Consolidated statement of changes in equity

for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)

	notes	27 June 2021 (unaudited) £m	28 June 2020 (unaudited) £m	27 December 2020 (audited) £m
Non-current assets
Goodwill		35.9	42.0	35.9
Other intangible assets		818.7	810.0	818.7
Property, plant and equipment	12	161.2	216.4	168.4
Right-of-use assets	13	12.9	42.6	25.3
Investment in associates		18.9	21.9	18.1
Retirement benefit assets	14	100.1	74.6	50.4
Deferred tax assets		41.0	55.0	60.5
		1,188.7	1,262.5	1,177.3
Current assets
Inventories		3.9	5.1	4.6
Trade and other receivables		102.9	91.9	110.5
Cash and cash equivalents	15	54.7	66.9	42.0
		161.5	163.9	157.1
Total assets		1,350.2	1,426.4	1,334.4
Non-current liabilities
Deferred consideration	15	(7.0)	(24.1)	(24.1)
Lease liabilities	15	(32.6)	(38.4)	(35.5)
Retirement benefit obligations	14	(255.1)	(336.2)	(364.8)
Deferred tax liabilities		(226.2)	(178.9)	(172.4)
Provisions	16	(41.7)	(17.5)	(25.2)
		(562.6)	(595.1)	(622.0)
Current liabilities
Trade and other payables		(112.5)	(91.8)	(92.1)
Deferred consideration	15	(17.1)	(16.0)	(16.0)
Borrowings	15	-	(25.0)	-
Lease liabilities	15	(5.6)	(6.4)	(6.1)
Current tax liabilities	8	-	(4.7)	-
Provisions	16	(24.8)	(34.6)	(31.5)
		(160.0)	(178.5)	(145.7)
Total liabilities		(722.6)	(773.6)	(767.7)
Net assets		627.6	652.8	566.7
Equity
Share capital	17	(32.2)	(30.9)	(32.2)
Share premium account	17	(605.4)	(606.7)	(605.4)
Merger reserve	17	(17.4)	(17.4)	(17.4)
Capital redemption reserve	17	(4.4)	(4.4)	(4.4)
Retained earnings and other reserves	17	31.8	6.6	92.7
Total equity attributable to equity holders of the parent		(627.6)	(652.8)	(566.7)

 

Notes to the consolidated financial statements

for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)

1.            General information

The financial information in respect of the 52 weeks ended 27 December 2020 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies and is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com. The auditors' report was unqualified, did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The financial information for the 26 weeks ended 27 June 2021 and the 26 weeks ended 28 June 2020 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been audited. No statutory accounts for these periods have been delivered to the Registrar of Companies.

 

This half-yearly financial report constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules.

 

The auditors, PricewaterhouseCoopers LLP, have carried out a review of the condensed set of financial statements and their report is set out at the end of this announcement.

 

The half-yearly financial report was approved by the directors on 27 July 2021. This announcement is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com.

 

2.            Accounting policies

Basis of preparation

The Group's annual consolidated financial statements are prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and IFRS as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual profit or loss.

Going concern

The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2020 Annual Report. Further information is set out in the Reach plc 2020 Annual Report.

 

At the half year, the directors have reviewed the going concern assessment, specifically the ongoing impact of COVID-19 and the implementation of the Group's Customer Value Strategy. The Group undertakes regular forecasts and projections of trading identifying areas of focus for management to improve delivery of the Strategy and mitigate the impact of any deterioration in the economic outlook. The Group has a strong balance sheet and liquidity with a net cash positive position of £54.7m. This represents a cash balance of £54.7m with no draw down from the Group's revolving credit facility of £65.0m.

 

Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.

Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the interim condensed consolidated financial statements as applied in the Group's latest annual consolidated financial statements.

Alternative performance measures

The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis. The Company believes that the adjusted basis and like-for-like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 19 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 20 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 21 is the reconciliation between the statutory and adjusted cash flow. Note 22 shows the reconciliation between the statutory and like-for-like revenues.

 

Adjusted items

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. Details of adjusted items are set out in notes 5 and 19.

 

Key sources of estimation uncertainty

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

 

Provisions (notes 8 and 16)

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 14)

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

 

 

Impairment review

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. 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.  For the 26 weeks to 27 June 2021, there have been no indicators of impairment and therefore no review has been undertaken.

