Source - LSE Regulatory
RNS Number : 6034Q
Reach PLC
01 March 2021
 

Reach plc - Full Year Results - 52 weeks to 27 December 2020                                  

1 March 2021

Strategy Driving Strong Digital Growth Momentum

 

·    Deeper customer insights support long term ambition to double digital revenue over medium term

·    Business transformation and investment in people and technology give confidence in future growth

·    Good trading and strong cash performance despite impact of COVID-19

Financial Summary

 

52 weeks to 27 Dec 2020

 

Adjusted results(1)

Statutory results

 

 

2020

2019

Change

2020

2019

Change

Revenue

£m

600.2

702.5

-14.6%

600.2

702.5

-14.6%

Operating profit

£m

133.8

153.4

-12.8%

7.6

131.7

-94.2%

Earnings/(loss) per share(2)

Pence

34.4

39.4

-12.7%

(8.6)

30.5

N/A

Dividend per share(3)

Pence

4.26

2.50

N/A

4.26

2.50

N/A

 

Financial Highlights

·    Revenue of £600.2m down 14.6% (digital up 10.6%, print down 18.9%) reflects impact of COVID-19

·    Recovery in print revenues and strong digital exit rate (Q4 up 26%) delivered stronger H2

·    Adjusted operating profit of £133.8m down 12.8%

·    Action on costs and higher digital mix support 50bp increase in adjusted operating profit margin to 22.3%

·    Costs related to transformation and plant closures impact statutory operating profit, down £124.1m

·    Strong adjusted operating cash flow of £121.8m(4) supports liquidity and net cash balance of £42.0m(5)

·     Final dividend of 4.26 pence per share

Business and Strategic Highlights

·    Customer registrations now at 5.8m (5.0m Dec 2020), more than halfway towards end 2022 target

·    December launch of Reach ID platform, enables further development of customer data and insight

·    Growing customer engagement with page views per visitor growing by almost 30% in December 

·    Complete transformation of business model underpins operating margin and enables acceleration of strategy

·    Improving circulation revenues during H2 demonstrates resilience of our print titles

·    Investment in local journalism through expansion of live sites and InYourArea platform

·    Resumption of dividend reflects Board confidence in growth opportunity and future cash flows

Jim Mullen Chief Executive Officer

Reach has become a stronger business in 2020 thanks to the ongoing hard work and commitment of our people during this unprecedented year. A radical reorganisation of our business model not only makes us more efficient, it also enables our changing culture, which is evolving to support a growth led agenda. We have delivered our strategic milestones ahead of our original expectations and will now increase investment to accelerate delivery, focusing on the use of enhanced customer insight to drive engagement and our medium-term objective of doubling digital revenues. Resilience in print circulation is the foundation for the strong cash generation which underpins strategic investment, our pension commitments and growing returns to shareholders. While macro-economic uncertainty resulting from COVID-19 clearly remains, the Group is well placed to make good progress during 2021 and to generate increased long term value as the strategy gathers momentum.

Results Overview 

·    Revenue of £600.2m impacted by COVID-19 with digital growing by 10.6% and print down 18.9%

·    Transformation programme strengthens operational efficiency and supports acceleration of growth strategy

·   Significant reduction in cost base, and mix benefit from growth in digital revenue, support 50bp increase in adjusted operating profit margin to 22.3%

·    Accounting pension deficit (IAS19 net of deferred tax) increased by £12.6m to £255.5m (2019: £242.9m)

·    Strong adjusted operating cash flow of £121.8m with net cash balance at the year-end of £42.0m

Revenue

·    Digital revenue of £118.3m up 10.6% (H2: 20.3%) despite significant COVID-19 impact on Q2 advertising yields

·    Lower print revenue significantly driven by Q2 decline of 29.5% following the first COVID-19 lockdown

·    Circulation revenues of £319.7m declined by 11.6% with print advertising revenues down 28.9% to £108.4m

·   Sequential quarterly improvement in both advertising and circulation which reflects availability focus, promotional support and investment in content

Profit

·    Adjusted operating profit of £133.8m down £19.6m or 12.8% (2019: £153.4m)

·    Ongoing cost control and wide-ranging evolution of operating model support c.15% reduction in cost base

·    Completed transformation programme enables annualised cost savings of over £35m from FY21

·    Additional annualised savings of £11m following Q4 review of print capacity leading to closure of 2 sites

·   Statutory operating profit of £7.6m impacted by; delivery cost of transformation programme (£36.4m), print plant closure costs (£48.4m) and commitments related to historical issues (£34.1m)

·   Statutory loss per share also impacted by non-cash deferred tax charge which relates to the reversal of a previously indicated reduction in the headline rate of corporation tax

Cash

·    Maintained strong cash performance with 76% conversion of adjusted EBITDA to adjusted operating cash flow

·    Positive closing £42.0m cash position post pension contributions and historical payments; bank facility remains undrawn

Capital Allocation and Dividend

·    Restoration of cash dividend to shareholders following bonus share issue in 2020

·    Final dividend proposed of 4.26 pence per share demonstrates confidence in sustainability of future cash flows

·   Board recognises importance of growing dividends for shareholders, while also investing to grow the business and meeting our funding commitments to the defined benefit pension schemes

Outlook and Current Trading

Trading to date has been broadly similar with Q4 2020 and performance is in line with management's expectations for the year although there remains some uncertainty on the impact and duration of COVID-19. Digital revenue for the first two months of the year grew by 20.4%, with revenue overall for the Group down 10.7%. During the year, we will increasingly prioritise investment behind the Customer Value Strategy, with the overall objective of doubling digital revenues over the medium term. Last year's business transformation has established a highly efficient operating model, supporting a strong cash position and robust profit margin. Consequently, we expect our full year adjusted operating margin percentage will be ahead of last year.

 

Notes

(1) Set out in note 18 is the reconciliation between the statutory and adjusted results. The current period is for the 52 weeks ended 27 December 2020 ('2020') and the comparative period is for the 52 weeks ended 29 December 2019 ('2019').

(2) Earnings per share for 2019 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share.

(3) Dividend per share for 2019 has been restated to reflect the Board decision ahead of the 2020 Annual General Meeting to withdraw the proposed final dividend in respect of 2020 of 4.05 pence per share.

(4) An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flows.

(5) Net cash balance comprises cash and cash equivalents of £42.0m (note 14) less bank borrowings of nil (note 14) but excludes lease obligations. The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated (note 2).

 

Enquiries

Reach

communication@reachplc.com

Jim Mullen, Chief Executive Officer

Simon Fuller, Chief Financial Officer

Matt Sharff, Investor Relations Director

020 7293 3000

07341 470 722


Tulchan Communications


reachplc@tulchangroup.com

David Allchurch / Giles Kernick

020 7353 4200

 

Jim Mullen, Chief Executive Officer, and Simon Fuller, Chief Financial Officer will present the results at 09:00 (GMT) on 1 March 2021. It will be followed by a live question and answer session. The presentation slides, script and recording will be available on www.reachplc.com from 9.00am (GMT).

 

You can join the webcast via https://edge.media-server.com/mmc/p/je4mezki. Please copy and paste the link into your browser.

 

Please either listen to the Q&A session via the webcast link: https://edge.media-server.com/mmc/p/je4mezki or to ask a question, please use the dial-in details below. Please dial-in at least 15 minutes prior to the start time to provide sufficient time to access the event. You will be asked to provide the conference ID number below.

 

Conference ID No: 1889521

United Kingdom: +44 (0) 20 7192 8338 or toll free: 0800 279 6619

 

Forward looking statements

This announcement has been prepared in relation to the financial results for the 52 weeks ended 27 December 2020. Certain information contained in this announcement may constitute 'forward-looking statements', which can be identified by the use of terms such as 'may', 'will', 'would', 'could', 'should', 'expect', 'seek, 'anticipate', 'project', 'estimate', 'intend', 'continue', 'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the negatives thereof) or words of similar meaning. Forward-looking statements can be made in writing but also may be made verbally by members of management of the Company (including, without limitation, during management presentations to financial analysts) in connection with this announcement. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in global or regional trade conditions, changes in tax rates, liquidity, prospects, growth and strategies. By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance or other financial condition or performance measures of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information or to reflect any change in circumstances or in the Company's expectations or otherwise.

 

 

Chief Executive's Review

 

Transforming Reach

2020 represented one of the most challenging years in the history of the news publishing sector, yet it has also demonstrated that demand for trusted news content is stronger than ever. The impact of COVID-19 demanded a comprehensive and long-term response and having taken significant steps to maximise the potential of Reach, we can now look forward to the future with confidence in the prospects for the Company. I want to personally thank everyone at Reach for being not just resilient, but also for embracing and progressing our Customer Value Strategy during a year of unprecedented challenges arising from COVID-19. We are now seeing the early results of the team's focus and hard work with stabilised print circulation, strong growth in customer registrations, good audience engagement and accelerating digital revenue growth.

 

Engaging the public during COVID-19 pandemic

Throughout the COVID-19 pandemic our award winning journalists continued to engage the public with up-to-the-minute coverage of news, sport and entertainment. The Mirror story on Dominic Cummings' lockdown trip to Barnard Castle - joint winner of Scoop of the Year at the British journalism awards - showed the importance of our journalism in holding power to account.

 

The continued resurgence of the Express as a newspaper of influence was recognised with the Cudlipp Award for Campaign of the Year for its 'Time to end the cystic fibrosis drugs scandal' campaign. In Scotland, the Daily Record campaigned against the Scottish Government's use of algorithms to mark down exam results, setting an agenda for the rest of the UK and forcing a Government rethink. In Ireland the Irish Mirror won the Headline of the Year award for its 'Parting Glass' front page and the Irish Daily Star won the Campaigning Journalism award for its relentless coverage of the Kinahan cartel. Our regional titles also received recognition for their role during the crisis with a raft of awards and commendations at the Regional Press Awards - the Manchester Evening News, Liverpool Echo and Wales Online leading the way. And throughout the pandemic the Daily Star used satirical humour to keep readers' spirits up.

 

Our editorial teams have fully embraced the Customer Value Strategy. We now offer readers over 280 newsletters on a variety of subjects, across a broad range of titles using tailored content and in some cases, such as the Lemon Aid newsletter, specifically aimed at supporting parents during the pandemic. We continued to improve our hyperlocal news site InYourArea which achieved over two million registrations and launched a new reader comment platform to enable greater customer engagement with our news stories. And around 13 million people continue to read a Reach print title every month - with print circulation revenues hitting around 93% of our original budget in Q4 despite the COVID-19 lockdowns.

 

We have made excellent progress against the Customer Value Strategy in spite of the pandemic, successfully delivering on our digital objectives and achieving several key milestones in the process. These include achieving five million customer registrations, record audience levels, the trial of our first commercial partnerships and critically the launch of the Reach ID, the architecture underpinning our digital growth.

 

This has all been made possible by a talented and committed team at Reach who are bound by a strong sense of purpose. Our award winning journalism has continued to engage the public, and our focus on customer registrations has led to growing loyalty and engagement. Digital growth during Q4 of 26.0% was an encouraging end to the year and we now approach the next stage of the Customer Value Strategy with confidence. This is where the learnings from data and insight will be applied in the form of new products, targeted advertising opportunities and commercial partnerships.

 

Encouraging start to 2020, rapid response to COVID-19

It was back in February 2020 that we launched the Customer Value Strategy and outlined how we planned to use our leading scale audience and unique network of newsbrands to build an intelligent content business based on enhanced data and insight.

 

Our focus in phase one of the Customer Value Strategy was to build customer registrations and our initial target for the year was to achieve two million and a total of seven million registrations by the end of 2022. We saw encouraging trends during Q1 where our digital revenues grew at an accelerated rate and customer engagement continued to improve. Then lockdown happened.

 

During April, it was estimated that around 5,000 outlets that normally sold newspapers were closed - around 10% of the estate, impacting newspaper sales. With local businesses closed and economic activity curtailed, advertising demand was also significantly reduced. This was particularly acute in the locally sold marketplace where at its nadir around 70% of our SME regular customers stopped advertising.

 

Unsurprisingly therefore we saw a significant impact on Group revenue with the April decline of 30.5% year-on-year the lowest point. This posed a material challenge to the company's overall performance and of course at the time it was unclear how long the situation would last. The Board and management were united on the need for swift, tough action and we immediately took a number of steps.

