.00    

 

Exceptional i performance and growing audiences

 

Johnston Press plc, (LSE: JPR), one of the UK's foremost news publishers, announces its results for the 52 week period ended 30 December 2017. 

 

Financial Highlights

Adjusted results1 below include the i for 52 weeks in 2017 and 38 weeks in 2016. The Group acquired the i newspaper in April 2016.

·      Adjusted Group EBITDA was £40.1m  (2016: £43.9m) - in line with expectations

·      Adjusted EBITDA margin of 19.9% (2016: 20.8%)

·      Exceptional performance from the i newspaper - delivered adjusted EBITDA of £9.3m

·      Total adjusted revenue was £201.2m (2016: £210.8m) down 4.5%, (up 1.8% excluding classifieds)

·      Adjusted digital revenue was £25.9m, up 3%, (up 13.2% excluding classifieds)

·      Adjusted circulation revenue was £79.0m, up 2.7%

·      Contract printing revenue was £13.3m, up 4.2%

·      Adjusted net debt4 was £195.9m, down 4.2% (2016: £204.5m)

 

Statutory results for the Group:

·      Statutory total revenue of £201.6m (2016: £222.7m) was down 9.5%, £9.9m of which resulted from the sale of Midlands and East Anglia titles in January 2017

·      Statutory loss before tax of £95.0m (2016: loss of £300.7m) down 68.4% includes a non-cash impairment of £64.4m (2016: £344.3m) and mark-to-market loss on the bond of £22.8m (2016: gain of £43.6m), as a result of an increase in the market value of the bond

·      Net debt4 was £141.7m (2016: £127.5m) as a result of the increase in the market value of the bond

 

 

Like for like revenue2 for the Group including i for the comparable 38 week period:

·      Total revenue was down 8.1%, (excluding classifieds down 2.7%)

·      Advertising revenue was down 13.5%, (excluding classifieds down 4.0%)

·      Circulation revenue was down 4.9%

 

 

Current Trading 2018

·      The Group has traded in line with the board's expectations in the first quarter of 2018, with Q1 adjusted EBITDA higher than the prior year

 

Continuing Operations - Statutory

 

Continuing Operations - Adjusted

 

2017

£m

2016

£m

% change

 

2017

£m

2016

£m

% change

Revenue

201.6

222.7

(9.5)%

 

201.2

210.8

(4.5)%

- Total advertising revenue (combined print and digital)

100.2

122.6

(18.3)%

 

100.0

113.9

(12.2)%

- Print advertising (exc. classifieds)3

49.0

61.3

(20.1)%

 

48.8

52.6

(7.2)%

- Digital advertising (exc. classifieds)3

20.1

18.6

8.1%

 

20.0

17.7

13.2%

- Circulation revenue

79.1

79.9

(1.0)%

 

79.0

76.9

2.7%

- Contract printing revenue

13.3

12.8

4.2%

 

13.3

12.8

4.2%

Operating profit/(loss)

(51.2)

(323.5)

84.2%

 

33.1

37.0

(10.5)%

EBITDA

-

-

-

 

40.1

43.9

(8.7)%

EBITDA margin

-

-

-

 

19.9%

20.8%

-

Profit/(loss) before tax

(95.0)

(300.7)

68.4%

 

14.2

17.4

(18.7)%

Basic earnings per share

(74.6)p

(234.9)p

-

 

6.9p

12.7p

-

Net debt4

141.7

127.5

11.1%

 

195.9

204.5

(4.2)%

 

1 The results are presented on a continuing adjusted basis which exclude the following items: mark-to-market movement on the bond, impairment of intangible and tangible assets, restructuring costs, strategic review costs, items related to the defined benefit pension plan, share based payment costs, trading and write downs relating to the closure and disposal of titles and digital operations, one-off legal and acquisition costs and disposal gains. It includes the results from the acquisition of the i from April 2016 and excludes the results of the Isle of Man operations disposed in August 2016 and the Midlands and East Anglia titles disposed of in January 2017.
2 Like for like is an output measure of our key revenues lines, namely print advertising, digital and newspaper sales and contract print revenues on a 38 week basis in 2017 and 2016. This measure removes the effect of part year ownership of the i in 2016.

3 Adjusted Classified advertising (print and digital) and other advertising revenue for the period is £31.2m (2016: £43.6m) and represented 16% of total adjusted revenue in 2017.

4 Net debt is a non-statutory term presented to show the Group's borrowings net of cash equivalents and bond fair value movements and includes finance leases. Adjusted net debt is stated excluding fair value mark-to-market valuation adjustments on the bond.
 

Operational Highlights

Continue the success of the i newspaper

·      Significant profit improvement - Adjusted EBITDA for the i of £9.3m in first full year

·      More than doubled adjusted EBITDA over the comparable 38 week period from £3.3m to £7.6m

·      Statutory newspaper circulation revenue up 20% and advertising up 27% in H2 2017 (on a comparable basis versus H2 2016)

·      Market share has grown to some 20% of the quality weekday market, with Saturday's 'Weekend' i performing up 6% year on year in December 2017

·      inews.co.uk digital audience averaged over 1.4m unique users per month, up 45% year-on-year

·      Successful realisation of content sharing synergies with the Group including centrally coordinated investigative features and news alongside other National' titles, The Scotsman, Yorkshire Post, and News Letter (Northern Ireland)  

Digital audience and revenue growth

·      Adjusted digital revenue (excluding classified) was £20.0m, up 13%; including classified up 3%

·      Average monthly unique users up 13% from 22.5m to 25.4m

·      108m average page views per month, up 19% year on year

·      Our 'Big City' strategy resulted in a significant increase in daily unique browsers, The Scotsman (JP's largest audience site) +13%,Yorkshire Post +58%, Yorkshire Evening Post (Leeds) +45%, Edinburgh Evening News +40% and Sheffield Star +29% (July - Dec 2017 ABC's)

Operational efficiency

·      Margin - adjusted EBITDA margin was 19.9%

·      Cost extraction - adjusted operating costs reduced by £12.1m (excluding the investment in the i)

·      68% of local display and features customers are now serviced by tele-sales (Media Sales Centres)

Getting more of our business back to growth

·      Excluding classifieds, our total adjusted revenue was up 1.8% year on year (including classifieds down 4.5%)

·      Like for like revenue for 38 weeks excluding classifieds was down 2.7% (including classifieds down 8.1%)

·      Adjusted newspaper circulation revenue was up 2.7% year on year benefiting from the i acquisition, and down 4.9% on a 38 week like for like basis

·      Contract print revenue was up 4.2% to £13.3m, increasing market share, with strong record of client retention and competitive wins for Sheffield and Portsmouth print plants.

Strategic review of financing options for £220m bond which becomes due on 1 June 2019 £220m

·      Commenced review of financing options; discussions with stakeholders and their advisors (including with a bondholder committee) are in progress; any [financing] proposal will be subject to negotiation and consent of stakeholders; there can be no certainty that a formal proposal will be forthcoming; if no consensual agreement is reached, then alternative refinancing/restructuring options will be explored.

 

Current trading and outlook

The Group has traded in line with the board's expectations in the first quarter of 2018 with Q1 adjusted EBITDA higher than the prior year. The i is continuing to deliver the exceptional growth seen in FY2017, with revenue up 21% year on year in the first quarter.

 

The trading environment remains challenging, notwithstanding early signs of some improvement in the national print advertising market. Comparatives do get harder, and we expect to see continued pressure on revenues, and the requirement for cost savings. Against this difficult backdrop we are focused on maintaining our strong margins, driving additional growth from i and realising further operational and financial synergies. During 2018 we will continue to selectively invest in the business, with a focus on digital, journalists, and content generation.

Ashley Highfield, Chief Executive Officer, commented,

Our vision remains constant - to be at the heart of our communities, providing accurate, relevant and timely news and information - free of proprietorial influence. And we continue to deliver on this, despite 2017 proving to be another tough year for the sector: We more than doubled profits at the i, with circulation revenue up 20% and advertising revenue up 27% (H2 '17 v H2 '16). We grew our digital traffic across the group by 19% and our digital audiences reached an all time high of 25.4m. We posted total adjusted revenue up 1.8% year on year, excluding classifieds, which in combination with maintaining operational excellence and reducing costs, achieved profits in line with expectations.

 

The first quarter of 2018 has seen us deliver increased adjusted EBITDA year on year, driven by the i's continued strong performance (especially the relaunched Saturday edition, up 4% year on year in newspaper sales) and our strategy of focusing on our largest Cities and titles. We are pleased with the acceleration in growth from the i's website inews.co.uk which, having delivered sustained growth in 2017, has ramped up further in the first quarter of this year (with unique users up 89% year on year).

 

Across our regional portfolio of titles national print advertising tracked in line with prior year in the first quarter of 2018, with advertisers starting to increase spend in regional print. This trend is driven by a somewhat stronger overall advertising market, our ability to precisely target audiences using 'big data', and improving sentiment towards quality print publishers in the wake of the Fake News and social media trust concerns.

 

Classified advertising remains weak, but is now a significantly smaller portion of the group accounting for just 13% of revenues in the quarter, following our investment in digital and the i.

 

Whilst operationally the business is performing well in challenging markets, addressing the Group's capital structure remains a key priority. The Strategic Review of financing options is ongoing and discussions with our various stakeholders are progressing.  We will update on this matter as we progress through 2018.

 

Notes

Statutory and adjusted basis
In the Management Report, performance is stated on an adjusted basis. An adjusting item is one that is judged to require separate presentation to enable a better understanding of the trading performance of the business in the period. Items are adjusted if they are significant in value and/or do not form part of ongoing underlying trading. They will, in many cases, be 'one-off' and include items that span more than one financial period. A reconciliation between the statutory and the adjusted results is provided under the Alternative Performance (non-GAAP) Measures section within this financial information.

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

Market abuse regulation
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

For more information, contact:

Johnston Press plc
Ashley Highfield, CEO
David King, CFO
020 7612 2600

Panmure Gordon
Charles Leigh-Pemberton
020 7886 2500

Liberum
Neil Patel
020 3100 2000

Powerscourt
Peter Ogden / John Elliott
020 7250 1446

Johnston Press will host a conference call for institutional investors and analysts this morning at 9.30am (GMT). The presentation will be available through our partner BRR Media (http://webcasting.brrmedia.co.uk/broadcast/5acf2e3b5a296618f17926a0). To dial in to the conference call, participants should dial +44 (0)330 336 9105, specify Johnston Press Full Year Results 2017 as their event and provide the confirmation code 2355866.

About Johnston Press
Johnston Press is a leading multimedia business with a vibrant mix of news brands that reach national, regional and local audiences. We provide news and information services to local and regional communities through our extensive portfolio of hundreds of publications and websites.

 

Sharing information and opinion remains at the heart of what we do and our titles, which include iconic i, The Scotsman, The Yorkshire Post and News Letter in Northern Ireland are read via traditional print, online platforms and mobile devices by 38.8 million people every month.

 

We are experts in combining national reach with local targeting and are better equipped than ever to help advertisers tell their stories, too, through our trusted platforms.

 

Chairman's Statement

 

Trading

 

In 2017, we worked hard to combat the continued downward pressure on print publishing revenue, both in advertising and circulation. A key component of our plan saw a wholesale modernisation in the organisation and operation of our sales teams for local markets, as we seek to build a class-leading centralised tele-sales operation with deep local market knowledge. After an initial bedding in period, these changes are starting to show results.

 

Statutory revenue reduced from £222.7 million in 2016 to £201.6 million in 2017, of which £9.9 million of the reduction related to the sale of 13 titles in the East Midlands. The Group reported a loss of £78.6 million in 2017, compared to £247.3 million in 2016. The loss resulted from non-cash asset impairment charges of £64.4 million, mark-to-market on the bond, as a result of increases in value, and exceptional costs. Adjusted operating profit was £33.1 million, down from £36.9 million in 2016, reflecting the challenging trading environment in which the Group operates.

 

Strategy

 

As I reported last year, 2017 started with the sale of 13 titles in the East Midlands and East Anglia to Iliffe Media Limited in January 2017. This helped to strengthen our balance sheet, reducing net debt and increasing liquidity and enabled the Group to cancel its revolving credit facility.

 

We have progressed our strategic review of our financing options in relation to the £220 million 8.625% senior secured notes (the 'Bonds') which become due on 1 June 2019 (which we announced on 29 March last year). We have updated stakeholders at relevant times throughout the intervening period and on 2 November 2017 we announced the formation of an ad hoc committee of Bondholders (the "Bondholder Committee") to consider in greater detail certain potential amendments to the Group's capital structure and to the funding arrangements for its final salary pension scheme. This review is ongoing and the Board is satisfied with the continued support of the Group's major stakeholders during the review process. Any proposal that results from these discussions will remain subject to negotiation and the consent of relevant stakeholders, and there can be no certainty that a formal proposal will be forthcoming. In the event that consensual amendments to the Group's capital structure cannot be agreed with relevant stakeholders, alternative options for the restructuring or refinancing of the Bonds prior to June 2019 will be explored as part of the ongoing strategic review process.

 

Throughout this period our management team remain focused on our key strategic aims: growing the Group's overall audience (particularly in the biggest towns and cities that we serve), continuing our successful growth of the i newspaper and inews.co.uk, and seeking to maintain profitability, whilst improving customer, reader, and staff satisfaction.

 

Industry issues

 

We believe strongly in both the protection of individuals and bodies through an effective press complaints mechanism and the rights of a free press which is not subject to the oversight of a government, or government approved, regulator. Together with the majority of our industry, we remain whole-heartedly committed to IPSO - the Independent Press Standards Organisation (along with the vast majority of our industry). The industry was forthright in its concern over the potential introduction of s.40 of the Crime and Courts Act 2013 which, if enabled, could have operated to make newspaper publishers who are not members of a statutorily approved body liable for the costs of dealing with complaints against them - even where those complaints were dismissed or shown to have no merit. We commended the Government when it confirmed that it would repeal this measure. It is therefore of great concern that, through an amendment to the Data Protection Bill, currently making its way through Parliament, that the House of Lords has sought to reintroduce the same penal measures. Our papers are seeking to draw the impact that this will have on papers of all sizes to the attention of our readers and asking them to engage with their elected representatives to address this issue.

 

On a more positive note, recruitment is underway for 31 local democracy reporters following an innovative deal between the News Media Association (NMA) and the BBC which will see 150 journalists employed across the industry to cover local democracy reporting. In February 2018, the Department for Culture, Media and Sport announced a review to preserve the future of high quality national and local newspapers in the United Kingdom. At a time when more people are recognising the value of trusted and verified news sources, we welcome the review and will support the NMA in its engagement with the panel of experts to be appointed to conduct the review. On 12 March 2018, it was announced that Ashley Highfield had been appointed to this advisory panel.

 

Dividend

 

Johnston Press plc, and Johnston Publishing Ltd, its largest subsidiary, do not have distributable reserves. This restricts the Company's ability to pay ordinary dividends. No ordinary or preference dividend is proposed for the year.

 

Board

 

After serving for nine years, Ralph Marshall stepped down as a Non-Executive Director at the Annual General Meeting in May.  Under the terms of the shareholder agreement with Usaha Tegas which owns 10.63% of the Company's ordinary share capital, Jamie Buchan was appointed as a Non-Executive Director with effect from 1 June 2017. Ralph's service over many years has been of enormous value to the Board and I would reiterate both my thanks and those of my colleagues. We are very pleased to have welcomed Jamie to the Board.

 

I have continued in the role of Interim Chair since the start of 2017 and the Company will make an announcement at the appropriate time when the position changes. I would like to record my thanks to Mike Butterworth who has undertaken the role of Senior Independent Director on an interim basis as well as chairing the Audit Committee during this period.

 

In considering candidates to fill Board vacancies, the Nomination Committee has regard to the benefits of, and the need to encourage, diversity (including gender) within the Board's membership and this is a specific consideration of the recruitment process and is included in the Committee's Terms of Reference. The Board has adopted a written diversity policy for this purpose.

 

The Board regularly reviews both the balance of its membership and the issues it considers when it meets. The agenda for the Board's meetings continue to be structured in such a way as to scrutinise both strategic and operational matters and the meetings are held in an atmosphere of constructive challenge and debate. I am satisfied that the Board remains effective.

 

Employees

 

In recent years it has become the norm to report on the profound changes experienced by the Group and, as will become clear, 2017 was no different. I have once again been struck by the hard work and dedication of all employees, which has been key in our ability to adapt to the changing environment in which we operate. On behalf of the Board I would like to put on record our grateful thanks for the professionalism and application of all our colleagues across the Group, which is invaluable to the business.

On 28 March 2018, the Group reported on its Gender pay gap. In common with many organisations we have more men than women in senior positions and this factor has contributed significantly.

We will address the pay gap over the next 3-5 years and have already committed to a series of actions in this respect. More details of our action plan, together with the gap data, can be found on our website: 
www.johnstonpress.co.uk

 

Outlook

 

Current trading remains very challenging and is expected to remain so for the remainder of this year. The management team are focused on delivering against the stated strategic objectives. We continue to invest in digital growth, while also continuing to look for ways to take cost out of the business, in mitigation of print revenue declines.

 

 

 

Camilla Rhodes

Interim Chairman

 

 

CEO Report and Operational Review

 

In what remains a very challenging trading environment, the vision of the Company remains to be at the heart of communities, providing accurate, relevant and timely news and information - free of external proprietorial influence. The rise of awareness of fake news, and lack of transparency in the digital advertising supply chain has seen many larger advertisers reassessing where they invest their advertising spend after years of what has arguably been a race to the bottom in the blind programmatic digital advertising market place. Instead, they are now looking for trusted media organisations which can provide verified content in a safe environment. This rebalancing of spend by national advertisers will take time. At the local level, conditions remain difficult. Following the move of classified advertising to the big online portals (Autotrader, Indeed, ebay et al - the effects of which we still feel, with classified revenue down 29% year on year), display advertising has been shifting online predominantly to Facebook (resulting in, print display revenues being down 17% year on year).

 

The focus in 2017 remained on our longer-term objective of returning the business back to top-line growth and profit growth, through delivery of the stated strategic objectives. The aim is to build a platform for sustainable growth and invest in the acceleration of digital growth in 2018. The corporate objectives for 2017 were:

 

1. Continuing the success of the i newspaper,

2. Digital audience and revenue growth,

3. Sales model transformation,

4. Publishing Model evolution (focusing on our biggest Cities and towns, and finding operational efficiencies for our smallest weeklies), and

5. Growing our contract printing business,

 

All have shown good momentum, as we continue to reset the business:

 

1.          The i newspaper delivered adjusted EBITDA of £9.3m for 2017

2.          Adjusted digital revenue (ex classifieds) was up 13%, audiences increased by 13% (and traffic was up by 19%), despite headwinds  
          from Facebook algorithm changes,

3.          Adjusted total revenue excluding classified was up 1.8% for the year,

4.          Adjusted newspaper sales revenue grew by 2.7%, and we grew print audiences by 2.5%, and

5.          Statutory print contract revenue increased by 4.2% to £13.3m.

 

At the same time we have been progressing the strategic review process. Refer to the Strategic review of financing options section for more details.

 

In 2017 we continued to maintain a complete focus on operational efficiency, through a combination of on-going active portfolio management, completion of the salesforce transformation, and tight control of the cost base. Total costs (excluding exceptionals) reduced by £12.1m in 2017, an 8% reduction on prior year excluding the impact of full year costs of the i.

 

Revenue trends from the regional business remain challenging, especially within classified advertising, which is still feeling the impact of the continued structural change within the classified marketplace, led by companies such as Autotrader, Rightmove and Indeed (Jobs). However, our entire classified business represented just 16% of total Group revenue and is set to become a considerably smaller part of the business in 2018.

 

The regional advertising business has seen the growing impact of small and medium-sized enterprises (SMEs) using Facebook as a route to market to advertise local services. The threat posed to advertising print revenue by Facebook has to some extent been mitigated by the increasing exposure of our newsbrands within Facebook newsfeeds, alongside our own website growth in key markets which can now boast audience reach frequently in excess of 50% to potential advertisers.  This focus has helped the Group deliver total audience growth to an average of 25.4m unique browsers per month, a 13% growth on last year. Average page views are up 19% on prior year, underpinning a 13% year-on-year growth in digital advertising solutions (excluding the challenged digital classified categories, up 3%).

 

Following a full-year of i ownership and a 2% improvement in decline rates across the regional business, we saw total adjusted revenue decline by 4.5%, from £210.8m to £201.2m. Total adjusted revenue including the additional 14 weeks of i trading and excluding classified was up 1.8%.

 

Adjusted newspaper sales revenue grew by 2.7%, from £76.9m to £79.0m, benefiting from the full-year ownership of i newspaper. For the like-for-like 38 weeks for which i was owned in both periods, total newspaper sales revenue was down 4.9%. Contract print revenue grew by 4.2%, from £12.8m to £13.3m.

 

Despite the positive momentum we have created in 2017, we have taken a realistic view of the carrying value of our titles, and have taken a non-cash impairment charge of £59.2m. The quoted market value of our bond has increased by £22.8m in 2017, resulting in a mark-to-market charge against profits. Taken together, and including other exceptional costs this has resulted in a statutory loss of £78.6m, compared to a loss of £247.3m in 2016, on statutory revenues of £201.6m in 2017, down from £222.7m in 2016. £9.9m of this revenue decline related to the sale of East Midlands titles in January 2017.

 

Net debt, excluding the bond mark-to-market adjustment, was £195.9m at the end of 2017, a reduction of £8.6m on prior year. A reconciliation of statutory net debt to net debt excluding the mark-to-market adjustment is provided in the Financial Review. 

 

1 Source: Circular to shareholders dated 2 March 2016. Both stated excluding allocation of corporate central costs.

  

Highlights in 2017

 

1.   Making a success of i

 

Strategic Rationale: On acquisition of the i newspaper in April 2016, we laid out the strategic rationale for acquiring the title, which the company determined to be transformational for the Group.  The acquisition significantly helped to diversify the Group away from a regionally based and local display advertising led business, operating in markets experiencing significant negative structural and consumer behavioural change.

 

Revenue derived from the i newspaper is marked by  a greater emphasis on more stable circulation income, operating in the more predictable daily qualities market, at a price point we determined to have reasonable elasticity when compared to other titles within this market segment. It was additionally determined that the scale of the Group would be beneficial to the title, affording the title greater leverage on key contracts, resulting in cost savings and investment capacity to improve overall editorial quality, both in print and online. 

 

In 2017, under the leadership of editor Oly Duff, the i newspaper was short-listed for a number of awards from  bodies such as The British Press Awards, the Foreign Press Association and the News Awards, reflecting in part the investment in journalism made since acquisition.

 

Profit Growth: Prior to the acquisition in April 2016, the i contributed operating profits of £5.2m to its former owner, Independent Print Limited for the year ended 27 September 2015 (source: Circular to shareholders dated 2 March 2016). Through a combination of revenue improvement actions resulting in both circulation and advertising (print and digital) revenue increases year on year, and targeted cost management, the i was able to report an EBITDA run-rate averaging £1m per month in the last quarter of 2017 and EBITDA for the 52 weeks of £9.3m (no central corporate cost allocated), and operating profit of £8.7m.

 

Circulation Revenue Growth: In September 2017, the cover price of the i increased from 50p to 60p on Monday to Friday and from 60p to 80p on Saturday. The price increase was supported by both a marketing campaign and the relaunch of the Saturday edition (iWeekend), with the Saturday edition attracting 12,000 new readers when compared to its average circulation pre relaunch. Daily circulation overall remained at 265,000 (Jan - Dec 17), as verified by the Audit Bureau of Circulation Data. Market share has to an average of some 20% for the Monday to Friday editions. Circulation revenue increased by 21.5% on the prior year, on a comparable 38 week period.

 

Advertising Revenue Growth: Under Johnston Press ownership, the i newspaper's market share of main news advertisers has seen growth of 2%; from 20% in the pre-acquisition period of January to November 2015 to 22% in January to November 2017 (source: ad dynamix). i print and digital advertising revenue grew 27% in the second half of 2017, compared to the first half, providing a strong advertising revenue platform going into 2018. This reflects our efforts to establish the i newspaper brand as a politically unbiased, independent, quality, trusted brand that delivers a largely unique audience that all advertisers and their agencies should have on their media buying schedule.

 

It has been particularly pleasing that the i shared a number of our centrally coordinated investigation features, taking a national perspective, alongside a more localised angle taken by our larger regional and city brands.

 

The growth of inews.co.uk, launched in April 2016 following the acquisition, continued through 2017.  During 2017, the website attracted an average of 1.4m unique browsers per month, up 45% year on year. In 2018 an additional investment in digital journalists will be made to further accelerate growth of the inews's digital presence, mirroring the additional new investment being made to the digital offering for Johnston Press' largest regional and city brands. The continued growth of inews.co.uk through 2017 has propelled the web-site into being one of the Group's leading sites in terms of scale, all within 18 months of launch.

 

2. Digital audience and revenue growth

 

In-line with the announced publishing strategy that focuses on markets with the greatest growth potential, the digital strategy for the Group has also been aligned around the same core principles and brands, helping to concentrate resources in markets with the greatest digital audience potential. In 2017, unique browsers grew to an average of 25.4m per month, a 13% increase on prior year. Overall page view growth across the Johnston Press network has been driven by a number of the biggest brands; the Belfast News Letter's monthly page views were up 48% year-on-year, Yorkshire Evening Post (Leeds) up 45%, Sheffield Star up 29% and the Edinburgh Evening News up 40%.

 

Digital classified revenue, especially in the Jobs category, remain a drag on overall digital revenue progression, impacting publishers across both regional and national markets. The total regional print classified advertising market (principally jobs, property and autos) has declined from £1.9bn in 2007 to £320m in 2017, with the corresponding increase in Digital classified growing from £624m to £1.3bn over the same period.  In addition, only a relatively small percentage of the growing digital income has flowed to publishers such as Johnston Press, with the majority shifting to on-line platforms such as Autotrader, Indeed, Linkedin and Rightmove.

 

Adjusted digital revenue, excluding classified grew by 13% in 2017 (total adjusted digital revenue grew 3%). We delivered 16% growth in our national digital advertising, including the 1XL network formed and in partnership with Newsquest and Mediaforce, and through partnerships with companies like Taboola and Facebook.

 

Growth in some new digital revenue areas did not build as fast as we expected. Both Video and Facebook advertising required us to improve recruitment and training, in order to fully exploit the opportunity. We have also not completed the development and rollout of our full range advertising product, which will be an important part of maintaining profit margins (third party products typically offering significantly lower margins).