 

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

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

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

 

3.            Segments

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

4.            Revenue

	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks ended 28 June 2020 (unaudited) £m	52 weeks ended  27 December 2020 (audited) £m
Print	232.4	241.0	479.3
Circulation	160.0	163.9	319.7
Advertising	50.3	53.1	108.4
Printing	9.6	11.8	25.2
Other	12.5	12.2	26.0
Digital	68.8	48.2	118.3
Other	1.1	1.6	2.6
Total revenue	302.3	290.8	600.2

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

 

5.            Operating adjusted items

	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks ended 28 June 2020 (unaudited) £m	52 weeks ended  27 December 2020 (audited) £m
Restructuring charges in respect of cost reduction measures (note 16)	(1.4)	(3.0)	(36.4)
Impairment of property, plant and equipment (note 12)	(2.3)	-	(34.7)
Impairment of right-of-use assets (note 13)	(10.5)	-	(13.7)
Impairment of goodwill	-	-	(6.1)
Pension administrative expenses and past service costs for GMP equalisation (note 14)	(1.5)	(2.0)	(6.1)
Provision for historical legal issues (note 16)	(13.0)	(5.0)	(12.5)
Provision for property rationalisation (note 16)	(10.9)	-	-
Provision for historical property development (note 16)	-	(15.5)	(15.5)
Operating adjusted items included in administrative expenses	(39.6)	(25.5)	(125.0)
Operating adjusted items included in share of results of associates	(0.7)	(0.5)	(1.2)
Total operating adjusted items	(40.3)	(26.0)	(126.2)

 

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 19 is the reconciliation between the statutory and adjusted results which includes descriptions of the items included in adjusted items.

 

In the first half of 2021, the Group implemented a Home and Hub project which set out the vision for how the Group's offices would look and where job roles would be based. As a consequence of the project a number of offices or floors will no longer be used. The project has resulted in charges of £23.7m (impairments of £2.3m relating to fixed assets and £10.5m to right-of-use assets and a £10.9m property rationalisation charge relating to future costs of vacant properties).

 

The Group incurred £1.4m of restructuring costs relating to the acquisition on 24 November 2020 of the remaining 50% of issued share capital of Independent Star Limited not previously owned. Independent Star Limited owns the Irish Daily Star brand in Ireland.

 

The Group has recorded a £13.0m 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 16).

 

6.            Interest income

	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks ended 28 June 2020 (unaudited) £m	52 weeks ended  27 December 2020 (audited) £m
Interest income on bank deposits	-	-	0.1

 

7.            Finance costs

	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks ended 28 June 2020 (unaudited) £m	52 weeks ended  27 December 2020 (audited) £m
Interest on bank overdrafts and borrowings	(0.4)	(0.6)	(1.1)
Interest on lease liabilities	(0.7)	(0.8)	(1.5)
Finance costs	(1.1)	(1.4)	(2.6)

 

 

8.            Tax

	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks ended 28 June 2020 (unaudited) £m	52 weeks ended  27 December 2020 (audited) £m
Corporation tax charge for the period	(4.7)	(4.3)	(2.7)
Current tax charge	(4.7)	(4.3)	(2.7)
Deferred tax charge for the period	(1.9)	(4.3)	(5.7)
Deferred tax charge for rate change	(53.9)	(19.0)	(19.0)
Prior period adjustments	-	-	0.3
Deferred tax charge	(55.8)	(23.3)	(24.4)
Tax charge	(60.5)	(27.6)	(27.1)
Reconciliation of tax charge	£m	£m	£m
Profit before tax	25.7	25.2	0.4
Standard rate of corporation tax	(4.9)	(4.8)	(0.1)
Tax effect of items that are not deductible in determining taxable profit	(1.8)	(3.8)	(6.1)
Change in rate of deferred tax	(53.9)	(19.0)	(19.0)
Release of deferred tax on losses no longer expected to be recoverable	-	-	(2.5)
Prior period adjustment	-	-	0.3
Tax effect of share of results of associates	0.1	-	0.3
Tax charge	(60.5)	(27.6)	(27.1)

 

 

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 receivable amounted to £7.3m (26 weeks ended 28 June 2020: £4.7m payable and 52 weeks ended 27 December 2020: £2.8m receivable). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £7m (26 weeks ended 28 June 2020: £5m and 52 weeks ended 27 December 2020: £6m).

