REG - Reach PLC - Annual Results for 52 weeks ended 25 December 2022
07/03/2023 07:00
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RNS Number : 0707S Reach PLC 07 March 2023
Reach plc - Full Year Results - 52 weeks to 25 December 2022
7 March 2023
Growing customer engagement & audience expansion support stronger digital
future
FY23 continued macro headwinds - addressing through cost action plan
Jim Mullen Chief Executive
"Reach is continuing to deliver our Customer Value Strategy and is becoming a
fundamentally different business; more efficient, more digitally capable and
more focused on building the foundation for growing sustainable and data led
digital revenues. Our award winning journalism and continued strategic
investment is supporting a growing base of engaged and active customers. The
improved depth and breadth of our content and businesswide focus on data is
driving an increasing proportion of higher yielding digital revenue and a
decreasing reliance on open market programmatically driven advertising.
We expect uncertain macroeconomic conditions to persist during 2023 but, as
shown during the pandemic, we are effective at managing them, with an action
plan in place to help mitigate the current headwinds. We will continue to
invest in areas which support digital expansion, such as the US, where we'll
leverage our scale and apply the proven Customer Value Strategy playbook which
is positioning us favourably to benefit when economic conditions improve."
Business Highlights - FY22 in line with revised expectations, CVS driving
improved digital mix
Data-led revenue improves digital mix; resilient circulation & cost
efficiency mitigates inflation & advertising slowdown
• Growth of 56% in data-led revenues which are now 32% of total digital (FY21:
21%)
• Engagement up strongly; registrations 12.7m with 5.6m active up 30%, page
views +4%, page views per user +7%
• Additional print cover price increases and resilient volume performance
support strong circulation revenue
• Inflation impact on operating costs of c.£40 million during year; mitigating
actions protect strategic investment
• Industry wide decline in open-market advertising yields holds back overall
digital growth
• New dedicated US operation in 2023; expect growth from expansion of audience
and data-led engagement
Financial Summary
52 weeks to 25 Dec 2022 Adjusted results((1)) Statutory results
2022 2021 Change 2022 2021 Change
Revenue £m 601.4 615.8 (2.3%) 601.4 615.8 (2.3%)
Operating profit £m 106.1 146.1 (27.4%) 71.3 79.3 (10.1%)
Operating profit margin % 17.6% 23.7% (610bps) 11.9% 12.9% (100bps)
Earnings per share Pence 27.1 37.6 (27.9%) 16.8 0.9 N/A
Net cash £m 25.4 65.7 (61.3%) 25.4 65.7 (61.3%)
Dividend per share((2)) Pence 7.34 7.21 1.8% 7.34 7.21 1.8%
Outlook and current trading
The current trading environment remains challenging and we expect this to
continue in 2023, with sustained inflation and suppressed market demand for
digital advertising. Although input costs remain elevated, we are confident
that our cost action plan will enable us to deliver a 5-6% like for like
reduction in our operating cost base for FY23.
Trading for January and February has been in line with our expectations. As
anticipated, we have continued to see a decline in demand for digital
advertising, with open market yields and traffic down across the whole sector,
against stronger prior year comparators, particularly during the earlier part
of the year (digital revenue H1'22 up 5.4%; H2'22 down 2.7%). Circulation
revenue continues to benefit from increased cover price activity during the
second half of FY22, with print trends overall, similar to Q4'22 and in line
with expectations. For the year to date; digital revenue year over year was
down 11.9%, print down 3.6% and circulation up 1.8%. Total Group revenue was
down 5.8%.
While external factors are affecting near term performance, consistent
strategic delivery is supporting the growth of higher quality digital
revenues, which with our US expansion, puts us in a strong position to grow
when macro headwinds subside. Profit expectations for the full year are in
line with the current market consensus((3)).
Results Overview
Group revenue down 2.3% - robust print driven by circulation performance;
yield pressure impacts digital
• Print revenue £448.6m (FY21: £465.1m) down 3.5%, circulation and advertising
down 1.7% and 15.9% respectively
• Digital revenue of £149.8m (FY21: £148.3m) was up 1.0%; growth of 56% in
data-led revenues offset by macro related decline in market yield for ad space
sold programmatically in the open market, which was down c.33% during the year
and c.40% in H2
• Circulation strengthened by cover price increases with minimal impact on long
term trend in print volumes
• Decline in print advertising broadly in line with movement in print volumes;
accelerated decline during H2 due to impact on the advertising market from The
Queen's death and lower ad demand during Black Friday and Christmas
Newsprint inflation impacts profit, mitigated through cost actions and
increased cover prices
• Adjusted operating profit of £106.1m down £40.0m or 27.4% (FY21: £146.1m);
reflecting decline in revenue and significant increase in input cost
inflation, largely due to increase in the cost of newsprint, up c.40% on 2021
• Savings from changes to print production, including printed volumes and
pagination (book size) help mitigate other inflationary pressures and support
strategic investment
• Statutory operating profit of £71.3m (FY21: £79.3m) down 10.1%, with decline
in adjusted profits, partly offset by a reduction in adjusted items to £34.8m
(FY21: £66.8m); prior year charges relate to increases in the HLI provision
and the move to flexible working model
• Statutory EPS of 16.8p (FY21: 0.9p) ahead due to the reflection of the future
change to the UK corporation tax rate in last year's comparator
Cash & Capital Allocation
• Lower adjusted operating cash flow((4)) of £64.8m (2021: £141.3m) reflects
both lower in year profit and a negative movement in working capital, driven