 

Within days of lockdown being announced, our teams adjusted to the new 'normal' with our editorial operations moving to home working for the first time in the history of our titles. Our print operations, classified as key workers, adopted new COVID-19 safe operating procedures. In total over 4,000 colleagues moved to home working overnight. The response of all Reach colleagues was first class with production of all our titles and websites continuing uninterrupted.

 

Swift action to protect the business from COVID-19 impacts

As the wider economic impacts of lockdown led to reduced advertising levels and double-digit declines in circulation sales we took action to conserve cash and protect the business.

 

Faced with these significant impacts and the ongoing uncertainty surrounding the length of lockdown and impact of the pandemic, the Board agreed to a series of short-term measures to protect the company and its newsbrands by reducing costs and conserving cash.

 

Management sought to share the burden of these measures across all stakeholder groups. A 10% pay reduction was introduced for most colleagues until July, with the Board, along with some members of the senior editorial and management team, taking a pay reduction of 20%. All annual bonus schemes for 2020 were suspended and 20% of Reach colleagues were furloughed. In addition, pension fund contributions were deferred for three months and the 2019 final dividend was cancelled.

 

These measures ensured short-term protection for the business during the worst-impacted months of COVID-19. However, it became clear that, in order to ensure the business could not just survive ongoing uncertainty, but be in a position to thrive in the new market conditions, more radical near-term changes to the business were required. Following a root and branch review of the business by the management team, a transformation programme and acceleration of our Customer Value Strategy was announced in July, and materially delivered by September.

 

By the end of the transformation the Company had delivered efficiencies over a period of three months that in normal circumstances would have been planned over three years. The result is a far more operationally efficient organisation ready to compete in an uncertain environment.

 

Transformation and acceleration of our Customer Value Strategy

What makes Reach unique is its national and regional network. While the Company has seen significant change over many years with its digital audience increasing, the business had not undertaken a holistic review of its overall structure to enable the maximum potential of its business model. In particular, the Company continued to operate with separate national and regional activities. With the COVID-19 pandemic posing significant challenges to operating margins, the Board put in place a transformation plan which ensured business continuity in the immediate period, but also enabled us to embrace our future as an insight-driven, digitally-led business.

 

The changes started at the top with a number of changes to the leadership team. A new Chief Operating Officer, Alan Edmunds, was appointed with a number of additional responsibilities, including printing, and a new Chief Revenue Officer, Piers North, was appointed having previously been Group Digital Director.

 

The Executive Committee met daily from the outset of COVID-19 and has retained regular trading and operational meetings each week to ensure swift decision making. This was crucial to delivering the transformation programme in just three months, while remote working, and the team have maintained multiple Executive Committee meetings to ensure the business continues to drive the Customer Value Strategy and all operations work in a more coordinated way than ever before. This sits alongside a regular rhythm of trading and performance reviews, to ensure delivery against targets.

 

Whilst an important outcome from the transformation is a much lower cost base and higher operating margin, at its heart the change is about maximising the potential of the Reach business model, based on our USP of being the biggest commercial publisher in Britain with the most extensive portfolio of leading national and regional titles. The transformation has removed distinctions between the corporate centre and business divisions, between regional and national activities and between print and digital.

 

Reach operates as one editorial operation between regional and national titles. The new Reach Wire enables content to be shared across the organisation and to be tailored and adapted by the editorial teams of each title or website.

 

The majority of our editorial teams now operate across print and digital with analytics being constantly monitored to ensure content responds to reader demand. These changes were also reflected in the sales and distribution team by combining the national and regional operation into one team - and focusing the operation on protecting sales revenue through increased availability, increased vouchering and greater cross-promotion of titles. All this activity is assisted by increased data analysis made possible by a new partnership with Dunnhumby, the global leader in customer data science.

 

In commercial - our advertising sales operations - we reorganised our national solutions team, reducing headcount and restructured our regional operations, consolidating the number of regions and reducing the managerial and sales team headcount. This reflects the new market conditions and the future direction towards increased telephone sales and away from field sales.

 

Our central operations also implemented a number of efficiencies, for example the number of offices supporting commercial finance administration was reduced, and headcount reduced across a number of central functions including HR and Finance.

 

The changes have enabled targeted investment in the Customer Value Strategy (around £5m was approved in 2020) to continue along with actions to protect our print titles, including a significant increase in product availability which had been reduced over a number of years.

 

The dedication and focus of our teams enabled the business to continue to accelerate its Customer Value Strategy with customer registrations consistently exceeding our expectations.

Encouraging H2 performance with record Q4 growth

Compelling content and product innovation supported a strong second half performance. By the middle of the year we had exceeded our original target of two million customer registrations, achieving five million by the year end, more than halfway to a new target for the end of 2022 of 10 million.

 

Over 10% of our digital users are now registered with us and with more monthly customers than any other commercial national and regional news publisher, our online audience is behind only that of the global tech platforms in the UK. In 2020 we delivered average monthly unique visitors of some 42 million per month - up 5% year-on-year. During 2020 we were the only publisher to retain an average monthly audience in excess of 40 million across the year. And the customer engagement that is so key to our Customer Value Strategy is building.

 

During 2020 we saw a 29% uplift in average page views per user and a 32% uplift in average minutes per visitor. Loyal users (those that visit every other day) were up over 40% across our Live network and up over 91% on the Mirror.

 

Throughout the toughest days of lockdown, our commercial teams kept their creativity and team spirits high, continuing to deliver for our clients - helping our Solutions team to go on to scoop the coveted Commercial Team of the Year at the Campaign Media Awards.

 

Our digital business saw growth of 20.3% in H2 2020 - and closed the year with record year-on-year growth in Q4 of 26.0%. This performance drove an above expectation outcome on operating profit of £133.8m. While print revenues declined by 18.9% over the year the circulation sales performance was more resilient - ending the year with an 11.6% decline - around 93% of the budgeted performance.

 

Group operating margin for the year was very strong at 22.3% - which was up 50 basis points year-on-year, despite the effects of the pandemic and we are confident of another strong performance in 2021.

 

We were also pleased to deliver the first commercial trials utilising the Reach ID with promising results that illustrate the opportunities our Customer Value Strategy provides for brands and agencies.

 

It was also pleasing to acquire the remaining 50% share in the Irish Daily Star from Independent News and Media. As the most obvious acquirer, given our ownership of the Daily Star in the UK, the financials were compelling, and the title continues to perform well. We look forward to it going from strength to strength under Reach's full ownership.

 

Reach continues to offer a compelling opportunity to drive increasing value as we deepen our relationships with (and better engage and understand) our customers.

 

Supporting our colleagues

COVID-19 has had a significant impact on all our lives and throughout the pandemic we have prioritised the health and safety of our people and have strictly adhered to guidance from the government and public health authorities. Restrictions and lockdowns have driven significant changes in our operating environment with the majority of colleagues working from home since March. We have been acutely aware that while many of our colleagues have adapted well to this, for some it has been more challenging.

 

As a business, we sought to do as much as possible to help people adapt effectively to home working, providing additional online support and ensuring that everyone has access to appropriate equipment including chairs, desks, laptops, printers, new collaborative working software and additional screens where necessary.

 

Our teams performed exceptionally well despite any logistical hurdles and the challenges for some of balancing their jobs with the demands of home-schooling. It is a testament to their efforts and dedication that we've seen minimal operational disruption, with all titles being issued on time and all websites operating smoothly throughout the crisis.

 

As CEO, I have placed great emphasis on regular and consistent communications, supplementing my weekly email to all colleagues with further communications at key times during the crisis. We have increased our mental health support provision with the creation of a wellbeing hub offering advice around creating boundaries between home and work life, dealing with loneliness and anxiety and offering support through our mental health first aid volunteers and through our Employee Assistance Programme. This offered support to colleagues 24/7 via call or live chat, psychological welfare assessments, counselling, healthcare advice, welfare advice and legal guidance.

 

We have also encouraged teams to communicate informally, through tea and talk sessions, which were purely social and which drew people together from teams from different parts of the Company.

 

2020 also shone a light on racial injustice and we have a responsibility to improve diversity and inclusion in our industry. We appointed a new Head of Diversity and Inclusion in December 2020 and will advance our plans in the months ahead. Regular all-company and leader town halls, have also provided a forum for the Executive Committee to communicate regularly with all colleagues.

 

Strong strategic momentum, further progress expected in 2021

Reach has become a stronger business in 2020 thanks to the ongoing hard work and commitment of our people during this unprecedented year. A radical reorganisation of our business model not only makes us more efficient, it also enables our changing culture, which is evolving to support a growth led agenda. We have delivered our strategic milestones ahead of our original expectations and will now increase investment to accelerate delivery, focusing on the use of enhanced customer insight to drive engagement and our medium-term objective of doubling digital revenues. Resilience in print circulation is the foundation for the strong cash generation which underpins strategic investment, our pension commitments and growing returns to shareholders. While macro-economic uncertainty resulting from COVID-19 clearly remains, the Group is well placed to make good progress during 2021 and to generate increased long term value as the Customer Value Strategy gathers momentum.

 

Jim Mullen

Chief Executive Officer

1 March 2021

 

 

Financial Review

Robust performance with strong H2 recovery

Group performance in the year has been impacted by the COVID-19 pandemic, but has also demonstrated remarkable resilience.

 

Having started the year well with encouraging digital growth and reduced print declines, the COVID-19 pandemic began impacting the business from mid-March. This drag on performance was most severe in Q2 but has reduced each quarter since, with print improving driven by circulation recovery and with digital growth delivering a record performance in Q4.

 

Year on Year Revenue Change

Q1

%

Q2

%

Q3

%

Q4

%

FY

%

Print

(10.7)

(29.5)

(19.7)

(15.8)

(18.9)

Digital

13.7

(14.8)

13.4

26.0

10.6

Group

(7.4)

(27.5)

(14.8)

(8.5)

(14.6)

Revenue trends on an actual and like-for-like basis are the same for 2020. Q4 benefited marginally from the inclusion of Independent Star Limited in December 2020 which, if excluded, the Q4 Group decline would have been 9.1% (print -16.5% and no change to digital growth) and FY Group decline would have been 14.7% (print -19.1% and no change to digital growth).                

 

Revenue declines in January and February were 5.8% and 4.0% respectively, a continuation of 2019 trends. March began consistent with these earlier months but was significantly impacted by the COVID-19 pandemic from the middle of March as the UK entered into national lockdown. This resulted in the Q1 decline being 7.4%. April, when the impact of COVID-19 was at its worst, saw Group revenue declines of 30.5% with print down 31.8% and digital down 22.5% (the biggest driver of both of these being reduced advertiser demand). The impact lessened in May and then further into June as the lockdown restrictions eased. Group revenue in June declined by 23.9% with print down 26.7% and digital down 4.9%. The improvement in the trend continued into Q3 as the UK came out of lockdown. This improvement further accelerated in Q4 despite the introduction of a tier system of lockdowns.

 

The digital growth benefited from the progress made in the Customer Value Strategy in driving engagement through registrations and digital revenues. Digital revenues are an increasing percentage of total revenues, increasing from 15% in 2019 to 20% in 2020.

 

The Group has continued to maintain a strong balance sheet with adequate liquidity. The positive net cash balance of £42.0m is an increase of £21.6m on the prior year end, reflecting the continuing profitability of the Group (during each month of the pandemic) and our proactive steps taken to preserve cash.

 

Trading performance

Impacted by the COVID-19 outbreak

Revenue declined by 14.6% compared to a like-for-like fall of 5.3% in 2019, impacted by the COVID-19 pandemic. Within this, print revenue fell by 18.9% (2019: down 7.9%) and digital revenue grew by 10.6% (2019: up 13.2%).

 

Print revenue fell by 18.9% to £479.3m, with the more resilient circulation revenue declining by 11.6% while advertising revenue declined by 28.9% due to the significant impact on print advertising demand. Circulation revenue now accounts for 67% of print revenue (2019: 61%).

 

Circulation volumes for the Group's national daily titles (excluding the impact of sampling) fell by 18.1%. The Group's national Sunday titles (excluding the impact of sampling) fell by 16.7%. Volume declines for our regional titles were 18.0% for paid-for dailies, 28.9% for paid-for weeklies and 22.1% for paid-for Sundays. The circulation volumes for the paid-for magazines were more severely impacted, due in part to the restrictions around photo journalism and celebrity shoots. The circulation volume trend is impacted by cover price differentials and our strategy to increase cover prices each year.