 

The Budget on 5 March 2021 increased the rate of corporation tax from 19% to 25% with effect from 1 April 2023. At 27 June 2021, this rate change had been substantively enacted by parliament meaning that the opening deferred tax position has been recalculated in the period resulting in a £53.9m debit in the consolidated income statement and a £13.9m credit in the consolidated statement of comprehensive income.

 

The tax on actuarial gains or losses on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a deferred tax charge of £31.4m (26 weeks ended 28 June 2020: charge of £3.1m and 52 weeks ended 27 December 2020: credit of £11.7m).

 

9.            Dividends

	26 weeks ended 27 June 2021 (unaudited) Pence Per share	26 weeks ended 28 June 2020 (unaudited) Pence Per share	52 weeks ended  27 December 2020  (audited) Pence Per share
Dividends paid per share and recognised as distributions to equity holders in the period	4.26	-	-
Dividend proposed per share but not paid nor included in the accounting records	2.75	-	4.26

 

The Board has approved an interim dividend for 2021 of 2.75 pence per share.

 

On 6 May 2021, the final dividend proposed for 2020 of 4.26 pence per share was approved by shareholders at the Annual General Meeting and was paid on 2 June 2021. The total dividend payment amounted to £13.2 million.

 

 

10.          Earnings per share

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

 

	26 weeks ended 27 June 2021 (unaudited) Thousand	Restated 26 weeks ended 28 June 2020 (unaudited) Thousand	52 weeks ended  27 December 2020 (audited) Thousand
Weighted average number of ordinary shares for basic earnings per share	310,128	309,176	309,430
Effect of potential dilutive ordinary shares in respect of share awards	9,247	3,596	6,818
Weighted average number of ordinary shares for diluted earnings per share	319,375	312,772	316,248

 

The weighted average number of potentially dilutive ordinary shares not currently dilutive was 846,947 (28 June 2020: 5,354,112 and 27 December 2020: 2,542,234).

 

Statutory earnings per share	2021 Pence	Restated 2020 Pence	2020 Pence
(Loss)/earnings per share - basic	(11.2)	(0.8)	(8.6)
(Loss)/earnings per share - diluted	(11.2)	(0.8)	(8.6)

 

Adjusted earnings per share	2021 Pence	Restated 2020 Pence	2020 Pence
Earnings per share - basic	17.8	14.0	34.4
Earnings per share - diluted	17.3	13.8	33.6

 

Earnings per share for 26 weeks ended 28 June 2020 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an 2020 interim dividend of 2.63 pence per share.

 

Set out in note 19 is the reconciliation between the statutory and adjusted results.

 

11.          Cash flows from operating activities

	26 weeks  ended 27 June 2021 (unaudited) £m	26 weeks  ended 28 June 2020  (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Operating profit	28.6	28.9	7.6
Depreciation of property, plant and equipment (note 12)	7.7	10.0	20.2
Depreciation of right-of-use assets (note 13)	2.2	3.5	7.2
Impairment of goodwill	-	-	6.1
Share of results of associates	(0.8)	0.2	(1.4)
Charge for share-based payments	0.9	0.7	3.6
Impairment of property, plant and equipment (note 12)	2.3	-	36.5
Impairment of right-of-use assets (note 13)	10.5	-	13.7
Write-off of property, plant and equipment	-	-	1.4
Pension administrative expenses	1.5	2.0	4.6
Pension past service costs	-	-	1.5
Operating cash flows before movements in working capital	52.9	45.3	101.0
Decrease in inventories	0.7	0.8	1.3
Decrease in receivables	12.0	23.7	8.9
Increase in payables	30.1	8.4	10.1
Cash generated from operations	95.7	78.2	121.3

 

 

12.          Property, plant and equipment

	Land and buildings	Plant and equipment	Assets under construction	Total
	£m	£m	£m	£m
Cost
At 28 December 2020	204.6	368.9	0.6	574.1
Additions	-	-	2.8	2.8
At 27 June 2021	204.6	368.9	3.4	576.9
Accumulated depreciation and impairment
At 28 December 2020	(96.7)	(309.0)	-	(405.7)
Charge for the period	(1.3)	(6.4)	-	(7.7)
Impairment	-	(2.3)	-	(2.3)
At 27 June 2021	(98.0)	(317.7)	-	(415.7)
Carrying amount
At 27 December 2020	107.9	59.9	0.6	168.4
At 27 June 2021	106.6	51.2	3.4	161.2

Impairment of property, plant and equipment of £2.3m as a result of the Home and Hub project which means that a number of offices or floors will no longer be used.