 

 3. Sales Model Transformation

Total advertising revenue, on a like-for-like basis and excluding classified (like-for-like advertising revenue, excluding classified has been calculated by comparing the 38 week period in the current year from 9 April 2017 to 30 December 2017, to the equivalent 38 weeks of the prior year from 10 April 2016 to 31 December 2016, allowing comparability year on year as a result of the acquisition of the i on the 10 April 2016) was down 4.0% for the year (including classified, down 13.5%).  Classified advertising represented some 16% of total revenue in 2017 and are expected to represent around 12% of total revenue in 2018.

 

Our sales operation has been through a significant transformation in 2017 to ensure there is the right mix of local and central resource and to maintain a significant presence of highly qualified and well trained experts in the field to serve customers face to face, offering print advertising solutions and increasingly digital advertising services. In 2017 we invested in our Media Sales Centre (tele-sales facilities), moving over 300 sales staff into a new city centre location in Sheffield, alongside the modern offices premises in Leeds and Edinburgh. The shift to a centralised call centre environment follows the route taken by other market leading companies within the wider advertising arena such as Autotrader and Facebook. Our USP is that we have retained highly local market knowledge and we lead on our local brands. A centralised sales environment, supported by leading edge technology from Saleforce and Miles33, allows for better training and control, ensuring all telephone based sales staff are kept abreast of the latest market and product information in a rapidly evolving SME focused, digitally led media landscape. Alongside the salesforce transformation, we have additionally enhanced sales routes to market with improved self-serve solutions for SME customers who want to interact and manage their needs online.

 

The large scale transfer of advertising customer accounts and rebalancing of sales resource (from field to tele-sales) impacted sales revenue during the transition period. However, we estimate that the revenue loss was outweighed by the scale of cost savings realised.

 

4. Publishing model evolution

 

Through 2017, the business aligned around distinct publishing groups, helping to align operating plans in editorial, sales, digital and the functional support areas. The publishing strategy is a natural evolution from the disparate and locally managed publishing operations, to a centrally operated and vertically aligned business. However, local editorial decision making remains in place, ensuring local character and insight is maintained.

 

The editorial strategy can be summarised as; "think nationally and act locally", as evidenced by the centrally created content produced by advanced content hubs, central lifestyle team and central investigation team, all aligned to the publishing strategy. All the content created from the central teams is flowed through all the national, regional, city and larger weeklies titles, helping to drive audience engagement in both print and digital. The investment in central teams has driven greater efficiency in content production and is carefully balanced with an imperative of keeping local news reporters local and relevant. Johnston Press employs 849 journalists, with the vast majority aligned to individual news brands, focused on local news gathering. During the latter part of 2017, and into 2018 we have commenced hiring more journalists as a result of three significant initiatives: the BBC Local Democracy Reporters initiative, our Digital 'Powerhouses' project (that sees 31 new staff being hired in London, Leeds, and Edinburgh), and a ramping up of our apprentice programme.

 

5. Growing our contract printing business

 

The contract printing business once again delivered annual revenue growth year on year, posting a growth of 4% in 2017, increasing revenue to £13.3m, which represents 7% of total Group revenue. An encouraging performance, particularly in light of the contraction in the overall market, and achieved through a combination of maintaining existing contracts and winning new contracts to print (amongst others) the Daily Mail and the Metro, both at our modern Portsmouth plant.

 

Current trading and outlook

 

The Group has traded in line with the board's expectations in the first quarter of 2018, with Q1 adjusted EBITDA higher than the prior year. The i is continuing to deliver the exceptional growth seen in FY2017, with revenue up 21% year on year in the first quarter.

The first quarter of 2018 has seen us deliver increased adjusted EBITDA year on year, driven by the i's continued strong performance (especially the relaunched Saturday edition, up 4% year on year in newspaper sales) and our strategy of focusing on our largest Cities and titles. We are pleased with the acceleration in growth from the i's website inews.co.uk which, having delivered sustained growth in 2017, has ramped up further in the first quarter of this year (with unique users up 89% year on year).

Across our regional portfolio of titles national print advertising tracked in line with prior year in the first quarter of 2018, with advertisers starting to increase spend in regional print. This trend is driven by a somewhat stronger overall advertising market, our ability to precisely target audiences using 'big data', and improving sentiment towards quality print publishers in the wake of the Fake News and social media trust concerns.

Classified advertising remains weak, but is now a significantly smaller portion of the group accounting for just 13% of revenues in the quarter, following our investment in digital and the i.

The trading environment remains challenging, notwithstanding early signs of some improvement in the national print advertising market. Comparatives do get harder, and we expect to see continued pressure on revenues, and the requirement for cost savings. Against this difficult backdrop we are focused on maintaining our strong margins, driving additional growth from i and realising further operational and financial synergies. During 2018 we will continue to selectively invest in the business, with a focus on digital, journalists, and content generation.

Whilst operationally the business is performing well in challenging markets, addressing the Group's capital structure remains a key priority. The Strategic Review of financing options is ongoing and discussions with our various stakeholders are progressing.  We will update on this matter as we progress through 2018. 

Net Debt and Liquidity

 

In January 2017, we reported the sale of 13 titles to Iliffe Media for consideration of £17m, with the disposal informed by the wider publishing strategy of focusing on big cities and digital growth towns. The improved liquidity derived from the disposal has assisted us in reducing net debt, though equally critically, afforded us investment capacity in our largest brands to further increase overall reach in targeted markets. Net debt at 30 December 2017 was £195.9m, a reduction of £8.6m on prior year (2016: £204.5m).

 

Strategic review of financing options

 

Operationally the Group is performing well in difficult market conditions. As an industry, we have seen the classified advertising market suffer enormous structural change over the last decade, and more recently the display advertising market has come under pressure from new competitors, particularly Facebook and Google. Despite the resulting revenue decline, we have maintained an adjusted operating margin of just under 17%, whilst delivering strong growth from the i newspaper.

 

We currently face the challenge of addressing issues with the Group's capital structure. The major acquisition programme in 2005 and 2006 saw peak debt levels hit £751 million at the end of 2006. While net debt at 30 December 2017 (excluding mark-to-market) stands at £195.9 million, this level of debt is now too high given the current size of the business and represents a constraint on its ability to return to growth.

 

Last year, the Group announced it had commenced a strategic review to assess the financing options available to the Group in relation to its Bonds which become due for repayment on 1 June 2019. As a key part of this strategic review process, the Board has engaged with its major stakeholders, including shareholders, holders of the Bonds, Pension Trustees and The Pensions Regulator. 

 

The Board subsequently announced that it was approaching its largest bondholders regarding the formation of an ad hoc committee of bondholders which was then formed in November 2017. Discussions with advisers to the ad hoc committee and our other stakeholders are in progress. Any proposal that results from these discussions will remain subject to negotiation and consent of relevant stakeholders, and there can be no certainty that a formal proposal will be forthcoming. In the event that consensual amendments to the Group's capital structure cannot be agreed with relevant stakeholders, alternative options for the restructuring or refinancing of the Bonds prior to June 2019 will be explored as part of the ongoing strategic review process. Resolution of this matter remains a key priority for the Board as it is currently creating significant uncertainty for the business and its stakeholders, and detracting from the good operational performance of the business in 2017 and the strong recent progress we have made against our strategic objectives.

 

Refer to the Viability Statement section for further details.

Market Trends

The Group remains a news publisher, with the significant majority of revenue derived directly from the selling of newspapers or advertising across print and digital platforms, with the balance of revenue stemming from services based income such as contract printing.

The sector as a whole remains under pressure from continued and prolonged structural change, as consumer habits continue to evolve into digital formats, alongside those of regional SME advertisers looking to promote their services to consumers. The twin pressures of changing consumer behaviour and competition, from companies such as Facebook, for a share of regional marketing spend, led the Group to pursue a number of strategies to decelerate trading declines in the regional newspaper sector and shift revenues to more stable income streams within the national newspaper sector, to more stable services based income from contract printing and growth of income from the premium newsbrands within the Group that have the greatest growth potential, specifically focusing on accelerating digital traffic and revenue growth.

The Group now comprises four key revenue areas: Print advertising (37% of the Group's total revenue)1, Digital advertising (13%)1, Newspaper Sales (39%)1 and Contract Printing (7%)1.

Regional newsbrands, excluding i newspaper and contract printing, represented c.78% of total Group revenue1 (down from 85%1 in 2016), operating in a total regional print advertising market estimated to have declined by -14%2 in 2017, off-set by a 3.6%2 increase in the market forecast of digital advertising. The market forecast for 2018 shows an improved decline rate of -9%2 from print advertising, though marginally softer trading from digital at 3%2 growth.

National newsbrands, represented within the Group by i newspaper, delivered a more robust performance, with total print declining by 7%2 in 2017, coupled with a strong digital performance of 16.2% market forecast growth. Looking forward into 2018, the market for print advertising is forecast to decline by 6.2%2, with digital growth slowing to a 7.5%2 growth. Actual performance from the i national print advertising beat market forecasts in 2017.

Total digital advertising in the UK grew by 12.3%5 in 2017, dominated by Google and Facebook sharing over 60% of the total market. Within the display component of the market, Google and Facebook market share grew to over 65% of total display spend across all devices, with the significant majority of growth within 2017 captured by the same two companies. Display advertising spend is now dominated by mobile display formats at 56% of total display income, up from parity between desktop and mobile in 2016.

In general terms, the national newspaper market segment across print advertising, digital display advertising and circulation revenues within the quality national daily market has been more robust than the regional segment in which the Group also operates and has helped improve the overall revenue decline profile of the Group3 and in line with Group's strategy of moving towards more stable and diversified revenues4.

Historically circulation revenue performance remained relatively stable, with volume declines partially compensated by the cover price rises across both regional and national titles. In overall terms circulation volumes will remain challenged in 2018, with price elasticity amongst regional publishers becoming more limited, especially on regional daily titles, and moving to the point where price rises may not compensate overall volume declines as consumers continue to access content free across digital formats. The rise of digital subscriptions within the national quality market, where content has a digital premium, has not yet delivered material income streams where publishers have launched services.

The market for contract printing remains challenging as volume continues to come out of the market as circulation volumes across the sector continue to decline, which will be further accelerated by a further hike in newsprint price rises from January 2018. Johnston Press, is one of three major printers in the United Kingdom, (alongside Trinity Mirror and News UK). In 2017 capacity in the market has shrunk, and some smaller printers have ceased production, while we have been able to flex our capacity to take on new business.

Sources

1 2017 Financial Review

2 AA/WARC expenditure report, January 2018

3 As defined by the Company, comprising of The Times, Guardian, The Daily Telegraph and i Newspaper

4 Shareholder circular covering the acquisition of the i newspaper, March 2016

5 Enders Analysis UK online ad forecast 2017-2019, December 2017

 

Principal Risks and Uncertainties

 

There are a number of potential risks and uncertainties which have been identified by the Company that could have a material impact on the Group's long-term performance.

 

Risk

Description

Risk rating (inherent)

Change
in 2017

Mitigating
activities

Risk rating (residual)

1. Refinancing June 2019

Failure to repay, refinance, satisfy or otherwise retire the bonds at their maturity would give rise to a default under the indenture and could have a material impact on the Group's operations and its ability to continue as a going concern.

The Group's debt comprises a £220m high yield bond maturing on 1 June 2019. It is not subject to any maintenance covenants.

High

Increased

The Group is exploring options for the restructuring or refinancing of the Bonds prior to their maturity in June 2019 (refer to the Viability Statement).

High

2. Print-based revenues

Print advertising and circulation revenues continue to decline at current levels, or accelerate further.

 

There are continued threats to print-based revenues, including from competition threats in many markets and from changing technology and consumer habits, business change, reducing customer numbers, circulations and paginations. Increased uncertainty for businesses continues following the referendum result in 2016 to leave the European Union.

High

Increased

The Group continues to develop its digital advertising offering through partnerships, mobile apps and new, digital-based products and new websites. It has invested in and reorganised its sales function to ensure a more proactive and effective approach and that the sales offering is fully understood by sales staff and appropriate for customer needs.

High

3. New revenue streams

Digital revenues decline, or do not grow at the rate needed to offset print decline over the short to medium term.

The impact of dominant market players (particularly Facebook and Google) have contributed to a slowdown in the growth of digital advertising. Increased mobile usage has eroded margins. There is a need to respond quickly to evolving consumer demands.

 

 

High

Increased

Search engine marketing (SEM) solutions which include a Facebook element are being developed. Mobile first sales teams are in place and all local digital sales seek to include a mobile element. The Group is also building out its sponsored content offering. The Group has made considerable investment in its customer database and improving customer relationship management.

High

4. Pension scheme

The Company is engaged in negotiations with the trustees of its final salary pension scheme as part of the scheme's triennial review. The company agreed with Trustees to put its triennial negotiations on hold, while it carried out its strategic review. An affordable revised schedule of contributions dealing effectively with the scheme's deficit requires agreement.

High

Increased

Expert advice is being taken. Constructive engagement with trustees is ongoing to explain the Company's position. Ongoing dialogue with The Pensions Regulator to ensure they are fully informed. A revised pension contributions plan is expected to be required as part of the Strategic Review.

High

5. Liquidity

The Group is not able to generate sufficient cash from trading.

The Group has interest costs of £19.0m and pension contributions of £10.6m. Further downward pressure on revenues could reduce operating cashflow below the level required to service interest and pension commitments.

 

The Group obtains credit from suppliers. A reduction in credit terms offered by suppliers could negatively impact the Group's liquidity. 

High

Unchanged

The sale of East Anglia and East Midlands titles for £15.6m net of disposal costs, provided additional liquidity to the Group in 2017. Including proceeds from this disposal, cash at bank was £25.0 million as at 30 December 2017.

 

High

6. Cost reduction

The Group is required to invest in cost reduction and is constrained in its ability to invest in development.

The need to invest in cost reduction limits the Group's ability to invest in the business and requires that the Company streamline its management and reporting structure.

High

Increased

This is an area of ongoing management attention. The Group has continued to find operational efficiencies as total revenue has declined. Clear organisational and reporting responsibilities are in place.

Medium

7. Data security

The Company's systems and data integrity could be vulnerable to disruption and/or loss of, or loss of access to, data. Poor quality data or data which the Company cannot lawfully process could limit the realisation of marketing and business opportunities.

 

The Group is required to comply with the new General Data Protection Regulation (GDPR) requirements by May 2018.

High

Increased

The Group has inbuilt 'strength in depth' for data systems and collaborates with third party suppliers to protect systems and data. Data quality and compliance with regulatory change is the subject of ongoing management focus, monitoring and reporting with training for staff concerned.

Medium

8. Economy

The impact of changes in the economy and United Kingdom economic performance, including from Brexit, may have an impact on the Group's operations.

The Company is subject to prevailing economic conditions and the impact of emergent and unexpected events. Changes in paper mill capacity and demand from overseas has impacted short term paper purchase prices. It is also subject to conditions in particular sectors, e.g. property and employment.

Medium

Increased

The Company seeks to forecast forthcoming economic conditions through its budgeting process and monitoring of prevailing conditions.

Medium

 

9. Investment in growth

The Company's ability to invest in new digital product development and technology is limited. This hinders its ability to stay competitive and invest in the digital products necessary in a rapidly changing environment.

Medium

Unchanged

The Company seeks to limit the impact of these constraints through a focus on the areas of highest impact to support and promote growth of its local display, features and entertainments products.

Medium

 

 

Financial Review

 

Introduction

This Financial Review provides commentary on the Group's Statutory and Adjusted (Alternative Performance Measures or APM's) results during the 52-week period ended 30 December 2017 (FY 2016: 52 weeks).

Statutory loss

A statutory loss before tax of £95.0 million (FY 2016: £300.7 million loss), is reported after an impairment charge in the period of £59.2 million on publishing titles (FY 2016: £336.9 million), a £1.3 million impairment on digital intangible assets, a £0.8 million impairment charge on press equipment in Ireland (FY 2016: £nil), a £3.1 million impairment on other property, plant and equipment, and a fair value loss (as market price rose in the period) recorded on the Group's Bond of £22.8 million (FY 2016: £43.6 million gain), and other exceptional costs of £18.0 million (FY 2016: £18.8 million) (see Alternative Performance Measures for more details).

Basis of presentation of results

The statutory results are presented for the continuing Group and the prior period comparative excludes the Isle of Man business disposed of in August 2016. The East Anglia and East Midlands titles, disposed of in January 2017, are included in the statutory results but removed for comparability in the adjusted figures. Continuing statutory results include the i from acquisition date in April 2016, closed titles and businesses, exceptional items, impairment of asset carrying values and mark-to-market gains/(losses) on the Group's Bond.

The Group has initiated a series of restructuring programs to remove cost from the business with the objective of designing a sustainable print publishing business model, while at the same time investing in building a digital income stream.

The resulting restructuring project has seen a substantial redesign of each area of the business, including management layers and structures, products and services, content creation and our sales routes to market. In streamlining the organisation, a significant investment in redundancy has seen more than 2,047 posts closed over the last 4 years.  The Group has also sought to reflect its change in shape and scale in support areas including making substantial reductions in its property portfolio, technology licences and fleet. The speed of its action, both in anticipating and responding to recent changes in the sector has meant that some existing contracts no longer reflect the current needs of the business.

In 2017, the Group initiated new changes to its business model, including how it allocated resources to different brands, its mix of field and call centre based sales staff, while also adopting a clear policy of downsizing its property portfolio, taking advantage of natural lease breaks, typically moving to smaller short term serviced offices in local towns and cities, while maintaining larger hubs in Preston, Leeds, Edinburgh, Peterborough, Sheffield and Portsmouth.

To provide investors and other users of the group's financial statements with additional clarity and understanding of both the cost of this business change program, and the resulting impact on the Group's underlying trading, the directors believe that it is appropriate to additionally present the Alternative Performance Measures used by management in running the business and in determining management and executive remuneration.

Adjusted results include the i for 52 weeks in 2017 and 38 weeks in 2016.

In preparing commentary on performance, the financial impact of a number of significant accounting and operational items has been adjusted to determine the adjusted results included in this Financial Review. The adjusted results provide supplementary analysis of the 'underlying' trading of the Group.

The Directors assess the performance of the Group using statutory accounting measures and a variety of alternative performance measures ("APMs").

A reconciliation of statutory to adjusted figures is provided in the Alternative Performance Measures section.

 

Statutory

Adjusted

 

2017

£m

20163

£m

Change

£m

Change

 %

2017

£m

20163

£m

Change

£m

Change

 %

Newspaper sales

79.1

79.9

(0.8)

(1.0)%

79.0

76.9

2.1

2.7%

Contract printing

13.3

12.8

0.5

4.2%

13.3

12.8

0.5

4.2%

 

 

 

 

 

 

 

 

 

Print advertising excluding classified

49.0

61.3

(12.3)

(20.1)%

48.8

52.6

(3.8)

(7.2)%

Digital advertising excluding classified

20.1

18.6

1.5

8.1%

20.0

17.7

2.3

13.2%

Print and Digital advertising excluding classified

69.1

79.9

(10.8)

(13.5)%

68.8

70.3

(1.5)

(2.1)%

Classified and other advertising

31.2

42.7

(11.5)

(26.9)%

31.2

43.6

(12.4)

(28.5)%

Total advertising revenue

100.3

122.6

(22.3)

(18.3)%

100.0

113.9

(13.9)

(12.2)%

 

 

 

 

 

 

 

 

 

Leaflet, syndication and other revenue

8.9

7.4

1.5

20.3%

8.9

7.2

1.7

23.6%

Total continuing revenue

201.6

222.7

(21.1)

(9.5)%

201.2

210.8

(9.6)

(4.5)%

 

 

 

 

 

 

 

 

 

Total costs 1

(244.9)

(538.8)

(293.9)

(54.5%)

(161.1)

(166.9)

(5.8)

(3.5%)

EBITDA2

n/a

n/a

40.1

43.9

(3.8)

(8.7%)

EBITDA margin

19.9%

20.8%

-

Depreciation and amortisation

(7.9)

(7.4)

(0.5)

6.8%

(7.0)

(6.9)

(0.1)

1.4%

Operating (loss)/profit

(51.2)

(323.5)

272.3

84.2%

33.1

37.0

(3.9)

(10.5%)

Operating (loss)/profit margin

(25.4%)

(145.3%)

16.4%

17.5%

 

1    Total costs include cost of sales and are stated before depreciation and amortisation.

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

3    The i newspaper is included in the statutory and adjusted results from the date of acquisition, in April 2016.

 

Revenue

Total statutory revenue was down £21.1 million (9.5%), of which £9.9 million related to the sale of East Midlands titles and down 16.6% excluding the i.  Total adjusted revenue was down 4.5% for the year, and down 11.3% excluding the i. Revenue declines reflect the continued downward pressure on print advertising and newspaper circulation, partially offset by digital growth and the benefit of a full 52 weeks i trading. 

Newspaper sales revenue

The full year impact of the acquisition of the i, cover price increases, continuing rationalisation and content improvement initiatives across the portfolio, and has contributed to adjusted newspaper sales revenues of £79.0 million in the year (including the i for 52 weeks of 2017). This compares to newspaper sales revenue of £76.9 million in 2016 (including i for 38 weeks), giving year-on-year growth of 2.7%.

Adjusted newspaper sales revenue excluding the i was £55.6 million for 2017 (FY 2016: £62.1 million), a decline of 10.5%, reflecting the continued downward pressure on circulation volumes, which are no longer fully offset by price rises.

Contract printing

Contract printing revenue of £13.3 million was up 4.2% year on year with the benefits of winning new printing contracts (including the Daily Mail and Metro) outweighing circulation decline in some existing external print contracts.

Printing revenue grew year-on-year 10.4% to £11.2 million while revenue from paper supply fell by 19.8% to £2.1 million as a result of circulation volume reduction of customer titles.

Advertising revenue

Total adjusted advertising revenue was down 12.2% year-on-year (down 15.2% excluding the i), reflecting the continuing shift of advertising spend away from print products, to digital and social media services.

Print and Digital publishing advertising adjusted revenue analysis

The full year benefit of the i, has partially offset the decline in the rest of the Group, with total adjusted revenue down 12.2%, whereas the Group excluding the i was down 15.2%.

Adjusted digital advertising excluding classifieds was up 13.2%, while total adjusted digital advertising including classified was up 2.8%.

The first 14 weeks of 2017 benefited from the i, with no comparative revenue in 2016 and had the effect of offsetting decline in existing titles in H1 2017. Excluding the i, in H1 2017, total adjusted advertising revenues were down 15.7%.

 

Full year

First half

Second half

Adjusted revenue including the i

2017

£m

2016

£m

%
change

2017

£m

2016

£m

%
change

2017

£m

2016

£m

%
change

Display - local and national

44.2

46.6

(5.1%)

22.3

23.0

(3.0%)

21.9

23.6

(7.2%)

Transaction revenue

19.6

19.8

(1.1%)

10.3

10.2

1.0%

9.3

9.6

(3.1%)

Digital marketing services 1and Enterprise

5.0

3.9

29.4%

2.5

1.9

31.6%

2.5

2.0

25.0%

Print and Digital publishing advertising

68.8

70.3

(2.1%)

35.1

35.1

(0.0%)

33.7

35.2

(4.3%)

Classified and other advertising

31.2

43.6

(28.5%)

17.3

24.3

(28.8%)

13.9

19.3

(28.0%)

Total advertising revenue

100.0

113.9

(12.2%)

52.4

59.4

(11.8%)

47.6

54.5

(12.7%)

Print publishing advertising

48.8

52.6

(7.2%)

25.1

26.4

(4.9%)

23.7

26.2

(9.5%)

Digital publishing advertising

20.0

17.7

13.2%

10.0

8.7

14.9%

10.0

9.0

11.1%

Print and Digital publishing advertising

68.8

70.3

(2.1%)

35.1

35.1

(0.0%)

33.7

35.2

(4.3%)

1    Digital marketing services, formerly Digital Kitbag (DKB).

 

 

 

 

Full year

First half

Second half

Adjusted revenue excluding the i

2017

£m

2016

£m

%
change

2017

£m

2016

£m

%
change

2017

£m

2016

£m

%
change

Display - local and national

38.8

43.9

(11.5%)

19.7

22.5

(12.4%)

19.1

21.3

(10.3%)

Transaction revenue

19.6

19.8

(1.1%)

10.3

10.2

1.0%

9.3

9.6

(3.1%)

Digital marketing services 1 and Enterprise

4.9

3.9

27.0%

2.5

1.9

31.6%

2.4

2.1

14.3%

Print and Digital publishing advertising

63.3

67.6

(6.3%)

32.5

34.6

(6.1%)

30.8

33.0

(6.7%)

Classified and other advertising

30.5

43.1

(29.1%)

17.0

24.1

(29.5%)

13.5

19.0

(28.9%)

Total adjusted advertising revenue

93.8

110.7

(15.2%)

49.5

58.7

(15.7%)

44.3

52.0

(14.8%)

Print publishing advertising

43.6

50.0

(12.8%)

22.6

25.9

(12.7%)

21.0

24.1

(12.9%)

Digital publishing advertising

19.7

17.6

11.9%

9.9

8.7

13.8%

9.8

8.9

10.1%

Adjusted Print and Digital publishing advertising

63.3

67.6

(6.3%)

32.5

34.6

(6.1%)

30.8

33.0

(6.7%)

                         

1    Digital marketing services, formerly Digital Kitbag (DKB).

 

The sharpest fall in advertising, continued to be in classified, down 29.2% or £12.6m of the £16.9m total fall in adjusted advertising revenue in 2017 (before the benefit of the i).

 

The table below presents the total print and digital advertising revenues, for the purpose of reconciling to the Group's statutory breakdowns in the note to the financial statements.

 

 

 

Full year (including the i)

Full year (excluding the i)

 

2017

£m

2016

£m

% change

2017

£m

2016

£m

% change

Adjusted Advertising revenue

 

 

 

 

 

 

Print

74.0

88.7

(16.6)%

68.3

85.6

(20.2)%

Digital

26.0

25.2

3.2%

25.5

25.1

1.6%

Total adjusted advertising revenue

100.0

113.9

(12.2)%

93.8

110.7

(15.2)%

 

Leaflets, syndication and other revenue

Leaflets, syndication and other revenues (which include Transitional Services Agreement (TSA) income, events, reader offers and waste sales) improved by £1.5 million year-on-year. The improvement includes TSA income from Iliffe Media Limited which commenced following the disposal of the East Anglia and East Midlands titles on 17 January 2017.

i Performance

Following the acquisition of the i on 10 April 2016, the Group has seen improving revenue trends and increased profitability as a result of management actions to reduce cost and grow revenue (including the benefit of a 10 pence cover price rise on Monday to Friday, and a 20 pence rise on Saturdays effective from September 2017).

 The table below explains the benefit of 52 weeks trading in 2017, against 38 weeks in 2016 to enable a better understanding of run rates, and to aid understanding of this impact on Group results, a 38 week like for like period is presented. The 38 weeks reflects the comparable period for which the i was owned in both periods.