 

Our nationally sourced advertising performed better than locally sourced advertising. Nationally, while volumes declined in a number of sectors there were some sectors which continued to be active throughout, such as Food Retail and Home Entertainment, and we also benefited from additional Government spend. The impact on locally sourced advertising was greater with the majority of advertisers not advertising at all combined with much reduced classified adverts.

 

Printing revenue decreased by 34.5% driven by a reduction of contract print as third parties reduced volumes or suspended publications (particularly free titles).

 

Other revenue decreased by 32.6% driven by reduced enterprise revenues such as holidays and from the cancellation of events and reduction in other contract printing, particularly sports programmes in our Reach Sport division.

 

Digital revenue comprises the combined display and transactional revenue streams which are predominantly directly driven by page views. We enjoyed significant page view growth in the year with average monthly worldwide page views growing by 32% year-on-year to 1.7bn. Mobile page views grew by 40% and desktop page views grew by 5%. Despite part of the year being severely impacted on yields, as the volume of advertisers reduced significantly due to the COVID-19 pandemic in Q2, digital revenues for the year still increased by 10.6% to £118.3m.

Other revenue is derived from our specialist digital recruitment websites.

 

Delivery of significant cost savings

The Group has consistently proactively managed its cost base with savings delivered through natural mitigation where volumes decline, day-to-day management interventions and structural programmes which permanently remove costs. A key priority for the Group is maintaining quality journalism whilst ensuring the commercial viability and profitability of our brands into the future. To achieve this we continue to drive efficiencies that do not adversely impact our products.

 

During 2020 the end to end transformation programme both improved operational efficiency and drove significant annualised cost savings of over £35m at a cost of £16.5m in severance payments. Our review of our print capacity has resulted in the closure of two print plants delivering expected annualised net savings of £11m (gross cost savings of £16m less third party print contracts of £5m which were at risk of being terminated). For the print plant closures, restructuring costs of £16.9m include £6.4m of severance and £10.5m of other costs (£3.7m relating to closure costs and £6.8m relating to property related costs). The closure of the two print plants resulted in an impairment of £48.4m relating to fixed assets of £34.7m and to right-of-use assets of £13.7m.

 

The Group continued to invest in the Customer Value Strategy with approved projects at an investment of around £5m.

 

Adjusted operating costs decreased by £81.9m which offset 80% of the revenue reduction of £102.3m. The reduction reflected our ongoing proactive management of costs together with our immediate response to the COVID-19 pandemic and the beginning of the savings from the transformation programme.

 

Statutory operating costs increased by £15.8m with the adjusted operating cost savings offset by the significant impact of the items excluded from adjusted operating costs which increased year-on-year by £97.7m. The total impact of the items excluded from adjusted operating costs was a charge of £125.0m (2019: £27.3m). Operating adjusted items comprise restructuring charges in respect of cost reduction measures of £36.4m (2019: £10.7m), a £12.5m (2019: £11.0m) increase in the provision for dealing with and resolving civil claims in relation to historical phone hacking, impairment of assets relating to print site closure of £48.4m (2019: nil), goodwill impairment in the Digital Classified Recruitment cash-generating unit of £6.1m (2019: nil), pension administrative expenses of £6.1m (2019: £2.9m) and a historic property development onerous contract charge of £15.5m (2019: nil).

 

The statutory operating cost changes were:

 

Labour costs were £217.2m (reduction of £22.9m versus 2019) with savings from structural cost actions and additionally from the benefit of our COVID-19 related savings from staff going on furlough (benefit of £7m), temporary pay reductions (benefit of £4m) and the suspension of bonuses (benefit of £7m).

 

Newsprint costs were £45.8m (reduction of £27.3m versus 2019) with savings from reduced volumes and lower newsprint prices partially offset by increased availability.

 

Depreciation was £27.4m (increase of £5.9m versus 2019) as the Group recorded depreciation on right-of-use assets recognised at the beginning of 2020 as a result of the IFRS 16 'Leases' adoption.

 

Other costs were £303.6m (increase of £60.1m versus 2019) driven by the increase in operating adjusted items (£97.7m) offset by a £37.6m reduction across activity related and discretionary spend areas along with savings from structural cost programmes.

 

Statutory results

The statutory operating profit of £7.6m for the year compares to a statutory operating profit of £131.7m in the prior year with trading being impacted by COVID-19 together with the costs of delivering structural cost savings (restructuring and print site closure costs) and provisions for historical matters (notes 5 and 15). Statutory financing costs were £7.2m (2019: £10.9m) reflecting the reduction in the pension finance charge on a lower opening pension deficit. The reduced interest costs on bank borrowings have been substantially offset by interest cost on leases as a result of the IFRS 16 'Leases' adoption. The statutory tax charge of £27.1m (2019: £26.6m) comprises a current tax charge of £2.7m (2019: £15.9m) and a deferred tax charge of £24.4m (2019: £10.7m). The deferred tax charge includes a debit of £19.0m relating to the remeasurement of the deferred tax balances due to the reversal of the planned decrease in the corporation tax rate from 19% to 17%. Statutory loss after tax amounted to £26.7m compared to a profit after tax of £94.3m and statutory loss per share for the period of 8.6 pence per share compares to a statutory earnings per share of 30.5 pence in the prior year (2019 restated following the bonus issue to shareholders).

 

Adjusted results

Adjusted operating profit declined by 12.8% to £133.8m. Adjusted operating margin increased by 0.5 percentage points from 21.8% in 2019 to 22.3% in 2020, supported by the benefits of the transformation programme. Adjusted financing costs were £2.5m (2019: £2.8m) comprising net interest costs on bank borrowings of £1.0m (2019: £2.8m) and interest costs on leases of £1.5m (2019: nil). The adjusted tax charge of £24.9m (2019: £28.9m) represents 19.0% (2019: 19.2%) of adjusted profit before tax. The rate is in line with the statutory tax rate of 19.0%. Adjusted profit after tax decreased by £15.3m or 12.6% to £106.4m and adjusted earnings per share decreased by 5.0 pence or 12.7% to 34.4 pence (2019 restated following the bonus issue to shareholders).

 

 

Reconciliation of statutory to adjusted results

 

 

 

 

Statutory

results

£m

 

Operating

adjusted

items

£m

 

Pension

finance

charge

£m

Tax

£m

 

 

Adjusted

results

£m

Revenue

600.2

-

-

-

600.2

Operating profit

7.6

126.2

-

-

133.8

Profit before tax

0.4

126.2

4.7

-

131.3

(Loss)/profit after tax

(26.7)

110.3

3.8

19.0

106.4

Basic (loss)/earnings per share (p)

(8.6)

35.7

1.2

6.1

34.4

 

The Group excludes from the adjusted results: operating adjusted items (note 5), pension finance charge (note 13) and tax changes arising from changes in the corporation tax rate (note 8). Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group.

 

Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals, closures, tax rate changes) or relate to historic liabilities (historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual). These include items which have occurred for a number of years and may continue in future years. Management exclude these from the results that it uses to manage the business and on which bonuses are based to reflect the underlying performance of the business and believes that the adjusted results, presented alongside the statutory results, provides users with additional useful information.

 

Restructuring charges and closure costs incurred to deliver cost reduction measures relate to the transformation of the business from print to digital, together with costs to deliver synergies. These costs are principally severance related, but may also include system integration costs and print plant closure costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.

 

Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.

 

Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.

 

The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses, the past service costs for GMP equalisation and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment.

 

The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament or when a decision is reversed. The impact of the change in rates are included in adjusted items, on the basis that when they occur they are material, distorting the underlying performance of the business.

 

Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contractual issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.

 

Balance Sheet

Strong cash generation

Net cash increased by £21.6m from £20.4m at the prior year end to a net cash position of £42.0m at the year end. The positive cash position and strong liquidity reflects the Group's proactive steps to preserve cash during the year.

 

IFRS 16 'Leases' implementation

The Group has implemented IFRS 16 with effect from 30 December 2019, the first day of the current accounting period, using the modified retrospective approach to transition and has accordingly not restated prior periods. The impact of the implementation has been to recognise the Group's previous operating lease commitments in respect of property and vehicles onto the balance sheet. This has resulted in right-of-use assets being recognised on the balance sheet of £45.6m at 30 December 2019 representing the lease liabilities of £48.7m less £3.1m of prepaid and accrued lease related balances. Lease liabilities of £48.7m were also recognised on the balance sheet at 30 December 2019. As a result of applying IFRS 16 the Group has recognised depreciation and interest costs, rather than rental expenses for its lease commitments. This has resulted in a £0.7m positive impact to adjusted and statutory operating profit and £0.8m negative impact on adjusted and statutory profit before tax. IFRS 16 has no impact on the consolidated cash flow statement apart from changing the classification of rental payments from operating to financing activities. Further details of the impact of IFRS 16 and its implementation are detailed in note 2.

 

Historical legal issues

The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. There are three parts to the provision: known claims, potential future claims and common court costs with estimates based on historical trends and experience of claims and costs. Certain cases and other matters relating to the issue can be subject to court proceedings, the outcome of which can impact on how much is required to settle the remaining claims and on the number of claims. The Group has recorded an increase in the provision every year since 2014 which highlights the challenges in making a best estimate and the time taken to resolve this historical matter. It is not possible to provide a range of potential outcomes in respect of this provision and due to this uncertainty, a contingent liability has been highlighted. The Group accelerated the settlement of claims in the second half of the year resulting in payments of £9.7m in this period compared to £0.9m in the first half. In light of the payments made and based on additional claims received the provision has been increased by £12.5m in the year. At the period end, a provision of £23.0m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The provision is expected to be utilised over the next few years.

 

Historical contract issues

A charge of £15.5m has been made in the year reflecting a historic property development onerous contract. In 2018 the Group sold part of its freehold property in Liverpool and also entered into an agreement to develop the property into a hotel and retail/office space. As a result of COVID-19 the development incurred significant time delays and cost overruns, with no certainty as to the amount that could be incurred on completion of the development and insufficient contractual protections based on the historical agreement. A new agreement was reached to limit the exposure to the Group to £15.5m. A one-off provision of £15.5m was made at the half-year and the £15.5m was paid in September 2020. The Group has no further exposure in respect of this development.

 

Increase in accounting pension deficit

The IAS 19 pension deficit (net of deferred tax) in respect of the Group's six defined benefit pension schemes increased by £12.6m to £255.5m. The increase was driven by Group contributions and strong asset returns being more than offset by unfavourable movements in financial assumptions driven by a decrease in the discount rate and an update to the scheme demographic assumptions following scheme actuarial analysis. The Group has taken actuarial advice and has updated the approach to determining the bond constituents for the calculation of the discount rate and the bases of setting the RPI/CPI inflation assumptions. Changes in the accounting pension deficit do not have an immediate impact on the agreed funding commitments. The triennial valuation for funding of the defined benefit pension schemes as at 31 December 2019 would usually be completed by 31 March 2021. We have agreed the funding of the WF Scheme and the discussions with the remaining five schemes are ongoing.

 

Group contributions in respect of the defined benefit pension schemes in the year were £53.9m (2019: £48.9m). As part of the key mitigation actions resulting from the COVID-19 pandemic, the Group agreed with the Trustees a deferment of its pension contributions for April, May and June amounting to £12.2m. Of this amount 80% (£9.8m) was paid over to an escrow account and 20% (£2.4m) was retained in the business. The Group could have drawn on the amounts in escrow if certain conditions were met up to 28 June 2020. None of the conditions were met and the 80% was released to the pension schemes in July 2020. The 20% of the deferment (£2.4m) was paid over to the schemes in September 2020.

 

As part of the decision to close the Luton print plant the Group reached agreement with the Trustees of the WF Scheme to make additional contributions of £5.0m in 2020 (included in the £53.9m of Group contributions) and a further payment of up to £15.0m by the end of June 2021 to enable the Trustees to purchase a bulk annuity policy which would match the remaining liabilities in the scheme in full. In February 2021 a payment of £9.6m was made and the Trustees purchased the bulk annuity policy. No further contributions are expected to the WF Scheme.

 

Deferred consideration

Deferred consideration (which is shown separately on the face of the consolidated balance sheet in 2020) is in respect of the acquisition of Express & Star. Payment of the first instalment of £18.9m was made on 28 February 2020. Of the remaining amount of £40.1m, £16.0m is classified as current liabilities (payable on 28 February 2021) and £24.1m is classified as non-current liabilities (£17.1m on 28 February 2022 and £7.0m on 28 February 2023).