13.          Right-of-use assets

	Properties £m	Vehicles £m	Total £m
Cost
At 28 December 2020	43.2	3.0	46.2
Additions	0.3	-	0.3
At 27 June 2021	43.5	3.0	46.5
Accumulated depreciation and impairment
At 28 December 2020	(19.9)	(1.0)	(20.9)
Charge for the period	(1.7)	(0.5)	(2.2)
Impairment	(10.5)	-	(10.5)
At 27 June 2021	(32.1)	(1.5)	(33.6)
Carrying amount
At 27 December 2020	23.3	2.0	25.3
At 27 June 2021	11.4	1.5	12.9

 

Impairment of right-of-use assets of £10.5m as a result of the Home and Hub project which means that a number of offices or floors will no longer be used.

14.          Retirement benefit schemes

Defined contribution pension schemes

 

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

 

The current service cost charged to the consolidated income statement for the period of £8.2m (26 weeks ended 28 June 2020: £8.7m and 52 weeks ended 27 December 2020: £17.4m) 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 first half were £37.1m (2020: £22.0m). This comprised £9.6m to the WF Scheme and £27.5m under the current schedule of contributions of the remaining five schemes. The payment of £9.6m enabled the Trustees of the WF scheme to purchase a bulk annuity and the scheme now has all pension liabilities covered by annuity policies. No further funding to the WF scheme is expected. Contributions in the second half are expected to be £27.6m under the current schedule of contributions of the remaining five schemes.

 

At the prior year end, the deficits in the remaining five schemes were expected to be removed before or in 2027 by a combination of the contributions and asset returns. Contributions (which include funding for pensions administrative expenses) are payable monthly. Contributions per the current schedule of contributions (excluding the WF Scheme) are for £55.1m pa in 2022 and 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 and the impact of IFRIC 14 removes this surplus. As no further contributions are expected to the WF Scheme, the Group no longer recognises a deficit of the value of its future deficit contribution commitment to the scheme.

 

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 and a further allowance for GMP equalisation was included within liabilities at 27 December 2020 and was recognised as a charge for past service costs in the income statement. The estimate is subject to change as we undertake more detailed member calculations, 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 prior 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 prior 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 prior 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 prior 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 prior 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 which in the current and prior period 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 June 2021.

 

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

 

	27 June 2021 £m	28 June 2020 £m	27 December 2020 £m
Financial assumptions (nominal % pa)
Discount rate	1.98	1.66	1.49
Retail price inflation rate	3.19	2.82	2.86
Consumer price inflation rate	2.59	1.97	2.26
Rate of pension increase in deferment	2.69	2.11	2.36
Rate of pension increases in payment (weighted average across the scheme's)	3.34	3.23	3.25
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65	21.8	21.8	21.9
Female currently aged 65	24.2	24.1	24.2
Male currently aged 55	21.6	21.6	21.6
Female currently aged 55	24.2	24.1	24.2

 

The discount rate should be chosen to be equal to the yield available on 'high quality' corporate bonds of appropriate term and currency. The Group took actuarial advice in 2020 and updated the approach to determining the bond constituents for the calculation of the discount rate. The bond constituents used for the 2020 and 2021 disclosures have been taken from the new Bloomberg 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.

The CPI assumption is set based on a margin deducted from the RPI assumption, due to lack of market data on CPI expectations. The Group took actuarial advice for the 2020 and updated the approach to determining the RPI and CPI assumptions and have applied the same approach to the 2021 disclosures. Allowing for the extent of RPI linkage on the schemes benefits pre and post 2030, the average inflation risk premium has been set at 0.3% (to broadly reflect 0.2% to 2030 and 0.4% thereafter). 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% (an assumed RPI/CPI margin of 1.0% up to 2030 and 0.00% beyond 2030).