 

 

i performance

 

 

i performance

like-for-like

 

52 weeks to

30 Dec 2017

£m

38 weeks to

31 Dec 2016

£m

Change

£m

Change

 %

 

38 weeks to

30 Dec 2017

£m

38 weeks to

31 Dec 2016

£m

Change

£m

Change

 %

Statutory revenue

30.6

18.5

12.1

65.4%

 

22.9

18.5

4.4

23.8%

Statutory total costs

(21.9)

(15.3)

(6.6)

43.1%

 

(15.4)

(15.3)

(0.1)

-%

Statutory Operating profit

8.7

3.2

5.5

171.8%

 

7.5

3.2

4.3

146.9%

Adjusted EBITDA1

9.3

3.3

6.0

181.8%

 

7.6

3.3

4.3

130.3%

 

1 The adjusted EBITDA contributed by the i has no central corporate costs allocated

 

Gross margin and operating costs

In 2017, the Group's adjusted operating profit was £33.1 million, a 10.3% decline on the prior year. Total costs were reduced by £5.6 million net of the full year effect of the i. Excluding the i, the Group reduced costs by £12.1 million (7.6%). The statutory operating loss was £51.2m, representing an 84.2% improvement on prior year.

The adjusted depreciation charge rose by £0.1 million to £7.0 million in 2017 as a result of the continued digital investment.

Finance income and costs

Adjusted total net finance costs were £18.9 million, a decrease of £0.7 million year-on-year. The fair value charge resulting from the increase in the market price on the Bond for the period to 30 December 2017 amounted to £22.8m million (31 December 2016: £43.6 million gain). Refer to Note 16 Borrowings for further information.

 

Net financing (expense)/income

 

Statutory

Adjusted 1

 

2017

£m

2016

£m

£m

change

2017

£m

2016

£m

£m

change

Interest on bond

(18.8)

(19.0)

0.2

(18.8)

(19.0)

0.2

Interest on bank overdrafts and loans

-

(0.4)

0.4

-

(0.4)

0.4

Amortisation of term debt issue costs

-

(0.2)

0.2

-

(0.2)

0.2

Financing fees

(0.1)

-

(0.1)

(0.1)

-

(0.1)

Total operating finance expense

(18.9)

(19.6)

0.7

(18.9)

(19.6)

0.7

 

 

 

 

 

 

 

Interest receivable

-

0.1

(0.1)

-

0.1

(0.1)

Net finance expense on pension liabilities/assets

(1.7)

(0.8)

(0.9)

-

-

-

Change in fair value of borrowings

(22.8)

43.6

(66.4)

-

-

-

Exceptional financing costs

(0.4)

(0.5)

0.1

-

-

-

Total net financing (expense)/income

(43.8)

22.8

(66.6)

(18.9)

(19.5)

(0.6)

1      Adjusted net financing costs excludes the mark-to-market fair value loss on the bond of £22.8 million (FY 2016: £43.6 million gain), pension finance expense and exceptional financing costs.

 

Statutory Segment revenues and results

The Group operates a publishing business including its long standing national, regional and local brands, and the i newspaper. It also runs a printing business, serving its own titles, and a number of external customers.

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

 

 

52-week period ended 30 December 2017

52-week period ended 31 December 2016

 

 

Publishing

£'000

Contract

printing

£'000

Eliminations

£'000

Group

 £'000

Restated  Publishing

£'000

Restated

Contract

 printing

£'000

Eliminations

£'000

Restated Group

 £'000

Revenue

 

 

 

 

 

 

 

 

Print advertising

74,265

-

-

74,265

95,674

-

-

95,674

Digital advertising

25,976

-

-

25,976

26,950

-

-

26,950

Newspaper sales

79,102

-

-

79,102

79,849

-

-

79,849

Contract printing

-

13,321

-

13,321

-

12,788

-

12,788

Other

8,002

950

-

8,952

6,735

703

-

7,438

Total external sales

187,345

14,271

 

201,616

209,208

13,491

-

222,699

Inter-segment sales

-

20,486

(20,486)

-

-

23,597

(23,597)

-

Total revenue

187,345

34,757

(20,486)

201,616

209,208

37,088

(23,597)

222,699

Impairment and write downs

(63,668)

(758)

-

(64,426)

(341,246)

(3,080)

-

(344,326)

Adjustments (excluding impairment and write downs)

(18,760)

(295)

-

(19,055)

(20,202)

(14)

            -

(20,216)

Operating costs

(138,161)

(31,187)

-

(169,348)

(147,026)

(34,617)

            -

(181,643)

Net segment result (restated)

(33,244)

2,517

(20,486)

(51,213)

(299,266)

(623)

(23,597)

(323,486)

                     

 

Asset impairment

The carrying value of assets is reviewed for impairment at least annually or more frequently if there are indications that they might be impaired. In light of the severe trading conditions impacting the sector, an impairment review was undertaken which resulted in a write-down of £64.4 million (FY 2016: £344.3 million). The impairment is largely a function of taking a more prudent view of the short and long-term growth rate, increasing the perpetuity decline rates from a range of -1% to -2% in 2016 to -4% in 2017. The write-down reduces the asset carrying value of publishing units to £84.4 million and the carrying value of print presses to £18.7 million at period-end. Refer to Note 13 and 14.

(Loss)/Profit before tax

The Group's adjusted profit before tax was £14.2 million (FY 2016: £17.4 million). The year-on-year decline of £3.2 million was due to the reduction in revenue being only partly mitigated by operating cost savings. The Group's statutory loss before tax was £95.0 million (FY 2016: £300.7 million loss).

Tax

The Income Statement includes a tax credit of £16.4 million (FY 2016: £53.4 million tax credit) which comprises a current tax credit of £0.1 million (FY 2016: £0.7m tax charge) and a deferred tax credit of £16.3 million (FY 2016: £54.1 million tax credit). The Statement of Other Comprehensive Income includes a £2.0 million deferred tax credit (FY 2016: £6.3 million deferred tax loss) in relation to the current tax benefit of pension contributions in excess of net pension financing charges.

The deferred tax credit £16.3 million recognised in the income statement has largely arisen from £59.2 million of impairment charges on the Group's publishing title intangible assets (£10.1 million deferred tax credit) and the disposal of East Anglia and East Midlands publishing titles in January 2017 resulting in a deferred tax credit of £3.2 million.  £3.9 million of the current year deferred tax credit has arisen on the Group's Bond, due to different accounting treatment applied on the Bond at the Group level in contrast with that applied at the subsidiary entity level due to statutory reporting requirements. This was offset by a deferred tax charge of £2.1 million recognised in the income statement as a result of certain deferred tax assets being deemed unrecoverable. 

The Group's effective tax rate was 17.3% for the 2017 financial year (2016: 17.8%). In the period, the effective tax rate was lower than the prevailing UK corporation tax rate of 19.25%, largely due to the disallowance of corporate interest restriction amounts, the difference between current and deferred tax rates and the impact of deferred tax not recognised overall reducing the effective tax rate by 6.3%. This has been partly offset by the deferred tax impact of the disposal of the East Anglia and East Midlands publishing titles disposed in January 2017 increasing the effective tax rate by 3.1%.

The Group expects that, subject to the uncertain outcome of the strategic review, the effective tax rate will remain relatively consistent with the current and prior year and reflect the reduction of UK corporate tax rates over the next few years.

Refer to Note 9 for further detail.

The Group published its tax strategy on the Group's website on 14 December 2017, and is available at http://www.johnstonpress.co.uk/tax-strategy.

(Loss)/earnings per share and dividends

Statutory
Basic EPS

Adjusted
Basic EPS

 

(Loss)/earnings per share for continuing operations

2017

2016

2017

2016

(Loss)/earnings less preference dividend (£m)

(78.6)

(247.3)

7.3

13.5

Number of ordinary shares (m)

105.3

105.3

105.3

105.3

EPS (pence)

(74.6)

(234.9)

6.9

12.7

 

A reconciliation of statutory to adjusted earnings per share is detailed within the detailed reconciliation of the statutory to adjusted results shown in the Alternative Performance Measures section.

No ordinary or preference share dividends were declared or paid in the period, due to restrictions in the Bond terms and insufficient distributable reserves. The provisions of the Group's Bond restrict the Company's ability to pay dividends on the Company's ordinary shares until certain conditions, including that net leverage is below 2.25x adjusted EBITDA, are met.

Disposal

On 17 January 2017, the Group completed the disposal of the entire issued capital of Johnston Publishing East Anglia Limited, which owned 13 publishing titles and associated websites in East Anglia and East Midlands (Midlands titles), to Iliffe Media Limited for cash consideration of £17.0 million and disposal cost of £1.4 million.

 

Cashflow and net debt

The Group's net debt decreased to £195.9 million at 30 December 2017, excluding Bond mark-to-market and Bond discounts totalling £54.2 million. In the period, a £22.8 million fair value movement loss has been recognised (as a result of an increase in the market value of the bond) (FY 2016 £43.6 million gain) (Note 8b of the financial statements). The net debt after mark-to-market adjustments was £141.7 million.

Cash generated from operations of £12.2 million is after payment of £1.4 million in professional fees in relation to the disposal of the East Anglia and East Midlands titles (Note 15) and pension contributions of £10.3 million. Cash held at 30 December 2017 was £25.0 million, with the increase from the prior period end including disposal proceeds of £17.0 million before fee's received from Iliffe Media Limited (Note 15) and £5.2 million in proceeds from the sale of properties.

The Group continues to maintain tight control of working capital and capital expenditure with £4.6 million having been spent on asset purchases (FY 2016: £6.1 million), including £1.7 million outlay on digital platforms and other equipment.

Cash interest paid for the full year was £19.0 million on the bond (FY 2016: £19.4 million). The £0.4 million decrease from the prior period is attributable to the interest that was paid on overdrafts and loans in the prior year.

We have continued to review our property portfolio to identify markets and centres that have accommodation which no longer meets the requirements of the business. Overall we reduced the total number of operating properties within the portfolio to 89 at the end of 2017, a reduction of 18 properties in the year.  Three UK freehold properties were sold during 2017, and there was a net reduction of 15 leases, including eight leases that were reassigned or sublet as part of the East Midlands and East Anglia title disposal to Iliffe Media Ltd.  The Group expects to take advantage of emerging opportunities to rationalise the property portfolio further during 2018.

 

The Group received cash proceeds of £5.2 million on the properties sold during the period, which included the Sheffield property and car park disposal and deferred consideration received on the former Peterborough web press site. In the current year there was a change in the estimate for the anticipated total future cost payable for onerous leases and dilapidations, arising from a change in the Group's property strategy. This resulted in an additional provision of £4.4 million being charged.

 

Reconciliation of net debt to net debt excluding mark-to-market

 

 

 

 2017

£m

 2016

£m

Gross bond debt (at inception)

225.0

225.0

Bond repurchase

(5.0)

(5.0)

Finance leases

0.9

0.6

Cash and cash equivalents

(25.0)

(16.1)

Net debt excluding mark-to-market

195.9

204.5

Mark-to-market on bond (from inception)

(49.8)

(72.6)

Bond discount (net)

(4.4)

(4.4)

Net debt

141.7

127.5

 

Capital expenditure

The Group spent £4.7 million of costs in the period (FY 2016: £6.1 million). Of this, £4.0 million was spent on developing the digital platforms (2016: £4.6 million) and £0.7 million spent on other infrastructure (FY 2016: £1.6 million).

Strategic Review

The Group's net debt (excluding mark-to-market) at period end was £195.9 million. The major acquisition programme in 2005 and 2006 saw peak debt levels hit £751 million at the end of 2006. The Group also operates a defined benefits pension scheme, which was closed to future accrual on 30 June 2010. At 30 December 2017 it had a net deficit of £47.2 million. Today only 276 of the 4,959 scheme members are current employees of the Group.

Operationally, the Group continues to generate cash and perform well in a very challenging trading environment.  In 2017, from the cash generated by the operations, the Group paid annual interest of £18.8 million on its Bonds and made pension contributions of £10.3 million to the defined benefit pension scheme.

The current size of the business cannot support this level of debt and pension commitments over the longer term.

On 29 March 2017, the Group announced it had commenced a strategic review, working with its advisers, Rothschild and Ashurst LLP, to assess the financing options available to the Group in relation to the Bonds which become due for repayment on 1 June 2019. As a key part of the strategic review process, the Board has engaged with its major stakeholders, including shareholders, holders of the Bonds, Pension Trustees and the Pensions Regulator.

The Board subsequently announced that it was approaching its largest bondholders regarding the formation of an ad hoc committee of bondholders, which was formed in November 2017. Discussions with advisers to the ad hoc committee and our other stakeholders are in progress. Any proposal that results from these discussions will remain subject to negotiation and the consent of relevant stakeholders, and there can be no certainty that a formal proposal will be forthcoming. In the event that consensual amendments to the Group's capital structure cannot be agreed with relevant stakeholders, alternative arrangement for the restructuring or refinancing of the Bonds prior to June 2019 will be explored as part of the strategic review process. 

The impact of this matter on the directors determination of the appropriateness of preparing the 2017 financial statements on a going concern basis, and their review of the Group's viability over the medium term is discussed in the 'Liquidity and going concern' section and the 'Viability Statement' section.

Net liabilities position

At the period end, the Group had a net deficit of £93.5 million, a reduction in net assets of £67.4 million on the prior year. The movement in the net asset position from the prior year includes: an impairment write-down of £64.4 million, a £23.1 million increase in borrowings (which is largely due to the fair value loss of £22.8 million recorded in the period), a reduction in assets held for sale of £16.2 million, partially offset by a £20.5 million decrease in the pension deficit and a £9.0 million increase in cash.

Pensions

As at 30 December 2017, the net pension deficit has decreased to £47.2 million from £67.7 million at 31 December 2016.  The decrease in the deficit is largely a result of £10.3 million of contributions paid during the period, positive returns on pension assets and the benefit of applying updated demographic assumptions based on the CMI 2016 model (as compared to the estimate made at 31 December 2016). This reflects life expectancy of 19.7 years for a male aged 65, down from 20.1 years in the prior year and in line with the Health Study completed in 2015.

Each of the financial assumptions were reviewed in light of market conditions resulting in the application of a discount rate of 2.50% (down from 2.70% at 31 December 2016), and a decrease in inflation assumption by 0.10% to 3.30%. These assumptions have partially offset the benefit experienced by the mortality rate change discussed above.

The Pension Framework Agreement and the required level of contributions have been reviewed as part of the review of strategic options relating to the refinancing of the Bonds on 1 June 2019. Refer to the Strategic review, above for further details, and to Note 17 for more detailed disclosure surrounding the Johnston Press Pension Plan.

Five-year history:

 

30 December

2017

£'000

31 December

2016

£'000

2 January

2016

£'000

3 January

 2015

£'000

28 December 2013

£'000

Fair value of scheme assets

561,425

547,885

473,413

480,479 

420,306

Present value of defined benefit obligations

(608,612)

(615,610)

(500,375)

(567,509)

(498,640)

Additional obligation under IFRIC 14

-

-

-

(2,971)

-

Net deficit in the plan

(47,187)

(67,725)

(26,962)

(90,001)

(78,334)

 

The Group has seen a substantial increase in asset values over the five years to December 2017. Changes in deficit rates and inflation assumptions have partially offset this value increase, the deficit falling from a peak of £90.0 million at the beginning of 2015 to £47.2 million. See Note 17 for more detailed disclosure surrounding the Johnston Press Pension Plan

Reconciliation of statutory and adjusted results

Adjusted operating profit of £33.1 million (FY 2016: £36.9 million) includes the results of the i from the acquisition date and has been calculated after adjusting for revenue and cost of sales for closed titles and digital brands. Adjustments made to operating costs include restructuring, impairment and other non-trading related costs.

Continuing statutory revenue has been adjusted for disposed and closed titles and digital products to give adjusted revenue. The adjustment to revenue is a reduction of £0.4 million in 2017, and £11.9 million in 2016. A detailed reconciliation of the statutory to adjusted revenue is shown on in the Alternative Performance Measures section.

A reconciliation of statutory to adjusted operating profit/(loss) and to EBITDA, is provided below:

 

 

 

 

Operating profit/(loss)

 

Full year 2017

£m

Full year 2016

£m

Statutory Operating loss

(51.2)

(323.5)

Adjustments

 

 

Closed / disposed titles and products

(0.1)

(4.6)

Redundancy, property restructuring, onerous contract and sales transformation costs

13.7

9.3

(Disposals)/acquisitions

(1.3)

2.5

Impairment of assets

64.4

344.3

Strategic review

3.4

0.7

Pensions

1.9

5.4

Accelerated depreciation

0.9

0.5

Other

1.4

2.2

Adjusted Operating profit

33.1

36.9

Adjusted Depreciation and amortisation

7.0

6.9

Adjusted EBITDA

40.1

43.9

 

 

 

Revenue

 

Full year 2017

£m

Full year 2016

£m

Statutory Revenue

201.6

222.7

Adjustments

 

 

Closed / disposed titles and products

(0.4)

(11.9)

Adjusted Revenue

201.2

210.8

* Full year 2017 included i newspaper for 52 weeks and 38 weeks in 2016.

Financial reporting

The effect of IFRS standard changes that are applicable to annual periods beginning on or after 1 January 2017 and 1 January 2018 are further described in Note 4 to the financial statements.

Factors affecting future group performance

The performance of the Group will continue to be affected by the economic conditions in our markets, cyclical conditions, structural and business-specific circumstances and economic trends including employment, property transactions, new car sales and the levels of consumer and SME confidence. However, the outlook for the Group will also depend on a number of other factors, including:

·      growing new digital revenues in the Group's existing market segments to offset print revenue decline;

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

·      the impact of new entrants and competitors to the market;

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

·      further re-engineering of the cost base of the business;

·      the level of investment required to support digital growth, and restructuring, and its impact on cash generation;

·      impact on sterling following Brexit subsequently impacting Euro denominated paper prices;

·      conclusion of negotiations with pension scheme trustees regarding annual pension contributions; and

·      the outcome of the Strategic Review of the options available to the Group in respect of the repayment of the Bonds in June 2019 (see Going Concern and Viability Statements.

 

Liquidity and going concern

As at 30 December 2017, the Group had net debt of £195.9 million (excluding mark-to-market accounting adjustment), comprising cash of £25 million and borrowings of £220 million.  The borrowings comprise £220 million of high yield bonds (the Bonds), which are repayable on 1 June 2019 and are not subject to any financial maintenance covenants. 

On 29 March 2017, the Group announced it had commenced a Strategic Review, working with its advisers Rothschild and Ashurst LLP, to assess the financing options open to the Group in relation to the Bonds. As a key part of this Strategic Review process, the Board has engaged with its major stakeholders, including shareholders, holders of the Bonds, Pension Trustees and the Pensions Regulator. 

On 10 October 2017, the Board announced that it was approaching its largest bondholders regarding the formation of an ad hoc committee of bondholders (the "Bondholder Committee") to consider in greater detail certain potential amendments to the Group's capital structure. On 2 November 2017, the Group confirmed that the Bondholder Committee had been formed. The main objectives of these potential amendments to the Group's capital structure, combined with certain proposed amendments to the Group's pension scheme, are to (i) achieve a sustainable level of debt within the Group to enable it to refinance its debt in the future, and (ii) materially reduce or eliminate the pension scheme deficit by 2021, whilst preserving the pension scheme members' benefits. On 1 February 2018, the date of our last trading update, the Board confirmed that discussions with advisers to the Bondholder Committee were in progress.

The Group continues to explore these potential amendments to its capital structure with advisers to the Bondholder Committee and the Board is satisfied with the continued support of the Group's major stakeholders during the review process. Any proposal that results from these discussions will remain subject to negotiation and the consent of relevant stakeholders, and there can be no certainty that a formal proposal will be forthcoming. In the event that consensual amendments to the Group's capital structure cannot be agreed with relevant stakeholders, alternative options for the restructuring or refinancing of the Bonds prior to their maturity in June 2019 will be explored as part of the ongoing strategic review process.

The Group has performed a review of its financial resources taking into account, inter alia, the cash currently available to the Group, the absence of financial maintenance covenants in the Bonds, and the Group's cash flow projections for the thirteen month period from the date of this report to 1 June 2019, and, based on this review, and after considering reasonably possible trading downside sensitivities and uncertainties, the Board is of the opinion that, subject to the material uncertainty surrounding the repayment of the Bonds on 1 June 2019 (referred to below), the Group has adequate financial resources to meet its operational cash flow requirements for the next thirteen months from the date of this report. The directors also anticipate that the Group will remain in a position to meet its obligations in respect of the Bonds, including with regard to the payment of interest, in the period prior to their maturity.

However, given the challenges faced by the newspaper and printing industry as a whole, the current trading experience of the Group, and the likely financial position of the Group at the time the Bonds are due for repayment in June 2019, there is material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms. Failure to repay, refinance, satisfy or otherwise retire the Bonds at their maturity would give rise to a default under the indenture governing the Bonds dated 16 May 2014, and this possibility indicates a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and if the Strategic Review does not deliver a solution for the Group it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Notwithstanding this material uncertainty, taking into account that (i) the Strategic Review is ongoing, (ii) the Group has adequate financial resources to meet its operational cash flow requirements for the thirteen month period from the date of this report, and (iii) the Group is, and is anticipated to remain, in a position to meet its obligations in respect of the Bonds in the period prior to their maturity, the Directors have concluded it is appropriate to prepare the financial statements on a going concern basis.

Viability Statement

Provision C.2.2. of the Corporate Governance Code requires directors to assess the prospects of a business over a period of time longer than the 12 months typically required to determine the going concern basis for the preparation of the financial statements of a business. The directors have previously determined that the period of three years from the balance sheet date is appropriate for the purposes of conducting this review. This period was selected with reference to the Group's strategy and planning cycle. The Board formally reviews strategy twice a year, normally in May and September, with a view to informing the subsequent annual budget setting. The budget forms year one of the three year plan, with projections for years two and three. A three year plan for the Group covering the period 2018 to 2020 was considered by the board initially in September 2017 and, subsequently, in April 2018.

In light of the ongoing Strategic Review to assess the financing options open to the Group in relation to the Bonds, the directors have reconsidered the period over which they can reasonably assess the Group's viability. As noted in the review of Liquidity and Going Concern, there is a material uncertainty surrounding the Group's ability to refinance the Bonds, which are repayable in full on 1 June 2019 and are not subject to any financial maintenance covenants, at par in the market on commercially acceptable terms. Failure to repay, refinance, satisfy or otherwise retire the Bonds at their maturity would give rise to a default under the indenture governing the bonds dated 16 May 2014, and this possibility indicates a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and if the Strategic Review does not deliver a solution for the Group it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Given that it is not currently possible to determine the Group's capital structure beyond June 2019 (which will determine, inter alia, the term, cost, financial maintenance covenants (if any) and quantum of any borrowings, and the level of contributions to the pension scheme), it is not possible for the Board to comment on the Group's ability to continue in operation and meet its liabilities as they fall due beyond June 2019 and the directors have therefore concluded that it is necessary to shorten the viability assessment period to the thirteen month period from the date of this report to 1 June 2019, in line with the period of the going concern review.  On this basis, and acknowledging the material uncertainty around the repayment, refinancing, satisfaction or other retirement of the Bonds in June 2019, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 1 June 2019.

Whilst it is not possible for the Board to comment on its ability to continue in operation and meet its liabilities as they fall due beyond June 2019, as noted above, the Group has continued to produce a three year plan for the Group for the period covering 2018 to 2020 as part of the Group's normal strategic planning cycle on the assumption that the Group can secure an appropriate restructuring or refinancing of the Bonds on, or before, 1 June 2019.

In setting the annual budget and three year plan for 2018 to 2020 the Board considered the current trading position and the principal operating and financial risks and opportunities identified by the Group. In particular:

·      The opportunity to invest and grow its audiences and its digital revenue streams;

·      The ability of the Group to continue to reduce costs, to mitigate the continuing decline in print based circulation and advertising revenues; and

·      The level of capital expenditure required to support investment in growth, and the level of restructuring costs needed to support further cost reduction initiatives.

 

The Group operates in an industry which is undergoing a sustained period of significant structural change. This is driven in part by new competitors and new methods of accessing content which are provided by rapidly-changing technology and which are in turn facilitating very significant and ongoing changes in consumer behaviour. The Group's ability to adapt to this constantly changing environment will affect its prospects over the three year period.

In reviewing its three year plan, the Group conducted sensitivity analysis to understand the impact of the combination of a reduction in digital advertising growth rates, an additional decline in other revenue streams and shortfalls in cost savings. As a result of these sensitivities the business would be cash consumptive, before taking mitigating actions. The Board has identified a number of mitigating actions that could be taken, if necessary, in order to preserve the Group's liquidity, including reductions in capex, restructuring and property disposals. In the three year plan the Group has assumed that there would be no reduction in interest payments and pension contributions post June 2019. The future assessments and plans adopted by the Board are subject to change and a level of market uncertainty. As a result of the risks and uncertainties faced by the business (including those outlined in the Principal Risks & Uncertainties section the outcomes reflected in its plan cannot be guaranteed.

The Group's trading performance in 2017 reflected continuing declines in local print advertising and newspaper sales, being only partially offset by a substantial improvement in the performance of the i newspaper (driven by both National print advertising and print circulation revenues), strengthening digital revenue (excluding classifieds) and cost savings.

The three year plan for 2018 to 2020 demonstrates that, with no reduction in financing costs and pension contributions (refer to the financial review), the operations remain profitable and cash generative. Whilst declines in local print advertising and local newspaper sales revenue are expected to continue over this period, further strong growth in both the profitability of the i newspaper brand and digital revenue (excluding classifieds) is expected to continue which, along with additional cost savings, should help maintain profitability.   

Directors' Responsibility Statement

The Directors are responsible for preparing the Annual Results Announcement in accordance with applicable laws and regulations. The responsibility statement below has been prepared in connection with the Group's full Annual Report for the 52 week period ended 30 December 2017. Certain points thereof are not included within this Annual Results Announcement.

The Directors confirm to the best of their knowledge that:

a)     the consolidated financial statements, from which the financial information within these preliminary consolidated financial results have been extracted, are prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and give a true and fair view of the assets, liabilities, financial position and loss of the Group and the undertakings included in the consolidation taken as a whole; and

 

b)     the Management Report includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the Group.