 

Cash Flow

 

Continued good cash generation

Cash generated from operations on a statutory basis were £121.3m (2019: £147.4m). This also includes a £9.2m benefit from the adoption of IFRS 16 'Leases' where operating lease payments are now shown in financing activities (but has no change on the net cash position).

 

The Group presents an adjusted cash flow which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and the adjusted cash flow. The adjusted operating cash flow was £121.8m (2019: £133.1m) which is before historical legal issues payments (£10.6m), historical contract issues payments (£15.5m), pension funding payments (£53.9m), deferred consideration payments (£18.9m), acquiring the remaining 50% of Independent Star Limited (£3.4m) and additional purchase of shares in PA Media Group (£0.2m).

 

Dividends

 

After due consideration, in light of the uncertainty around the COVID-19 pandemic, the Board announced on 6 April 2020 that it would no longer propose a final dividend for the financial year ending 2019.

 

On 28 September 2020, with the Group performing materially ahead of market expectations for 2020, the Board recommended a non-cash bonus issue of shares to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share, which was subsequently approved by shareholders.

 

In recognition of the importance of a cash dividend to shareholders and considering latest performance, the Board proposes a final dividend of 4.26 pence per share for 2020 (an increase of 5.2% compared to the final dividend originally proposed in 2019). The final dividend which is subject to approval by shareholders at the Annual General Meeting on 6 May 2021 will be paid on 4 June 2021 to shareholders on the register at 14 May 2021.

 

The Board recognises the importance of growing dividends for shareholders while also investing to grow the business and meeting our funding commitments to the defined benefit pension schemes. The Board expects to continue to adopt a policy of paying dividends which are aligned to the free cash generation of the Group. Free cash generation for this purpose is the net cash flow generated by the Group before the repayment of debt, dividend payments, other capital returns to shareholders and additional contributions made to the defined benefit pension schemes because of any substantial increase in dividends and/or capital returns to shareholders.

 

Current trading and outlook

 

Trading to date has been broadly similar with Q4 2020 and performance is in line with management's expectations for the year although there remains some uncertainty on the impact and duration of COVID-19. Digital revenue for the first two months of the year grew by 20.4%, with revenue overall for the Group down 10.7%. During the year, we will increasingly prioritise investment behind the Customer Value Strategy, with the overall objective of doubling digital revenues over the medium term. Last year's business transformation has established a highly efficient operating model, supporting a strong cash position and robust profit margin. Consequently, we expect our full year adjusted operating margin percentage will be ahead of last year.

 

Simon Fuller

Chief Financial Officer

1 March 2021

 

 

 

Statement of Directors' Responsibilities

 

The directors are responsible for preparing the Preliminary Audited Results Announcement in accordance with applicable laws and regulations. The responsibility statement below has been prepared in connection with the Company's full Annual Report for the 52 weeks ended 27 December 2020. Certain points thereof are not included within this Preliminary Audited Results Announcement.

 

The directors confirm to the best of their knowledge:

a)     the consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and

b)    the Preliminary Audited Results Announcement includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces.

 

By order of the Board of Directors

 

Simon Fuller

Chief Financial Officer

1 March 2021

 

 

 

 

 

 

 

Consolidated income statement

for the 52 weeks ended 27 December 2020 (52 weeks ended 29 December 2019)

 

 

 

 

notes

 

Adjusted 2020

£m

Adjusted Items

2020

£m

 

Statutory

2020

£m

 

Adjusted

2019

£m

Adjusted Items

2019

£m

 

Statutory

2019

£m

 

 

 

 

 

 

 

 

Revenue    

4

600.2

-

600.2

702.5

-

702.5

Cost of sales

 

(303.2)

-

(303.2)

(370.7)

-

(370.7)

Gross profit

 

297.0

-

297.0

331.8

-

331.8

Distribution costs

 

(46.2)

-

(46.2)

(53.0)

-

(53.0)

Administrative expenses

 

(119.6)

(125.0)

(244.6)

(127.2)

(27.3)

(154.5)

Share of results of associates

 

2.6

(1.2)

1.4

1.8

5.6

7.4

Operating profit

 

133.8

(126.2)

7.6

153.4

(21.7)

131.7

Interest income

6

0.1

-

0.1

0.1

-

0.1

Pension finance charge

13

-

(4.7)

(4.7)

-

(8.0)

(8.0)

Finance costs

7

(2.6)

-

(2.6)

(2.9)

-

(2.9)

Profit before tax

 

131.3

(130.9)

0.4

150.6

(29.7)

120.9

Tax charge

8

(24.9)

(2.2)

(27.1)

(28.9)

2.3

(26.6)

Profit/(loss) for the period attributable to equity holders of the parent

 

106.4

(133.1)

(26.7)

121.7

(27.4)

94.3

 

 

 

 

 

 

 

 

Earnings/(loss) per share

notes

2020

Pence

 

2020

Pence

Restated 2019

Pence

 

Restated 2019

Pence

Earnings/(loss) per share - basic

10

34.4

 

(8.6)

39.4

 

30.5

Earnings/(loss) per share - diluted

10

33.6

 

(8.6)

39.0

 

30.2

The above results were derived from continuing operations. Set out in note 18 is the reconciliation between the statutory and adjusted results.

 

The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated (see note 2).

 

Earnings per share for 2019 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share.

 

Consolidated statement of comprehensive income

for the 52 weeks ended 27 December 2020 (52 weeks ended 29 December 2019)

 

 

notes

2020

£m

2019

£m

 

 

 

 

(Loss)/profit for the period

 

(26.7)

94.3

 

 

 

 

Items that will not be reclassified to profit and loss:

 

 

 

Actuarial (loss)/gain on defined benefit pension schemes

13

(61.6)

14.7

Tax on actuarial (loss)/gain on defined benefit pension schemes

8

11.7

(2.8)

Deferred tax credit resulting from future change in rate

8

5.9

-

Share of items recognised by associates

 

(0.5)

(11.2)

Other comprehensive (loss)/income for the period

 

(44.5)

0.7

 

 

 

 

Total comprehensive (loss)/income for the period

 

(71.2)

95.0

 

The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated (see note 2).

 

 

Consolidated cash flow statement

for the 52 weeks ended 27 December 2020 (52 weeks ended 29 December 2019)

 

 

notes

2020

£m

2019

£m

Cash flows from operating activities

 

 

 

Cash generated from operations

11

121.3

147.4

Pension deficit funding payments

13

(53.9)

(48.9)

Income tax paid

 

(14.2)

(11.7)

Net cash inflow from operating activities

 

53.2

86.8

Investing activities

 

 

 

Interest received

 

0.1

0.1

Dividends received from associated undertakings

 

0.5

0.5

Proceeds on disposal of property, plant and equipment

 

0.3

0.5

Purchases of property, plant and equipment

 

(1.9)

(3.9)

Deferred consideration payment

 

(18.9)

-

Acquisition of associated undertaking

 

(0.2)

(0.9)

Acquisition of subsidiary undertaking

 

(3.4)

-

Cash acquired on acquisition of subsidiary undertaking

 

2.3

-

Net cash used in investing activities

 

(21.2)

(3.7)

Financing activities

 

 

 

Dividends paid

9

-

(18.6)

Interest paid on bank borrowings

 

(1.2)

(3.3)

Drawdown of bank borrowings

 

25.0

-

Repayment of bank borrowings

 

(25.0)

(60.0)

Interest paid on leases

 

(1.5)

-

Repayment of obligation under leases

 

(7.7)

-

Net cash used in financing activities

 

(10.4)

(81.9)

 

 

 

 

Net increase in cash and cash equivalents

 

21.6

1.2

Cash and cash equivalents at the beginning of the period

14

20.4

19.2

Cash and cash equivalents at the end of the period

14

42.0

20.4

 

The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated (see note 2).

 

Consolidated statement of changes in equity

for the 52 weeks ended 27 December 2020 (52 weeks ended 29 December 2019)

 

 

 

Share

capital

£m

 

Share premium

account

£m

 

 

Merger

reserve

£m

 

Capital

redemption

reserve

£m

Retained earnings and other reserves

£m

 

 

 

Total

£m

 

 

 

 

 

 

 

At 30 December 2018

(30.9)

(606.7)

(17.4)

(4.4)

101.7

(557.7)

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

(94.3)

(94.3)

Other comprehensive income for the period

-

-

-

-

(0.7)

(0.7)

Total comprehensive income for the period

-

-

-

-

(95.0)

(95.0)

 

 

 

 

 

 

 

Credit to equity for equity-settled share-based payments

-

-

-

-

(1.1)

(1.1)

Dividends paid

-

-

-

-

18.6

18.6

At 29 December 2019

(30.9)

(606.7)

(17.4)

(4.4)

24.2

(635.2)

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

26.7

26.7

Other comprehensive loss for the period

-

-

-

-

44.5

44.5

Total comprehensive loss for the period

-

-

-

-

71.2

71.2

 

 

 

 

 

 

 

Bonus issue of shares

(1.3)

1.3

-

-

-

-

Credit to equity for equity-settled share-based payments

-

-

-

-

(2.7)

(2.7)

At 27 December 2020

(4.4)

92.7

 

The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach, comparative information is not restated (see note 2).

 

Consolidated balance sheet

at 27 December 2020 (at 29 December 2019)

 

 

 

notes

 

2020

£m

Restated

2019

£m

Non-current assets

 

 

 

Goodwill

12

35.9

42.0

Other intangible assets

12

818.7

810.0

Property, plant and equipment

 

168.4

224.9

Right-of-use assets

 

25.3

-

Investment in associates

 

18.1

21.9

Retirement benefit assets

13

50.4

31.2

Deferred tax assets

 

60.5

55.9

 

 

1,177.3

1,185.9

Current assets

 

 

 

Inventories

 

4.6

5.9

Trade and other receivables

 

110.5

116.4

Cash and cash equivalents

14

42.0

20.4

 

 

157.1

142.7

Total assets

 

1,334.4

1,328.6

Non-current liabilities

 

 

 

Deferred consideration

14

(24.1)

(40.1)

Lease liabilities

14

(35.5)

-

Retirement benefit obligations

13

(364.8)

(327.1)

Deferred tax liabilities

 

(172.4)

(159.3)

Provisions

15

(25.2)

(20.5)

 

 

(622.0)

(547.0)

Current liabilities

 

 

 

Trade and other payables

 

(92.1)

(103.3)

Deferred consideration

14

(16.0)

(18.9)

Lease liabilities

14

(6.1)

-

Current tax liabilities

8

-

(8.7)

Provisions

15

(31.5)

(15.5)

 

 

(145.7)

(146.4)

Total liabilities

 

(767.7)

(693.4)

Net assets

 

566.7

635.2

 

 

 

 

Equity

 

 

 

Share capital

16

(32.2)

(30.9)

Share premium account

16

(605.4)

(606.7)

Merger reserve

16

(17.4)

(17.4)

Capital redemption reserve

16

(4.4)

(4.4)

Retained earnings and other reserves

16

92.7

24.2

Total equity attributable to equity holders of the parent

 

(566.7)

(635.2)

 

The 2019 consolidated balance sheet has been restated to show deferred consideration separately on the face of the consolidated balance sheet.

The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach comparative information is not restated (see note 2).

 

Notes to the consolidated financial statements

for the 52 weeks ended 27 December 2020 (52 weeks ended 29 December 2019)

1.            General information

The financial information, which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated cash flow statement, the Consolidated statement of changes in equity and the Consolidated balance sheet and related notes ('Consolidated Financial Information') in the Preliminary Audited Results announcement is derived from but does not represent the full statutory accounts of Reach plc. The statutory accounts for the 52 weeks ended 29 December 2019 have been filed with the Registrar of Companies and those for the 52 weeks ended 27 December 2020 will be filed following the Annual General Meeting on 6 May 2021. The auditors' reports on the statutory accounts for the 52 weeks ended 29 December 2019 and for the 52 weeks ended 27 December 2020 were unqualified, do not include reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying the reports and do not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

Whilst the Consolidated Financial Information included in this Preliminary Audited Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Preliminary Audited Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The Annual Report for the 52 weeks ended 27 December 2020 will be available on the Company's website at www.reachplc.com and at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP before the end of March 2021 and will be sent to shareholders who have elected to receive a hard copy with the documents for the Annual General Meeting to be held on 6 May 2021.

 

The Consolidated Financial Information has been prepared for the 52 weeks ended 27 December 2020 and the comparative period has been prepared for the 52 weeks ended 29 December 2019. Throughout this report, the Consolidated Financial Information for the 52 weeks ended 27 December 2020 is referred to and headed 2020 and for the 52 weeks ended 29 December 2019 is referred to and headed 2019. The presentational and functional currency of the Group is Sterling. The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis as described in note 2.