 

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	-190/+210	-165/+185
Retail price inflation rate +/- 0.5% pa	+40/-39	+26/-25
Consumer price inflation rate +/- 0.5% pa	+50/-47	+47/-45
Life expectancy at age 65 +/- 1 year	+155/-150	+130/-130

 

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	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks  ended 28 June 2020 (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Pension administrative expenses	(1.5)	(2.0)	(4.6)
Past service costs	-	-	(1.5)
Pension finance charge	(1.8)	(2.3)	(4.7)
Defined benefit cost recognised in income statement	(3.3)	(4.3)	(10.8)

 

Consolidated statement of comprehensive income	26 weeks ended 27 June 2021 (unaudited) £m	26 weeks  ended 28 June 2020 (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Actuarial (loss)/gain due to liability experience	(0.3)	34.1	48.2
Actuarial gain/(loss) due to liability assumption changes	153.2	(163.6)	(304.6)
Total liability actuarial gain/(loss)	152.9	(129.5)	(256.4)
Returns on scheme assets (less)/greater than discount rate	(72.4)	149.5	209.6
Change in impact of IFRIC 14	45.1	(3.4)	(14.8)
Total gain/(loss) recognised in statement of comprehensive income	125.6	16.6	(61.6)

 

Included in the returns on scheme assets less than discount rate debit of £69.4m is a £44.1m debit from the purchase of a bulk annuity policy by the Trustees of the WF Scheme. This is matched by a £44.1m credit included in the change in impact of IFRIC 14 credit of £45.1m.

 

Consolidated balance sheet	27 June 2021 (unaudited) £m	28 June 2020 (unaudited) £m	27 December 2020 (audited) £m
Present value of uninsured scheme liabilities	(2,299.1)	(2,447.8)	(2,545.5)
Present value of insured scheme liabilities	(376.4)	(318.9)	(318.6)
Total present value of scheme liabilities	(2,675.5)	(2,766.7)	(2,864.1)
Invested and cash assets at fair value	2,146.6	2,222.4	2,278.7
Value of liability matching insurance contracts	376.4	318.9	318.6
Total fair value of scheme assets	2,523.0	2,541.3	2,597.3
Funded deficit	(152.5)	(225.4)	(266.8)
Impact of IFRIC 14	(2.5)	(36.2)	(47.6)
Net scheme deficit	(155.0)	(261.6)	(314.4)
Non-current assets - retirement benefit assets	100.1	74.6	50.4
Non-current liabilities - retirement benefit obligations	(255.1)	(336.2)	(364.8)
Net scheme deficit	(155.0)	(261.6)	(314.4)
Net scheme deficit included in consolidated balance sheet	(155.0)	(261.6)	(314.4)
Deferred tax included in consolidated balance sheet	36.3	51.7	58.9
Net scheme deficit after deferred tax	(118.7)	(209.9)	(255.5)

 

Movement in net scheme deficit	26 weeks  ended 27 June 2021  (unaudited) £m	26 weeks  ended 28 June 2020 (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Opening net scheme deficit	(314.4)	(295.9)	(295.9)
Contributions	37.1	22.0	53.9
Consolidated income statement	(3.3)	(4.3)	(10.8)
Consolidated statement of comprehensive income	125.6	16.6	(61.6)
Closing net scheme deficit	(155.0)	(261.6)	(314.4)

 

Changes in the present value of scheme liabilities	26 weeks  ended 27 June 2021  (unaudited) £m	26 weeks  ended 28 June 2020 (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Opening present value of scheme liabilities	(2,864.1)	(2,663.9)	(2,663.9)
Past service costs	-	-	(1.5)
Interest cost	(20.9)	(25.3)	(50.5)
Actuarial (loss)/gain- experience	(0.3)	34.1	48.2
Actuarial gain/(loss) - change to demographic assumptions	2.7	(64.3)	(93.5)
Actuarial gain/(loss) - change to financial assumptions	150.5	(99.3)	(211.1)
Benefits paid	56.6	52.0	108.2
Closing present value of scheme liabilities	(2,675.5)	(2,766.7)	(2,864.1)

 