 

By order of the Board:

 

                               

Ashley Highfield                                  David King

Chief Executive Officer                                           Chief Financial Officer

16 April 2018                                                           16 April 2018

 

 

 

 

 

Group Income Statement

For the 52-week period ended 30 December 2017

 

 

 

Notes

52 weeks ended  30 December 2017

£'000

Restated1
52 weeks ended

31 December 2016

£'000

Continuing operations

 

 

 

Revenue

6

201,616

222,699

Cost of sales

 

(135,726)

(143,474)

Gross profit

 

65,890

79,225

Operating expenses before impairment and write-downs1

 

(52,677)

(58,385)

Impairment and write-downs

           7

(64,426)

(344,326)

Total operating expenses

 

(117,103)

(402,711)

Operating loss

6, 7

(51,213)

(323,486)

Financing

 

 

 

Interest receivable

 

45

73

Net finance expense on pension liabilities/assets

8a

(1,690)

(831)

Change in fair value of borrowings

8b

(22,825)

43,619

Finance costs

8c

(19,286)

(20,056)

Total net finance (expense) / income

 

(43,756)

22,805

Loss before tax

 

(94,969)

(300,681)

Tax credit

9

16,389

53,371

Loss from continuing operations

 

(78,580)

(247,310)

Net profit from discontinued operations

10

-

28

Consolidated loss for the period

 

(78,580)

(247,282)

1 Prior period comparatives have been restated, refer to Note 3.

 

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

 

 

 

Restated1

 

Notes

52 weeks ended  30 December 2017

52 weeks ended

31 December 2016

From continuing and discontinuing operations

 

 

 

Loss per Share (p)

 

 

 

Basic

12

(74.6)

(234.9)

Diluted

12

(74.6)

(234.9)

 

From continuing operations

 

 

 

Loss per Share (p)

 

 

 

Basic

12

(74.6)

(234.9)

Diluted

12

(74.6)

(234.9)

1 Prior period comparatives have been restated, refer to Note 3.

 

 

 

Group Statement of Comprehensive Income

For the 52-week period ended 30 December 2017

 

 

 

Translation

reserve

£'000

 Retained

earnings

£'000

Total

£'000

Loss for the period

-

(78,580)

(78,580)

 

 

 

 

Other items of comprehensive income

Items that will not be reclassified subsequently to profit or loss

 

 

 

Actuarial gain on defined benefit pension schemes

-

11,942

11,942

Deferred tax on pension balances

-

(2,030)

(2,030)

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

-

9,912

9,912

 

Items that may be reclassified subsequently to profit or loss

 

 

 

Exchange differences on translation of foreign operations1

(26)

-

(26)

Total items that may be reclassified subsequently to profit or loss

(26)

-

(26)

Total other comprehensive (loss)/gain for the period

(26)

9,912

9,886

Total comprehensive loss for the period

(26)

(68,668)

(68,694)

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

 

 

 

For the 52-week period ended 31 December 2016

 

 

Revaluation

reserve

£'000

Translation

reserve

£'000

Restated1

 Retained

earnings

£'000

Restated1

Total

£'000

Loss for the period

-

-

(247,282)

(247,282)

 

 

 

 

 

Other items of comprehensive income

Items that will not be reclassified subsequently to profit or loss

 

 

 

 

Actuarial loss on defined benefit pension schemes

-

-

(45,799)

(45,799)

Deferred tax on pension balances

-

-

6,337

6,337

Current tax on pension contribution relating to actuarial valuation loss

-

-

1,073

1,073

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

-

-

(38,389)

(38,389)

 

Items that may be reclassified subsequently to profit or loss

 

 

 

 

Revaluation adjustment

(3)

-

-

(3)

Exchange differences on translation of foreign operations2

-

(62)

-

(62)

Total items that may be reclassified subsequently to profit or loss

(3)

(62)

-

(65)

Total other comprehensive loss for the period

(3)

(62)

(38,389)

(38,454)

Total comprehensive loss for the period

(3)

(62)

(285,671)

(285,736)

1 Prior period comparatives have been restated, refer to Note 3.

2 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

 

 

 

Group Statement of Changes in Equity

For the 52-week period ended 30 December 2017

 

 

 

Share

capital

£'000

Share

premium

£'000

Share based

payments

reserve

£'000

Revaluation

reserve

£'000

Own

shares

£'000

Translation

reserve

£'000

Restated1

Retained

earnings

 £'000

Restated1

Total

 £'000

Opening balances

116,171

312,702

8,200

1,728

(3,331)

9,258

(470,808)

(26,080)

Loss for the period

-

-

-

-

-

-

(78,580)

(78,580)

Other comprehensive (loss)/gain for the period

-

-

-

-

-

(26)

9,912

9,886

Total comprehensive loss for the period

-

-

-

-

-

(26)

(68,668)

(68,694)

Recognised directly in equity:

 

 

 

 

 

 

 

 

Share based payments charge

-

-

1,290

-

-

-

-

1,290

Release of SBP reserve for expired warrants2

-

-

(3,798)

-

-

-

3,798

-

Release of SBP reserve for expired share schemes2

-

-

(3,564)

 

-

-

-

3,564

 

-

Net changes directly in equity

-

-

(6,072)

-

-

-

7,362

1,290

Total movements

-

-

(6,072)

-

-

(26)

(61,306)

(67,404)

Equity/(Deficit) at the end of the period

116,171

312,702

2,128

1,728

(3,331)

9,232

(532,114)

(93,484)

 

 

 

For the 52-week period ended 31 December 2016

 

 

Share

capital

       £'000

Share

premium

        £'000

Share based

payments

reserve

£'000

Revaluation

reserve

£'000

Own

shares

        £'000

Translation

reserve

           £'000

Restated1

Retained

earnings

£'000

Restated1

Total

         £'000

Opening balances

116,171

312,702

6,963

1,731

(3,582)

9,320

(185,329)

257,976

Loss for the period

-

-

-

-

-

-

(247,282)

(247,282)

Other comprehensive loss for the period

-

-

-

    (3)

-

(62)

(38,389)

(38,454)

Total comprehensive loss for the period

                 -

                 -

                      -

               (3)

                  -

                (62)

(285,671)

(285,736)

Recognised directly in equity:

 

 

 

 

 

 

 

 

Preference share dividends3 (Note 11)

-

-

-

-

-

-

(152)

(152)

Share based payments charge

-

-

1,832

-

-

-

-

1,832

Deferred bonus plan exercised4

-

-

(64)

-

251

-

(187)

-

Release of SBP reserve for expired
share schemes2

-

 

-

 

(531)

 

-

 

-

 

-

 

531

 

-

 

Net changes directly in equity

-

-

1,237

-

251

-

192

1,680

Total movements

-

-

1,237

(3)

251

(62)

(285,479)

(284,056)

Equity/(Deficit) at the end of the period

116,171

312,702

8,200

1,728

(3,331)

9,258

(470,808)

(26,080)

1 Prior year-end comparatives have been restated, refer to Note 3. The cumulative effect of restatements detailed in Note 3 has been to decrease opening retained earnings for the 52 week period ended 30 December 2017 by £1.4 million.

2 Release of reserve on lapse to distributable reserves.

3 Given the discretionary nature of the dividend right, the preference shares are considered to be equity under IAS 32.

4 Includes release of own shares to retained earnings on exercise of options in the prior financial period.

 

 

Group Statement of Financial Position

At 30 December 2017

 

 

Notes

30 December

2017

£'000

Restated1 and

re-presented2

31 December

2016

£'000

Non-current assets

 

 

 

Intangible assets

13

89,611

152,050

Property, plant and equipment

14

29,249

36,684

Available for sale investments

 

970

970

Trade and other receivables

 

1

1

 

 

119,831

189,705

Current assets

 

 

 

Assets classified as held for sale

 

178

16,384

Inventories

 

2,490

2,262

Trade and other receivables

 

27,658

30,757

Cash and cash equivalents

 

25,028

16,058

 

 

55,354

65,461

Total assets

 

175,185

255,166

Current liabilities

 

 

 

Trade and other payables

 

34,146

38,138

Current tax liabilities

 

113

25

Borrowings

16

180

98

Short-term provisions

19

1,602

1,606

 

 

36,041

39,867

Non-current liabilities

 

 

 

Borrowings

16

166,505

143,468

Retirement benefit obligation

17

47,187

67,725

Deferred tax liabilities

18

9,509

23,739

Trade and other payables

 

3,484

3,477

Long-term provisions

19

5,943

2,970

 

 

232,628

241,379

Total liabilities

 

268,669

281,246

Net liabilities

 

(93,484)

(26,080)

Equity

 

 

 

Share capital

 

116,171

116,171

Share premium account

 

312,702

312,702

Share based payments reserve

 

2,128

8,199

Revaluation reserve

 

1,728

1,728

Own shares

 

(3,331)

(3,331)

Translation reserve

 

9,232

9,259

Retained earnings

 

(532,114)

   (470,808)

Total shareholders deficit

 

(93,484)

(26,080)

1 Prior year-end comparatives have been restated, refer to Note 3.

2 Prior period comparatives have been re-presented. Refer to Note 16.

 

The financial statements of Johnston Press plc, registered in Scotland (number 15382), were approved by the Board of Directors and authorised for issue on 16 April 2018. They were signed on its behalf by:

 

 

Ashley Highfield                                                  David King

Chief Executive Officer                                     Chief Financial Officer

 

 

 

Group Cash Flow Statement

For the 52-week period ended 30 December 2017

 

 

Notes

52 weeks to

30 December

2017

£'000

Re-presented¹

52 weeks to

31 December

2016

£'000

Cash flow from operating activities

 

 

 

Cash generated from operations

20

12,182

16,272

Cash consumed by discontinued operations

 

-

(395)

Income tax received

 

217

600

Net cash inflow from operating activities

 

12,399

16,477

Investing activities

 

 

 

Interest received

 

45

73

Proceeds on disposal of intangible assets

 

-

90

Proceeds on disposal of subsidiary

 

17,000

4,250

Proceeds on disposal of property, plant and equipment

 

11

716

Proceeds on disposal of assets held for sale (excluding sale of subsidiaries)

 

5,183

1,526

Expenditure on digital intangible assets

13

(1,680)

(2,690)

Purchases of property, plant and equipment

14

(2,961)

(3,432)

Acquisition of publishing titles

                           

(2,000)

(22,000)

Expenditure incurred on disposal of discontinued operations

 

-

(73)

Net cash from/(used in) investing activities

 

15,599

(21,540)

Financing activities

 

 

 

Dividends paid

11

-

(76)

Interest paid

 

(18,985)

(19,363)

Interest element of finance lease rental payments

 

(43)

(4)

Net cash used in financing activities

 

(19,028)

(19,443)

Net increase/(decrease) in cash and cash equivalents

 

8,970

(24,506)

Cash and cash equivalents at the beginning of period

 

16,058

40,564

Cash and cash equivalents at the end of the period

 

25,028

16,058

1 Prior period comparatives have been re-presented. Refer to Note 16.

 

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

 

 

 

Notes to the Condensed Consolidated Financial Statements

For the 52-week period ended 30 December 2017

1. General Information

The financial information in the Preliminary Results Announcement is derived from but does not represent the full statutory accounts of Johnston Press plc. The statutory accounts for the 52 week period ended 31 December 2016 have been filed with the Registrar of Companies and those for the 52 week period ended 30 December 2017 will be filed following the Company's Annual General Meeting in 2018. The auditor's reports on the statutory accounts for the 52 and 52 week periods ended 31 December 2016 and 30 December 2017 were unqualified. Neither report contained a statement under Sections 498 (2) or (3) of the Companies Act 2006. However, the report for the period ended 30 December 2017 will include a material uncertainty in respect of going concern.

Whilst the financial information included in this Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The 2017 Annual Report and Accounts for the 52 weeks ended 30 December 2017 will be made available on the Company's website at www.johnstonpress.co.uk, at the Company's registered office at Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS and sent to shareholders in May 2018.

2. Basis of preparation

Johnston Press plc ('Johnston Press' or 'the Group') is a public limited liability company incorporated in Scotland under the Companies Act 2006 and listed on the London Stock Exchange. The registered office is Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS. The principal activities of the Group are described in the Operational Review and Financial Review sections of the Strategic Report.

These financial statements have been prepared for the 52-week period ended 30 December 2017 (2016: 52-week period ended 31 December 2016).

The significant accounting policies used in preparing this information are set out in Note 4.

The financial statements have also been adjusted, where appropriate, by new or amended IFRS's described below.

The condensed consolidated financial statements of Johnston Press Plc have been prepared on a going concern basis (discussed further in the Financial Review and below) and under the historical cost convention, except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period. The accounting policies adopted in the preparation of this condensed consolidated financial statement are consistent with those applied by the Group in its audited consolidated financial statements for the period ended 31 December 2016 other than as disclosed in the Significant Accounting Policies note.

Going concern

As at 30 December 2017, the Group had net debt of £195.9 million (excluding mark-to-market accounting adjustment), comprising cash of £25 million and borrowings of £220 million.  The borrowings comprise £220 million of high yield bonds (the Bonds), which are repayable on 1 June 2019 and are not subject to any financial maintenance covenants. 

On 29 March 2017, the Group announced it had commenced a Strategic Review, working with its advisers Rothschild and Ashurst LLP, to assess the financing options open to the Group in relation to the Bonds. As a key part of this Strategic Review process, the Board has engaged with its major stakeholders, including shareholders, holders of the Bonds, Pension Trustees and the Pensions Regulator. 

On 10 October 2017, the Board announced that it was approaching its largest bondholders regarding the formation of an ad hoc committee of bondholders (the "Bondholder Committee") to consider in greater detail certain potential amendments to the Group's capital structure. On 2 November 2017, the Group confirmed that the Bondholder Committee had been formed. The main objectives of these potential amendments to the Group's capital structure, combined with certain proposed amendments to the Group's pension scheme, are to (i) achieve a sustainable level of debt within the Group to enable it to refinance its debt in the future, and (ii) materially reduce or eliminate the pension scheme deficit by 2021, whilst preserving the pension scheme members' benefits. On 1 February 2018, the date of our last trading update, the Board confirmed that discussions with advisers to the Bondholder Committee were in progress.

The Group continues to explore these potential amendments to its capital structure with advisers to the Bondholder Committee and the Board is satisfied with the continued support of the Group's major stakeholders during the review process. Any proposal that results from these discussions will remain subject to negotiation and the consent of relevant stakeholders, and there can be no certainty that a formal proposal will be forthcoming. In the event that consensual amendments to the Group's capital structure cannot be agreed with relevant stakeholders, alternative options for the restructuring or refinancing of the Bonds prior to their maturity in June 2019 will be explored as part of the ongoing strategic review process.

The Group has performed a review of its financial resources taking into account, inter alia, the cash currently available to the Group, the absence of financial maintenance covenants in the Bonds, and the Group's cash flow projections for the thirteen month period from the date of this report to 1 June 2019, and, based on this review, and after considering reasonably possible trading downside sensitivities and uncertainties, the Board is of the opinion that, subject to the material uncertainty surrounding the repayment of the Bonds on 1 June 2019 (referred to below), the Group has adequate financial resources to meet its operational cash flow requirements for the next thirteen months from the date of this report. The directors also anticipate that the Group will remain in a position to meet its obligations in respect of the Bonds, including with regard to the payment of interest, in the period prior to their maturity.

However, given the challenges faced by the newspaper and printing industry as a whole, the current trading experience of the Group, and the likely financial position of the Group at the time the Bonds are due for repayment in June 2019, there is material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms. Failure to repay, refinance, satisfy or otherwise retire the Bonds at their maturity would give rise to a default under the indenture governing the Bonds dated 16 May 2014, and this possibility indicates a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and if the Strategic Review does not deliver a solution for the Group it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Notwithstanding this material uncertainty, taking into account that (i) the Strategic Review is ongoing, (ii) the Group has adequate financial resources to meet its operational cash flow requirements for the thirteen month period from the date of this report, and (iii) the Group is, and is anticipated to remain, in a position to meet its obligations in respect of the Bonds in the period prior to their maturity, the Directors have concluded it is appropriate to prepare the financial statements on a going concern basis.

3. Restatements

Operating segment note

The operating segment note has been restated to reflect the correct allocation of operating costs between the publishing and contract printing segments for the 52 week period ended 31 December 2016. The impact has been to reduce the publishing net segment loss by £37.7 million and to increase the contracting printing net segment loss by £37.7 million reflecting operating costs of £34.6 million and impairment and write downs of £3.1 million. There is no impact on the Group net segment result.

Provisions

The Group Statement of Financial Position as at 31 December 2016 has been restated to reflect the correct allocation of onerous lease and dilapidations provisions between current and non-current liabilities. The impact has been to reduce short-term provisions by £1.4 million and increase long-term provisions by £1.4 million. There is no impact on total liabilities or net liabilities.

Sales ledger credit write offs

In the current year it was noted that there has been historic releases of sales ledger credit balances made up predominantly of overpayments by customers. These should not be released unless six years has passed under the Limitations Act of 1980. Therefore, the impact has been to decrease opening 2016 retained earnings by £1.0 million and increase trade and other creditors by £1.0 million at the beginning of 2016. Then during 2016 the impact is to increase operating expenses by £0.4m and increase trade and other creditors by £0.4 million to a final position at 31 December 2016 of £1.4 million. This has impacted statutory EPS by increasing both the diluted and basic Loss per Share from (234.6)p to (234.9)p.

4. Significant accounting policies

Alternative performance measures

The Directors assess the performance of the Group using both statutory accounting measures and a variety of alternative performance measures (APMs). The key APMs monitored by the Group are:

·      adjusted revenue

·      adjusted EBITDA;

·      adjusted EBITDA margin %;

·      adjusted operating profit;

·      adjusted operating profit margin %; and

·      cash and net debt (excluding mark-to-market). Refer to Financial Review for calculation of net debt (excluding mark-to-market).

 

The business has been through a period of enormous change over an extended period. This has resulted from structural change in the sector. Audiences have increased their use of online and mobile platforms to access information and news, resulting in accelerated newspaper circulation volume decline. Advertisers have also increasingly sought to use digital services to reach their target audiences. Together, this structural shift has resulted in year-on-year declines in the Group's income.

The Group has initiated a series of restructuring programs to remove cost from the business with the objective of designing a sustainable print publishing business model, while at the same time investing in building a digital income stream.

The resulting restructuring projects has seen a substantial redesign of each area of the business, including management layers and structures, products and services, content creation and our sales routes to market. In streamlining the organisation, a significant investment in redundancy has seen more than 2047 posts closed over the last four years. The Group has also sought to reflect its change in shape and scale in support areas including making substantial reductions in its property portfolio, technology licences and fleet. The speed of its action, both in anticipating and responding to recent changes in the sector has meant that some existing contracts no longer reflect the current needs of the business.

In 2017, the Group initiated new changes to its business model, including how it allocated resources to different brands, its mix of field and call centre based sales staff, while also adopting a clear policy of downsizing its property portfolio, taking advantage of natural lease breaks, typically moving to smaller short-term serviced offices in towns and smaller cities, while maintaining larger hubs in Preston, Leeds, Edinburgh, Peterborough, Sheffield and Portsmouth.

To provide investors and other users of the Group's financial statements with additional clarity and understanding of both the cost of this business change programme, and the resulting impact on the Group's underlying trading, the Directors believe that it is appropriate to additionally present the Alternative Performance Measures used by management in running the business and in determining management and executive remuneration.

Although management believes the alternative performance measures are important in considering the performance of the Group, they are not intended to be considered in isolation, or as a substitute for, or superior to financial information on a statutory basis. The adjusted figures are not a financial measure defined or specified in the applicable financial reporting framework, and therefore may not be comparable to similar measures presented by other entities. When reviewing and selecting these adjusting items, the Directors considered the guidelines issued by the European Securities and Markets Authority (ESMA).

A reconciliation between the statutory and the adjusted results is provided under Alternative Performance Measures within the financial information. The reconciliation includes explanations each 'adjusting item' and why they been adjusted for. An adjusting item is one that is judged to require separate presentation to enable a better understanding of the trading performance of the business in the period. Items are adjusted if they are significant in value and/or do not form part of ongoing underlying trading. They will, in many cases, be 'one-off' and include items that span more than one financial period.

Prior year comparatives have been restated so that the adjusted results are presented on a consistent basis between periods. Restated figures have been highlighted in the Alternative Performance Measures section. In the opinion of the Directors, disclosing the adjusting items provides supplementary information to aid understanding of the Group's trading performance and also provides a basis of comparison between periods

Refer to the Alternative Performance Measures section for more detail.

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

The following new and amended IFRS's have been adopted for the 52-week period which commenced 1 January 2017 and ended 30 December 2017: 

Accounting standard

Requirements

Impact on financial statements

Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised Leases*

Clarifies how to account for deferred tax assets related to debt instruments measured at fair value.

None - no fair value movement giving rise to consideration of these technical changes. Refer Note 16 - Borrowings.

Amendments to IAS 7 - Disclosure Initiative*

Requires companies to disclosure information about changes in their financing liabilities.

None - no fair value movement giving rise to consideration of these technical changes. Refer Note 16 - Borrowings.

Annual improvements to IFRS Standards 2014-2016 Cycle*

Minor amendments to IFRS 12.

Minor revisions taken into consideration when applying standards.

 

New and amended standards applicable for annual periods beginning in 2018 and beyond

The following new standards, which are applicable to the Group, have been published but are not yet effective and have not yet been adopted by the EU:

Accounting standard

Requirements

Mandatory application date

Annual improvements to IFRS Standards 2014-2016 Cycle*

Minor amendments to a number of standards.

For periods beginning on or after 1 January 2018. No material impact on the Group's net results or net assets.

IFRS 9 - Financial Instruments and Amendments to IFRS 9

Sets out the principles of the recognition, de-recognition, classification and measurement of financial assets and financial liabilities together with requirements relating to the impairment of financial assets and hedge accounting.

For periods beginning on or after 1 January 2018. The Group will early adopt for the period beginning on 31 December 2017 due to there only being one-day difference. Management are in the process of performing a detailed review of the impact of IFRS 9. Refer to IFRS 9 - Financial Instruments and Amendments to IFRS 9 detailed below the table.

IFRS 15 - Revenue from Contracts with Customers and Clarifications to IFRS 15

Establishes when revenue should be recognised, how it should be measured and what disclosures about contracts with customers are needed.

 

The clarifications relate to the application and provide transitional relief regarding first time adoption of the standard.

For periods beginning on or after 1 January 2018. The Group will early adopt for the period beginning on 31 December 2017 due to there only being one day difference. Management are in the process of performing a detailed review of the impact of IFRS 15. Refer to IFRS 15 - Revenue from Contracts with Customers and Clarifications to IFRS 15 detailed below the table.

Amendments to IFRS 2 - Classification and Measurement of Share-based Payment Transactions*

Clarifies how to account for certain types of share based payment transactions.

For periods beginning on or after 1 January 2018. No material impact on the Group's net results or net assets.

IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration*

Addresses the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency.

 

For periods beginning on or after 1 January 2018. Minimal impact anticipated.

IFRIC 23 - Uncertainty over Income Tax Treatments*

Sets out how to determine the accounting tax position when there is uncertainty over income tax treatments.

For periods beginning on or after 1 January 2019. Minimal impact anticipated.

IRFS 16 - Leases*

Establishes principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.

For periods beginning on or after 1 January 2019. IFRS 16 will require the Group to recognise a lease liability and a right-of-use asset for most of those leases previously treated as operating leases. The Group is currently going through an exercise to evaluate the impact of this standard on our business. Whilst it is too early to conclude what the impact will be, IFRS 16 may have a material impact given the amount of leases entered into by the Group. The Group will be in a better position to report what the expected impact will be in next year's Annual Report once the impact assessment has been finalised.

* Not yet EU endorsed.

IFRS 9 - Financial Instruments and Amendments to IFRS 9

IFRS 9 'Financial Instruments' is applicable for reporting periods beginning on or after 1 January 2018 but will be early adopted for the financial statements of Johnston Press Plc for the 52-week period beginning on 31 December 2017. This is because there is only a one-day difference between the mandatory application date and the period beginning date, and the Company therefore considers it appropriate to apply the new standard for the year commencing on 31 December 2017. Johnston Press has identified the following areas where the adoption of IFRS 9 will have an effect and are still in the process of assessing the financial impact of the changes detailed below:

·      The Group's borrowings of £220 million 8.625% secured notes due 1 June 2019 have been designated into fair value through profit and loss (FVTPL) category under IAS 39.  Management expects that this designation will flow through to IFRS 9. However, that standard requires that effects of changes in the liability's own credit risk are presented in Other Comprehensive Income (OCI), unless such presentation would result in a greater mismatch in profit or loss than if those amounts were presented in profit or loss. Management consider future changes in fair value that relate to own credit risk will be included in OCI in IFRS 9. In contrast under IAS 39 those changes were presented in profit and loss. This represents the most significant area of change on transition to IFRS 9 in the context of the Group. Under IFRS 9 7.2.15, management do not anticipate comparatives being restated.

·      The new classification approach in IFRS 9 for financial assets is not expected to have a material impact on the measurement basis of our financial assets due to the nature of the business and types of financial assets held; however, this assessment is still ongoing. The standard introduces an expected loss model approach to impairment of financial assets, which are principally accounts receivable and cash balances held with banks. Management is currently quantifying the financial impact of the new impairment model. Initial assessments indicate this is not likely to be material.

·      The Group holds a strategic non-controlling interest of 3.53% in Press Association Group Limited. These shares are classified as available for sale under IAS 39.  Under IAS 39, these were held at cost due to the so-called 'cost exemption' in that standard. In IFRS 9, these investments are anticipated to be at fair value through profit and loss [assuming Fair Value Through Other Comprehensive Income designation not made] with no cost exemption. Management have not quantified the impact and are still in the process of assessing the impact of the measurement differences in respect of these investments.

IFRS 15 - Revenue from Contracts with Customers and Clarifications to IFRS 15

IFRS 15 'Revenue from Contracts with Customers' will apply to the financial statements of Johnston Press Plc for the 52-week period beginning on 31 December 2017. Johnston Press has identified the following areas where the adoption of IFRS 15 will have an effect and are currently finalising the quantification of the impact. Revenue streams where a significant impact is not expected have not been commented upon below.

 

IFRS 15 'Revenue from Contracts with Customers' replaces IAS 18 'Revenue', IAS 11 'Construction Contracts' and several revenue-related interpretations. IFRS 15 is based on revenue being recognised as and when 'transfer of control' (of the goods or services provided) occurs which is a change from the 'risks and rewards' model under the current revenue standards.

The Group plans to adopt IFRS 15 using a fully retrospective application which will include restatement of the prior period comparatives under the new standard. Our application will make use of the following practical expedients:

·      Contracts which are completed at the beginning of the earliest period presented will not be restated.

·      Completed contracts with variable consideration will use the transaction price at the date the contract was completed rather than estimates of variable consideration in comparative periods.

·      Contract modifications which occurred before the beginning of the earliest period presented will be reflected in aggregate.