 

2.            Accounting policies

Basis of preparation

The Consolidated Financial Information has been prepared in accordance with IFRS as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These standards are subject to ongoing amendment by the International Accounting Standards Board and are therefore subject to change. As a result, the Consolidated Financial Information contained herein will need to be updated for any subsequent amendment to IFRS or any new standards that are issued. The Consolidated Financial Information has been prepared under the historical cost convention.

 

The accounting policies used in the preparation of the Consolidated Financial Information for the 52 weeks ended 27 December 2020 and for the 52 weeks ended 29 December 2019 have been consistently applied to all the periods presented except for the changes in accounting policy noted below. These Consolidated Financial Statements have been prepared on a going concern basis.

 

Going concern basis

The directors have made appropriate enquires and consider that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, which comprises the period of at least 12 months from the date of approval of the financial statements.

 

In accordance with LR 9.8.6(3) of the Listing Rules, and in determining whether the Group's annual consolidated financial statements can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities, and the principal risks and uncertainties relating to its business activities.

 

Having considered all the factors impacting the Group's businesses, including downside sensitivities (relating to trading and cash flows), the directors are satisfied that the Company and the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

 

The directors have reasonable expectations that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's annual consolidated financial statements.

 

Changes in accounting policy

Other than the adoption of IFRS 16 'Leases' the same accounting policies, presentation and methods of computation are followed in the Consolidated Financial Information as applied in the Group's latest annual consolidated financial statements for the 52 weeks ended 29 December 2019.

 

IFRS 16 has been applied by the Group in the 52 weeks ending 27 December 2020 and supersedes the lease guidance including IAS 17 and the related interpretation.

 

Nature of change

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on balance sheet model as the distinction between operating and finance leases is removed. The only exceptions are short-term and low-value leases. At the commencement date of a lease, a lessee will recognise a lease liability for the future lease payments and an asset representing the right to use the underlying asset during the lease term (right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of use asset.

 

Impact on the Group

The standard has impacted the accounting for the Group's operating leases relating to leased properties and leased vehicles. The Group has applied the simplified transition approach (modified retrospective approach) and recognised the lease liability on transition at the present value of the remaining lease payments, discounted using its incremental borrowing rate of 3.3% at the date of transition. On initial adoption, right-of-use assets have been measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. Lease incentives (eg rent-free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities, whereas under IAS 17, a lease incentive liability was recognised and amortised as a rental expense on a straight-line basis. Short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense to the income statement.

 

Practical Expedients applied on adoption

In its initial application of IFRS 16, the Group has used the following practical expedients allowed by the standard:

·          Applied a single discount rate to a portfolio of leases with similar characteristics;

·          Relied on its assessment of whether a lease is onerous by applying IAS 37 immediately before the date of initial application;

·          Not recognised leases whose lease term ends within 12 months of the adoption date of 30 December 2019;

·          Excluded initial direct costs from the measurement of right-of-use assets at the date of initial application; and

·          Used hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

 

The following table reconciles the minimum lease commitments for the 52 weeks ended 29 December 2019 to the amount of lease liabilities recognised on initial adoption at 30 December 2019.

 

 

£m

Operating lease commitment at 29 December 2019 as shown in the consolidated financial statements

 

52.2

Discount using the incremental borrowing rate

 

(7.1)

Discounted using the incremental borrowing rate

 

45.1

Less: short-term leases of one year or less from the date of application

 

(0.7)

Add: adjustments as a result of a different treatment of termination options

 

4.3

Lease liability recognised at 30 December 2019 (classified as current £6.4m and non-current £42.3m)

 

48.7

 

Impact on the primary statements

Impact on the consolidated income statement

As a result of applying IFRS 16, the Group has recognised depreciation and interest costs, rather than rental expenses for leases that are within the scope of IFRS 16 and which were classified previously as operating leases. In the 52 weeks ended 27 December 2020, the Group recognised £7.2m of additional depreciation charges and £1.5m of interest costs in respect of these leases instead of recognising the rental expense of £7.9m. This resulted in a £0.7m positive impact to adjusted and statutory operating profit and £0.8m negative impact on adjusted and statutory profit before tax.

 

Impact on consolidated cash flow statement

As a result of applying IFRS 16, in the 52 weeks ended 27 December 2020, the Group has increased net cash flow from operating activities by £9.2m and reduced its net cash from financing activities by £9.2m. There is no impact on the net cash flow.

 

Impact on consolidated balance sheet

 

 

 29 December 2019

(audited)

£m

IFRS 16 adjustment

2019

£m

 30 December 2019

(unaudited)

£m

Non-current assets

 

 

 

 

Goodwill

 

42.0

-

42.0

Other intangible assets

 

810.0

-

810.0

Property, plant and equipment

 

224.9

-

224.9

Right-of-use assets

 

-

45.61

45.6

Investment in associates

 

21.9

-

21.9

Retirement benefit assets

 

31.2

-

31.2

Deferred tax assets

 

55.9

-

55.9

 

 

1,185.9

45.6

1,231.5

Current assets

 

 

 

 

Inventories

 

5.9

-

5.9

Trade and other receivables

 

116.4

(0.6)2

115.8

Cash and cash equivalents

 

20.4

-

20.4

 

 

142.7

(0.6)

142.1

Total assets

 

1,328.6

45.0

1,373.6

Non-current liabilities

 

 

 

 

Trade and other payables

 

(40.1)

-

(40.1)

Lease liabilities

 

-

(42.3)3

(42.3)

Retirement benefit obligations

 

(327.1)

-

(327.1)

Deferred tax liabilities

 

(159.3)

-

(159.3)

Provisions

 

(20.5)

-

(20.5)

 

 

(547.0)

(42.3)

(589.3)

Current liabilities

 

 

 

 

Trade and other payables

 

(122.2)

3.34

(118.9)

Lease liabilities

 

-

(6.4)5

(6.4)

Current tax liabilities

 

(8.7)

-

(8.7)

Provisions

 

(15.5)

0.46

(15.1)

 

 

(146.4)

(2.7)

(149.1)

Total liabilities

 

(693.4)

(45.0)

(738.4)

Net assets

 

635.2

-

635.2

 

 

 

 

 

Total equity attributable to equity holders of the parent

 

(635.2)

-

(635.2)

1 Right-of-use assets recognised representing the right to use the assets over the lease term.

2 Adjustment mainly in respect of prepaid rent.

3 Non-current element of the lease liability recognised.

4 Adjustment in respect of accruals related to leases.

5 Current element of the lease liability recognised.

6 Adjustment in respect of the onerous lease provision.

 

 

 

Alternative performance measures

The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis. The Company believes that the adjusted basis and like-for-like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, it is not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. Revenue trends on an actual and like-for-like basis are the same for 2020. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 18 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flow.

 

Adjusting items

Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. All operating adjusting items are recognised within administrative expenses. Details of adjusting items are set out in note 18 with additional information in notes 5, 8 and 13.

 

Key sources of estimation uncertainty

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

 

Provisions (notes 8, 15 and 17)

There is uncertainty as to liabilities arising from the outcome or resolution of the ongoing historical legal issues and in addition there is uncertainty as to the amount of expenditure that may be tax deductible and additional tax liabilities may fall due in relation to earlier years. Provisions are measured at the best estimate of the expenditure required to settle the obligation based on the assessment of the related facts and circumstances at each reporting date. In particular, we note that there is uncertainty in relation to the size and length of the property related restructuring provisions.

 

Retirement benefits (note 13)

Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. These result in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.

 

Impairment review (note 12)

There is uncertainty in the value-in-use calculation. The most significant area of uncertainty relates to expected future cash flows for each cash-generating unit. Determining whether the carrying values of assets in a cash-generating unit are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Projections are based on both internal and external market information and reflect past experience. The discount rate reflects the weighted average cost of capital of the Group.

 

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:

 

Indefinite life assumption in respect of publishing rights and titles (note 12)

There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. At each reporting date management review the suitability of this assumption. 

 

Identification of cash-generating units (note 12)

There is judgement required in determining the cash-generating unit relating to our Publishing brands. At each reporting date management review the interdependency of revenues across our portfolio of Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.

 

3.            Segments

The performance of the Group is presented as a single reporting segment as this is the basis of internal reports regularly reviewed by the Board and chief operating decision maker (executive directors) to allocate resources and to assess performance. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.

 

 

4.            Revenue

 

 

2020

£m

2019

£m

 

 

 

Print

479.3

591.3

   Circulation

319.7

361.7

   Advertising

108.4

152.5

   Printing

25.2

38.5

   Other

26.0

38.6

Digital

118.3

107.0

Other

2.6

4.2

Total revenue

600.2

702.5

 

The Group's operations are located primarily in the UK.

 

5.            Operating adjusted items

 

 

2020

£m

2019

£m

 

 

 

Restructuring charges in respect of cost reduction measures (note 15)

(36.4)

(10.7)

Impairment of property, plant and equipment

(34.7)

(2.7)

Impairment of right-of-use assets

(13.7)

-

Impairment of goodwill (note 12)

(6.1)

-

Pension administrative expenses and past service costs for GMP equalisation (note 13)

(6.1)

(2.9)

Provision for historical legal issues (note 15)

(12.5)

(11.0)

Provision for historical property development (note 15)

(15.5)

-

Operating adjusted items included in administrative expenses

(125.0)

(27.3)

Operating adjusted items included in share of results of associates

(1.2)

5.6

Total operating adjusted items

(126.2)

(21.7)

 

Operating adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Set out in note 18 is the reconciliation between the statutory and adjusted results which includes descriptions of the items included in adjusted items.

 

The Group has recorded significant operating adjusted items relating to the transformation programmes undertaken during the year and from historical matters.

 

The Group announced in July 2020 a transformation programme to reshape the Group into a streamlined, more efficient organisation across editorial, advertising and central operations which was implemented in the year and in September 2020 a review of print capacity requirements which concluded with the closure of two print plants at the end of the year. Restructuring charges in respect of cost reduction measures of £36.4m comprises £16.5m for the transformation programme, £16.9m for the print plant closures and £3.0m relating to other cost saving initiatives. The closure of the two print plants resulted in an impairment to property, plant and equipment of £34.7m and right-of-use assets of £13.7m.

 

The Group has recorded a £12.5m increase in the provision for historical legal issues relating to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering (note 15) and a £15.5m charge reflecting a historic property development, which as a result of COVID-19 became onerous, resulting in the Group making a payment to the joint venture party to resolve the matter (note 15).

 

6.            Interest income

 

 

2020

£m

2019

£m

 

 

 

Interest income on bank deposits

0.1

0.1

 

7.            Finance costs

 

 

2020

£m

2019

£m

 

 

 

Interest on bank overdrafts and borrowings

(1.1)

(2.9)

Interest on lease liabilities

(1.5)

-

Finance costs

(2.6)

(2.9)

 

 

 

8.            Tax

 

 

2020

£m

2019

£m

Corporation tax charge for the period

(2.7)

(15.9)

Current tax charge

(2.7)

(15.9)

Deferred tax charge for the period

(5.7)

(9.9)

Prior period adjustment

0.3

(0.8)

Deferred tax rate change

(19.0)

-

Deferred tax charge

(24.4)

(10.7)

Tax charge

(27.1)

(26.6)

 

 

 

Reconciliation of tax charge

£m

£m

Profit before tax

0.4

120.9

Standard rate of corporation tax

(0.1)

(23.0)

Tax effect of items that are not deductible in determining taxable profit

(6.1)

(4.2)

Change in rate of deferred tax

(19.0)

-

Release of deferred tax on losses no longer expected to be recoverable

(2.5)

-

Prior period adjustment

0.3

(0.8)

Tax effect of share of results of associates

0.3

1.4

Tax charge

(27.1)

(26.6)

 

 

The standard rate of corporation tax for the period is 19% (2019: 19%). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax recoverable amounted to £2.8m (2019: current tax liabilities £8.7m) at the reporting date. Tax overpayments are in excess of provisions relating to uncertain tax items (2019: net provisions of £2.7m). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £6m (2019: £5m).

 

The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament. The reversal of the change in rate from 19% to 17% in 2020 has been accounted for in the current year resulting in a £19.0m debit in the consolidated income statement and a £5.9m credit in the consolidated statement of comprehensive income.