in part by an increase in newsprint inventories as part of increased hedging
• Net cash((5))decreased by £40.3m to £25.4m, including payment of £9.0m
related to historical legal issues and the penultimate payment of £17.1m for
the Express & Star; final payment of £7.0m subsequently made in Feb 2023
• The IAS19 pension accounting deficit (net of deferred tax) at year end was
£113.9m (FY21: £117.2m), with the increase in the discount rate and
contributions offset by asset return decreases
• We continue to work with pension trustees of the one remaining scheme where
we've yet to achieve resolution of the 2019 triennial review of pension
commitments
• Final dividend proposed of 4.46 pence per share, flat with 2021, with full
year dividend of 7.34p up 1.8%
Formalising our approach to business responsibility
• Formalised responsible business framework, following stakeholder consultation
- aligns our purpose and strategy
• Set 5-year climate strategy roadmap as part of journey to net-zero; working
towards full measurement of Scope 3 emissions and production of complete
carbon footprint
• Introduced TCFD aligned reporting for 2022 Annual Report and Accounts
• Ranked number 29 (42 in 2021) in Inclusive Companies Top 50 listing and top
rated in Sustainalytics ESG rankings
Quarterly Year-on-Year Revenue Movements
2022 Q1 YOY Q2 YOY Q3 YOY Q4 YOY FY YOY
% % % % %
Digital Revenue 10.4% 0.3% 1.1% (5.9%) 1.0%
Print Revenue (3.9%) (3.9%) (2.9%) (3.6%) (3.5%)
- circulation revenue (6.2%) (4.0%) 2.0% 1.8% (1.7%)
- advertising revenue (8.5%) (11.4%) (23.1%) (20.2%) (15.9%)
Group Revenue (0.5%) (2.8%) (1.9%) (4.2%) (2.3%)
Notes
((1)) Set out in note 20 is the reconciliation between the statutory and adjusted
results. The current period is for the 52 weeks ended 25 December 2022
('2022') and the comparative period is for the 52 weeks ended 26 December 2021
('2021').
((2)) Full year dividend of 7.34 pence per share comprised of interim dividend of
2.88 pence per share and proposed final dividend of 4.46 pence per share.
((3)) Market expectations compiled by the company are an average of analyst
published forecasts - consensus adjusted operating profit for FY23 is £95.4m.
((4)) An adjusted cash flow is presented in note 21 which reconciles the adjusted
operating profit to the net change in cash and cash equivalents. Note 22
provides a reconciliation between the statutory and adjusted cash flows.
((5)) Net cash balance comprises cash and cash equivalents of £40.4m (note 16) less
bank borrowings of £15.0m (note 16) but excludes lease obligations.
Enquiries
Reach
Jim Mullen, Chief Executive Officer communications@reachplc.com
Darren Fisher, Chief Financial Officer 07341 470 722
Lija Kresowaty, Head of External Communications
Matt Sharff, Investor Relations Director
Tulchan Communications reachplc@tulchangroup.com
Giles Kernick 020 7353 4200
Jim Mullen, Chief Executive Officer, Darren Fisher, Chief Financial Officer
and Lloyd Embley, Group Editor-in-Chief, will be hosting a webcast at 9:00am
(UK) on 7 March 2023. It will be followed by a live question and answer
session. The presentation slides will be available on www.reachplc.com from
7.00am (UK). An archive of all materials, including a Q&A transcript will
also be available after the event.
You can join the webcast to watch the presentation or listen to the Q&A
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Forward looking statements
This announcement has been prepared in relation to the financial results for
the 52 weeks ended 25 December 2022. 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
Rising to the challenge
Reach is and continues to be a resilient and adaptable business. Although
external factors - including the war in Ukraine, the aftermath of COVID and
resulting global supply chain disruption - are affecting our financial
performance in the near term, we're looking beyond this.
We've taken action to preserve our strong foundations and to ensure we
continue to deliver our Customer Value Strategy, which is creating a stronger
and more sustainable business for our stakeholders.
And with a long-term view - we are a fundamentally different business today;
more efficient, more digitally capable and more focused on growth.
Addressing macro headwinds
As a result of these global factors, the unit cost of newsprint, our most
significant print production cost outside of labour, has increased by around
60% - reaching a level not seen since the global financial crisis.
In 2022, this contributed to almost £40m of additional operating costs due to
inflation. We've also seen advertising demand slowing across the sector, which
in digital, has been reflected in lower yields for 'programmatically' served
ads which are sold via open market platforms. Trading during the final quarter
of the year was disappointing, with Black Friday and Christmas failing to
provide the seasonal uplift seen in previous years.
We're assuming that external conditions will remain tough and have planned
accordingly. We're a resilient and flexible organisation, with a long track
record of driving operating efficiencies with the evolution of our operating
model and through the process of continuous cost improvement. In 2023 we
expect to generate significant savings supported by efficiencies in print
procurement and distribution, the simplification of support functions and
through managing the size of our teams - in some areas slowing down hiring
while in others, regrettably, making some redundancies. We're confident that
our cost action plan will enable us to reduce operating costs by between 5%
and 6%.
Strategy delivering, despite market uncertainty
Our strategy is to get to know customers better - drawing on behavioural
insights to create a virtuous circle of value from more relevant content, a
more engaging experience, and greater loyalty, which drives sustainable,
data-led revenue. And I'm pleased to say we're making good progress and
tracking to plan.
Earlier in the year, we surpassed our 10m registrations target and now have
over 12.7m customers registered, which is over 25% of our UK digital audience.