·      Contracts that are started and completed in the same annual reporting period will not be restated.

·      IFRS 15 has been applied to portfolios of contracts which have similar characteristics and where we expect that the financial statements would not differ significantly had the standard been applied to the individual contracts within the portfolio. Newspaper subscription contracts have been considered under the portfolio approach as each agreement will share common characteristics, such as performance obligations, contract length and consideration.

 

For tax purposes, adjustments to revenue or costs would be brought into account on the first day of the accounting period in which IFRS 15 is adopted.

 

The Group has identified the following areas where the adoption of IFRS 15 will have an effect on the financial statements and are still in the process of assessing the overall impact.

 

It should also be noted that there will be no impact on cash flows with collection remaining in line with contractual terms.

 

Print and digital subscriptions

Digital subscriptions are offered free of charge with certain print subscriptions. Under IFRS 15 these have been determined to be two distinct performance obligations within a single contract. The Group's existing revenue recognition policy under IAS 18 in relation to digital and print subscriptions is to allocate all of the consideration to the print subscription. Under IFRS 15 the stand-alone selling price of the digital subscription and the print subscription will have to be estimated and the total subscription value allocated between the two distinct performance obligations, although ultimately the revenue recognised will be at the same point in time as under IAS 18.

 

Although this is unlikely to significantly change the total subscription revenue recognised during the period, the work in assessing this is still ongoing. It will most likely change the allocation of revenue between operating segments.

 

Print subscription vouchers

The Group offers a number of newspaper subscriptions using a 'paper coupon' which may be redeemed at local retailers for a newspaper. The current accounting policy is to recognise the revenue from print subscriptions over the subscription period. Certain publications coupons have an expiration date which extends beyond the subscription period which the consumer has entered into. Under IFRS 15 the revenue recognised for these types of subscriptions will be required to be deferred over the period which the coupons are expected to be redeemed and key judgements will need to be made over when coupons are expected to be redeemed and how many are expected to lapse.

 

The Group is currently quantifying the impact. It is probable that an element of the subscription revenue will be deferred to later periods depending on the level of breakage estimated. 

 

Contract print

The Group enters into a range of contract print arrangements with third parties to perform printing services; promises include the provision of inks, paper and delivery of newspapers to a specified warehouse. These contracts often contain elements of variable consideration under IFRS 15, such as consideration per newspaper being variable on total number of newspapers printed over the contract period and stepped rebate schemes. At inception of the contract there are judgements to be made regarding print volumes, as this will impact the price per newspaper that can be recognised.

 

The Group's existing revenue recognition policy is to recognise revenue from contract print arrangements during the period, in line with volumes produced. With one exception, all customers are billed on a weekly/monthly basis, in line with their contractual pricing, for their actual print volumes, which can vary by print job. There is one contract that has annual minimum quantities, and in any contract year these minimum volumes are billed on a monthly basis. Revenue above minimum volumes on this contract, is recognised at each reporting date. Under IAS 18 this is permissible, however, under IFRS 15 the transaction price of the entire contract over the contractual term is estimated at inception of the contract and constrained to the extent that it is highly probable if included in revenue recognised does not result in a significant reversal to revenue recognised in future periods.

 

The Group is still in the process of assessing the impact to the contract print revenue that will be recognised under IFRS 15. The Group will be required to make judgements at the inception of the contract on expected print volumes, price per unit, paper costs and rebates.

 

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 or 31 December each year. Control is achieved when the Company:

·     has the power over the investee;

·     is exposed, or has rights, to variable return from its involvement with the investee; and

·     has the ability to use its power to affect its returns.

 

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

·     the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

·     potential voting rights held by the Company, other vote holders or other parties;

·     rights arising from other contractual arrangements; and

·     any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

 

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company. Total comprehensive income of the subsidiaries is attributed to the owners of the Company.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.

When the Group disposes of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference between: (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest, and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs).

The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement, when applicable, the costs on initial recognition of an investment in an associate or a joint venture

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the Income Statement as incurred.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, including publishing titles, are recognised at their fair value at the acquisition date, except for:

·     deferred tax assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively; and

·     non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations', are recognised and measured at fair value less costs to sell.

 

Non-current assets held for sale

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs of disposal.

Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

 

Publishing titles

The Group's principal intangible assets are publishing titles. The Group does not capitalise internally generated publishing titles. Titles separately acquired before 1 January 1996 are stated at cost and titles owned by subsidiaries acquired after 1 January 1996 are recorded at fair value at the date of acquisition. These publishing titles have no finite life and consequently are not amortised. The carrying value of the titles is reviewed for impairment at least annually with testing undertaken to determine any diminution in the recoverable amount below carrying value. The recoverable amount is the higher of the fair value less costs to sell and the value in use is based on the net present value of estimated future cash flows. The discount rate is post-tax and reflects current market assessments of time, value of money and risks specific to asset for which estimates of future cash flows have not been adjusted. Any impairment loss is recognised as an expense immediately. A reversal of an impairment loss is recognised immediately in the Group Income Statement given these assets are not carried at revalued amounts.

For the purpose of impairment testing, publishing titles are allocated to each of the Group's cash generating units and are included within the Group's publishing segment (Note 6).  Cash-generating units are determined by grouping assets at the lowest levels for which there are separately identifiable cash flows. Cash generating units are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of the value of publishing titles and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Other intangible assets

Other intangible assets in respect of digital activities are amortised using the straight-line method over the expected life of three to five years and are tested for impairment at each reporting date or more frequently where there is an indication that the recoverable amount is less than the carrying amount. Costs incurred in the development of websites are only capitalised if the criteria specified in IAS 38 are met.

Valuation of share based payments

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

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Print advertising revenue is recognised on publication and circulation revenue is recognised at the point of sale. Digital revenues are recognised on publication for advertising or delivery of service for other digital revenues. Printing revenue is recognised when the service is provided.

Foreign currencies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each period end, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the close of business on the last working day of the period. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items carried at historical cost in respect of which gains and losses are recognised directly in equity.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the period end date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Property, plant and equipment

Property, plant and equipment balances are shown at cost, net of depreciation and any provision for impairment. In certain cases the amounts of previous revaluations of properties conducted in 1996 or 1997 or the fair value of the property at the date of the acquisition by the Group have been treated as the deemed cost on transition to IFRS.

For the purpose of annual impairment testing of printing presses, these assets are allocated to each of the Group's cash generating units and are included within the Group's printing segment (Note 6). Cash generating units are determined by grouping assets are at the lowest levels for which there are separately identifiable cash flows. Cash generating units are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of the value of publishing titles and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Depreciation is provided on all property, plant and equipment, excluding land, at varying rates calculated to write-off cost over the useful lives. The principal rates employed are:

 

Freehold land                                                       Nil

Freehold property                                                2.5% reducing balance

Leasehold property                                             Term of lease

Computer and IT equipment                               20% to 33% straight-line

Other production equipment                               6.67% to 33% straight-line

Furniture and fittings                                           15% reducing balance, 20% straight-line

Motor vehicles                                                     25% straight-line

 

Printing presses are depreciated over 25 years on a straight-line basis. Any direct enhancements to the presses are depreciated such that these assets are coterminous with the underlying press or their economic useful life if that is determined to be shorter. Ancillary press equipment is depreciated over their economic useful life, which ranges between 5 and 15 years on a straight-line basis.

Assets classified as held for sale

Where a property or a significant item of equipment (such as a print press or property no longer required as part of Group operations) is marketed for sale, management is highly committed to the sale and the asset is available for immediate sale, the Group classifies that asset as held for sale. All assets in this category are expected to be sold within 12 months, as per the criteria of IFRS 5, and have therefore been classified as current assets. The value of the asset is held at the lower of the net book value or the expected net realisable sale value.

The Directors have estimated the sale values based on the current price that the asset is being marketed at and advice from independent property agents. The actual sale proceeds may differ from the estimate.

Provisions for onerous leases and dilapidations

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

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

Inventories

Inventories, largely paper, plates and ink, are stated at the lower of cost and net realisable value. Cost incurred in bringing materials to their present location and condition comprises: (a) raw materials and goods for resale at purchase cost on a first-in first-out basis, and (b) work in progress at cost of direct materials, labour and certain overheads. Net realisable value comprises selling price less any further costs expected to be incurred to completion and disposal.

Cash and cash equivalents

Cash and cash equivalents are those cash balances held by the Group and short-term bank deposits with an original maturity of three months or less.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Investments are recognised and derecognised on the trade date in accordance with the terms of the purchase or sale contract and are initially measured at fair value, plus transaction costs.

Available for sale financial assets

Listed and unlisted investments are shown as available for sale and are stated at fair value. Fair value of listed investments is determined with reference to quoted market prices. Fair value of unlisted investments is determined by reference to the latest set of audited results. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in reserves in reclassified to profit or loss.

Dividends on available for sale equity investments are recognised in the Income Statement when the Group's right to receive the payment is established.

Available for sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment losses at the end of each reporting period.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each period end date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance for estimated irrecoverable amounts. Changes in the carrying value of this allowance are recognised in the Income Statement.

Financial liabilities and equity

Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Dividend distributions

Dividend distributions to the Company's shareholders are recognised as a liability in the consolidated financial statements in the period in which the dividends are approved.

Preference shares

All the preference shares carry the right, subject to the discretion and ability of the Group to distribute profits, to a fixed dividend of 13.75% and rank in priority to the ordinary shares. Due to the significant impairment that arose during the financial year ended 31 December 2016 and which extinguished distributable reserves, preference share dividends cannot be paid. Given the discretionary nature of the dividend right to be paid in the current year, the preference shares are considered to be equity under IAS 32. 

In the event that Johnston Press plc, the holding company, returns to a position in which it has distributable reserves, the Board will consider paying all unpaid dividends from such date as when the last payment was made. The Group is under no legal obligation to make a payment in respect of prior year dividends.

Borrowings

The borrowings of £220 million 8.625% senior secured notes due 1 June 2019 agreed as part of the June 2014 refinancing are recorded at fair value through profit and loss and classified as Level 1 according to IFRS 13. As the borrowings are shown at fair value the associated issue costs have been charged to the Income Statement (refer to Note 8c).

Trade payables

Trade payables are not interest-bearing and are stated at their nominal value.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. Assets held under finance leases are recognised at their fair value at the inception of the lease or, if lower, the present value of the minimum lease payments. The asset is recognised within property, plant and equipment and the corresponding liability to the lessor is included within obligations under finance leases. Lease payments are apportioned between finance charges which are charged to the consolidated income statement and reductions in the lease obligation.

Rentals payable under operating leases are charged to the Group Income Statement on a straight-line basis over the term of the relevant lease. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the term of the lease.

Where the Group is a lessor, rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Operating loss

Operating loss is stated after charging restructuring, impairment, depreciation, amortisation and staff costs but before investment income, other finance income, finance costs and the results of discontinued operations.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the period-end date.

Tax liabilities are recognised when it is considered probable that there will be a future outflow of funds to a taxing authority

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax-based values used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when the relevant requirements of IAS 12 are satisfied.

Retirement benefit costs

The Group provides pensions to employees through various schemes.

Payments to defined contribution retirement benefit schemes are charged to the Income Statement as an expense as they fall due.

For the defined benefit scheme, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each period end date. Actuarial gains and losses and the return on scheme assets are recognised in full in the period in which they occur. They are recognised outside the Income Statement and presented in the Statement of Comprehensive Income. Past service cost is recognised as an expense at the earlier of the date when a plan amendment or curtailment occurs and the date when an entity recognises any termination benefits, or related restructuring costs. Net-interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset at the beginning of the period (taking account of changes in the net liability or asset over the period due to contributions paid) and is recognised within finance costs.

The retirement benefit obligation recognised in the Statement of Financial Position represents the present value of the defined benefit obligation reduced by the fair value of scheme assets. Any asset resulting from this calculation is recognised in full on the balance sheet on the basis that the Group has an unconditional right to any surplus assuming the gradual settlement of liabilities over time until all members have left the Plan.

There has been a change in accounting policy in the current period to present all of the net defined benefit obligation as a non-current liability, which is in line with common practice. The impact on the 31 December 2016 retirement benefit obligation was to move £10.3 million from current liabilities to non-current liabilities. This has resulted in no change in the total retirement benefit obligation in the prior reporting period.

 

5. Critical accounting judgements and key sources of estimation uncertainty

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below). The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Impairment of publishing titles and print presses

Key areas of judgement in the value in use calculation include the identification of appropriate CGUs. The Group has identified its publishing and print CGUs based on the geographic regions in which it operates. This is considered to be the lowest level at which cash inflows generated are largely independent of the cash inflows from other groups of assets and has been consistently applied in the current and prior periods.

Other accounting judgements:

Alternative Performance Measures (APMs)

In the reporting of financial information in the Alternative Performance Measures section of the Annual Report, the Group uses certain measures that are not required under IFRS or the Generally Accepted Accounting Principles (GAAP) under which the Group reports. In the opinion of the Directors, disclosing the key APM's of adjusted revenue, adjusted EBITDA, adjusted EBITDA margin %, adjusted operating profit, adjusted operating profit margin % and net debt (excluding mark-to-market) provides supplemental information to the statutory results reported under IFRS to show the Group's underlying trading performance. The adjusted results reflect the way management and the Directors assess the Group's performance and involve judgement, which is explained more fully in the Alternative Performance Measures section of the Annual Report.

The adjusted figures are not a financial measure defined or specified in the applicable financial reporting framework, and therefore may not be comparable to similar measures presented by other entities. 

Key sources of estimation uncertainty

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

Impairment of publishing titles and print presses

The Group is required to test, on an annual basis, whether intangible assets with indefinite useful lives have suffered any impairment based on the recoverable amount of its cash generating units. Determining whether publishing titles and print presses are impaired requires an estimation of the value in use of the CGUs to which these assets are allocated. Key sources of estimation uncertainty in the value in use calculation include the estimation of future cash flows of CGUs affected by expected changes in underlying revenues and direct costs as well as corporate and central cost allocations through the forecast period, the long-term growth rates and a suitable discount rate to apply to the aforementioned cash flows in order to calculate the net present value.

Determining whether print presses are impaired requires an estimation of the value in use of each print site. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the print sites and a suitable discount rate in order to calculate present value. Details of the impairment reviews that the Group performs in relation to other intangible assets are provided in Note 13. 

Valuation of pension liabilities

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

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

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

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

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

·      mortality assumptions based on standard base table adjusted to reflect specific conclusions and conditions based on a study of the actual scheme members.

 

The liabilities of the defined benefit pension schemes operated by the Group are determined using methods relying on actuarial estimates and assumptions, including rates in increase in pensions, expected returns on scheme plan assets, life expectancies and discount rates. Details of the key assumptions are set out in the Group's accounting policies section above and within Note 17. The sensitivity analysis performed within Note 17 allows the users of the accounts to see the impact of potential movements in assumptions. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in assumptions used may have a significant effect on the Group statement of comprehensive income and the Group statement of financial position.

Going concern 

When preparing financial statements, management is required to make an assessment of an entities ability to continue as a going concern and prepare financial statements on this basis unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entities ability to continue as a going concern, the entity shall disclose those uncertainties. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, 12 months from the end of the reporting period.  Management have undertaken an analysis of the trading expectations for the Group as outlined in its three-year plan, including conducting reasonable downside sensitivities, considered cash balances held at the end of each period and the current circumstances and options that exist in relation to the Bond maturing on 1 June 2019 and the lack of financial maintenance covenants existing. Detailed disclosures on the status and material uncertainties existing in relation to the Bond maturity have been included in the Directors Report under liquidity and going concern and in the Viability Statement. Based on the review, and as detailed in Note 2, the Directors have concluded that it is appropriate to prepare the Group's financial statements on a going concern basis.

 

6.         Operating segments

Information reported to the Chief Executive Officer for the purpose of resource allocation and assessment of segment performance is focused on the two areas of publishing (in print and online) and contract printing. Geographical segments are not presented as the Group operates solely in the UK.

 

Unless otherwise indicated the segment information reported on the following pages does not include any amounts for discontinued operations which are described in more detail in Note 10. It has not been adjusted to reflect disposed or closed titles or products.

 

a) Segment revenues and results

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

 

 

52-week period ended 30 December 2017

52-week period ended 31 December 2016

 

 

Publishing

£'000

Contract

printing

£'000

Eliminations

£'000

Group

 £'000

Restated5 - Publishing

£'000

Restated5 -

Contract

 printing

£'000

Eliminations

£'000

Restated3 -Group

 £'000

Revenue

 

 

 

 

 

 

 

 

Print advertising

74,265

-

-

74,265

95,674

-

-

95,674

Digital advertising

25,976

-

-

25,976

26,950

-

-

26,950

Newspaper sales

79,102

-

-

79,102

79,849

-

-

79,849

Contract printing

-

13,321

-

13,321

-

12,788

-

12,788

Other

8,002

950

-

8,952

6,735

703

-

7,438

Total external sales

187,345

14,271

 

201,616

209,208

13,491

-

222,699

Inter-segment sales1

-

20,486

(20,486)

-

-

23,597

(23,597)

-

Total revenue2

187,345

34,757

(20,486)

201,616

209,208

37,088

(23,597)

222,699

Impairment and write downs3

(63,668)

(758)

-

(64,426)

(341,246)

(3,080)

-

(344,326)

Adjustments (excluding impairment and write downs) 3

(18,760)

(295)

-

(19,055)

(20,202)

(14)

            -

(20,216)

Operating costs3,4,5

(138,161)

(31,187)

-

(169,348)

(147,026)

(34,617)

            -

(181,643)

Net segment result (restated)5

(33,244)

2,517

(20,486)

(51,213)

(299,266)

(623)

(23,597)

(323,486)

Interest receivable

 

 

 

45

 

 

 

73

Net finance expense on pension assets/liabilities

 

 

(1,690)

 

 

 

(831)

Change in fair value of borrowings

 

 

 

(22,825)

 

 

 

43,619

Finance costs

 

 

 

(19,286)

 

 

 

(20,056)

Loss before tax

 

 

 

(94,969)

 

 

 

(300,681)

Taxation credit

 

 

 

16,389

 

 

 

53,371

Loss after tax for the period - continuing operations

 

(78,580)

 

 

 

(247,310)

Profit after tax for the period - discontinued operations

 

 

-

 

 

 

28

Consolidated loss after tax  for the period

 

 

(78,580)

 

 

 

(247,282)

                       

1 Inter-segment sales are charged at market rates.

2 Revenue from sale of goods and services for 2017 was £201.6 million (2016: £222.7 million). There was other operating income in the year of £0.8 million (2016: £0.1 million) relating to rental income on sub-let properties, please see Note 7 for more details. This means total revenue as defined by IAS 18 is £202.4 million (2016: £222.8 million).

3 Total adjustments presented in the Alternative Performance Measures section of £83.5 million (2016: £364.5 million) consists of impairment and write downs of £64.4 million (2016: £344.3 million) and adjustments (excluding impairment and write downs) of £19.1 million (2016: £20.2 million). The prior period comparative figures have been re-presented to separately present impairment and write downs, adjustments (excluding impairment and write downs) and operating costs. The prior period financial statements disclosed total operating costs of £545.7 million. In the disclosure above this amount has been split into impairment and write downs of £344.3 million, adjustments (excluding impairment and write downs) of £20.2 million and operating costs £181.6 million. The total of these amounts represents an increase of £0.4 million on the operating costs figure disclosed in the prior period signed financial statements as a result of the sales ledger credits write off disclosed in note 3. 

4 Includes depreciation and amortisation.

5 Net segment result for the 52 weeks ended 31 December 2016 has been restated to reflect the correct allocation of operating costs between the Publishing and Contract printing segments. Refer to Note 3 for more detail.  

 

 

 

The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 4. The segment result represents the (loss)/profit earned by each segment without allocation of the share of results of associates, investment income, finance costs (including in relation to pension assets and liabilities) and income tax expense or credit. This is the measure reported to the Group's Chief Executive Officer for the purpose of resource allocation and assessment of segment performance.

 

The Group, in common with the rest of the publishing industry, is subject to the main holiday periods of Easter, summer and Christmas as well as school and bank holidays. Since these fall across both half years, the Group's financial results are not usually subject to significant seasonable variations from period-to-period.

 

b) Segment assets

 

30 December

2017

 £'000

31 December

2016

£'000

Assets

 

 

Publishing

149,097

229,315

Contract printing

26,088

25,851

Total segment and consolidated assets

175,185

255,166

 

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

 

c) Other segment information

 

52 weeks to 30 December 2017

52 weeks to 31 December 2016

 

Publishing

 £'000

Contract

printing

£'000

Group

 £'000

Restated¹,² -

Publishing

£'000

Restated¹,² -

Contract

printing

 £'000

Group

£'000

Additions to property, plant and equipment

2,114

847

2,961

4,562

764

5,326

Depreciation and amortisation expense (continuing)¹

6,614

1,295

7,909

6,021

1,394

7,415

Impairment of property, plant and equipment²

3,103

758

3,861

4,396

3,080

7,476

Impairment of intangible assets²

60,453

-

60,453

336,850

-

336,850

Impairment of assets held for sale

112

-

112

 

 

 

1 Includes amortisation of digital intangible assets (Note 13) and depreciation charge on property, plant and equipment (Note 14).

2 The allocation of the impairment charges between publishing and contract printing has been re-presented for the 52 weeks ended 31 December 2016. Refer to Note 3.

 

 

7.         Loss for the period

 

Notes

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

£'000

Operating loss is shown after charging/(crediting):

 

 

 

Depreciation of property, plant and equipment1

14

4,243

6,550

Amortisation of intangible fixed assets2

13

3,666

865

Impairment charges:

 

 

 

Impairment of intangible fixed assets

13

60,453

336,850

Impairment of property, plant and equipment3

14

3,861

7,476

Impairment of assets held for sale

 

112

-

Profit on disposal of assets:

 

 

 

Profit on disposal of plant and equipment

 

(11)

(16)

Profit on disposal of intangible assets

 

-

(65)

Profit on disposal of property4

 

(2,952)

(129)

Loss on disposal of Midlands titles to Iliffe Media Ltd

 

611

-

Cost of inventories recognised as expense

 

15,074

17,241

Movement in allowance for doubtful debts

 

(408)

(659)

Staff costs5

 

85,725

92,671

Operating lease charges6

 

3,939

4,904

Rentals received on sublet property

 

(818)

(108)

Pension Protection Fund levy

17

270

422

1The prior year comparative figure consists of the following amounts that were disclosed in the prior year financial statements: depreciation of property, plant and equipment (£6.1 million) and accelerated depreciation charge on property, plant and equipment (£0.4 million).

2 The prior year comparative figure consists of the following amounts that were disclosed in the prior year financial statements: amortisation of intangible fixed assets (£0.8 million) and accelerated amortisation charge on intangible fixed assets (£0.1 million).

3 Disclosure of impairment of property, plant and equipment was not included in the operating (loss)/profit for the period note in the prior year financial statements. This has been added to this note to improve information available to users of the financial statements.

4 The prior year comparative figure consists of the following amounts that were disclosed in the prior year financial statements: profit on disposal of assets held for sale (£0.3 million) and loss on disposal of property (£0.2 million).

5 The prior year comparative figure consists of the following amounts that were disclosed in the prior year financial statements: staff costs excluding redundancy costs (£87.1 million) and redundancy costs (£5.6 million).

6 The prior year comparative figure consists of the following amounts that were disclosed in the prior year financial statements: operating lease charges on property (£3.7 million) and vehicles (£1.2 million).

 

Staff costs shown above include £1.4 million (31 December 2016: £1.2 million) relating to remuneration of Directors. Auditor's remuneration is as per the table below.

 

Profit on disposal of property

The Group operates a large portfolio of properties, including leaseholds and some freeholds, and regularly exits leases at lease breaks, whilst renewing leases of properties that continue to meet the Group's needs. Profits of £3.0 million for the period ended 30 December 2017 (31 December 2016: £0.3 million) from property sales were included in operating profit. There were five such sales for the period ended 30 December 2017 (31 December 2016: 10).

 

Loss on disposal of Midland's titles

On 17 January 2017, the Group completed the disposal of the entire issued share capital of Johnston Publishing East Anglia Limited, which owned 13 publishing titles and associated websites in East Anglia and the East Midlands, to Iliffe Media Limited for gross cash consideration of £17.0 million less associated disposal costs of £1.4 million, which resulted in a loss on disposal of £0.6 million.  Refer to Note 15 for further details of the disposal.

 

 

AUDITORS REMUNERATION

The analysis of the Auditor's remuneration is as follows:

 

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

 £'000

Fees payable for the audit of the Company's annual accounts

214

214

Fees payable for other services: audit of subsidiary accounts

373

180

Total audit fees1

587

394

 

 

 

Non-audit services

 

 

Half year review

58

56

Tax compliance services (related to assistance with corporate tax returns)

-

69

Tax advisory services

-

148

Corporate finance services3

296

430

Other services4

435

-

Total non-audit services

789

703

 

 

 

Total audit and non-audit service fees

1,376

1,097

 

 

 

Fee payable to the Company's Auditor in respect of audit of associated pension scheme

16

16

Total fees

1,392

1,113

1 The fees payable in relation to the audit of subsidiaries in 2017 includes £75,000 related to the finalisation of the audit for the year ended 31 December 2016.

2 There were no tax fees relating to the services provided by Deloitte during 2017, following the appointment of KPMG as tax advisors to the Group commencing 1 January 2017.

3 The corporate finance services relates to reporting work associated with circulars to shareholders required around the approval of the disposal of the Midlands titles (Note 15). This work commenced in 2016 and was completed in 2017. £430,000 included in the 2016 comparative relates to the acquisition of the i.

4 Other services relate to a consulting engagement related to sales transformation.

 

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

 

Details of the Company's policy on the use of the external Auditor for non-audit services, the reasons why the Auditor was used rather than another supplier and how the Auditor's independence and objectivity was safeguarded are set out in the Audit Committee Report. No services were provided pursuant to contingent fee arrangements.

 

 

8. Financing

a) Net finance expense on pension liabilities/assets

 

Note

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

£'000

Interest on assets

 

14,597

17,514

Interest on liabilities

 

(16,287)

(18,345)

Net finance expense on pension liabilities/assets

17

(1,690)

(831)

 

b)  Change in fair value of borrowings

The fair value movement on the 8.625% Senior Secured notes due 1 June 2019 resulted in a loss of £22.8 million (31 December 2016: £43.6 million gain) and was based on quoted market fair value. Refer to Note 16.

 

c) Finance costs

 

 

 

 

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

£'000

Interest on bond

(18,764)

(18,975)

Interest on bank overdrafts and loans

(6)

(382)

Amortisation of term debt issue costs

(8)

(194)

Finance leases1

(43)

(4)

Financing fees

(85)

(14)

Refinancing fees2

-

(487)

Term debt issue costs3

(380)

-

Total finance costs

(19,286)

(20,056)

1 Prior period comparatives have been re-presented. Refer to Note 16.
2 Exceptional refinancing fees charged in the prior period relate to unrecoverable VAT on 2014 refinancing fees.