 

The tax on actuarial losses (2019: gains) on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a deferred tax credit of £11.7m (2019: charge of £2.8m).

 

The amount taken to the consolidated income statement as a result of pension contributions was £11.7m (2019: £8.7m).

 

9.            Dividends

 

2020

Pence

per share

2019

Pence

per share

Dividends paid per share and recognised as distributions to equity holders in the period

-

6.27

Dividend proposed per share but not paid nor included in the accounting records

4.26

4.05

 

On 10 May 2019, the final dividend proposed for 2018 of 3.77 pence per share was approved by shareholders at the Annual General Meeting and was paid on 7 June 2019. An interim dividend for 2019 of 2.50 pence per share was paid on 27 September 2019. Total dividend payment in 2019 amounted to £18.6m (2018 final dividend payment of £11.2m and 2019 interim dividend payment of £7.4m).

 

On 6 April 2020, the final dividend proposed for 2019 of 4.05 pence per share was withdrawn by the directors as a result of the COVID-19 pandemic.

 

On 28 September 2020, the Board recommended a non-cash bonus issue of shares to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share, which was subsequently approved by shareholders.

 

The Board has proposed a final dividend for 2020 of 4.26 pence per share. The 2020 final dividend payment is expected to amount to £13.3m.

10.          Earnings per share

Basic earnings per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period, and diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.

 

 

 

2020

Thousand

Restated     2019

Thousand

 

 

 

Weighted average number of ordinary shares for basic earnings per share

309,430

308,839

Effect of potential dilutive ordinary shares in respect of share awards

6,818

3,457

Weighted average number of ordinary shares for diluted earnings per share

316,248

312,296

 

The weighted average number of potentially dilutive ordinary shares not currently dilutive was 2,542,234 (2019: 3,526,324).

 

 

 

Statutory (loss)/earnings per share

 

2020

Pence

Restated     2019

Pence

 

 

 

(Loss)/earnings per share - basic

(8.6)

30.5

(Loss)/earnings per share - diluted

(8.6)

30.2

 

 

Adjusted earnings per share

 

2020

Pence

Restated     2019

Pence

 

 

 

Earnings per share - basic

34.4

39.4

Earnings per share - diluted

33.6

39.0

 

Earnings per share for 2019 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share.

 

Set out in note 18 is the reconciliation between the statutory and adjusted results.

 

11.          Cash flows from operating activities

 

2020

£m

2019

£m

 

 

 

Operating profit

7.6

131.7

Depreciation of property, plant and equipment

20.2

21.5

Depreciation of right-of-use assets

7.2

-

Impairment of goodwill

6.1

-

Share of results of associates

(1.4)

(7.4)

Charge for share-based payments

3.6

1.1

Loss on disposal of land and buildings

-

0.3

Impairment of right-of-use assets

13.7

-

Impairment of property, plant and equipment

36.5

2.7

Write-off of property, plant and equipment

1.4

0.2

Pension administrative expenses

4.6

2.9

Pension past service costs

1.5

-

Operating cash flows before movements in working capital

101.0

153.0

Decrease in inventories

1.3

0.4

Decrease/(increase) in receivables

8.9

(7.8)

Increase in payables

10.1

1.8

Cash flows from operating activities

121.3

147.4

 

12.          Goodwill and other intangible assets

The carrying value of goodwill and other intangible assets is:

 

 

Goodwill

£m

Publishing

rights and titles

£m

Intangible

assets

£m

Opening carrying value

42.0

810.0

852.0

Acquisition of subsidiary undertaking

-

8.7

8.7

Impairment

(6.1)

-

(6.1)

Opening and closing carrying value

35.9

818.7

854.6

 

The Group has two cash-generating units (Publishing and Digital Classified Recruitment). All intangible assets at the reporting date relate to Publishing. The addition in the year relates to the acquisition of Independent Star Ireland which is included in Publishing. The Goodwill relating to Digital Classified Recruitment was impaired reflecting the adverse trading environment in recruitment advertising in the year.

 

There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. The Group has grown digital revenue in recent years and is focused on investing to continue the growth for the coming years. The directors believe growth from digital and new revenue streams will offset print declines on an aggregate basis, leading to a future stabilisation of revenue. This, combined with our inbuilt and relentless focus on maximising efficiency, gives the Board confidence that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future.

 

There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.

 

The Group tests the carrying value of assets at the cash-generating unit level for impairment annually or more frequently if there are indicators that assets might be impaired. The review is undertaken by assessing whether the carrying value of assets is supported by their value in use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount.

 

The impairment review in respect of the Publishing cash-generating unit concluded that no impairment charge was required.

 

For the impairment review of the Publishing cash-generating unit, cash flows have been prepared using the approved Budget for 2021 and projections for a further nine years as this is the period over which the transformation to digital can be assessed. The projections for 2022 to 2030 are internal projections based on continued decline in print revenues and growth in digital revenues and the associated change in the cost base as a result of the changing revenue mix. The Group's medium term internal projections are that growth in digital revenue will be sufficient to offset the decline in print revenue and that overall revenue will stabilise. The long-term growth rates beyond the 10-year period have been assessed at 0% based on the Board's view of the market position and maturity of the relevant market. We continue to believe that there are significant longer term benefits of our scale national and local digital audiences and there are opportunities to grow revenue and profit in the longer term.

 

The discount rate reflects the weighted average cost of capital of the Group. The current post-tax and equivalent pre-tax discount rate used is 10.9% and 13.4% respectively.

 

The impairment review in respect of the Publishing cash-generating unit is highly sensitive to reasonably possible changes in key assumptions used in the value-in-use calculations. There is increased uncertainty due to COVID-19. A combination of reasonably possible changes in key assumptions such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected or the associated change in the cost base being different than projected, could lead to an impairment in the Publishing cash-generating unit. If these sensitivities led to a 28% reduction in cash flows in each of the years in the 10 year period this would lead to the removal of the headroom. Alternatively an increase in the discount rate by 4.5 percentage points would lead to the removal of the headroom.

 

13.          Retirement benefit schemes

Defined contribution pension schemes

The Group operates a defined contribution pension scheme for qualifying employees: The Reach Pension Plan (the 'RPP'). The assets of the RPP scheme where employees have an individual account at Fidelity are held separately from those of the Group in funds under the control of Trustees.

 

The current service cost charged to the consolidated income statement for the year of £17.4m (2019: £17.7m) represents contributions paid by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.

 

Defined benefit pension schemes

Background

The defined benefit pension schemes operated by the Group are all closed to future accrual. The Group has six defined benefit pension schemes:

·       Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN Scheme'); and

·      Express & Star schemes (the 'E&S Schemes'): the Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the Express Newspapers Senior Management Pension Fund (the 'ENSM Scheme') and the West Ferry Printers Pension Scheme (the 'WF Scheme').

 

Characteristics

The defined benefit pension schemes provide pensions to members, which are based on the final salary pension payable, normally from age 65 (although some schemes have some pensions normally payable from an earlier age) plus surviving spouses or dependants' benefits following a member's death. Benefits increase both before and after retirement either in line with statutory minimum requirements or in accordance with the scheme rules if greater. Such increases are either at fixed rates or in line with retail or consumer prices but subject to upper and lower limits. All of the schemes are independent of the Group with assets held independently of the Group. They are governed by Trustees who administer benefits in accordance with the scheme rules and appropriate UK legislation. The schemes each have a professional or experienced independent Trustee as their Chairman with generally half of the remaining Trustees nominated by the members and half by the Group.

 

Maturity profile and cash flow

Across all of the schemes, the uninsured liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners. The average term from the period end to payment of the remaining uninsured benefits is expected to be around 16 years. Uninsured pension payments in 2020, excluding lump sums and transfer value payments, were £71m and these are projected to rise to an annual peak in 2033 of £103m and reducing thereafter.

 

Funding arrangements

The funding of the Group's schemes is subject to UK pension legislation as well as the guidance and codes of practice issued by the Pensions Regulator. Funding targets are agreed between the Trustees and the Group and are reviewed and revised usually every three years. The funding targets must include a margin for prudence above the expected cost of paying the benefits and so are different to the liability value for IAS 19 purposes. The funding deficits revealed by these triennial valuations are removed over time in accordance with an agreed recovery plan and schedule of contributions for each scheme.

 

The funding valuations of the schemes: at 31 December 2016 for the MGN Scheme showed a deficit of £476.0m, for the Trinity Scheme showed a deficit of £78.0m and for the MIN Scheme showed a deficit of £68.2m; at 5 April 2017 for the EN88 Scheme showed a deficit of £69.8m and for the ENSM Scheme showed a deficit of £3.2m; and at 31 December 2017 for the WF Scheme showed a deficit of £6.5m. The triennial valuation for funding of the defined benefit pension schemes as at 31 December 2019 would usually be completed by 31 March 2021. We have agreed the funding of the WF Scheme (see below) and the discussions with the remaining five schemes are ongoing. There is no direct link to the IAS 19 valuations which use different actuarial assumption derivation methodologies (although a number of assumptions are consistent) and are updated at each reporting date.

 

Group contributions in respect of the defined benefit pension schemes in the year were £53.9m (2019: £48.9m). As part of the key mitigation actions resulting from COVID-19 pandemic, the Group agreed with the Trustees a deferment of its pension contributions for April, May and June amounting to £12.2m. Of this amount 80% (£9.8m) was paid over to an escrow account and 20% (£2.4m) was retained in the business. The Group could have drawn on the amounts in escrow if certain conditions were met up to 28 June 2020. None of the conditions were met and the 80% was released to the pension schemes in July 2020. The 20% of the deferment (£2.4m) was paid over to the schemes in September 2020.

 

As part of the decision to close the Luton print plant the Group reached agreement with the Trustees of the WF Scheme to make additional contributions of £5.0m in 2020 (included in the £53.9m of Group contributions) and a further payment of up to £15.0m by the end of June 2021 to enable the Trustees to purchase a bulk annuity policy which would match the remaining liabilities in the scheme in full. In February 2021 a payment of £9.6m was made and the Trustees purchased the bulk annuity policy. No further contributions are expected to the WF Scheme.

 

At the reporting date, the funding deficits in all schemes are expected to be removed before or in 2027 by a combination of the contributions and asset returns. Contributions (which include funding for pension administrative expenses) are payable monthly. Contributions per the current schedule of contributions (excluding the WF Scheme) are for £55.1m pa in 2021 to 2023, £54.9m pa in 2024 to 2026 and £52.9m in 2027.

 

The Group agreed that in respect of dividend payments in 2018, 2019 and 2020 that additional contributions would be paid at 75% of the excess if dividends paid in 2018 were above 6.16 pence per share. For 2019 and 2020 the threshold increased in line with the increase in dividends capped at 10% pa. No payments were made in respect of this agreement.

 

The future deficit funding commitments are linked to the three-yearly actuarial valuations. Although the funding commitments do not generally impact the IAS 19 position, IFRIC 14 guides companies to consider for IAS 19 disclosures whether any surplus can be recognised as a balance sheet asset and whether any future funding commitments in excess of the IAS 19 liability should be provisioned for. Based on the interpretation of the rules for each of the defined benefit pension schemes, the Group considers that it has an unconditional right to any potential surplus on the ultimate wind-up after all benefits to members have been paid of all of the schemes except the WF Scheme. Under IFRIC 14 it is therefore appropriate to recognise any IAS 19 surpluses which may emerge in future and not to recognise any potential additional liabilities in respect of future funding commitments of all of the schemes except for the WF Scheme. For the WF Scheme at the reporting date, the assets are surplus to the IAS 19 benefit liabilities. However, to allow for IFRIC 14, the Group recognises a deficit of the value of its future deficit contribution commitment to the scheme in line with the schedule of contributions in force at the reporting date.

 

The calculation of Guaranteed Minimum Pension ('GMP') is set out in legislation and members of pension schemes that were contracted out of the State Earnings-Related Pension Scheme ('SERPS') between 6 April 1978 and 5 April 1997 will have built up an entitlement to a GMP. GMPs were intended to broadly replicate the SERPS pension benefits but due to their design they give rise to inequalities between men and women, in particular, the GMP for a male comes into payment at age 65 whereas for a female it comes into payment at the age of 60 and GMPs typically receive different levels of increase to non GMP benefits. On 26 October 2018, the High Court handed down its judgement in the Lloyds Trustees vs Lloyds Bank plc and Others case relating to the equalisation of member benefits for the gender effects of GMP equalisation. This judgement creates a precedent for other UK defined benefit schemes with GMPs. The judgement confirmed that GMP equalisation was required for the period 17 May 1990 to 5 April 1997 and provided some clarification on legally acceptable methods for achieving equalisation. An allowance for GMP equalisation was first included within liabilities at 30 December 2018 and was recognised as a charge for past service costs in the income statement. In 2020 further clarification was issued relating to GMP equalisation in respect of transfers out of schemes. A further allowance for GMP equalisation has been included within liabilities at 27 December 2020 and has been recognised as a charge for past service costs in the income statement. The estimate is subject to change as we undertake more detailed member calculations, as guidance is issued and/or as a result of future legal judgements.