Even more significantly, the number of those customers who are regularly
'active' is growing. We now have around 5.6m registered users who accessed our
content within the last 28 days. That's important because these relationships
are the lifeblood of our brands. Being a growing part of our customers' daily
lives means customer interactions and the data they generate are more recent,
more relevant and more valuable for advertisers.
Registrations continue to be an important source of first-party data from our
customers. Postcodes in particular are key to multiple customer insights and
enable personalisation of content at a local level. They also enable
geographically specific advertising, attractive to brands who want to run a
campaign across our national network and titles, while only serving ads to
customers in a specific area. During the recent train strikes for example, we
worked with several national rail companies, who displayed ads for bus
services but only in areas affected by rail disruption. We also worked with a
well-known national furniture company, who, with our help, were able to target
customers based within a certain number of miles of a showroom.
Registrations aren't the only source of data. In fact, our fully owned ad tech
software, Mantis, is enabling us to capture detailed contextual and
behavioural data on around three-quarters of our UK audience, the majority of
whom aren't registered. We know whether they enjoy reading about the Royal
Family, UK beach holidays or women's fashion. And Mantis can identify the
sentiment and emotion attached to the content they read. This is improving our
ability to sell digital advertising directly, with data supporting an
increasing number of campaign segments and more effective advertising for
brands.
The proportion of our digital revenues supported by data is growing. That
means we're improving our revenue mix, with a lower proportion of our digital
business driven by the open market. This is the 'volume' element of our
revenues where we don't control the price or yield. The scale of our business,
with c.300-400m daily ad impressions means the open market will always be
important. More directly sold advertising, which forms part of more strategic
or 'data-led' revenues, offers a greater opportunity for value or
'yield-driven' growth. Total data-led revenues grew by over 50% during 2022
and are now over 30% of total digital.
Data also provides the insights that help shape our content, deliver a more
personalised experience and drive customer engagement. Page views for the year
grew by 4%, page views per user by 7% while page views from registered
customers, another strong indicator of engagement, were up around 70% year on
year.
Print scale and resilience supports investment
While digital data is key to growing customer engagement, it's print that
makes our investment in data possible. Circulation trends have remained steady
and broadly predictable, benefiting from relative price resilience and our
ability to drive production efficiencies, which support significant cash
generation over the medium term.
Inflationary headwinds during the year have been felt largely within print,
where we've seen production cost increases in energy, ink, plates and
particularly newsprint. The newsprint market has been severely impacted by
changing demand and supply dynamics in the aftermath of COVID, in addition to
then being hit by the increase in energy prices that resulted from the
outbreak of the war in Ukraine.
To protect print margins, we increased cover prices more than average this
year, which supported stronger circulation revenue, particularly during the
second half of the year, and will also see us benefit in the early part of
2023. Circulation revenue for the year declined by 1.7% overall this year,
down c.5% during H1 and up almost 2% in H2.
From a cost perspective, we made changes to print supply (the volume we print)
and pagination (the number of pages). We made reductions to supply levels
during the year with no material impact on availability and reduced the size
of our newspapers by around four pages, still leaving the average page count
higher than it was before the pandemic.
As part of our cost reduction plan for 2023, we expect to make savings in our
print supply chain, driven by more efficient raw materials sourcing and
distribution planning.
Enhancing the customer experience
As we improve our data capabilities we need also to improve the overall
digital experience our customers get when they use our website and apps. A
more user-friendly experience is another key part of keeping them engaged for
longer.
This work includes improving site load times and ensuring the optimum balance
between content and advertising, with our product team exploring multiple
options including the trial of an ad-light, paid-for experience on mobile.
We're also rolling out new site personalisation tools like polls and surveys,
which increase interaction, support registrations and capture richer data.
Our Neptune Recommender, one of our 'next action' tools, uses Mantis data to
promote content to customers that's most relevant to them. It also enables
brands to sponsor content which relates only to specific topics or sentiments.
For example, TSB used this tool to great effect by sponsoring existing
advice-based cost-of-living content.
The continued development of Mantis shows our strength in developing our own
IP. The team will look to take this further in 2023 via the development of
global private or curated marketplaces which are key to scaling the benefits
of data-led advertising. We are uniquely positioned to partner with the tech
platforms to develop this opportunity by licensing access to Mantis contextual
data which then enables brands to target customers across multiple publishers.
Developing new audiences
While we've been enhancing the experience for our existing audience, our
strategy also supports us in reaching new audiences. Our digital launches over
the past three years have provided us with valuable insight and a 'CVS
playbook' which we can now apply to new ventures - expanding both
geographically and demographically.
The US is already a significant market for us, with a growing audience served
by our UK websites, but there's huge potential to develop this further. And
our success in gathering customer data and in launching multiple newsbrands
from scratch over the past few years puts us in a strong position as we begin
the process of launching a dedicated US operation.
Our focus is on building our existing American audience for the Mirror,
Express and the Irish Star, with IrishStar.com catering to the sizeable Irish
American population, particularly in the New York and Boston areas. Leveraging
our position as the UK's biggest commercial sports publisher, we'll be adding
more 24/7 sports coverage for our millions of US-based 'soccer' fans.
Creating a brand for youth audiences
As a mainstream publisher, it's our job to appeal to and represent all parts
of society. The evidence is clear that the way we consume news is changing,
with the younger generation in particular now preferring social media as their
main route to accessing news content. At our half-year results in July, I
spoke about the work we've been doing to grow our relevance with younger
audiences, looking at short-form video as part of positioning ourselves to
attract the next generation of talented journalists and content creators.