3 Revolving credit facility issuance costs written off as a consequence of termination of the facility.

 

 

9. Tax

 

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

£'000

Current tax

 

 

Charge for the period

-

1,073

Adjustment in respect of prior periods

(129)

(329)

Total current tax (credit)/charge

(129)

744

Deferred tax (Note 18)

 

 

(Credit)/Charge for the period

(5,098)

7,092

Non-recurring items:

 

 

Deferred tax adjustment relating to the impairment/disposal of publishing titles in the period

(13,260)

(61,433)

Deferred tax adjustment in respect of prior periods relating to the bond issue costs

(823)

-

Derecognition of unrecoverable deferred tax assets

2,095

-

Deferred tax adjustment in respect of prior periods

509

601

Recurring items:

 

 

Deferred tax adjustment relating to bond issue costs

317

-

Credit relating to reduction in deferred tax rate 17% (2016: 17%)

-

(375)

Total deferred tax credit

(16,260)

(54,115)

Total tax credit for the period

(16,389)

(53,371)

 

UK corporation tax is calculated at 19.25% (31 December 2016: 20.0%) of the estimated assessable profit for the period. The 19.25% basic tax rate applied for the 2017 accounting year was a blended rate, being a mix of 20% up to 31 March 2017 and 19% from 1 April 2017 (2016: 20%). Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdiction.

 

The Income Statement includes a tax credit of £16.4 million which comprises a current tax credit of £0.1 million and deferred tax credit of £16.3 million. The deferred tax credit has largely arisen from £59.2 million of impairment charges on the Group's publishing title intangible assets (£10.1 million deferred tax credit) and the disposal of the East Anglia and East Midlands publishing titles in January 2017 resulting in a deferred tax credit of £3.2 million.  £3.9 million of the current year deferred tax credit has arisen on the Group's Bond, due to different accounting treatment applied on the Bond at the Group level in contrast with that applied at the subsidiary entity level due to statutory reporting requirements. This was offset by a deferred tax charge of £2.1 million recognised in the income statement as a result of certain deferred tax assets being deemed unrecoverable.  

 

The tax on actuarial gains/(losses) on the defined benefit pension scheme includes a £1.5 million deferred tax charge to the consolidated income statement and a £2.0 million tax charge taken to the Statement of Other comprehensive income.

 

In November 2017, the UK government introduced new rules with effect from 1 April 2017 which would restrict the deductibility of net interest costs. In the current year the £1.8m impact of these new restrictions was included in the calculation of the current year tax charge. Due to uncertainty regarding the Group's ability to recover the disallowed interest which can be carried forward under these rules, no deferred tax asset has been recognised in relation to the disallowed amount. Having also assessed the recoverability of its deferred tax assets from timing differences, the Group has recognised a deferred tax charge of £2.1 million to derecognise temporary differences relating to accelerated tax depreciation due to uncertainty as to the timing of future recoverability.

 

The Group's effective tax rate was 17.3% for the 2017 financial year (2016: 17.8%). In the period, the effective tax rate was lower than the prevailing UK corporation tax rate of 19.25%, largely due to the disallowance of corporate interest restriction amounts, the difference between current and deferred tax rates and the impact of deferred tax not recognised overall reducing the effective tax rate by 6.3%. This has been partly offset by the deferred tax impact of the disposal of the East Anglia and East Midlands publishing titles disposed in January 2017 increasing the effective tax rate by 3.1%.

 

The Group expects that, subject to the uncertain outcome of the strategic review, the effective tax rate will remain relatively consistent with the current and prior year and reflect the reduction of UK corporate tax rates over the next few years.

 

At the reporting date the Group has recorded £0.1m of uncertain tax positions where tax could become payable in the future.

 

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

 

52 weeks to

30 December

2017

£'000

%

Restated1

52 weeks to

31 December

2016

£'000

%

Loss before tax

(94,969)

 

(300,681)

 

Tax at 19.25% (31 December 2016:  20%)

(18,281)

19.3

(60,136)

20.0

Release of deferred tax liability relating to disposed intangible assets

(2,963)

3.1

-

-

Tax effect of corporate interest restriction

1,765

(1.9)

-

-

Tax effect of items that are not (deductible)/assessable in determining taxable profit

(225)

0.2

55

0.1

Fixed asset related differences

(431)

0.5

-

-

Unrecognised deferred tax assets

3,113

(3.3)

-

-

Effect of difference between deferred and current tax rate

1,076

(1.1)

6,813

(2.3)

Effect of reduction in deferred tax rate

-

-

(375)

0.1

Adjustment in respect of prior years

(443)

0.5

272

(0.1)

Total tax credit

(16,389)

17.3

(53,371)

17.8

1 The prior period comparatives have been restated. Refer to Note 3 for details.

 

 

10. Discontinued operations

For the period ended 30 December 2017, there were no discontinued operations.

 

In the prior comparative period, on 18 August 2016 the Group completed the sale of its Isle of Man titles to Tindle Newspapers Ltd, the UK-based publisher, for £4.25 million in cash. The results of the discontinued operations were as follows:

 

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

£'000

Revenue

-

1,753

Expenses

-

(1,504)

Net profit attributable to discontinued operations (attributable to owners of the Company)

-

249

Net loss on disposal

-

(221)

Net profit from discontinued operations

-

28

 

For the period ended 31 December 2016, the Isle of Man titles consumed cash flows from operations of £0.4 million, investing activities of £nil and financing activities of £nil.

 

For additional information on the net assets disposed of refer to Note 15.

 

11. Dividends

 

52 weeks to

30 December

2017

£'000

52 weeks to

31 December

2016

£'000

Amounts recognised as distributions to equity holders in the period:

 

 

Preference dividends

 

 

13.75% Cumulative preference shares (13.75p per share)

-

104

13.75% 'A' preference shares (13.75p per share)

-

48

 

-

152

 

The provisions of the Group's Bond restrict the Company's ability to pay dividends on the Company's ordinary shares until certain conditions, including that net leverage is below 2.25x EBITDA, are met. Although the Board wishes to resume dividend payments as soon as is appropriate, no ordinary dividend is declared for the period. 

 

Due to the significant impairment that arose during the financial year ended 31 December 2016 which extinguished distributable reserves, preference share dividends cannot be paid.

 

12.  Earnings per Share

The calculation of Earnings per Share is based on the following loss and weighted average number of shares:

 

Continuing and discontinued operations

 

52 weeks to

30 December

2017

£'000

Restated1

52 weeks to

31 December

2016

£'000

Loss

 

 

Loss for the period

(78,580)

(247,282)

Preference dividend2

-

(152)

Loss for the purposes of basic and diluted Earnings per Share

(78,580)

(247,434)

Loss per share (p)

 

 

Basic

(74.6)

(234.9)

Diluted3

(74.6)

(234.9)

1 The prior period comparatives have been restated. Refer to Note 3 for details.

2 In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of Earnings per Share.

3 Diluted Earnings per Share are presented when a company could be called upon to issue shares that would decrease net profit or increase Loss per Share.

 

Continuing operations

 

52 weeks to

30 December

2017

£'000

Restated1

52 weeks to

31 December

2016

£'000

Loss

 

 

Loss for the period

(78,580)

(247,310)

Preference dividend2

-

(152)

Loss for the purposes of basic and diluted Earnings per Share

(78,580)

(247,462)

Loss per Share (p)

 

 

Basic

(74.6)

(234.9)

Diluted3

(74.6)

(234.9)

1 The prior period comparatives have been restated. Refer to Note 3 for details.

2 In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of Earnings per Share.

3 Diluted Earnings per Share are presented when a company could be called upon to issue shares that would decrease net profit or increase Loss per Share.

 

Number of shares

30 December

2017

£'000

31 December

2016

£'000

Weighted average number of ordinary shares

105,878

105,878

Less shares held by Employee Share Trust

(552)

(552)

Number of shares for the purpose of ordinary loss per share

105,326

105,326

Effect of dilutive potential ordinary shares

-

-

Number of shares for the purposes of diluted loss per share

105,326

105,326

 

Adjusted

 

30 December

2017

£'000

Restated1

31 December

2016

£'000

Adjusted profit

 

 

Adjusted profit for the period1

7,279

13,500

Preference dividend2

-

(152)

Adjusted profit for the purposes of basic and diluted Earnings per Share

7,279

13,348

Adjusted Profit per Share (p)

 

 

Adjusted basic

6.9

12.7

Adjusted diluted3

6.9

12.7

1 Prior year adjusted earnings used in the adjusted EPS calculation has been restated so that they are presented on a consistent basis with current year adjusted earnings. For a reconciliation from statutory (loss)/earnings refer to the Alternative Performance Measures section within this financial information.

2 In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of Earnings per Share.

3 Diluted Earnings per Share are presented when a company could be called upon to issue shares that would decrease net profit or increase Loss per Share.

 

 

13.  Intangible assets

 

Publishing

titles

£'000

Digital

intangible

assets

£'000

Total

£'000

Cost

 

 

 

At 1 January 2017

1,121,984

15,312

1,137,296

Additions

-

1,680

1,680

Disposals

-

(4,127)

(4,127)  

At 30 December 2017

1,121,984

12,865

1,134,849

 

 

 

 

 

Accumulated impairment losses and amortisation

 

 

 

At 1 January 2017

978,439

6,807

985,246

Amortisation for the period¹

-

3,666

3,666

Disposals

-

(4,127)

(4,127)

Impairment losses for the period

59,174

1,279

60,453

At 30 December 2017

1,037,613

7,625

1,045,238

 

 

 

 

Carrying amount

 

 

 

At 30 December 2017

84,371

5,240

89,611

 

 

Publishing

titles

£'000

Digital

intangible

assets

£'000

Total

£'000

Cost

 

 

 

At 2 January 2016

1,149,190

4,718

1,153,908

Additions

24,000

796

24,796

Disposals

(16,496)

(337)

(16,833)

Transfer to assets classified as held for sale

(34,710)

-

(34,710)

Transfers from property, plant and equipment (Note 14)

-

10,135

10,135

At 31 December 2016

1,121,984

15,312

1,137,296

 

 

 

 

Accumulated impairment losses and amortisation

 

 

 

At 2 January 2016

672,795

2,066

674,861

Amortisation for the period

-

866

866

Disposals

(12,496)

(337)

(12,833)

Impairment losses for the period

336,850

-

336,850

Transfer to assets classified as held for sale

(18,710)

-

(18,710)

Transfers from property, plant and equipment (Note 14)

-

4,212

4,212

At 31 December 2016

978,439

6,807

985,246

 

 

 

 

Carrying amount

 

 

 

At 31 December 2016

143,545

8,505

152,050

1 Includes accelerated amortisation charge of £0.7 million (2016: £0.3 million) as a result of a review of the Group's customer database.

 

 

Publishing brands

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

 

 

31 December

2016

£'000

Impairment

£'000

30 December

2017

£'000

Scotland1

9,436

(1,213)

8,223

North2

64,430

(28,775)

35,655

North West3

9,734

(9,734)

-

Midlands

2,903

-

2,903

South4

19,452

(19,452)

-

Northern Ireland

13,590

-

13,590

The i

24,000

-

24,000

Total carrying amount of publishing titles

143,545

(59,174)

84,371

1 As at 30 December 2017 the recoverable amount of the Scottish CGU is £11.4 million. This is its value in use.

2 As at 30 December 2017 the recoverable amount of the North CGU is £41.4 million. This is its value in use.

3 As at 30 December 2017 the recoverable amount of the North West CGU is £0.4 million. This is its value in use.

4 As at 30 December 2017 the recoverable amount of the South CGU is £1.7 million. This is its value in use.

 

Impairment assessment

The Group tests the carrying value of publishing brands held within the publishing operating segment for impairment annually or more frequently if there are indications that they might be impaired. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU but subject to not reducing any asset below its recoverable amount. The impairment reviews of the carrying value of the intangible assets, performed during the period, resulted in impairment charges recorded against publishing title intangible assets of £59.2 million, corporate digital intangible assets of £1.3 million and corporate tangible assets of £3.1 million (refer to Note 14).

 

The Directors consider that publishing brands have an indefinite economic life. Their economic life will in large part be determined by their ability to adapt over time to market requirements in the changing media landscape. The publishing brands are grouped by CGU, being the lowest levels for which there are separately identifiable cash flows independent of the cash inflows from other groups of assets. The recently acquired i newspaper, which serves a national market, is held in a separate CGU.  For the remaining regional brands in the Group it is not practicable to review individual publishing rights and titles due to the interdependencies of revenues and cash inflows within the CGUs.

 

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

 

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

·      corporate and central cost allocations;

·      growth rates; and

·      the discount rate.

 

The Group prepares discounted cash flow forecasts using:

 

·      the Board-approved budget for 2018, and the projections for 2019 and 2020 which reflects management's current experience and future expectations of the markets the CGUs operate in. Changes in underlying revenue and direct costs are based on past practices and expectations of future changes in the market by reference to the Groups own experience and, where appropriate, publicly available market estimates. These include changes in demand for print and digital, circulation, cover prices, advertising rates as well as movement in newsprint and production costs and inflation;

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

·      net cash inflows for future years are extrapolated beyond 2020 based on the Board's view of the estimated annual long-term performance. A long-term decline rate between 0% and 4% reflecting the Groups experience and best estimate of future trends has been included for all CGUs. The long-term decline rates used are based on the Directors view of the market conditions for the CGU and its titles and brands in their current form; and

·      management estimate discount rates using post-tax rates that reflect current market assessments of the time value of money, the risks specific to the CGUs and the risks that the regional media industry is facing. The post-tax discount rate applied to the future cash flows for the period ended 30 December 2017 was 11.0% (31 December 2016: 11.0%).

Some CGUs impacted by the impairment charge in the period have limited or no headroom of value in use over the carrying value of assets. Therefore, the impairment review is highly sensitive to reasonable possible changes in key assumptions used in the value in use calculations. A combination of reasonably possible changes in key assumptions to the CGUs, such as digital growth being slower than forecast or the decline in print revenues, could lead to a further impairment.

 

The Group has conducted sensitivity analysis on the impairment test of each CGUs carrying value.

 

A decrease in the long-term decline rate of 1.0% (which has the effect of increasing the decline rate from between 0% and 4% to between 1% and 5%), beyond 2020, would result in a further Group impairment of £2.2 million and erosion of £9.0 million of headroom in the combined Midlands, Northern Ireland and i CGUs. An increase in the long-term decline rate is possible if the advertising market conditions do not improve. 

 

A decrease in the operating profit (after central cost allocation) of 1.0% in each of the three years in the forecast period from 2018-2020, would result in a further Group impairment of £0.5 million and erosion of £1.4 million of headroom in the combined Midlands, Northern Ireland and i CGUs. A decrease in the operating profit after central cost allocation is possible if revenues or costs do not meet forecasted numbers.

 

An increase in the discount rate of 1.0%, from 11.0% to 12.0% would result in an additional impairment of £2.8 million, and erosion of £10.7 million of headroom in the combined Midlands, Northern Ireland and i CGUs. An increase in the risk-free interest rate or risk premium could result in a higher discount rate being applied to the impairment assessment.

 

 

Decline rate

sensitivity

£'000

Performance sensitivity

£'000

Discount rate

sensitivity

£'000

Scotland

(442)

(114)

(565)

North

(1,806)

(414)

(2,271)

North West

42

(4)

43

Midlands

-

-

-

South

(4)

(17)

(16)

Northern Ireland

-

-

-

The i

-

-

-

Total potential impairment from sensitivity analysis

(2,210)

(549)

(2,809)

 

Digital intangible assets

Digital intangible assets primarily relate to the Group's local websites, which form the core platform for the Group's digital revenue activities. These assets are being amortised using the straight-line method over the expected life, of three to five years. Amortisation for the year has been charged through cost of sales. Digital intangible assets are tested for impairment at each reporting date or more frequently where there is an indication that the recoverable amount is less than the carrying amount.

 

Costs incurred in the development of websites are only capitalised if the criteria specified in IAS38 are met.

 

Disposal of Midlands titles

On 17 January 2017, the Group completed the disposal of the entire issued share capital of Johnston Publishing East Anglia Limited, which owned 13 publishing titles and associated websites in East Anglia and the East Midlands, to Iliffe Media Limited for gross cash consideration of £17.0 million, less associated disposal costs of £1.4 million.

 

The net intangible assets disposed of amounted to £16.0 million and further details can be found in Note 15.

 

 

14. Property, plant and equipment

 

 

Freehold

land and

buildings

£'000

Leasehold buildings

£'000

Plant and machinery

£'000

Motor

Vehicles

£'000

Total

£'000

Cost

 

 

 

 

 

 

At 1 January 2017

 

56,899

6,086

114,280

440

177,705

Additions

 

-

646

2,315

- 

2,961

Disposals

 

-

(1,282)

(10,303)

(215)

(11,800)

Transfers to assets held for sale

 

(4,948)

- 

(240)

- 

(5,188)

Exchange differences

 

- 

27

-

-

27

At 30 December 2017

 

51,951

5,477

106,052

225

163,705

Depreciation

 

 

 

 

 

 

At 1 January 2017

 

41,304

2,150

97,127

440

141,021

Disposals

 

-

(1,196)

(10,245)

(215)

(11,656)

Charge for the period1

 

380

504

3,359

-

4,243

Impairment

 

2,037

253

1,571

-

           3,861

Transfers to assets held for sale

 

(2,830)

-

(210)

-

(3,040)

Exchange differences

 

- 

27

- 

-

27

At 30 December 2017

 

40,891

1,738

91,602

225

134,456

Carrying amount

 

 

 

 

 

 

At 30 December 2017

 

11,060

3,739

14,450

-

29,249

1 Includes accelerated depreciation of £0.2 million on certain property assets within the Group.

Cost

 

 

 

 

 

 

At 2 January 2016

 

60,587

6,526

126,001

889

194,003

Additions

 

9

431

4,886

-

5,326

Disposals

 

-

(489)

(6,263)

(449)

(7,201)

Transfers to assets held for sale

 

(3,697)

(568)

(209)

-

(4,474)

Transfers to digital intangible assets (Note 13)

 

-

-

(10,135)

-

(10,135)

Exchange differences

 

-

186

-

-

186

At  31 December 2016

 

56,899

6,086

114,280

440

177,705

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

At 2 January 2016

 

39,048

2,341

99,012

889

141,290

Disposals

 

-

(489)

(6,249)

(449)

(7,187)

Charge for the period

 

380

459

5,685

-

6,524

Transfers to digital intangible assets (Note 13)

 

-

-

(4,212)

-

(4,212)

Transfers to assets held for sale

 

(2,520)

(311)

(189)

-

(3,020)

Impairment

 

4,396

-

3,080

-

7,476

Exchange differences

 

-

150

-

-

150

At 31 December 2016

 

41,304

2,150

97,127

440

141,021

 

Carrying amount

 

 

 

 

 

 

At 31 December 2016

 

15,595

3,936

17,153

-

36,684

 

Assets held under finance leases included above at net carrying amount2

At 1 January 2017

 

-

-

610

-

610

At 30 December 2017

 

-

-

981

-

981

2 Prior period comparatives have been re-presented. Refer to Note 16.

 

During the 52-week period ended 30 December 2017, the Group recognised an accelerated depreciation charge of £0.2 million (2016: £0.5 million charge). The write-down in the current and prior period arose from decisions to rationalise facilities and are calculated based on fair value less costs of sale as quoted by external valuers.

 

During the period the Group carried out a review of the recoverable amount of its print manufacturing plant and related equipment, which are used in the Group's print segment. The Group has three print presses in Dinnington, Portsmouth and Carn. Each print site is assessed independently for impairment, as separate CGUs. The recoverable amount of each CGU is determined from value in use calculations. The key assumptions for the value in use calculations are:

 

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

·      growth rates; and

·      the discount rate.

 

The Group prepares discounted cash flow forecasts using:

 

·      the Board approved budget for 2018 and the projections for 2019 and 2020 which reflects management's current experience and future expectations of the markets the CGUs operate in. Changes in underlying revenue and direct costs are based on past practices and expectations of future changes in the market. These include changes in internal and external print revenue as well as movement in newsprint and production costs and inflation;

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

·   net cash inflows for future years are extrapolated beyond 2020 based on the Board's view of the estimated annual long-term performance. A long-term decline rate of 0% reflecting the Group's ability to attract new business, to realise decline in existing internal and external contracts has been included for all print press CGUs (31 December 2016: 0% growth); and

·      management estimate discount rates using post-tax rates that reflect current market assessments of the time, value of money and the risks specific to the CGUs. The post-tax discount rate applied to the future cash flows for the period ended 30 December 2017 was 11.0% (31 December 2016: 11.0%). The pre-tax discount rate is a range between 5.2% and 12.4% (31 December 2016: 11.9% to 13.0%). The post-tax discount rate reflects management's view of the current risk profile of the underlying assets being valued with regard to the current economic environment and the risks that the regional media industry is facing. The present value of the cash flows is then compared to the carrying value of the asset to determine if there is any impairment loss.

 

Impairment charges totalling of £3.9 million have been recognised against property, plant and equipment for the period ended 30 December 2017. This consists of:

 

·      a £3.1 million impairment charge allocated against corporate assets arising out of the impairment assessment performed over the publishing title intangible asset CGUs (refer to Note 13 for details);

·      an £0.8 million impairment charge arising out of the impairment assessment performed in relation to the Carn print site CGU. As at 30 December 2017 the recoverable amount of the Carn print site CGU is £0.4 million. This is its value in use.

 

The comparative period included a £5.5 million impairment charge to the Dinnington print site. The impairment charge has been included in the Income Statement in exceptional items and arises from Guardian News & Media renegotiating its contract, following the transition of The Guardian and Observer newspapers from Berliner to Tabloid format.  

 

The prior year comparative includes a write-down of £1.9 million to record a property at its expected realisable value. The property belongs to the Group's publishing segment and the impairments have been included in the Income Statement in exceptional items.

 

15. Disposal of subsidiary

East Anglia/East Midlands

In the current period ended 30 December 2017, Group completed the disposal of the entire issued share capital of Johnston Publishing East Anglia Limited, which owned 13 publishing titles and associated websites in East Anglia and the East Midlands, to Iliffe Media Limited for gross cash consideration of £17.0 million less associated disposal costs of £1.4 million. The Group's revolving credit facility was cancelled on completion of the sale, and as a consequence the Group is no longer subject to any covenants. The disposal was approved by shareholders of the Company at a general meeting on 11 January 2017.

 

As part of the sale agreement, the Group entered in to a Transitional Services Agreement (TSA) to provide services including pre-press, editorial, IT, finance and project management, for a period of 12 months commencing 17 January 2017. The Group will continue to provide these services beyond the original contractual period, on a time and materials basis, until such time as the transition of certain services to new providers has been completed. 

 

 

The net assets related to the sale of the East Anglian and Midlands titles that were disposed of are as follows:

 

Net assets:

 

17 January 2017

£'000

Publishing titles

 

16,000

Tangible assets

 

143

Deferred newspaper sales revenue

 

88

Net assets disposed of

 

16,231

 

Cash consideration:

 

 

Gross cash received 

 

17,000

Disposal costs 

 

(1,380)

Net cash received 

 

15,620

Net loss on disposal

 

(611)

 

Isle of Man

As referred to in Note 10, the Group disposed of its investment in the Isle of Man Newspapers Limited in the prior period on the 18 August 2016, whose titles consisted of the Isle of Man Examiner, Isle of Man Courier, Manx Independent and www.iomtoday.com.im to Tindle Newspapers Ltd, the UK-based publisher, for £4.25 million in cash.

 

The net assets of the Isle of Man Newspapers Limited at the date of disposal were as follows:

 

18 August

2016

£'000

Intangible fixed assets

4,000

Tangible assets

14

Trade and other receivables

446

Cash and cash equivalents

43

Trade and other payables

(232)

Net assets disposed of

4,271

Cash consideration

4,250

Disposal costs

(200)

Net cash consideration

4,050

Net loss on disposal

(221)

 

The impact of this disposal on the Group's results in the prior period is disclosed in Note 10.

 

 

16.        Borrowings

The borrowings at 30 December 2017 are recorded at quoted market fair value and classified as Level 1 according to IFRS 13. As the borrowings are shown at fair value the associated issue costs against the 8.625% Senior secured notes due 1 June  2019  ('the Bond') have been charged to the Income Statement (refer to Note 8c).

 

The breakdown of the 8.625% senior secured notes due 1 June 2019 is as follows:

 

30 December

2017

£'000

Re-presented1

31 December

2016

£'000

Principal amount2

220,000

220,000

Bond discount - initial

(4,400)

(4,400)

Fair value gain from inception3  

(49,775)

(72,600)

Total secured notes at market value

165,825

143,000

Finance leases

860

566

Total borrowings

166,685

143,566

 

The borrowings are disclosed in the financial statements as:

 

30 December

 2017

£'000

Re-presented1

31 December 2016

£'000

Current borrowings

180

98

Non-current borrowings

166,505

143,468

Total borrowings

166,685

143,566

 

The Group's net debt1 is:

 

30 December

 2017

£'000

Re-presented1

31 December 2016

£'000

Gross borrowings as above

166,685

143,566

Cash and cash equivalents

(25,028)

(16,058)

Net debt4

141,657

127,508

1 In the prior period there existed finance lease obligations included within other creditors, which were considered immaterial and not separately disclosed. However, following the inception of new finance leases during the year, finance leases are now considered material and are disclosed separately. Therefore the finance lease liability has been re-presented in the prior period to borrowings and the associated finance lease disclosure comparatives have been added for comparability with the new current year disclosures. There were no finance leases in year ended 2 January 2016. There is no effect on EPS.

2 The principal amount remaining is stated after a £5 million Bond buy back in August 2015.

3 The fair value loss for the period to 30 December 2017 amounted to £22.8 million (period to 31 December 2016: £43.6 million gain).

4 Net debt is a non-statutory term presented to show the Group's borrowings net of cash equivalents and Bond fair value movements.