 

Risks

Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in the risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value.

 

The main sources of risk are:

·          Investment risk: a reduction in asset returns (or assumed future asset returns);

·          Inflation risk: an increase in benefit increases (or assumed future increases); and

·          Longevity risk: an increase in average life spans (or assumed life expectancy).

 

These risks are managed by:

·         Investing in insured annuity policies: the income from these policies exactly matches the benefit payments for the members covered, removing all of the above risks. At the reporting date the insured annuity policies covered 11% of total liabilities;

·         Investing a proportion of assets in other classes such as government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the reporting date non-equity assets amounted to 81% of assets excluding the insured annuity policies;

·         Investing a proportion of assets in equities: with the aim of achieving outperformance and so reducing the deficits over the long term. At the reporting date this amounted to 19% of assets excluding the insured annuity policies; and

·         The gradual sale of equities over time to purchase additional annuity policies or liability matching investments: to further reduce risk as the schemes, which are closed to future accrual, mature.

Pension scheme accounting deficits are snapshots at moments in time and are not used by either the Group or Trustees to frame funding policy. The Group and Trustees are aligned in focusing on the long-term sustainability of the funding policy which aims to balance the interests of the Group's shareholders and members of the schemes. The Group and Trustees are also aligned in reducing pensions risk over the long term and at a pace which is affordable to the Group.

 

The E&S Schemes and the Trinity Scheme have an accounting surplus at the reporting date, before allowing for the IFRIC 14 asset ceiling. Across the MGN Scheme and the MIN Scheme, the invested assets are expected to be sufficient to pay the uninsured benefits due up to 2044, based on the reporting date assumptions. The remaining uninsured benefit payments, payable from 2045, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid up to 2027. Actuarial projections at the year-end reporting date show removal of the combined accounting deficit by the end of 2027 due to scheduled contributions and asset returns at the current target rate. From this point, the assets are projected to be sufficient to fully fund the liabilities on the accounting basis. The Group is not exposed to any unusual, entity specific or scheme specific risks. Other than the impact of GMP equalisation, there were no plan amendments, settlements or curtailments in 2020 or 2019 which resulted in a pension cost.

 

Results

For the purposes of the Group's consolidated financial statements, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at 27 December 2020.

 

Based on actuarial advice, the assumptions used in calculating the scheme liabilities and the actuarial value of those liabilities are:

 

 

2020

2019

Financial assumptions (nominal % pa)

 

 

Discount rate

1.49

1.94

Retail price inflation rate

2.86

2.96

Consumer price inflation rate

2.26

2.01

Rate of pension increase in deferment

2.36

2.17

Rate of pension increases in payment (weighted average across the schemes)

3.25

3.31

Mortality assumptions - future life expectancies from age 65 (years)

 

 

Male currently aged 65

21.9

21.7

Female currently aged 65

24.2

24.0

Male currently aged 55

21.6

21.5

Female currently aged 55

24.2

24.0

 

The discount rate should be chosen to be equal to the yield available on 'high quality' corporate bonds of appropriate term and currency. The yields available on corporate bonds fell by around 0.6% pa over the year. The Group has taken actuarial advice and has updated the approach to determining the bond constituents for the calculation of the discount rate. The bond constituents used for the 2020 disclosures have been taken from a new Bloomberg classification system which counteracted the fall in the discount rate by around 0.1% pa. The discount rate for 2019 was derived from a classification system called BICS, provided by Bloomberg. Over 2020, Bloomberg made changes to BICS so that it provides a single classification to each bond issuer rather than each bond, and is therefore no longer appropriate. Bloomberg have recently offered an alternative classification system called BCLASS, which provides classification information on each individual security and which Bloomberg describes as the "fixed income standard". BCLASS also enables the inclusion of bonds issued by corporate special purpose vehicles, thereby increasing the size of the universe used to determine the discount rate. Our actuaries have determined an appropriate market bond yield based on a BCLASS extract from Bloomberg which excludes bonds which have a 'corporate' BCLASS assignment but which have actual or implied government backing, such as bonds issued by universities or public transportations systems.

 

The inflation assumptions are based on market expectations over the period of the liabilities. The RPI assumption is set based on a margin deducted from a single equivalent of the break-even RPI inflation curve. This margin, called an inflation risk premium reflects the fact that the RPI market implied inflation curve can be affected by market distortions and as a result it is thought to overstate the underlying market expectations for future RPI inflation. On 25 November 2020, the Government and UK Statistics Authority responded to their consultation on RPI reform and confirmed their intent to align RPI with CPIH (CPI allowing for housing costs) from February 2030. Our actuaries have advised that broadly this is expected to result in RPI inflation being 1.0% pa lower in the longer term than under the existing methodology but that RPI swaps data shows a fall in forward rates from 2030 of only 0.6%. A reasonable explanation for this disparity is that the market is reflecting a higher premium being placed on inflation projection after 2030 suggesting an increase of 0.2% in the assumed inflation risk premium applying from 2030. Allowing for the extent of RPI linkage on the schemes benefits pre and post 2030, the average inflation risk premium has been increased from 0.2% to 0.3% (to broadly reflect 0.2% to 2030 and 0.4% thereafter). This change decreased RPI and CPI by 0.1% and decreased the deficit by £16m. The CPI assumption is set based on a margin deducted from the RPI assumption, due to lack of market data on CPI expectations. Our actuaries have advised that considering the features and liabilities of the schemes that the expected future differential has reduced following the consultation on amending RPI in the long term. Historic inflation data indicates that CPI moves broadly in line with CPIH, which supports an assumed RPI/CPI margin of 1.0% up to 2030 and 0.00% beyond 2030. Based on an analysis of the CPI-linkage of the cashflow profile of the schemes this is estimated to be equivalent to a single margin of 0.6% resulting in the RPI/CPI margin being reduced from 0.95% pa to 0.60% pa. This change increased CPI by 0.35% and increased the deficit by £32m.

 

The estimated impact on the IAS 19 liabilities and on the IAS 19 deficit at the reporting date, due to a reasonably possible change in key assumptions over the next year, are set out in the table below:

 

Effect on

liabilities
£m

Effect on

deficit
£m

Discount rate +/- 0.5% pa

-215/+235

-200/+215

Retail price inflation rate +/- 0.5% pa

+41/-40

+32/-31

Consumer price inflation rate +/- 0.5% pa

+50/-48

+50/-48

Life expectancy at age 65 +/- 1 year

+175/-170

+150/-150

 

The RPI sensitivity impacts the rate of increases in deferment for some of the pensions in the EN88 Scheme and the ENSM Scheme and some of the pensions in payment for all schemes except the MGN Scheme. The CPI sensitivity impacts the rate of increases in deferment for some of the pensions in most schemes and the rate of increases in payment for some of the pensions in payment for all schemes.

 

The effect on the deficit is usually lower than the effect on the liabilities due to the matching impact on the value of the insurance contracts held in respect of some of the liabilities. Each assumption variation represents a reasonably possible change in the assumption over the next year but might not represent the actual effect because assumption changes are unlikely to happen in isolation.

 

The estimated impact of the assumption variations makes no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.

 

The amount included in the consolidated income statement, consolidated statement of comprehensive income and consolidated balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes is as follows:

 

Consolidated income statement

 

2020

£m

2019

£m

 

 

 

Pension administrative expenses

(4.6)

(2.9)

Past service costs

(1.5)

-

Pension finance charge

(4.7)

(8.0)

Defined benefit cost recognised in income statement

(10.8)

(10.9)

 

Consolidated statement of comprehensive income

2020

£m

2019

£m

 

 

 

Actuarial gain due to liability experience

48.2

24.9

Actuarial loss due to liability assumption changes

(304.6)

(271.8)

Total liability actuarial loss

(256.4)

(246.9)

Returns on scheme assets greater than discount rate

209.6

261.9

Impact of IFRIC 14

(14.8)

(0.3)

Total (loss)/gain recognised in statement of comprehensive income

(61.6)

14.7

 

Consolidated balance sheet

2020

£m

2019

£m

 

 

 

Present value of uninsured scheme liabilities

(2,545.5)

(2,337.9)

Present value of insured scheme liabilities

(318.6)

(326.0)

Total present value of scheme liabilities

(2,864.1)

(2,663.9)

Invested and cash assets at fair value

2,278.7

2,074.8

Value of liability matching insurance contracts

318.6

326.0

Total fair value of scheme assets

2,597.3

2,400.8

Funded deficit

(266.8)

(263.1)

Impact of IFRIC 14

(47.6)

(32.8)

Net scheme deficit

(314.4)

(295.9)

 

 

 

Non-current assets - retirement benefit assets

50.4

31.2

Non-current liabilities - retirement benefit obligations

(364.8)

(327.1)

Net scheme deficit

(314.4)

(295.9)

 

 

 

Net scheme deficit included in consolidated balance sheet

(314.4)

(295.9)

Deferred tax included in consolidated balance sheet

58.9

53.0

Net scheme deficit after deferred tax

(255.5)

(242.9)

 

 

Movement in net scheme deficit

2020

£m

2019

£m

 

 

 

Opening net scheme deficit

(295.9)

(348.6)

Contributions

53.9

48.9

Consolidated income statement

(10.8)

(10.9)

Consolidated statement of comprehensive income

(61.6)

14.7

Closing net scheme deficit

(314.4)

(295.9)

 

Changes in the present value of scheme liabilities

2020

£m

2019

£m

 

 

 

Opening present value of scheme liabilities

(2,663.9)

(2,462.8)

Past service costs

(1.5)

-

Interest cost

(50.5)

(66.3)

Actuarial gain - experience

48.2

24.9

Actuarial gain - change to demographic assumptions

(93.5)

42.7

Actuarial loss - change to financial assumptions

(211.1)

(314.5)

Benefits paid

108.2

112.1

Closing present value of scheme liabilities

(2,864.1)

(2,663.9)

 

Impact of IFRIC 14

 

2020

£m

2019

£m

 

 

 

Opening impact of IFRIC 14

(32.8)

(32.5)

Increase in impact of IFRIC 14

(14.8)

(0.3)

Closing impact of IFRIC 14

(47.6)

(32.8)

 

Changes in the fair value of scheme assets

 

2020

£m

2019

£m

 

 

 

Opening fair value of scheme assets

2,400.8

2,146.7

Interest income

45.8

58.3

Actual return on assets greater than discount rate

209.6

261.9

Contributions by employer

53.9

48.9

Benefits paid

(108.2)

(112.1)

Administrative expenses

(4.6)

(2.9)

Closing fair value of scheme assets

2,597.3

2,400.8

 

Fair value of scheme assets

2020

£m

2019

£m

 

 

 

UK equities

70.6

49.2

US equities

180.4

128.6

Other overseas equities

182.6

191.1

Property

40.2

24.4

Corporate bonds

320.6

242.1

Fixed interest gilts

99.0

184.2

Index linked gilts

72.7

71.9

Liability driven investment

819.8

773.9

Cash and other

492.8

409.4

Invested and cash assets at fair value

2,278.7

2,074.8

Value of insurance contracts

318.6

326.0

Fair value of scheme assets

2,597.3

2,400.8

 

The assets of the schemes are primarily held in pooled investment vehicles which are unquoted. The pooled investment vehicles hold both quoted and unquoted investments. Scheme assets include neither direct investments in the Company's ordinary shares nor any property assets occupied nor other assets used by the Group.

 

14.          Net cash

The net cash for the Group is as follows:

 

 

 

29 December 2019

 

£m

 

Cash

flow

 

£m

IFRS 16 opening adjustment

 

£m

 

IRFS 16

movement

 

£m

27 December  2020

 

 

£m

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

20.4

21.6

-

-

42.0

 

 

 

 

 

 

 

 

Net cash

20.4

21.6

-

-

42.0

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Lease liabilities

-

-

(42.3)

6.8

(35.5)

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Lease liabilities

-

-

(6.4)

0.3

(6.1)

 

 

 

 

 

 

Net cash less lease liabilities

20.4

21.6

(48.7)

7.1

0.4

 

The Group has a revolving credit facility of £65m until December 2023 reducing to £55m until December 2024. The Group had no drawings at the reporting date and the facility is subject to four covenants: Net Worth, Interest Cover, Net Debt to EBITDA and Cash Flow all of which were met at the reporting date.