Towards the end of the year we soft-launched Curiously, our new social-first,
video-focused brand designed to appeal to a more diverse and culturally aware
audience. Curiously will be empathetic and non-political, aiming to cover a
broad range of subjects in a more distinctive and relevant way for 16- to
34-year-olds. It's an exciting development which we'll update on as the year
progresses.
The stories that matter
In 2022 our editorial teams once again demonstrated their talent and
persistence, the strength of their relationships with their readers and the
mainstream appeal of our brands. The way our editorial teams pulled together
and delivered for their readers following the death of Her Majesty The Queen
was a privilege to watch - a once-in-a-generation moment that our journalists
captured expertly.
There are many stories from this year that will stick with me. Including the
Mirror's exclusives on Partygate, which, whatever your personal political
beliefs, so clearly showed the vital part that a strong press plays in
democracy.
The Express's successful campaign to add 'Zach's Law' to the Online Safety
Bill and strengthen prison time for internet trolls who deliberately endanger
people with epilepsy. And the Liverpool Echo's powerful coverage of the fatal
shooting of Olivia Pratt-Korbel, whose life was taken when a gunman forced his
way into her family's home in Kingsheath Avenue, Dovecot, on 22 August.
For these feats and others, our titles and journalists have won dozens of
awards this year, from the Mirror being named Newspaper of the Year at the
London Press Club Awards to the Daily Record's Annie Brown picking up Scoop of
the Year at the Scottish Press Awards for her investigation into nursery
discrimination, or the Express's Steph Spyro winning Best Environmental
Reporting at this year's MHP Mischief 30 To Watch: Young Journalist Awards.
Stories like these also bring into sharp focus our public affairs work,
through which we aim to ensure that key legislation - from the Online Safety
Bill to the Digital Markets Unit - is crafted with a real understanding of and
appreciation for the industry. I'm now in my second and final year as Chair of
the News Media Association (NMA) and will continue to work closely with others
in the industry to preserve the long-term ability of our titles to tell the
stories that matter, independently and sustainably.
No recap of the year would be complete without mentioning the bravery of the
reporters and photographers on the ground in Ukraine. This war has sent
shockwaves through the macroeconomic environment which affects our business
but most importantly, has had a sobering human impact. The part we, our brands
and our journalists have played in reporting on it is something I'm very proud
of.
Leading our people through unprecedented times
There's no getting away from the fact that the circumstances we faced in 2022
were extremely difficult for many on a personal level, and put pressure on the
business's relationship with some of our people, with a number of editorial
colleagues taking part in industrial action. While this was not an easy period
for anyone, we worked closely and diligently with our union representatives
and our editorial teams to find an agreeable solution.
We expect economic conditions will remain challenging in 2023 and so we will
continue to consider our costs very carefully. A spirit of open debate and
collaboration will again be essential as we work together to move forward as a
stronger business.
Whatever challenges we face, I am committed to maintaining a respectful and
constructive dialogue with all the teams here at Reach and would like to thank
them for their continued hard work and the talent they bring to our shared
goal of creating a sustainable journalism business.
It is important to me, both as the CEO and on a personal level, that Reach
continues to be a stronghold for mainstream journalism, ensuring that our
newsbrands serve their audiences for years to come. And while arriving at this
position of strength demands change, and sometimes difficult change, I am
proud of the significant investments we've made in our editorial teams over
the past three years.
A culture fit for the future
While the challenges mentioned are significant and will require continued
attention and care, I also want to recognise the real progress we've made as
we continue to develop as a business and reshape our teams to be more agile
and fit for purpose. These include the development of our Network Newsroom to
training we've provided for our more print-focused commercial teams to be able
to pivot to digital.
This constant drive to innovate has been recognised by the industry with big
wins both in the editorial sphere (Best Newsroom Transformation at the 2022
INMA Global Media Awards) and in the advertising world (Commercial Team of the
Year/Consumer and Best Use of Data at the British Media Awards).
In 2022 we continued building a culture where people can thrive - becoming
more representative of society and our audiences, both as a team, including
adding diversity targets at Board and Executive level, and through our
journalism. Our Belonging Project is a good example, as it challenges our
local brands to create content more relevant to communities that have so far
been under-served.
We continue to see this progress recognised by the industry and by trusted
external benchmarks - this year moving up to 29 in the Inclusive Companies'
list of Inclusive Top 50 UK Employers (from 42 in 2021), and earning a spot in
the Social Mobility Benchmarking ranking for the first time. While we still
have far to go, I believe in holding ourselves accountable and measuring and
sharing our progress.
I always say that I want Reach to be a place where people can get in and get
on, and in this spirit I'm proud that we're becoming a more family friendly
employer, announcing in 2022 our new and updated policies to offer greater
support to parents, carers and those who have lost loved ones.
Formalising our approach to business responsibility
As a publisher of news, sport and entertainment people can trust, we've always
understood our responsibility to society and communities. Our purpose - to
enlighten, empower and entertain - gives us a privileged position to use our
editorial voice to champion good causes, hold authority to account and
campaign on issues that matter to our audiences.
Our new responsible business framework will help articulate our approach to
environmental, social and governance (ESG) issues more formally, making it
easier to communicate all the great work we're doing around the business while
tracking our progress as a responsible business, now and in the future.
From a climate perspective, we've enhanced our reporting against the Task
Force on Climate-related Financial Disclosures (TCFD), made significant
progress on our climate strategy and have begun a review of Scope 3 emissions
as part of the journey to net zero.
Welcoming our new CFO
I want to thank Simon Fuller, our former CFO, for his commitment and support.