 

 

Finance leases

The Group leases some of its equipment under finance leases. The average lease term is five years (31 December 2016: five years) and the Group, in some cases, has the option to purchase the equipment at the end of the lease term. There is no contingent rent payable or restrictions imposed by these finance lease agreements, such as those concerning dividends, additional debt and further leasing. Future minimum lease payments under finance leases together with the present value of minimum lease payments are as follows:

 

 

30 December

 2017

£'000

30 December

 2017

                   £'000

31 December 2016

£'000

 

31 December 2016

£'000

 

Present value of payments

Minimum payments

Present value of payments

Minimum payments

Less than one year

180

                       234

98

135

One to five years

680

                        764

468

537

Total

860

                        998

566

672

Less amounts representing finance charges

 

                      (138)

 

(106)

Present value of minimum lease payments

 

 860

 

566

 

17. Retirement benefit obligation

Characteristics of the Group's pension-related liabilities

The Johnston Press Retirement Savings Plan

 

The Johnston Press Retirement Savings Plan is a defined contribution Master Trust arrangement for current employees, operated by Zurich. Contributions by the Group are a percentage of basic salary. Employer contributions range from 1% of qualifying earnings, for employees statutorily enrolled, through to 12% of basic salary for Senior Executives. Employees who were active members of the Money Purchase section of the Johnston Press Pension Plan on 31 August 2013 transferred from the Johnston Press Pension Plan to the Johnston Press Retirement Savings Plan from 1 September 2013.

 

The Johnston Press Pension Plan ('the Plan')

The Johnston Press Pension Plan is a defined benefit pension plan closed to new members and closed to future accrual. There was a defined contribution section of the Johnston Press Pension Plan which was closed in August 2013 and members' defined contribution benefits were transferred to the Johnston Press Retirement Savings Plan.

 

The Plan operates under trust law applying in the relevant parts of the United Kingdom, and the assets of the Plan are held separately from those of the Group. The Plan is managed and administered by independent Trustees on behalf of the members. Trustees have a duty to act in the best interests of the members and must act in accordance with the Plan's Trust Deed and Rules and UK pensions legislation.

 

There are seven Trustees, four are appointed by the Company (including an independent professional trustee as Chairman) and three are nominated by members of the Plan.

 

A valuation of the Johnston Press Pension Plan as at 31 December 2012 was commissioned by the Trustees and took account of the 2014 Capital Refinancing Plan.

 

In conjunction with the 2014 Capital Refinancing Plan, the Plan Trustees and the Group entered into a Pension Framework Agreement, agreeing, inter alia, to the following:

 

·      On implementation of the Capital Refinancing Plan in June 2014, the secured guarantee provided in favour of the Plan Trustees by the Group and certain of its subsidiaries in relation to any default on a payment obligation under the Johnston Press Pension Plan was removed. In return for the removal of this security and the aforementioned guarantee, an unsecured cross-guarantee was provided on implementation of the Capital Refinancing Plan by the Group and certain of its subsidiaries in favour of the Plan Trustees in relation to any default on a payment obligation under the Plan. Each claim made under the unsecured cross-guarantee is capped at an amount equal to the aggregate Section 75 (s.75) debt of the Johnston Press Pension Plan at  the date any claim made by the Plan Trustees falls due.

·    The deficit as at the 31 December 2012 valuation date will be sought to be addressed by 31 December 2024 by entry into a recovery plan (see below).

·      Settlement of previously incurred Pension Protection Fund (PPF) levies and s.75 debts.

·    The Plan was entitled to receive 25% of net proceeds from business or asset disposals up to and including 31 August 2015 exceeding £1 million in a single transaction or £2.5 million over the course of a financial year, subject to certain permitted disposals, conditions in relation to financial leverage and other exceptions set out in the Framework Agreement.

·      The Group would also pay additional contributions to the Plan in the event that the 2014/2015 PPF levy and/or
the 2015/2016 PPF levy was less than £3.2 million, equal to the amount the levy falls below £3.2 million, up to a maximum of £2.5 million.

·      Additional contributions would also be payable to the Johnston Press Pension Plan in the event that the Group satisfies certain conditions in relation to financial leverage.

 

As part of the 31 December 2012 triennial valuation, this Pension Framework Agreement was reflected in the valuation documentation of the Plan, and subsequently it was submitted to The Pensions Regulator.

 

The Pension Framework Agreement and the required level of contributions are subject to review as part of the triennial valuation as at 31 December 2015. 

 

Discussions are currently ongoing between the Trustees and the Company. The statutory deadline for sign off of the valuation was 31 March 2017 and the Trustees have informed the Pensions Regulator (tPR) that the valuation has not been signed off due to ongoing discussions with the Company. The Trustees and the Plan's advisers have met with tPR and had regular conference call updates over the course of the year to keep tPR updated on the progress of the discussions. 

 

In the meantime, the Schedule of Contributions and Recovery Plan dated 29 July 2014 remain in force. Under these, the Group will pay the following annual contributions to the Plan: £10.6 million in the year to 31 December 2018 increasing by 3% per annum with a final payment of £12.7 million in the year to 31 December 2024.

 

Difference between funding valuation and IAS19 valuation

A funding valuation is carried out every three years by a qualified actuary on behalf of the Board of Trustees, the purpose of which is to determine the money that needs to be put into the Plan.

 

IAS19 is an accounting rule covering employee benefits under which the deficit shown on the balance sheet of the financial statements is determined.

 

The purpose of the funding valuation is therefore different to the IAS19 valuation. And the approach to each of these valuations is different too, meaning the funding and IAS19 deficits are different:

 

·      The IAS19 accounting standard requires all companies to assess their liabilities by assuming that future investment returns will be in line with yields on high-quality corporate bonds

·      The Plan invests in a range of assets which are expected to deliver higher returns than the yields currently available on corporate bonds. The Trustees can take account of these higher expected returns in setting the liabilities under the funding valuation

·      Other assumptions used differ between the IAS19 and funding valuations.  The Trustees are required to use prudent assumptions for funding whereas IAS19 requires best estimate assumptions.

 

Whilst discussions with the Trustees on the latest triennial funding valuation as at 31 December 2015 are ongoing, the latest estimate of the funding deficit is £45.9 million at 30 June 2017. This compares with the IAS19 deficit at the same date of £53.1 million.

 

Maturity profile

The weighted average term of the liabilities (known as 'the duration') is 16 years.

 

The table below shows the split of the Defined Benefit Obligation by member type at 30 December 2017:

 

Defined benefit obligation at 30 December 2017

£000

Deferred pensioners

300,416

Pensioners

308,196

Total

608,612

  

   

Risks

The Plan exposes the Group to a number of risks, the most significant of which are described below:

 

Interest rate risk

The IAS19 liabilities are calculated using a discount rate based on the yields available on AA corporate bonds. A reduction in bond yields (and hence the discount rate) will increase the Plan's liabilities.

 

The Plan invests in Liability Driven Investment (LDI) assets to hedge the majority of this risk - see Investment Strategy below. 

Inflation risk

Pension increases in payment and revaluation of deferred members' benefits before retirement are linked to inflation. Higher levels of inflation will lead to higher liabilities.

 

The Plan's LDI investments provide a hedge against the majority of this risk - see Investment Strategy below.

 

Pension increases in payment and deferred revaluation are both subject to caps which limit the inflation risk to an extent. And the Plan offers members the option of a Pension Increase Exchange at retirement, where members can give up future increases on some of their pension for an immediate, one-off uplift to the initial pension. This further reduces the level of inflation risk.

Investment risk

Whilst the IAS19 liabilities are calculated by reference to AA corporate bond yields, the Plan invests in a range of different asset classes with the aim of balancing the objectives of targeting investment growth and managing risk.

 

The Plan's assets include some growth assets that are expected to perform better than corporate bonds in the long-term, but the value of these assets will fluctuate due to changes in market prices. To limit this risk, the Trustees invest in a diverse portfolio of instruments across various markets.

 

The mismatch between assets and liabilities does mean there will be some short-term volatility between asset and liability values. The Plan's LDI investments limit the extent of this volatility - see Investment Strategy below. All else being equal, if the returns are less than the discount rate then the deficit will increase. 

 

The Trustees will monitor and review the investment strategy with respect to the liabilities in conjunction with each actuarial valuation. The investment strategy will be set with consideration to the appropriate level of risk required for the funding strategy as set out in the Plan's Statement of Funding Principles.

Longevity risk

Increases in life expectancy will lead to higher liabilities.

 

The Company will keep the life expectancy assumptions under review, taking into account the results of the medically underwritten health study, information from the Trustee's actuary on the Plan's actual mortality experience and mortality trends in the wider population.

 

IFRIC 14

Under the Rules of the Plan the Group has an unconditional right to any surplus assuming the gradual settlement of liabilities over time until all members have left the Plan.

 

Therefore under IFRIC 14 the Group is neither required to reflect any additional liabilities in relation to deficit funding commitments, nor restrict any Plan surplus that arises.

 

IFRIC 14 is currently in the process of being amended and the Company will review its IFRIC 14 position when the amendment is published.

 

Amounts arising from pension-related liabilities in the Group's financial statements

The following tables identify the amounts in the Group's financial statements arising from its pension-related liabilities:

 

 

Income statement - pensions and other pension-related liabilities costs

Notes

30 December

2017

£'000

31 December 2016

£'000

Employment costs:

 

 

 

Defined contribution scheme

 

(3,732)

(4,047)

Defined benefit scheme:

 

 

 

Plan expenses (IAS19)

 

(1,289)

(563)

Pension Protection Fund Levy

 

(270)

(422)

Past service cost

 

-

(3,539)

Net finance cost on Johnston Press Pension Plan (IAS19)

8a

(1,690)

(831)

Total defined benefit scheme

 

(3,249)

(5,355)

Total pension costs

 

(6,981)

(9,402)

 

 

 

 

Other comprehensive income - gains/(losses) on pension

30 December

2017

£'000

31 December 2016

£'000

Gains on plan assets in excess of interest

13,587

69,806

Losses from changes to financial assumptions

(13,071)

(104,200)

Gains/(Losses) from changes to demographic assumptions

11,420

(6,710)

Experience losses arising on the benefit obligation

-

(5,013)

Actuarial gain/(loss) recognised in the statement of comprehensive income

11,936

(46,117)

Deferred tax1

(2,029)

6,390

Actuarial gain/(loss) recognised in the statement of comprehensive income net of tax

9,907

(39,727)

         

1 Deferred tax adjustment in the period arises due to the reduction in corporate tax rate and increase in pension deficit. A 17% deferred tax rate has been applied to the deferred tax movement in respect of the defined benefit scheme.

 

During the 2015 period, a medically underwritten study was carried out by KPMG to identify the current health of a sample group of existing Plan members, assessed via telephone interviews targeted towards members with the most significant liabilities in the Plan. The results of the study continue to be used to inform the mortality assumptions for use in calculating the IAS19 scheme liabilities.

 

Statement of financial position - net defined benefit pension deficit

30 December

2017

£'000

31 December 2016

£'000

Amounts included in the Group Statement of Financial Position:

 

 

Fair value of scheme assets

561,425

547,885

Present value of defined benefit obligations

(608,612)

 (615,610)

Amount included in non-current liabilities

(47,187)

(67,725)

 

Analysis of amounts recognised of the net defined benefit pension deficit

30 December

2017

£'000

31 December 2016

£'000

Net defined benefit pension deficit at beginning of period

(67,725)

(26,962)

Defined benefit obligation at beginning of period

(615,610)

(500,375)

Income statement:

 

 

     Interest cost

(16,287)

(18,345)

     Past service cost

-

(3,539)

Other comprehensive income:

 

 

     Experience losses

-

(5,013)

Re-measurement of defined benefit obligation:

 

 

      Arising from changes in demographic assumptions

11,420

(6,710)

      Arising from changes in financial assumptions

(13,071)

(104,200)

 

Cash flows:

 

 

     Benefits paid (by fund and Group)

24,936

22,572

Defined benefit obligation at end of the period

(608,612)

(615,610)

 

 

 

Fair  value of plan assets at beginning of period

547,885

473,413

Income statement:

 

 

     Interest income on plan assets

14,597

17,514

Other comprehensive income:

 

 

     Return on plan assets less interest

13,587

69,806

Cash flows:

 

 

     Company contributions1

10,292

9,724

     Benefits paid (by fund and Group)

(24,936)

(22,572)

Fair value of plan assets at end of period

561,425

547,885

Net defined benefit pension deficit at end of period

(47,187)

(67,725)

1 Comprises annual employer contributions of £10.3 million (30 December 2016: £9.7 million) and plan expenses of £nil (30 December 2016: £nil).

 

Analysis of fair value of plan assets

 

30 December

2017

£'000

31 December 2016

£'000

Global Equity Fund

-

86,342

Volatility Controlled Synthetic Equity

22,294

-

Multi Asset Credit

169,718

112,775

Diversified Growth Funds

204,977

202,247

Liability Driven Investment

122,645

141,913

Cash and Cash Equivalents

40,419

3,180

Insured Benefits

1,372

1,428

Total fair value of plan assets

561,425

547,885

 

The Volatility Controlled Synthetic Equity is a structure that has been set up to provide volatility controlled exposure to global equity markets. The volatility target is 10% and the underlying allocation is split between equity and cash to target this. The fair value of this mandate has been determined by the investment manager based on relevant guidance and represents the Net Asset Value of the underlying cash and derivatives providing equity exposure.

 

Insured Benefits are annuities held in the name of the Trustees with various providers. These annuities have been valued using the IAS19 assumptions.

 

Multi Asset Credit represents holdings in pooled investment vehicles investing in a range of credit assets such as loans, high-yield bonds and asset backed securities. The investment managers have full discretion in the selection of the underlying assets.

 

Diversified Growth Funds represent holdings in pooled investment vehicles investing in a range of growth assets such as equities, property, commodities, bonds and cash with managers having full discretion in the selection of the underlying assets.

 

Liability Driven Investment (LDI) consists of investments in the Aberdeen Standard Investments ILPS and State Street LDI funds, which use swap-based and gilt-based derivatives to hedge movements in the Plan's liabilities (discussed in more detail below).

 

The fair values of the investments in the Multi Asset Credit, Diversified Growth and LDI funds are provided by the investment managers, based on the values of the assets underlying these funds. The managers use quoted prices where available and determine the fair value of the unquoted investments based on relevant guidance.

 

The Plan does not directly invest in any of the Company's own transferable financial instruments or any property occupied by, or other assets used by, the Company. The Plan does invest into funds that do have the discretion to purchase Company financial instruments (these are pooled funds with large numbers of investors), but the level from time to time would be expected to make up a very small proportion of overall Plan assets - significantly below the 5% self-investment threshold for UK pension schemes as set out in the Section 40 of the Pensions Act 1995.

 

Investment strategy

Investment managers are appointed by the Trustees to manage the Plan's assets. The Trustees agree the strategic investment strategy after taking appropriate advice.  Subject to the investment strategy laid down by the Trustees, day-to-day management of the Plan's portfolio, which includes full discretion over stock selection, is the responsibility of the investment managers.

 

Over the course of 2017, the Trustees took a series of decisions regarding the investment strategy, with three main aims: to increase the level of interest rate and inflation hedging, to improve the cashflow generation of the Plan's assets and to manage the equity downside risk.

 

·      Between June 2014 and July 2016, the Plan's liability matching assets were solely invested in a range of leveraged (fixed interest and inflation-linked) single gilt funds managed by State Street Global Advisors (SSGA).

·      Between August 2016 and February 2017, the Plan's investment in liability matching assets was increased by introducing an allocation in the Aberdeen Standard Investments ILPS fund range alongside the SSGA LDI portfolio. The ILPS fund range provides leveraged interest rate and inflation exposure using a mixture of gilt-based and swap-based derivatives. The leverage in the ILPS holdings is also used to provide diversified growth exposure on top of the hedging.

·      Since February 2017, the SSGA LDI portfolio and the Aberdeen Standard Investments ILPS allocation have broadly hedged the Plan's funded liabilities (as measured on a gilts + 0.5% pa basis).

·      The other assets of the Plan are designed to provide growth and income over time, to meet the benefit payments as they fall due. Over the course of 2017, the Plan has added more income-focused assets (including investing £56 million into the TwentyFour Strategic Income Fund) and has added protection to the equity portfolio (replacing the Fidelity actively-managed physical equity funds, with a synthetic equity mandate with downside protection and volatility control).

·      Overall, the changes to the investment strategy (both LDI and growth changes) should reduce the level of volatility in the Plan's funding level.

 

Liability Driven Investments (LDI)

The Johnston Press Pension Plan invests in leveraged Liability Driven Investment (LDI) funds which use swap-based and gilt-based derivatives in order to match a proportion of the interest rate and inflation sensitivity of the Plan's liabilities. The current leverage on the LDI mandates is around 2x-3x.  This means that every £1 invested in LDI funds hedges £2-£3 of liabilities.

 

Under these strategies, if interest rates fall the value of the investments will rise to help match the increase in actuarial liabilities arising from the fall in the discount rate. Similarly, if interest rates rise, the investments will fall in value, as will the actuarial liabilities because of an increase in the discount rate.

 

If inflation rates rise the value of the investments will rise to help match the increase in actuarial liabilities arising from the rise in the inflation rate. Similarly, if inflation rates fall, the investments will fall in value, as will the actuarial liabilities because of a decrease in the inflation rate.

 

The LDI mandate targets 100% interest rate and inflation hedging of the funded liabilities calculated using a discount rate of 0.5% pa above gilt yields. This means that changes in interest rates and inflation will leave the funding level (calculated on a gilts + 0.5% basis) broadly unchanged.

 

At the year end, the total allocation to Liability Driven Investment strategies represented 39.3% of the total investment portfolio. This excludes a 7% allocation to a cash fund which sits alongside the leveraged LDI funds with State Street. 

 

The Plan hedges its interest rate risk on a gilts basis whereas the IAS19 discount rate is based on AA corporate bond yields. There is therefore some mismatching risk should the yields on gilts and corporate bonds diverge.  As a result of this mismatch, the funding level under IAS19 remains volatile to changes in corporate bond credit spreads that have not been hedged.

 

Analysis of financial assumptions

Valuation at

30 December

2017

Valuation at

31 December

2016

Discount rate

2.50%

2.70%

Future pension increases

 

 

Deferred revaluations (where linked to inflation (CPI))

2.30%

2.40%

Pensions in payment (where linked to inflation (RPI))

3.30%

3.40%

LPI 2.5% pension increases (RPI)

2.10%

2.15%

LPI 5% pension increases (RPI)

3.15%

3.20%

Future life expectancy

 

         

   Male currently aged 50 (years)

                                     20.7

                                           21.3

   Female currently aged 50 (years)

                                      22.3

                                            22.8

Male currently aged 65 (years)

                                                 19.7

                                          20.1

Female currently aged 65 (years)

                                                21.4

                                           21.7

Mortality assumption

100% of S2PxA tables, rated up by two years with allowance for the CMI 2016 projections (smoothing parameter 6.5) and long-term rate of improvement of 1.25% pa for males and 1.0% pa for females

100% of S2PxA tables, rated up by 2.5 years* with allowance for the CMI 2015 projections and long-term rate of improvement of 1.25% pa for males and 1.0% pa for females

Pension increase exchange at retirement

Allowance for 45% of members to exchange their non-statutory pension increases for a higher level pension at retirement for those sections where this is automatically offered at retirement.

 

Sensitivity analysis of significant assumptions

The following tables present a sensitivity analysis for each significant actuarial assumption showing how the defined benefit obligation would have been affected, by changes in the relevant actuarial assumptions that were reasonably possible at the reporting date:

 

 

Decrease/(Increase) in defined benefit obligation

£m

Discount rate

 

+0.10% discount rate

9,338

Inflation rate

 

+0.10% inflation rate

(5,631)

Mortality

 

+10.0% to base table mortality rates

21,639

Pension increase exchange

 

Allowance for 25% take up for sections where automatically offered

50

 

The sensitivities above show the impact on the defined benefit obligation only, and not any offsetting impact on the value of Plan assets from the interest rate and inflation hedging strategies.

 

The sensitivity analysis is based on a change in one assumption while holding all other assumptions constant, therefore interdependencies between assumptions are excluded. In line with previous periods, the methodology applied is consistent to that used to determine the recognised pension liability.

 

The inflation assumption sensitivity above factors in the impact of a change in inflation on increases to deferred benefits and pensions in payment.

 

Other pension-related obligations

The Group has agreed to pay the expenses of the Plan and the PPF levy as they fall due.

 

The Plan has seen an increase in its obligations with respect to historic benefit equalisation for a specific group of members ('the Affected Members') for the Portsmouth & Sunderland section of the Plan. The Company made an application to the High Court ('the Court') for a declaration that Normal Retirement Dates (NRDs) for the Affected Members were validly equalised between male and female members. A court order dated 19 May 2016 was executed which revised the NRDs and this has been reflected as a past service cost of £3.5 million in the Income Statement for 2016. 

 

News Media Association Pension Scheme

The Group is a member of the News Media Association (NMA), it was formerly a member of the Newspaper Society (an unincorporated body representing the interests of local newspaper publishers). During 2014 the Newspaper Society incorporated itself as a company limited by guarantee and entered into a merger with the Newspaper Publishers' Association (a body representing the interests of publishers of national newspapers). As part of the merger, existing members entered into a deed of covenant in respect of the deficit to the Society's defined benefit pension scheme. The members agreed to make contributions over a period of 25 years to 2038 or until such time as the deficit has been addressed, if earlier. The provision has been made on the former since we have no reliable estimate about the likelihood of the deficit being addressed before 2038 or, if it was, when this might happen. Applying a discount rate of 12.0%, the Group's best estimate of this at present value is £0.8 million.

 

News Media Association Pension Scheme liabilities have been included within provisions (Note 19).

 

Other pension-related liabilities

The closing provision relating to unfunded pensions for senior employees was £0.5 million (31 December 2016: £0.5 million). The unfunded pension provision is assessed by a qualified actuary at each period end.

 

Post-retirement medical benefit pension-related liabilities for former Portsmouth and Sunderland members of £0.1 million (31 December 2016: £0.1 million). The post-retirement medical benefits represent management's best estimate of the liability concerned.

 

Other pension-related liabilities have been included within provisions (Note 19).

 

 

18.        Deferred tax

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods.

 

 

Share based

payments

£'000

Properties
not eligible

£'000

Accelerated

tax

depreciation

£'000

Intangible

assets1

£'000

i intangible asset

£'000

Pension

balances1

£'000

Bond

balances

£'000

Other

timing

differences

£'000

Total

£'000

At 2 January 2016

(139)

3,993

(4,812)

85,754

-

(5,282)

5,740

(1,058)

84,196

Effect of change in tax rates on Income Statement

-

(193)

656

(875)

 

-

17

-

21

(374)

Effect of change in tax rates on Statement
of Other Comprehensive Income

-

-

-

-

 

-

1,348

-

-

1,348

Charge to Statement of Other Comprehensive Income

-

-

-

-

 

-

(7,685)

-

-

(7,685)

(Credit)/Charge to income statement

-

(518)

(1,156)

(61,433)

122

-

8,445

198

(54,342)

Adjustment to prior year charged to Statement of Changes in Equity

(5)

-

-

-

 

-

-

-

-

(5)

Adjustment to prior year charged to Income Statement

144

-

(252)

-

 

-

-

-

709

601

At 31 December 2016

-

3,282

(5,564)

23,446

122

(11,602)

14,185

(130)

23,739

Charge to Statement of Other Comprehensive Income

-

-

-

-

-

2,030

-

-

2,030

(Credit)/Charge to Income Statement

-

(842)

(1,537)

(13,260)

-

1,461

(3,853)

(10)

(18,041)

Deferred tax not recognised

-

-

2,095

-

-

-

-

-

2,095

Adjustment to prior year charged to Income Statement

 

-

 

-

 

554

 

77

(122)

 

-

 

(823)

 

-

(314)

At 30 December 2017

-

2,440

(4,452)

10,263

-

(8,111)

9,509

(140)

9,509

1    In the prior period Intangible included £3.2 million of deferred tax in relation to the East Midlands publishing titles that have been reclassified to assets held for sale ahead of their disposal by the Group in January 2017.

 

The deferred tax movements credited through the Income Statement in the period total £16.3 million. Deferred tax movements charged to the Statement of Other Comprehensive Income in the period total £2.0 million. There is no impact of rate changes to the deferred tax balances in the current period, as the substantively enacted reduction of the standard rate of corporation tax to 17% was reflected in the prior periods, where appropriate.

 

The £13.3 million deferred tax credit recognised in the income statement relating to intangible assets has largely arisen from £59.2 million of impairment charges on the Group's publishing title intangible assets (£10.1 million deferred tax credit) and the disposal of the East Anglia and East Midlands publishing titles in January 2017 resulting in a deferred tax credit of £3.2 million. 

 

The deferred tax credit of £3.9 million relating to the Group's Bond largely includes £4.3 million deferred tax credit on the Bond fair value loss of £22.8 million recorded in the period.  A correction to the Bond issue cost treatment has been made in the period, relating to the issue costs incurred as part of the Group's 2014 refinancing.  The correction will result in the Bond issue costs being amortised to the Income Statement over the term of the Bond, within Johnston Press plc, rather than the initial treatment to take an immediate deduction in 2014 when the costs were incurred and paid. The correction gives rise to a £0.8 million prior year deferred tax credit adjustment.

 

In November 2017, the UK government introduced new rules with effect from 1 April 2017 which would restrict the deductibility of net interest costs.  Due to uncertainty regarding the Group's ability to recover the disallowed interest which can be carried forward under these rules, no deferred tax asset has been recognised in relation to the disallowed amount. Having also assessed the recoverability of its deferred tax assets from timing differences, the Group has recognised a deferred tax charge of £2.1 million to derecognised deferred tax assets due to uncertainty as to the timing of future recoverability.

 

Temporary differences arising in connection with interests in associates are insignificant.

 

 

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (before offset) for financial reporting purposes:

 

30 December

2017

£'000

31 December

2016

£'000

Deferred tax liabilities

22,212

41,035

Deferred tax assets

(12,703)

(17,296)

 

9,509

23,739

 

No deferred tax asset has been recognised in respect of the following gross accumulated amounts carried forward (available for offset against future taxable profits) as there is uncertainty regarding the timing of when these amounts will be recovered:

 

 

30 December

2017

£'000

Tax losses

12,650

Capital losses

7,945

Corporate Interest Restriction  disallowance carried forward

9,169

Fixed asset timing differences

10,883

Total

40,647

 

19. Provisions

 

 

Onerous leases

and dilapidations

£'000

News Media Association Pension Scheme1

£'000

Other pension related- liabilities1

£'000

Total

£'000

At 31 December 2016

3,237

700

642

4,579

Additional provision in the year

4,431

83

-

4,514

Adjustment for change in discount rate

-

69

-

69

Actuarial valuation gain

-

-

(6)

(6)

Utilisation of provision

(1,501)

(91)

(19)

(1,611)

At 30 December 2017

6,167

761

617

7,545

 

 

 

 

 

The provisions are disclosed in the financial statements as:

 

 

 

 

 

 

 

 

 

Current provisions

1,512

90

-

1,602

Non-current provisions

4,655

671

617

5,943

Total provisions

6,167

761

617

7,545

For details of other pension related liabilities see Note 17.