Changes in impact of IFRIC 14	26 weeks  ended 27 June 2021  (unaudited) £m	26 weeks  ended 28 June 2020 (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Opening impact of IFRIC 14	(47.6)	(32.8)	(32.8)
Decrease/(increase) in impact of IFRIC 14	45.1	(3.4)	(14.8)
Closing impact of IFRIC 14	(2.5)	(36.2)	(47.6)

 

Changes in the fair value of scheme assets	26 weeks  ended 27 June 2021  (unaudited) £m	26 weeks  ended 28 June 2020 (unaudited) £m	52 weeks  ended  27 December 2020 (audited) £m
Opening fair value of scheme assets	2,597.3	2,400.8	2,400.8
Interest income	19.1	23.0	45.8
Actual return on assets (less)/greater than discount rate	(72.4)	149.5	209.6
Contributions by employer	37.1	22.0	53.9
Benefits paid	(56.6)	(52.0)	(108.2)
Administrative expenses	(1.5)	(2.0)	(4.6)
Closing fair value of scheme assets	2,523.0	2,541.3	2,597.3

 

Fair value of scheme assets	27 June 2021 (unaudited) £m	28 June 2020 (unaudited) £m	27 December 2020 (audited) £m
UK equities	72.0	43.5	70.6
US equities	178.9	134.6	180.4
Other overseas equities	181.0	184.4	182.6
Property	42.1	21.9	40.2
Corporate bonds	277.8	282.8	320.6
Fixed interest gilts	85.7	132.5	99.0
Index linked gilts	93.0	84.7	72.7
Liability driven investment	888.1	1,080.3	819.8
Cash and other	328.0	257.7	492.8
Invested and cash assets at fair value	2,146.6	2,222.4	2,278.7
Value of insurance contracts	376.4	318.9	318.6
Fair value of scheme assets	2,523.0	2,541.3	2,597.3

 

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.

 

15.          Net cash

The net cash for the Group is as follows:

	27 December 2020 (audited) £m	Cash flow £m	Lease liabilities movement £m	27 June   2021 (unaudited) £m
Current assets
Cash and cash equivalents	42.0	12.7	-	54.7
Net cash	42.0	12.7	-	54.7
Non-current liabilities
Lease liabilities	(35.5)	-	2.9	(32.6)
Current liabilities
Lease liabilities	(6.1)	-	0.5	(5.6)
Net cash less lease liabilities	0.4	12.7	3.4	16.5

 

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.

 

Deferred consideration is in respect of the acquisition of Express & Star.

 

Payment of the first instalment of £18.9m was made on 28 February 2020 and second instalment of £16.0m was made on 28 February 2021. Of the remaining amount of £24.1m, £17.1m is classified as current liabilities (payable on 28 February 2022) and £7.0m is classified as non-current liabilities (payable 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.

16.          Provisions

	Share-based payments £m	Property £m	Restructuring £m	Historical legal issues £m	Other £m	Total £m
At 27 December 2020 (audited)	(1.6)	(5.1)	(19.8)	(23.0)	(7.2)	(56.7)
Charged to income statement	(0.8)	(11.5)	(1.4)	(13.0)	(0.4)	(27.1)
Utilisation of provision	0.3	1.8	10.3	3.6	1.3	17.3
At 27 June 2021 (unaudited)	(2.1)	(14.8)	(10.9)	(32.4)	(6.3)	(66.5)

 

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

 

	27 June 2021 (unaudited) £m	28 June 2020 (unaudited) £m	27 December 2020 (audited) £m
Current	(24.8)	(34.6)	(31.5)
Non-current	(41.7)	(17.5)	(25.2)
	(66.5)	(52.1)	(56.7)

 

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 onerous 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 charge has increased by £11.5m in the period which is primarily due to £10.9m of onerous property costs relating to the Home and Hub project, which has meant that a number of offices or floors will no longer be used.

 

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 £0.8m and closure costs relating to the closure of two print plants of £9.5m. The severance costs provision is expected to be utilised within the next year. The closure costs provision includes £2.5m expected to be utilised within the next year and £7.0m 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 onerous 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. Due to uncertainty relating to potential future claims, a contingent liability note has been highlighted in note 18. As a result of additional claims being received the provision has been increased by £13.0m in the period. At the period end, a provision of £32.4m 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.

 

The other provision balance of £6.3m at the period end relates to libel and other matters and is expected to be utilised over the next two years.