At the start of February 2023, Darren Fisher joined us as CFO from ITV. I'm
delighted to welcome him to Reach and look forward to working closely with him
as we continue to shape a more profitable future for the business.
Looking ahead
As we move into the new year, we expect trading conditions will remain
challenging with inflation continuing to impact input costs and consumer
demand for advertising. We are controlling the controllables, with plans in
place that support a meaningful reduction in operating costs and continued
investment in our Customer Value Strategy. Consistent strategic delivery is
supporting the growth of higher quality digital revenues and puts us in a
strong position to grow when macro headwinds subside.
Jim Mullen
Chief Executive Officer
7 March 2023
Finance Review
Resilience for the long-term
It's been a challenging year for the business, with our financial performance
affected by the worsening of macroeconomic conditions over the course of the
year. Throughout this downcycle, we have continued to tightly manage our cost
base, which will protect investment in our digital strategy and put us in a
strong position when the economy starts to recover.
Controlling the controllables
Revenue, which was down 2.3%, reflects more subdued demand for advertising,
particularly during the second half of the year when we saw an industry-wide
advertising blackout around the death of HM The Queen, in addition to
consistently lower yields for digital ad space sold programmatically on the
open market. Print circulation remained robust, with additional cover price
increases during the year boosting revenue. The reduction in adjusted
operating profit also reflects an increase in operating costs, in particular
the cost of newsprint, which has risen by over 40% or 60% on a like-for-like
basis. Statutory profit, although lower, benefited from a reduction in
operating adjusted items, with last year's profit including charges relating
to the rationalisation of our estate as we moved to flexible working.
To mitigate the impact of inflation, we've focused strongly on managing costs
within our control. During the year, in addition to the savings from the
process of continuous cost optimisation within the print business, we also
made changes to both print pagination and to supply, managing the availability
of our titles to align more closely with demand and reduce the volume of
unsold copies.
With macroeconomic headwinds likely to persist in the near term, we have put
in place a further programme of cost reduction, which we're confident will
support a 5-6% like for like in-year reduction in our operating costs for
2023. Savings will be generated throughout the business and include more
efficient procurement throughout the print supply chain, the simplification of
central support functions and the removal of editorial duplication. As part of
these efficiency measures, we will unfortunately lose some colleagues from the
business, a decision which has not been taken lightly, as we continue to focus
on delivering our digital strategy, which will secure the long-term
sustainability of the business.
The Group has a strong balance sheet and liquidity with a closing cash balance
of £40.4m and a £15.0m drawdown on the facilities resulting in a net cash
positive position of £25.4m. During the year, the expiry date of the Group's
revolving credit facility of £120.0m was extended for a further year to
November 2026.
Looking ahead
In 2020, we began our digital transformation in line with our Customer Value
Strategy - by creating the right 'future structure' for our business. That
strategy is delivering and supports a more sustainable and higher quality
digital mix, with over 30% of digital revenue now data driven. The next 12
months will bring fresh challenges, but we've proven over the past few years
that Reach is a resilient business. We believe in and remain committed to our
strategy - and will continue to invest as it drives Reach to become a
higher-yielding digital business.
Summary income statement
Adjusted Adjusted Statutory Statutory
2022 2021 2022 2021
£m £m £m £m
Revenue 601.4 615.8 601.4 615.8
Costs (498.1) (472.9) (531.5) (538.1)
Associates 2.8 3.2 1.4 1.6
Operating profit 106.1 146.1 71.3 79.3
Finance costs (2.8) (2.6) (5.1) (6.0)
Profit before tax 103.3 143.5 66.2 73.3
Tax charge (18.8) (26.9) (13.9) (70.4)
Profit after tax 84.5 116.6 52.3 2.9
Earnings per share - basic 27.1 37.6 16.8 0.9
Group revenue fell by £14.4m or 2.3% with print down 3.5% partially offset by
digital revenue growth of 1.0%.
Adjusted costs increased by £25.2m or 5.3%, reflecting the increase in the
cost of newsprint. Statutory costs were lower by £6.6m or 1.2%, with the
increase in newsprint more than offset by the reduction in operating adjusted
items of £31.8m (£33.4m in 2022 versus £65.2m in 2021).
The lower revenue and higher adjusted operating costs drove a £40.0m or 27.4%
decrease in adjusted operating profit. The adjusted operating margin of 17.6%
in 2022 compares to 23.7% for 2021. Statutory operating profit decreased by
£8.0m or 10.1% in comparison due to the reduction in operating adjusted
items.
Adjusted earnings per share decreased by 10.5p or 27.9% to 27.1p. However,
statutory earnings per share increased by 15.9p to 16.8p, principally due to
the combined effects on earnings per share in the prior year of a £53.9m
deferred tax charge and operating adjusted items of £66.8m. See note 20 for
more details.
Revenue
2022 2021
Actual Actual
£m £m
Print 448.6 465.1
Circulation 307.7 312.9
Advertising 86.9 103.3
Printing 23.1 20.4
Other 30.9 28.5
Digital 149.8 148.3
Other 3.0 2.4
Total revenue 601.4 615.8
Revenue fell by £14.4m or 2.3% on both an actual and like-for-like basis. In
the prior year, like-for-like trends excluded the Independent Star acquisition
and the impact of portfolio changes and impacted print revenue only. A
reconciliation is set out in note 23.