 

The Group has implemented IFRS 16 'Leases' with effect from 30 December 2019 using the modified retrospective approach to transition and has accordingly not restated prior periods. The impact of the implementation has been to recognise the Group's previous operating lease commitments in relation to properties and vehicles as lease liabilities on the balance sheet at the initial date of application at 30 December 2019 (see note 2). Total lease liabilities at 27 December 2020 are £41.6m.

 

Acquisition deferred consideration

Deferred consideration (which is shown separately on the face of the consolidated balance sheet in 2020) is in respect of the acquisition of Express & Star. Payment of the first instalment of £18.9m was made on 28 February 2020. Of the remaining amount of £40.1m, £16.0m is classified as current liabilities (payable on 28 February 2021) and £24.1m is classified as non-current liabilities (£17.1m on 28 February 2022 and £7.0m on 28 February 2023). There are no conditions attached to the payment of the deferred consideration and the transaction was structured such that no interest accrues on these payments. However, under the sale and purchase agreement the Group has the right to offset agreed claims arising from a breach of warranties and indemnities and can also offset any shortfalls on the contracted advertising from the Health Lottery. The deferred consideration has not been discounted as we do not believe that the impact of such discounting is material.

 

15.          Provisions

 

Share-based payments

£m

 

Property

£m

 

Restructuring

£m

Historical

legal issues

£m

 

Other

£m

 

Total

£m

 

 

 

 

 

 

 

At 29 December 2019

(0.7)

(5.7)

(1.4)

(21.1)

(7.1)

(36.0)

IFRS 16 adjustment

-

0.4

-

-

-

0.4

Restated at 30 December 2019

(0.7)

(5.3)

(1.4)

(21.1)

(7.1)

(35.6)

Acquisition of subsidiary undertaking

-

-

-

-

(0.7)

(0.7)

Charged to income statement

(0.9)

(0.9)

(36.4)

(12.5)

(17.6)

(68.3)

Utilisation of provision

-

1.1

18.0

10.6

18.2

47.9

At 27 December 2020

(1.6)

(5.1)

(19.8)

(23.0)

(7.2)

(56.7)

 

The provisions have been analysed between current and non-current as follows:

 

 

2020

£m

2019

£m

 

 

 

Current

(31.5)

(15.5)

Non-current

(25.2)

(20.5)

 

(56.7)

(36.0)

 

The share-based payments provision relates to National Insurance obligations attached to the future crystallisation of awards. This provision will be utilised over the next three years.

 

The property provision relates to property related onerous contracts and future committed costs related to occupied, let and vacant properties. The provision will be utilised over the remaining term of the leases or expected period of vacancy.

 

The restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. The balance at the period end comprises severance costs of £9.3m and closure costs relating to the closure of two print plants of £10.5m. The severance costs provision is expected to be utilised within the next year. The closure costs provision includes £3.7m expected to be utilised within the next year and £6.8m expected to be utilised over the remaining term of the long term lease relating to one of the print plants that were closed.

 

The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. There are three parts to the provision: known claims, potential future claims and common court costs with estimates based on historical trends and experience of claims and costs. Certain cases and other matters relating to the issue can be subject to court proceedings, the outcome of which can impact on how much is required to settle the remaining claims and on the number of claims. The Group has recorded an increase in the provision every year since 2014 which highlights the challenges in making a best estimate and the time taken to resolve this historical matter. It is not possible to provide a range of potential outcomes in respect of this provision and due to this uncertainty, a contingent liability has been highlighted in note 17. The Group accelerated the settlement of claims in the second half of the year resulting in payments of £9.7m in this period compared to £0.9m in the first half. In light of the payments made and based on additional claims received the provision has been increased by £12.5m in the year. At the period end, a provision of £23.0m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The provision is expected to be utilised over the next few years.

 

Other provisions include a charge and utilisation of £15.5m reflecting a historic property development, which as a result of COVID-19 became onerous. In 2018 the Group sold part of its freehold property in Liverpool and also entered into an agreement to develop the property into a hotel and retail/office space. As a result of COVID-19 the development incurred significant time delays and cost overruns, with no certainty as to the amount that could be incurred on completion of the development and insufficient contractual protections based on the historical agreement. A new agreement was reached to limit the exposure to the Group to £15.5m. A one-off provision of £15.5m has been charged and this amount was paid in September 2020. The Group has no further exposure in respect of this development. The other provision balance of £7.2m at the period end relates to libel and other matters and is expected to be utilised over the next two years.

 

16.          Share capital and reserves

The share capital comprises 322,085,269 allotted, called-up and fully paid ordinary shares of 10p each. On 28 September 2020, the Board recommended a bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share, which was subsequently approved by shareholders. On 23 October 2020, 12,798,952 ordinary shares were issued in respect of the bonus issue of shares with the issue being made out of the share premium account in accordance with the Companies Act 2006.

 

The share premium reflects the premium on issued ordinary shares. The merger reserve comprises the premium on the shares allotted in relation to the acquisition of Express & Star. The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buy-back programmes.

 

The Company holds 10,017,620 shares as Treasury shares. Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9m (2019: £25.9m). On transition to IFRS, the revalued amounts of freehold properties were deemed to be the cost of the asset and the revaluation reserve has been transferred to retained earnings and other reserves.

 

Shares purchased by the Reach Employee Benefit Trust are included in retained earnings and other reserves at £2.7m (2019: £3.7m). During the year, 778,658 were released relating to grants made in prior years (2019: 522,572).

 

During the year, awards relating to 1,218,530 shares were granted to executive directors on a discretionary basis under the Long Term Incentive Plan (2019: 2,970,531). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions, and are required to be held for a further two years.

 

During the year, awards relating to 2,358,715 shares were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (2019: 2,593,910). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.

 

During the year, awards relating to 50,618 shares were granted to executive directors under the Restricted Share Plan (2019: 77,399). The awards vest after three years.

 

17.          Contingent liabilities

There is the potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues (note 15).

 

18.          Reconciliation of statutory to adjusted results

   52 weeks ended 27 December 2020

 

 

 

 

Statutory

results

£m

Operating

adjusted

items

(a)

£m

Pension

finance

charge

(b)

£m

 

                                     

Tax

(c)

£m

 

 

Adjusted

results

£m

Revenue

600.2

-

-

-

600.2

Operating profit

7.6

126.2

-

-

133.8

Profit before tax

0.4

126.2

4.7

-

131.3

(Loss)/profit after tax

(26.7)

110.3

3.8

19.0

106.4

Basic (loss)/earnings per share (p)

(8.6)

35.7

1.2

6.1

34.4

   52 weeks ended 29 December 2019

 

 

 

 

Statutory

results

£m

Operating

adjusted

items

(a)

£m

Pension

finance

charge

(b)

£m

 

 

Tax

(c)

£m

 

 

Adjusted

results

£m

Revenue

702.5

-

-

-

702.5

Operating profit

131.7

21.7

-

-

153.4

Profit before tax

120.9

21.7

8.0

-

150.6

Profit after tax

94.3

20.9

6.5

-

121.7

Basic earnings per share (p) restated (d)

30.5

6.8

2.1

-

39.4

    

(a)       Operating adjusted items relate to the items charged or credited to operating profit as set out in note 5.

(b)       Pension finance charge relating to the defined benefit pension schemes as set out in note 13.

(c)        Tax items relate to the impact of tax legislation changes due to the change in the future corporation tax rate on the opening deferred tax position as set out in note 8.

(d)       Basic earnings per share for 2019 has been restated as set out in note 10.

 

Set out in note 2 is the rationale for the alternative performance measures adopted by the Group. The reconciliations in this note highlight the impact on the respective components of the income statement. Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals) or relate to historic liabilities (historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual).

 

Restructuring charges and closure costs incurred to deliver cost reduction measures relate to the transformation of the business from print to digital, together with costs to deliver synergies. These costs are principally severance related, but may also include system integration costs and print plant closure costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.

 

Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.

 

Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.

 

The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses, the past service costs for GMP equalisation and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment.

 

The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament or when a decision is reversed. The impact of the change in rates are included in adjusted items, on the basis that when they occur they are material, distorting the underlying performance of the business.

 

Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contractual issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.

 

19.          Adjusted cash flow

 

2020

2019

 

£m

£m

Adjusted operating profit

133.8

153.4

Depreciation

27.4

21.5

Adjusted EBITDA

161.2

174.9

Net interest paid on bank borrowings

(1.1)

(3.2)

Income tax paid

(14.2)

(11.7)

Restructuring payments

(18.0)

(13.6)

Net capital expenditure

(1.6)

(3.4)

Interest paid on leases

(1.5)

-

Repayment of obligation under leases

(7.7)

-

Working capital and other

4.7

(9.9)

Adjusted operating cash flow

121.8

133.1

Historical legal issues payments

(10.6)

(3.5)

Historical contract issues payments

(15.5)

-

Dividends paid

-

(18.6)

Pension funding payments

(53.9)

(48.9)

Adjusted net cash flow

41.8

62.1

Bank facility drawdown

25.0

-

Bank facility repayment

(25.0)

(60.0)

Acquisition related cash flow

(20.2)

(0.9)

Net increase in cash and cash equivalents

21.6

1.2

 

20.          Reconciliation of statutory to adjusted cash flow

 

£m

£m

£m

£m

 

Income tax paid

(14.2)

14.2

-

-

 

Net cash inflow from operating activities

53.2

 

 

 

 

Deferred consideration payment

(18.9)

-

-

(18.9)

Acquisition related cash flow

Acquisition of associate undertaking

(0.2)

-

-

(0.2)

Acquisition related cash flow

Acquisition of subsidiary undertaking

(3.4)

-

-

(3.4)

Acquisition related cash flow

Cash acquired on acquisition of subsidiary undertaking

2.3

-

-

2.3

Acquisition related cash flow

Net cash used in investing activities

(21.2)

 

 

 

 

Drawdown of borrowings

25.0

-

-

25.0

Bank facility drawdown

Repayment of borrowings

(25.0)

-

-

(25.0)

Bank facility repayment

Interest paid on leases

(1.5)

1.5

-

-

 

Repayment of obligations under leases

(7.7)

7.7

-

-

 

Net cash used in financing activities

(10.4)

 

 

 

 

Net increase in cash and cash equivalents

21.6

-

-

21.6

 

 

52 weeks ended 29 December 2019

2019

 

 

2019

 

 

Statutory

(a)

(b)

Adjusted

 

 

£m

£m

£m

£m

 

Income tax paid

(11.7)

11.7

-

-

 

Net cash inflow from operating activities

86.8

 

 

 

 

Net cash used in investing activities

(3.7)

 

 

 

 

Repayment of bank borrowings

(60.0)

-

-

(60.0)

Bank facility repayment

Net cash received from financing activities

(81.9)

 

 

 

 

Net increase in cash and cash equivalents

1.2

-

-

1.2

 

(a)         Items included in the statutory cash flow on separate lines which for the adjusted cash flow are included in adjusted operating cash flow.

(b)        Payments in respect of historical legal issues and historical contract issues are shown separately in the adjusted cash flow.

 

 

Principal Risks and Uncertainties

 

The Group recognises the importance of the effective understanding and management of risk in enabling us to identify factors, both externally and internally that may materially affect our ability to achieve our goals. There is an ongoing process for the identification, evaluation and management of the principal risks faced by the Group, including emerging risks. Appropriate mitigating actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process. All risks are considered in the context of our strategic objectives, the changing regulatory and compliance landscape and enabling the continuity of our operations. 2020 has been a very challenging year for the Group against the backdrop of the economic  uncertainty caused by the ongoing COVID-19 pandemic and, for much of the year, the possibility of the UK leaving the European Union without a deal. Specific pandemic impacts, such as those related to new working practices, has compounded levels of risk across all areas and we acknowledge that we are not yet able to fully evaluate the impact in all areas. However, the Board have undertaken a robust risk assessment and the principal risks felt facing the Group at this time are shown below, including a description of each risk, the current positioning and key mitigating actions.

 

Principal risks and uncertainties

Risk

 

Description

Mitigation

Update

 

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