 

17.          Share capital and reserves

The share capital comprises 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 9,342,239 shares (28 June 2020 and 27 December 2020: 10,017,620 shares) as Treasury shares. During the period 675,381 shares were transferred to the Reach Employees Benefit Trust. 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 £1.5m (2019: 28 June 2020: £2.8m and 27 December 2020: £2.7m). During the period, 960,974 were released relating to grants made in prior years (28 June 2020: 629,178 and 27 December 2020: 778,658). During the period 675,381 shares were transferred to the Reach Employees Benefit Trust from the Treasury shares.

 

 

During the period, awards relating to 608,136 shares were granted to executive directors on a discretionary basis under the Long Term Incentive Plan (28 June 2020: 1,218,530 and 27 December 2020: 1,218,530). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions, and are required to be held for a further two years.

 

During the period, awards relating to 935,431 shares were granted to senior managers on a discretionary basis under the Long Term Incentive Plan (28 June 2020: 2,593,910 and 27 December 2020: 2,358,715 both under the Senior Management Incentive Plan). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.

 

During the period, no awards relating to shares were granted to executive directors under the Restricted Share Plan (28 June 2020: 50,618 and 27 December 2020: 50,618). The awards vest after three years.

 

18.       Contingent liabilities

There is the potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues (note 16).

 

19.       Reconciliation of statutory to adjusted results

26 weeks ended 27 June 2021 (unaudited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Tax (c) £m	Adjusted results £m
Revenue	302.3	-	-	-	302.3
Operating profit	28.6	40.3	-	-	68.9
Profit before tax	25.7	40.3	1.8	-	67.8
(Loss)/profit after tax	(34.8)	34.6	1.5	53.9	55.2
Basic (loss)/earnings per share (p)	(11.2)	11.1	0.5	17.4	17.8

 

26 weeks ended 28 June 2020 (unaudited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Tax (c) £m	Adjusted results £m
Revenue	290.8	-	-	-	290.8
Operating profit	28.9	26.0	-	-	54.9
Profit before tax	25.2	26.0	2.3	-	53.5
(Loss)/profit after tax	(2.4)	24.7	1.9	19.0	43.2
Basic (loss)/earnings per share (p) restated (d)	(0.8)	8.1	0.6	6.1	14.0

 

52 weeks ended 27 December 2020 (audited)

	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

 

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

(b)       Pension finance charge relating to the defined benefit pension schemes as set out in note 14.

(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 26 weeks ended 28 June 2020 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.

 

20.          Adjusted cash flow

	27 June 2021 (unaudited) £m	28 June 2020 (unaudited) £m	27 December 2020 (audited) £m
Adjusted operating profit	68.9	54.9	133.8
Depreciation	9.9	13.5	27.4
Adjusted EBITDA	78.8	68.4	161.2
Net interest paid on bank borrowings	(0.4)	(0.6)	(1.1)
Income tax paid	(9.2)	(8.3)	(14.2)
Restructuring payments	(10.3)	(3.9)	(18.0)
Net capital expenditure	(2.8)	(1.5)	(1.6)
Interest paid on leases	(0.7)	(0.8)	(1.5)
Repayment of obligation under leases	(3.6)	(4.4)	(7.7)
Working capital and other	30.8	14.6	4.7
Adjusted operating cash flow	82.6	63.5	121.8
Historical legal issues payments	(3.6)	(0.9)	(10.6)
Historical contract issues payments	-	-	(15.5)
Dividends paid	(13.2)	-	-
Pension funding payments	(37.1)	(22.0)	(53.9)
Adjusted net cash flow	28.7	40.6	41.8
Bank facility drawdown	-	25.0	25.0
Bank facility repayment	-	-	(25.0)
Acquisition related cash flow	(16.0)	(19.1)	(20.2)
Net increase in cash and cash equivalents	12.7	46.5	21.6

 

 