Actual Actual Actual Like-for-like
H1 2022 H2 2022 FY 2022 FY 2021
YOY YOY YOY YOY
Like-for-like % % % %
Digital 5.4 (2.7) 1.0 25.4
Print (3.9) (3.2) (3.5) (4.7)
Circulation (5.1) 1.9 (1.7) (4.6)
Advertising (9.9) (21.5) (15.9) (4.9)
Printing 19.8 7.6 13.2 (19.0)
Print other 18.4 1.0 8.4 9.2
Total Revenue (1.6) (3.0) (2.3) 1.3
Revenue bridge Actual YOY
£m %
2021FY revenue 616
Circulation (5) (1.7)
Advertising (16) (15.9)
Printing 3 13.2
Other 2 8.4
Print (16) (3.5)
Digital 2 1.0
Other 1 25.0
2022FY revenue 601 (2.3)
Print revenue decreased by £16.5m or 3.5% (2021: down 4.7% on a like-for-like
basis).
Circulation revenue was down 1.7% for the period, with a stronger performance
during H2 which benefited from cover price increases, above recent historical
levels, as part of the Group's efforts to minimise the impact of inflation.
Print advertising revenue declined 15.9% (2021: down 4.9% on a like-for-like
basis), due to print volume declines and 2021 having benefited from additional
Government spend generated by public health messaging. The second half of the
year was also affected by the impact on the advertising market from the
Queen's death and lower demand during Black Friday and Christmas.
Print revenue also includes external or third-party printing revenues and
other print-related revenues. Printing revenue increased by 13.2% (2021:
decreased 19.0% on a like-for-like basis) reflecting the increase in newsprint
input costs which are directly passed on to third parties. Other print revenue
increased by 8.4% (2021: increased 9.2% on a like-for-like basis) reflecting
an increase in event-driven and sports printing revenues versus a comparator
period still affected by COVID.
Digital revenue increased by 1.0% to £149.8m (2021: 25.4% LFL), with a
decline of 2.7% in H2, offsetting 5.4% growth in H1. There has been
significant growth in strategically driven revenues of 56%, which are now over
30% of total digital revenue (2021: 21%). This was offset by macro-related
decline in advertising demand, impacted by the war in Ukraine and growing cost
of living crisis which is reflected in a lower yield for ads sold
programmatically via the open market, down c.33% during the year and c.40% in
H2.
Costs
2022 2021 2022 2021
Adjusted Adjusted Statutory Statutory
£m £m £m £m
Labour (234.7) (232.1) (234.7) (232.1)
Newsprint (75.4) (52.9) (75.4) (52.9)
Depreciation and amortisation (20.2) (19.3) (20.2) (19.3)
Other (167.8) (168.6) (201.2) (233.8)
Total costs (498.1) (472.9) (531.5) (538.1)
Adjusted costs of £498.1m (2021: £472.9m) increased by £25.2m or 5.3%. This
was largely due to the higher cost of newsprint during the period, with the
price per tonne materially increasing since the second half of 2021. This has
been driven by several factors, the most significant being rising energy
prices following the start of the war in Ukraine. On an equivalent volume
basis, newsprint prices during the year were around 60% higher than 2021.
Statutory costs were lower by £6.6m or 1.2% primarily due to lower operating
adjusted items which were £31.8m lower (£33.4m in 2022 compared to £65.2m
in 2021).
Operating adjusted items included in statutory costs related to the following:
Statutory Statutory
2022 2021
£m £m
Provision for historical legal issues (11.0) (29.0)
Restructuring charges in respect of cost reduction measures (15.5) (2.8)
Sublet of closed print plant 16.6 -
Home and Hub project - (23.7)
Pension administrative expenses and past service costs (14.8) (3.7)
Other items (8.7) (6.0)
Operating adjusted items in statutory costs (33.4) (65.2)
The Group has recorded a £11.0m (2021: £29.0m) 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.
Restructuring charges of £15.5m (2021: £2.8m) incurred in respect of cost
reduction measures are principally severance costs that relate to cost
management actions taken in the period.
The sublet of the vacant print site which was closed in 2020 has resulted in
the reversal of an impairment in right-of-use assets of £11.0m and previously
onerous costs of the vacant site of £5.6m.
Pension costs of £14.8m (2021: £3.7m) comprise pension administrative
expenses of £4.2m and past service costs relating to a Barber Window
equalisation adjustment of £10.6m.
Other adjusted items comprise the Group's legal fees in respect of historical
legal issues (£5.2m), adviser costs in relation to the triennial funding
valuations (£1.6m), impairment of vacant freehold property (£4.2m) and plant
and equipment (0.8m) less a reduction in National Insurance costs relating to
share awards (£2.7m) and the profit on sale of impaired assets (£0.4m). In
2021 other adjusted items related to adviser costs in relation to triennial
funding valuations (£1.2m), an increase in National Insurance costs relating
to share awards (£2.6m), the write-off of an old debit balance (£2.9m) and
the profit on sale of an impaired asset (£0.7m).
Profit
Adjusted operating profit of £106.1m was down £40.0m or 27.4% reflecting the
decline in revenue of 2.3% and 5.3% increase in operating costs.
This is also reflected in our adjusted operating margin which decreased by 6.1
percentage points from 23.7% in 2021 to 17.6% in 2022.
Adjusted operating profit bridge Adjusted YOY
£m %
2021 adjusted operating profit 146
Revenue mix (14)
inflation (38)
Investment (18)
Efficiencies 25
2021 one-offs & other 5
2022 adjusted operating profit 106 (27%)
Reconciliation of statutory to adjusted results
Operating Pension
Statutory adjusted finance Adjusted
results items charge results
£m £m £m £m
Revenue 601.4 - - 601.4
Operating profit 71.3 34.8 - 106.1
Profit before tax 66.2 34.8 2.3 103.3
Profit after tax 52.3 30.3 1.9 84.5
Basic earnings per share (p) 16.8 9.7 0.6 27.1
The Group excludes from the adjusted results: operating adjusted items and the
pension finance charge. Adjusted items relate to costs or income 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 on the basis that they distort the underlying performance
of the business where they relate to material items that can recur (including
impairment, restructuring, tax rate changes) or relate to historic liabilities
(including historical legal and contractual issues, defined benefit pension
schemes which are all closed to future accrual).