 

Onerous leases and dilapidations

Where the Group exits a rented property, an estimate of the anticipated total future cost payable under the terms of the operating lease, including rentals, rates and other related expenses is provided for at the point of exit as an onerous lease. Where exited properties are sublet to a third party, an estimate of the expected future rental income is deducted from the provision balance.

 

Under the terms of a number of property leases, the Group is required to return the property to its original condition at the lease expiry date. The Group has estimated the expected costs of leases expiring or expected to be terminated and has also assessed the entire portfolio and made provisions depending on the state of the property and the duration of the lease and likely rectification requirements.

 

In the current year there was a change in the estimate for the anticipated total future cost payable for onerous leases and dilapidations, arising from a change in the Group's property strategy. This resulted in an additional provision of £4.4 million being charged.

 

 

 

20.        Notes to the Cash Flow Statement

 

Notes

30 December

2017

£'000

Restated1

31 December 2016

£'000

Operating loss

 

(51,213)

(323,486)

 

 

 

 

Adjustments for non-cash items:

 

 

 

Impairment of intangible assets

13

60,453

336,850

Impairment of plant, property and equipment2

14

3,861

7,476

Impairment of assets held for sale

 

112

-

 

 

13,213

20,840

Amortisation of intangible assets3

13

3,666

866

Depreciation charges3

14

4,243

6,550

Charge for share based payments

 

1,290

1,832

Profit on disposal of property assets held for sale 

 

(2,952)

(401)

Loss on disposal of the Midlands titles

15

611

-

Profit on disposal of property, plant and equipment

 

(11)

(16)

Loss on disposal of property 

 

-

159

Gain on disposal of  intangibles

 

-

(65)

Past service cost

 

-

3,539

Currency differences

 

(24)

 (92)

 

 

20,036

33,212

Operating items before working capital changes:

 

 

 

Net pension funding contributions - cash

17

(10,292)

(9,724)

Movement in provisions

 

2,891

(598)

Cash generated from operations before workings capital changes

 

12,635

22,890

Working capital changes:

 

 

 

(Increase)/Decrease in inventories

 

(229)

121

Decrease/(Increase) in receivables

 

2,720

(181)

Decrease in payables (including restructuring payables and redundancy accruals)

 

(2,944)

(6,558)

Cash generated from operations

 

12,182

16,272

1 Prior period comparatives have been restated, refer to Note 3.

2 The prior year comparative figure consists of the following amounts that were disclosed in the prior year financial statements: impairment of print presses (£5.5 million) and impairment of property (£1.9 million).

3 The increase in the amortisation of intangible assets and decrease of depreciation charges in the current year is a result of the transfer of digital intangible assets from plant and machinery to intangible assets during the 31 December 2016 period.

 

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

 

Changes in liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's Consolidated Cash Flow Statement as cash flows from financing activities.

 

1 January

2017

£'000

Cash flow

£'000

Non-cash movements

£'000

Fair value gains and losses

£'000

30 December 2017

£'000

Finance leases4

(566)

118

(412)

-

(860)

Bond

(143,000)

-

-

(22,825)

(165,825)

Total liabilities from financing activities

(143,566)

118

(412)

(22,825)

(166,685)

4 Prior year comparatives have been re-presented. Refer to Note 16.

 

21. Related party transactions

Associated parties

The Group did not undertake any related party transactions during the current or preceding period to associated parties.

 

Transactions with Directors

There were no material transactions with Directors of the Company during the year, except for those relating to remuneration and shareholdings, disclosed in the Directors' Remuneration Report.

 

For the purposes of IAS 24, Related Party Disclosures, management below the level of the Company's Board are not regarded as related parties.

 

The remuneration of the Directors at the yearend, who are the key management personnel of the Group, is set out in aggregate in the audited part of the Directors' Remuneration Report.

 

22. Post-balance sheet events

There were no material post balance sheet events requiring disclosure

 

 

Alternative performance (non-GAAP) measures 

Introduction

The Directors assess the performance of the Group using both statutory accounting measures and a variety of alternative performance measures (APMs). The key APMs monitored by the Group are:

 

·      adjusted revenue;

·      adjusted EBITDA;

·      adjusted EBITDA margin %;

·      adjusted operating profit;

·      adjusted operating profit margin %; and

·      cash and net debt (excluding mark-to-market). Refer to Financial Review for calculation of net debt (excluding mark-to-market).

 

The business has been through a period of enormous change over an extended period. This has resulted from structural change in the sector. Audiences have increased their use of online and mobile platforms to access information and news, resulting in accelerated newspaper circulation volume decline. Advertisers have also increasingly sought to use digital services to reach their target audiences. Together, this structural shift has resulted in year-on-year declines in the Group's income.

 

The Group has initiated a series of restructuring programs to remove cost from the business with the objective of designing a sustainable print publishing business model, while at the same time investing in building a digital income stream.

 

The resulting restructuring projects have seen a substantial redesign of each area of the business, including management layers and structures, products and services, content creation and our sales routes to market. In streamlining the organisation, a significant investment in redundancy has seen more than 2047 posts closed over the last four years. The Group has also sought to reflect its change in shape and scale in support areas including making substantial reductions in its property portfolio, technology licences and fleet. The speed of its action, both in anticipating and responding to recent changes in the sector has meant that some existing contracts no longer reflect the current needs of the business.

 

In 2017, the Group initiated new changes to its business model, including how it allocated resources to different brands, its mix of field and call centre based sales staff, while also adopting a clear policy of downsizing its property portfolio, taking advantage of natural lease breaks, typically moving to smaller short-term serviced offices in local towns and cities, while maintaining larger hubs in Preston, Leeds, Edinburgh, Peterborough, Sheffield and Portsmouth.

 

To provide investors and other users of the Group's financial statements with additional clarity and understanding of both the cost of this business change programme, and the resulting impact on the Group's underlying trading, the Directors believe that it is appropriate to additionally present the alternative performance measures used by management in running the business and in determining management and executive remuneration.

 

Although management believes the alternative performance measures are important in considering the performance of the Group, they are not intended to be considered in isolation, or as a substitute for, or superior to financial information on a statutory basis. The adjusted figures are not a financial measure defined or specified in the applicable financial reporting framework, and therefore may not be comparable to similar measures presented by other entities. When reviewing and selecting these adjusting items, the Directors considered the guidelines issued by the European Securities and Markets Authority (ESMA).

 

A reconciliation between the statutory and the adjusted results is provided under Alternative Performance Measures within the financial information. The reconciliation includes explanations each 'adjusting item' and why they been adjusted for. An adjusting item is one that is judged to require separate presentation to enable a better understanding of the trading performance of the business in the period. Items are adjusted if they are significant in value and/or do not form part of ongoing underlying trading. They will in many cases be 'one-off', and include items that span more than one financial period.

 

Prior year comparatives have been restated so that the adjusted results are presented on a consistent basis between periods. Restated figures have been disclosed in footnotes below. In the opinion of the Directors, disclosing the adjusting items provides supplementary information to aid understanding of the Group's trading performance and also provides a basis of comparison between periods.

 

 

Adjusting items - Other supplementary information

Consolidated Income Statement - Reconciliation of statutory and adjusted numbers

 

 

 

 

52 weeks to 30 December 2017

52 weeks to 31 December 2016

 

Notes

Statutory

£'000s

Adjusting items

£'000s

Adjusted

£'000s

Restated1

Statutory

£'000s

Restated2

Adjusting items

£'000s

Restated2

Adjusted

£'000s

Total continuing revenues2

           A

201,616

(379)

201,237

222,699

(11,927)

210,772

Cost of sales1, 2

B

(127,817)

149

(127,668)

(136,059)

1,869

(134,190)

Operating costs1, 2, 3

B

(117,103)

142

(116,961)

(402,711)

5,448

(397,263)

Restructuring

C

-

13,745

13,745

-

9,299

9,299

Acquisitions/(Disposals)3

D

-

(1,314)

(1,314)

-

2,538

2,538

Impairment of assets3

E

-

64,426

64,426

-

344,326

344,326

Strategic review3

F

-

3,365

3,365

-

733

733

Pensions3

G

-

1,898

1,898

-

5,430

5,430

Other3

H

-

1,361

1,361

-

2,215

2,215

Total adjustments2

 

-

83,481

83,481

-

364,541

364,541

Total operating costs2

 

(117,103)

83,623

(33,480)

(402,711)

369,989

(32,722)

Total costs2

 

(244,920)

83,772

(161,148)

(538,770)

371,858

(166,912)

EBITDA2

 

n/a

n/a

40,089

n/a

n/a

43,860

EBITDA margin %2

 

n/a

n/a

19.9%

n/a

n/a

20.8%

Depreciation and amortisation

I

(7,909)

872

(7,037)

(7,415)

498

(6,917)

Operating (loss)/profit2

 

(51,213)

84,265

33,052

(323,486)

360,429

36,943

Operating (loss)/profit margin %2

 

(25.4%)

n/a

16.4%

(145.3%)

n/a

17.5%

Investment income

 

45

-

45

73

-

73

Net finance expense on pension assets/liabilities

J

(1,690)

1,690

-

(831)

831

-

Fair value movement of borrowings

K

(22,825)

22,825

-

43,619

(43,619)

-

Finance cost

L

(19,286)

381

(18,905)

(20,056)

487

(19,569)

Finance (costs)/income

 

(43,756)

24,896

(18,860)

22,805

(42,301)

(19,496)

(Loss)/Profit before tax1, 2

 

(94,969)

109,161

14,192

(300,681)

318,128

17,447

Tax credit/(charge)

M

16,389

(23,302)

(6,913)

53,371

(57,318)

(3,947)

(Loss)/Profit from continuing operations1, 2

 

(78,580)

85,859

7,279

(247,310)

260,810

13,500

Net profit from discontinued operations

 

-

-

-

28

-

28

Consolidated (loss)/profit for the period1, 2

 

(78,580)

85,859

7,279

(247,282)

260,810

13,528

1             The prior period statutory figures have been restated. Refer to Note 3 for details.

2          The prior period total continuing revenues cost of sales and operating costs comparative figures have been restated to adjust out amounts relating to titles and products that were disposed or closed during 2017. This ensures that adjusted results for both 2017 and the prior period comparative are presented on a consistent basis, including only the operations of the Group that are continuing from 30 December 2017.

3          The classification of the prior period comparatives adjusting items for operating costs, acquisitions/(disposals), impairment of assets, strategical review, pensions and other have been re-presented to enhance the user's understanding of the nature of the adjusting items.

 

 

A  Revenue

Revenue adjustment split for 52 weeks ending 30 December 2017

 

 

52 weeks to 30 December 2017

52 weeks to 31 December 2016

 

Statutory

£'000s

Disposed titles

£'000s

A1

Closed titles and products

£'000s

A2

Total

adjusting

£'000s

Adjusted

£'000s

Restated

Statutory

£'000s

Restated2

Disposed titles

£'000s

A1

Restated2

Closed titles and products

£'000s

A2

Restated2

Total

adjusting

£'000s

Restated 2

Adjusted

£'000s

Advertising revenue

 

 

 

 

 

 

 

 

 

 

Print advertising2

74,265

(196)

(50)

(246)

74,019

95,674

(6,167)

(868)

(7,035)

88,639

Digital advertising2

25,976

(32)

(3)

(35)

25,941

26,950

(1,006)

(721)

(1,727)

25,223

Total advertising revenue

100,241

(228)

(53)

(281)

99,960

122,624

(7,173)

(1,589)

(8,762)

113,862

Non advertising revenue

 

 

 

 

 

 

 

 

 

 

Newspaper sales2

79,102

(92)

-

(92)

79,010

79,849

(2,852)

(69)

(2,921)

76,928

Contract printing2

13,321

-

-

-

13,321

12,788

-

-

-

12,788

Other2

8,952

(3)

(3)

(6)

8,946

7,438

(221)

(23)

(244)

7,194

Total other revenue2

101,375

(95)

(3)

(98)

101,277

100,075

(3,073)

(92)

(3,165)

96,910

Total continuing revenues2

201,616

(323)

(56)

(379)

201,237

222,699

(10,246)

(1,681)

(11,927)

210,772

1             The prior period statutory figures have been restated. Refer to Note 3 for details.

2          The prior period total continuing revenues, cost of sales and operating costs comparative figures have been restated to adjust out amounts relating to titles and products that were disposed or closed during 2017. This ensures that adjusted results for both 2017 and the prior period comparative are presented on a consistent basis, including only the operations of the Group that are continuing from 30 December 2017.

3          The prior period total continuing revenues, cost of sales and operating costs comparative figures have been restated to adjust out amounts relating to titles and products that were disposed or closed during 2017. This ensures that adjusted results for both 2017 and the prior period comparative are presented on a consistent basis, including only the operations of the Group that are continuing from 30 December 2017.

 

A1 Disposed titles

On 17 January 2017, the Group sold its East Anglia and East Midlands titles to Iliffe Media Ltd. Adjustments made in 2017 in respect of these titles relate to revenue earned in the two-week period up to the date of disposal of £0.3 million (2016: £10.2 million). This adjustment is necessary in order to present results for the Group's ongoing business portfolio. A prior year adjustment has been included to ensure the adjusted results are presented on a consistent basis between periods. The cost of sales and operating costs associated with the adjusted disposed titles revenue has also been adjusted. Refer to Note B below for details.

 

A2 Closed titles and digital products

As part of the ongoing review of the Group's business portfolio, titles and products considered to be underperforming or not in line with the Group's strategic objectives have been closed. Revenue relating to the closed titles and products has been adjusted out to provide users with a view of the results of the Group's continuing business portfolio. The prior year comparative figures have been restated to exclude revenue for the titles and products closed during 2017, in order to present results for the Group's ongoing business portfolio. The cost of sales and operating costs associated with the adjusted closed titles and digital products revenue has also been adjusted. Refer to Note B below for details. Details on the closed titles and products revenue adjustments are set out in the table below:

 

 

52 weeks to 30 December 2017

£'000

52 weeks to 31 December 2016

£'000

Explanation

Closed titles

56

1,027

As part of the ongoing review of the Group's portfolio, four underperforming titles (2016: 13 titles) were closed during the year. Related revenue of £0.1 million (2016: £1.0 million) has been adjusted.

Digital brands

-

335

Revenue of £0.3 million in the prior period has been adjusted in respect of the DealMonster and Business Directory businesses which were closed in 2016.

Motors

-

319

The contract with motors.co.uk for online motor sales expired in March 2016. Related revenue of £0.3 million in the prior period has been adjusted for.

Total adjusting item

56

1,681

 

 

 

B Cost of sales and operating costs

Adjustments are made for cost of sales and operating costs directly attributable to revenue adjusted in relation to disposed and closed titles. This adjustment has been made to ensure adjusted cost of sales expense is presented on a basis that is consistent with adjusted revenue (Refer to Notes A1 and A2 above for details on adjusted revenue). Costs adjusted for are set out in the table below:

 

Adjusting items

30 December 2017

£'000

31 December 2016

£'000

30 December 2017

£'000

31 December 2016

£'000

 

Cost of sales

Operating costs

Disposed titles

135

1,483

59

4,469

Closed titles and digital products

14

1,258

83

87

Total adjusting items

149

2,741

142

4,556

 

C Restructuring

Business transformation, restructuring and redundancy-related costs that are incurred in order to streamline individual components of the Group's business, reduce cost and support long-term strategy are recorded as adjusting items. In treating these costs as adjusting items, management assesses whether the redundancies relate to a fundamental restructure of individual components of the business. The Group adjusts for and reports the cost of each years' restructuring program to assist the users of the financial statements in understanding both the cost of the restructuring programme, and the resulting trading performance in the year. A breakdown of the adjustments for restructuring costs is provided in the table below:

 

 

52 weeks to 30 December 2017

£'000

52 weeks to 31 December 2016

£'000

Explanation

Redundancy costs

6,357

5,607

These costs are material and incurred to transform and restructure the business cost base resulting in a reduction in headcount. Redundancy costs include the employee costs from the point the individual notified that their role is at risk, together with the final termination payment for the individual made redundant. The Group has consistently applied this policy historically. This reflects its impact of the disruption caused to the individual involved and the impact on short-term productivity within affected business units.

 

Adjustments for redundancy costs do not include those incurred in the ordinary course of business, which are treated as operating costs, or that may lead to a direct replacement being appointed.

Business and sales transformation

1,974

2,848

These costs are material, and are incurred in engaging specialist consultants to advise on the strategic restructuring of the publishing portfolio, as part of the redesign of the business to create a sustainable publishing model. Management considers carefully that these costs do not represent costs that support the underlying running of the business which would not be adjusted items. This item also includes costs incurred to permanently restructure and streamline the Group's field sales operation and move activity into the media sales centre (MSC). 

Property-related restructuring

4,369

432

The Group has incurred property costs as a result of decisions taken to reduce head count and streamline its operating locations. An empty property provision of £3.2 million (2016: £0.4 million) was charged in the period, which includes an additional £1.3 million charge in the period following a reassessment of the Irish property provision. The Group no longer occupies these properties following the disposal of the Irish operations in 2014 but retains the head leases, and sublets properties to Iconic.

During 2017 the Group exited leases of 25 properties (2016: 26 properties) covering 228 thousand square feet (2016: 161 thousand square feet). 

 

A £1.2 million dilapidations provision (2016: nil) has been charged in the period following a reassessment of estimates used in determining the provision requirements.

Onerous contracts

1,045

412

As a result of the Group's restructuring activities, aimed at cutting the cost base of the Group, certain IT licences, phones and vehicles have become surplus to operational requirements following reductions in staff numbers. The £0.8 million (2016: £0.4 million) profit and loss impact of these onerous costs has been adjusted for.

 

In addition, during 2017 the Group provided notice that it will return the Yorkshire Metro franchise to DMGT during 2018. The £0.2 million (2016: £nil) provision recognised at 30 December 2017 for losses expected to be incurred through the notice period has been adjusted for.

Total adjusting items

13,745

9,299

 

 

D Acquisitions/(Disposals)

Acquisition costs and gains and losses on disposal of subsidiaries and properties can be significant in size, irregular in nature and fluctuate from period-to-period. Subsidiary and large property disposals and acquisitions are not ordinary trading activities as they relate to structural changes to the Group's business. As a result the gains realised and losses and costs incurred on these items have been treated as adjusting items. This is done to provide results that are reflective of the Group's continuing trading operations. The adjusting items are detailed in the table below:

 

 

52 weeks to 30 December 2017

£'000

52 weeks to 31 December 2016

£'000

Explanation

(Gain)/Loss on disposals of property

(2,433)

166

Gains adjusted in the current period were realised on sales of properties in Sheffield £1.9 million and Peterborough £0.5 million. The adjusted item in the prior period largely consists of the loss on sale of the Upper Mounts property in Northampton of £0.1 million.

i acquisition

508

1,755

Represents acquisition costs incurred to purchase the i newspaper on 10 April 2016 and a further one-off contractual payment to ESI in April 2017 and are adjusted so as not to distort the Group's trading results. The payment was disclosed in Part V, clause 9 of the 'Proposed acquisition of the business and certain assets of I Circular to Shareholders' document.

Loss on disposal of subsidiary

611

-

Represents the loss on sale of Johnston Publishing East Anglia Ltd, which included the East Anglia and East Midlands titles, to Iliffe Media Ltd on 17 January 2017. The loss has been classified as an adjusting item as it is individually significant, relates to divestment of titles and is not reflective of the Group's ongoing trading results. The loss represents the differences between book value and net proceeds.

 

The revenue, cost of sales and other costs in relation to the disposed titles have also been treated as adjusting items for the two weeks of trading in 2017 and the prior period comparative. Refer to Notes A1 and B for details.

Other

-

617

Represents costs incurred by the Group to assess strategic acquisition and divestment opportunities.

Total adjusting items

(1,314)

2,538

 

 

E Impairment of assets

Impairment charges relating to non-current assets are non-cash items and can be significant in amount. The Group treats impairment charges as adjusting items as they relate to the difference between the remaining carrying value of historic investment costs, and estimated future value, and are not part of underlying trading. The valuation is calculated based on judgement of estimated future cash flows, discounted using a post-tax discount rate of 11.0% (2016: 11.0%)  (refer to Notes 13 and 14), which is a market determined discount rate, not the Group's cost of capital. 

Impairment of:

52 weeks to 30 December 2017

£'000

52 weeks to 31 December 2016

£'000

Explanation

Intangible assets

60,453

336,850

Impairment charges of £59.2 million (2016: £336.9 million) against publishing titles and £1.3 million against digital intangible assets have been recognised during the period.

Property, plant and equipment

3,861

7,476

An impairment charge has been recognised against print presses of £0.4 million (2016: £5.5 million), property (print sites) of £0.4 million (2016: £1.9 million) and corporate assets £3.1 million (2016: £nil).

Assets held for sale

112

-

An impairment charge of £0.1 million (2016: £nil) has been recognised against properties classified as held for sale prior to disposal during the period.

Total adjusting items

64,426

344,326

 

 

 

F Strategic review

Legal and advisory costs of £3.4 million (2016: £0.7 million) in relation to the strategic review disclosed in the Liquidity and going concern and Viability Statement sections of the Corporate Governance Report, have been adjusted for. This includes costs incurred on advisers to the Group, and advisers to the ad hoc committees and pension Trustees, which the Group is obliged to fund. Costs incurred in relation to this strategic review are non-trading in nature. They are treated as adjusting items to provide improved understanding of the ongoing trading performance of the Group.

 

 

G Pensions

The Johnston Press Pension Plan ('the Plan') is a defined benefit pension plan that closed to new members and future accrual in June 2010 (for details refer to Note 17). At 30 December 2017, the membership base was as follows:

 

 

 

30 December 2017

 

 

Deferred members

Pension members

              

Total

 

 

Plan members employed by the Group

249

27

276

 

 

Total Plan members

2,412

2,547

4,959

 

 

% of total Plan members employed by the Group

10.3%

1.1%

5.6%

 

 

 

94.4% of the Plan members are no longer employed by the Group. The number of staff working in the business, who are members of the Plan has reduced over time, both as the result of restructuring activity, but also resignation and retirement. Costs associated with operating the Plan are treated as adjusting items because they are not incurred in running the business, nor in generating its revenue, and do not form part of underlying trading. In contrast, contributions made by the Group to the defined contribution schemes nominated by the Group's employees, in respect of their employment by the Group are not treated as adjusting items. This is because they are deemed to be part of the cost of employing the Group's continuing workforce.

 

The nature of the pension costs that have been adjusted are detailed in the table below:

 

 

52 weeks to 30 December 2017

£'000

52 weeks to 31 December 2016

£'000

Explanation

Defined benefit pension scheme costs

1,289

953

The Group is required to pay the costs incurred by its trustees in administrating the pension plan, which was closed to new members and future accrual in June 2010. Given that the vast majority of the members of the Plan are no longer employed by the Group, costs associated with operating the Plan are treated as adjusting items. The costs include £0.6 million (2016: £0.6 million) of ongoing operational costs and £0.7 million (2016: £0.4 million) of costs incurred in valuing and managing the Plan.

 

Pension Protection Fund (PPF) levy

270

422

The levy is a charge by the PPF who become responsible for scheme members' pensions if the Group becomes unable to meet its pension obligations. This cost is significant and can fluctuate from period to period and is material, with historic PPF levy costs being as high as £3.2 million in 2013/2014.

 

The Group has limited ability to influence this cost, which is determined by PPF by reference to the balance sheet of Johnston Publishing Limited.

 

Pension equalisation

339

4,055

The 2017 adjustment is the impact of the Scottish pension equalisation litigation of £0.3 million, which was concluded and cash settled during 2017.

 

The prior year amount of £4.1 million is the impact of the Portsmouth and Sunderland (P&S) pension equalisation court order and related advisory and legal costs. The PSN equalisation had previously been disclosed as a contingency risk of up to £8 million. 

 

Both items have been adjusted for to improve the comparability of results to assess the on-going performance of the Group.

Total adjusting items

1,898

5,430

 

 

In 2014, the Group agreed to a schedule of contributions to the scheme. In 2017, the Group paid £10.3 million (2016: £9.7 million) to the Plan. As part of the deficit reduction program. These payments are not charged to the Group income statement, in line with IAS19 Employee Benefits, and so are not adjusting items, and so are not shown here. 

 

H Other

The items listed in the table below have been adjusted as they are significant, and do not form part of underlying trading: 

 

52 weeks to 30 December 2017

£'000

52 weeks to 31 December 2016

£'000

Explanation

Long-term incentive plan (LTIP) costs

1,361

1,900

LTIP expenses are material and have been classified as an adjusting item from the point at which it was clear that the trigger prices would not be met. An amount of £0.8 million (2016: £1.0 million) relating to the Value Creation Plan has been charged to the profit and loss account but has been credited back to retained earnings as it was not paid out.   

Reset of revolving credit facility

-

315

The prior period adjusting item represents professional fees to renegotiate the reset revolving credit facility following the acquisition of the i and in anticipation of the sale of the East Anglia and East Midlands titles. These costs were adjusted for in 2016 as they did not represent costs relating to ongoing trading of the Group. The facility ceased in January 2017, when it was cancelled following the sale of the East Anglia and East Midlands titles. No related costs were incurred in 2017.

Total adjusting items

1,361

2,215

 

 

I Depreciation and amortisation

The current period operating profit adjusting items includes accelerated depreciation and amortisation of £0.6 million arising from a result of a review of the carrying value of the consumer database and £0.3 million on properties.  The prior period adjustment comprises accelerated depreciation and amortisation of £0.5 million arising as a result of a review of websites held within the Group. 

 

J Net finance expense on pension assets/liabilities

Net pension interest expense of £1.7 million (2016: £0.8 million) required under IAS 19 relating to the net interest on the pension scheme liabilities less assets has been adjusted as it does not relate to underlying trading activities. It is a non-cash item under IAS19 Employee Benefits. This treatment is consistent with cash pension costs incurred in respect of the closed defined benefit pension scheme (refer to section G Pensions).

 

K Fair value movement of borrowings

The fair value movement on the Group's Bond required under IAS 39 is volatile. It does not reflect the gross debt outstanding and it is treated as an adjusting item to provide the user with clarity of the gross bond liability. Therefore, the fair value loss of £22.8 million, resulting from an increase in the bond market value, (2016: gain of £43.6 million) has been treated as an adjusting item.

 

L Finance cost

An adjustment of £0.4 million has been made in 2017 in relation to the write-off of revolving credit facility issuance costs in 2014 required as a result of the termination of the facility in January 2017, following the disposal of the East Anglia and East Midlands titles. The cost relating to the period after termination has been treated as an adjusting item as it does not relate to the operating performance of the Group.

 

The prior period includes an adjustment of £0.5 million made in relation t