21.          Reconciliation of statutory to adjusted cash flow

26 weeks ended 27 June 2021	2021			2021
	Stat	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	95.7	(16.7)	3.6	82.6	Adjusted operating cash flow
Pension deficit funding payments	(37.1)	-	-	(37.1)	Pension funding payments
	-	-	(3.6)	(3.6)	Historical legal issues payments
Income tax paid	(9.2)	9.2	-	-
Net cash inflow from operating activities	49.4
Investing activities
Purchases of property, plant and equipment	(2.8)	2.8	-	-
Deferred consideration payment	(16.0)	-	-	(16.0)	Acquisition related cash flow
Net cash used in investing activities	(18.8)
Financing activities
Dividends paid	(13.2)	-	-	(13.2)	Dividends paid
Interest paid on bank borrowings	(0.4)	0.4	-	-
Interest paid on leases	(0.7)	0.7	-	-
Repayments of obligations under leases	(3.6)	3.6	-	-
Net cash used in financing activities	(17.9)
Net increase in cash and cash equivalents	12.7	-	-	12.7

 

26 weeks ended 28 June 2020	2020			2020
	Stat	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	78.2	(15.6)	0.9	63.5	Adjusted operating cash flow
Pension deficit funding payments	(22.0)	-	-	(22.0)	Pension funding payments
	-	-	(0.9)	(0.9)	Historical legal issues payments
Income tax paid	(8.3)	8.3	-	-
Net cash inflow from operating activities	47.9
Proceeds on disposal of property, plant and equipment	0.3	(0.3)	-	-
Purchases of property, plant and equipment	(1.8)	1.8	-	-
Deferred consideration payment	(18.9)	-	-	(18.9)	Acquisition related cash flow
Acquisition of associate undertaking	(0.2)	-	-	(0.2)	Acquisition related cash flow
Net cash used in investing activities	(20.6)
Financing activities
Dividends paid	-	-	-	-
Interest paid on bank borrowings	(0.6)	0.6	-	-
Drawdown of borrowings	25.0	-	-	25.0	Bank facility drawdown
Interest paid on leases	(0.8)	0.8	-	-
Repayments of obligations under leases	(4.4)	4.4	-	-
Net cash received from financing activities	19.2
Net increase in cash and cash equivalents	46.5	-	-	46.5

 

 

52 weeks ended 27 December 2020	2020			2020
	Stat	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities	121.3	(25.6)	26.1	121.8	Adjusted operating cash flow
Cash generated from operations	(53.9)	-	-	(53.9)	Pension funding payments
Pension deficit funding payments	-	-	(15.5)	(15.5)	Historical contract issues payments
	-	-	(10.6)	(10.6)	Historical legal issues payments
Income tax paid	(14.2)	14.2	-	-
Net cash inflow from operating activities	53.2
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	(0.3)	-	-
Purchases of property, plant and equipment	(1.9)	1.9	-	-
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)
Financing activities
Interest paid on bank borrowings	(1.2)	1.2	-	-
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

(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.

 

22.          Reconciliation of statutory to like-for-like revenue

	26 weeks  ended 27 June 2021  (unaudited) £m	(a) £m	26 weeks  ended 27 June 2021  (like-for-like) £m	26 weeks  ended 28 June 2020  (unaudited) £m	(b) £m	26 weeks  ended 28 June 2020  (like-for-like) £m
Print	232.4	(5.4)	227.0	241.0	(1.5)	239.5
Circulation	160.0	(4.5)	155.5	163.9	-	163.9
Advertising	50.3	(0.9)	49.4	53.1	(1.5)	51.6
Printing	9.6	-	9.6	11.8	-	11.8
Other	12.5	-	12.5	12.2	-	12.2
Digital	68.8	-	68.8	48.2	-	48.2
Other	1.1	-	1.1	1.6	-	1.6
Total revenue	302.3	(5.4)	296.9	290.8	(1.5)	289.3

(a)        Exclusion of Irish Star (purchased on 24 November 2020).

(b)        Exclusion of Manchester Metro following ending of franchise agreement in June 2020 and other portfolio changes in 2020.

 

 

Report on the Condensed interim consolidated financial statements

Our conclusion

We have reviewed Reach plc's Condensed interim consolidated financial statements (the "interim financial statements") in the Half-Yearly Financial Report of Reach plc for the 26 week period ended 27 June 2021 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·      the Consolidated balance sheet as at 27 June 2021;

·      the Consolidated income statement and Consolidated statement of comprehensive income for the period then ended;

·      the Consolidated cash flow statement for the period then ended;

·      the Consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

The interim financial statements included in the Half-Yearly Financial Report of Reach plc have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual consolidated financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half-Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half-Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

27 July 2021