Other items may be included in adjusted items if they are not expected to
recur in future years, such as the property rationalisation in the prior year
and items such as transaction and restructuring costs incurred on acquisitions
or the profit or loss on the sale of subsidiaries, associates or freehold
buildings.
Management excludes 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, provide users with additional useful information. Further
details on the items excluded from the adjusted results are set out in note
20.
Balance sheet and cash flows
Historical legal issues provision
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. Payments of £9.0m have been made
during the year and the provision has been increased by £11.0m. At the year
end a provision of £43.0m remains outstanding and this represents the current
best estimate of the amount required to resolve this historical matter.
Further details relating to the nature of the liability, the calculation basis
and the expected timing of payments are set out in note 17.
Decrease in accounting pension deficit
The IAS 19 pension deficit (net of deferred tax) in respect of the Group's
defined benefit pension schemes decreased by £3.3m from £117.2m to £113.9m
at the year end. The increase in the discount rate and Group contributions has
been offset by asset return decreases. The triennial valuations for funding of
the defined benefit pension schemes as at 31 December 2019 have been agreed
for five of the schemes, with one scheme outstanding. We continue to engage
with the Pensions Regulator as to the funding of the remaining scheme, and, in
the meantime, continue to make payments per the existing schedule of
contributions.
Group contributions in respect of the defined benefit pension schemes in the
year were £55.1m (2021: £64.7m), under the current schedule of
contributions. Group contributions in 2021 included £9.6m to the Westferry
Printers Pension Scheme which enabled the Trustees of the scheme to purchase a
bulk annuity and the scheme now has all pension liabilities covered by annuity
policies. During 2022, the Trustees of the Express Newspapers Senior Managers
Pension Fund purchased a bulk annuity (at no cost to the Group) and the scheme
now has all pension liabilities covered by annuity policies. Contributions in
2023 are expected to be £55.8m under the current schedule of contributions
for the remaining four schemes not covered by annuity policies.
Deferred consideration
Deferred consideration is in respect of the acquisition of Express & Star.
The third payment of £17.1m was made on 28 February 2022. The remaining
amount of £7.0m is classified as current liabilities (paid on 28 February
2023).
Employee Benefit Trust
The Group funded the Trustees of the Employee Benefit Trust to enable the
Trustees to purchase 521,310 (2021: 883,315) shares at a total cash
consideration of £1.0m (average cost 192p per share) (2021: £3.3m (average
cost 374p per share)). The shares are held by the Trustees and will be used to
satisfy awards granted under the Company's employee share plans that are
expected to vest in future years.
Adjusted cash flow
Adjusted cash flow bridge £m £m
Adjusted EBITDA 126
Tax (5)
Restructuring (14)
Capex (13)
Lease payments (6)
Interest incl. on leases (3)
Working capital and other (20)
Adjusted operating cash flow 65
Historic legal issues (9)
Pension payments (55)
Dividends (23)
Purchase for share awards (1)
Adjusted net cash flow (23)
Payment for Express & Star (17)
RCF financing 15
Cash movement (25)
Cash balances
Net cash decreased by £40.3m from £65.7m at the year end to £25.4m at the
year end. The Group has £15.0m drawn down on the Group's revolving credit
facility, with the overall total cash position of £40.4m at the year end. The
Group has a revolving credit facility of £120.0m. During the period the
facility was extended for an extra year and now expires in November 2026.
Cash generated from operations on a statutory basis was £80.1m (2021:
£163.7m). The Group presents an adjusted cash flow which reconciles the
adjusted operating profit to the net change in cash and cash equivalents,
which is set out in note 21. A reconciliation between the statutory and the
adjusted cash flow is set out in note 22. The adjusted operating cash flow was
£64.8m (2021: £141.3m).
Dividends
The Board proposes a final dividend of 4.46 pence per share for 2022 (2021:
4.46 pence per share). The final dividend, which is subject to approval by
shareholders at the Annual General Meeting on 3 May 2023, will be paid on 2
June 2023 to shareholders on the register at 12 May 2023.
An interim dividend for 2022 of 2.88 pence per share was paid on 23 September
2022 (2021: 2.75 pence per share).
In proposing a final dividend of 4.46 pence per share for 2022 (2021: 4.46
pence per share), the Board has considered all investment requirements and its
funding commitments to the defined benefit pension schemes.
Current trading and outlook
The current trading environment remains challenging and we expect this to
continue in 2023, with sustained inflation and suppressed market demand for
digital advertising. Although input costs remain elevated, we are confident
that our cost action plan will enable us to deliver a 5-6% like for like
reduction in our operating cost base for 2023.
Trading for January and February has been in line with our expectations. As
anticipated, we have continued to see a decline in demand for digital
advertising, with open market yields and traffic down across the whole sector,
against stronger prior year comparators, particularly during the earlier part
of the year (H1 2022 up 5.4%; H2 2022 down 2.7%). Circulation revenue
continues to benefit from increased cover price activity during the second
half of 2022, with print trends overall similar to Q4 2022 and in line with
expectations. For the year to date; digital revenue year over year was down
11.9%, print down 3.6% and circulation up 1.8%. Total Group revenue was down
5.8%.
While external factors are affecting near term performance, consistent
strategic delivery is supporting the growth of higher quality digital
revenues, which with our US expansion, puts us in a strong position to grow
when macro headwinds subside.
Darren Fisher
Chief Financial Officer
7 March 2023
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 25 December 2022. 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 UK-adopted international accounting standards, 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
Darren Fisher
Chief Financial Officer
7 March 2023
Consolidated income statement
for the 52 weeks ended 25 December 2022 (52 weeks ended 26 December 2021)
Adjusted items Adjusted items
Adjusted 2022 2022 Statutory Adjusted 2021 Statutory
£m £m 2022 2021 £m 2021
notes £m £m £m
Revenue 4 601.4 - 601.4 615.8 - 615.8
Cost of sales (375.7) - (375.7) (329.4) - (329.4)
Gross profit 225.7 - 225.7 286.4 - 286.4
Distribution costs (38.1) - (38.1) (41.1) - (41.1)
Administrative expenses 5 (84.3) (33.4) (117.7) (102.4) (65.2) (167.6)
Share of results of associates 2.8 (1.4) 1.4 3.2 (1.6) 1.6
Operating profit 106.1 (34.8) 71.3 146.1 (66.8) 79.3
Interest income 6 0.1 - 0.1 0.1 - 0.1
Finance costs 7 (2.9) - (2.9) (2.7) - (2.7)
Pension finance charge 15 - (2.3) (2.3) - (3.4) (3.4)
Profit before tax 103.3 (37.1) 66.2 143.5 (70.2) 73.3
Tax charge 8 (18.8) 4.9 (13.9) (26.9) (43.5) (70.4)
Profit for the period attributable to equity holders of the parent 84.5 (32.2) 52.3 116.6 (113.7) 2.9
Earnings per share notes 2022 2022 2021 2021
Pence Pence Pence Pence
Earnings per share - basic 10 27.1 16.8 37.6 0.9
Earnings per share - diluted 10 26.7 16.5 36.5 0.9
The above results were derived from continuing operations. Set out in note 20
is the reconciliation between the statutory and adjusted results.
Consolidated statement of comprehensive income
for the 52 weeks ended 25 December 2022 (52 weeks ended 26 December 2021)
2022 2021
notes £m £m
Profit for the period 52.3 2.9
Items that will not be reclassified to profit and loss:
Actuarial (loss)/gain on defined benefit pension schemes 15 (35.0) 102.9
Tax on actuarial (loss)/gain on defined benefit pension schemes 8 7.4 (26.0)
Deferred tax credit resulting from future change in rate 8 - 13.9
Share of items recognised by associates after tax (1.7) (0.6)
Other comprehensive (loss)/income for the period (29.3) 90.2
Total comprehensive income for the period 23.0 93.1
Consolidated statement of changes in equity
for the 52 weeks ended 25 December 2022 (52 weeks ended 26 December 2021)
Accumulated loss and other reserves
Share premium Capital £m
Share account Merger redemption
capital £m reserve reserve Total
£m £m £m £m
At 28 December 2020 32.2 605.4 17.4 4.4 (92.7) 566.7
Profit for the period - - - - 2.9 2.9
Other comprehensive income for the period - - - - 90.2 90.2
Total comprehensive income for the period - - - - 93.1 93.1
Purchase of own shares (note 18) - - - - (3.3) (3.3)
Credit to equity for equity-settled share-based payments - - - - 1.7 1.7
Deferred tax credit for equity-settled share-based payments - - - - 2.4 2.4
Dividends paid - - - - (21.8) (21.8)
At 26 December 2021 32.2 605.4 17.4 4.4 (20.6) 638.8
Profit for the period - - - - 52.3 52.3
Other comprehensive loss for the period - - - - (29.3) (29.3)
Total comprehensive income for the period - - - - 23.0 23.0
Purchase of own shares (note 18) - - - - (1.0) (1.0)
Credit to equity for equity-settled share-based payments - - - - 1.8 1.8
Deferred tax charge for equity-settled share-based payments - - - - (2.2) (2.2)
Dividends paid (note 9) - - - - (22.9) (22.9)
At 25 December 2022 32.2 605.4 17.4 4.4 (21.9) 637.5
Consolidated cash flow statement
for the 52 weeks ended 25 December 2022 (52 weeks ended 26 December 2021)
2022 2021
notes £m £m
Cash flows from operating activities
Cash generated from operations 11 80.1 163.7
Pension deficit funding payments 15 (55.1) (64.7)
Income tax paid (5.0) (14.6)
Net cash inflow from operating activities 20.0 84.4
Investing activities
Interest received 6 0.1 0.1
Dividends received from associated undertakings 2.5 2.5
Proceeds on disposal of property, plant and equipment 0.4 0.7
Purchases of property, plant and equipment 13 (3.0) (6.5)
Expenditure on capitalised internally generated development 12 (10.7) (6.0)
Deferred consideration payment 16 (17.1) (16.0)
Acquisition of associated undertaking - (0.8)
Net cash used in investing activities (27.8) (26.0)
Financing activities
Interest and charges paid on borrowings (1.9) (1.4)
Dividends paid 9 (22.9) (21.8)
Interest paid on leases 16 (1.1) (1.3)
Repayment of obligation under leases 16 (5.6) (6.9)
Purchase of own shares 18 (1.0) (3.3)
Drawdown of borrowings 15.0 -
Net cash used in financing activities (17.5) (34.7)
Net (decrease)/increase in cash and cash equivalents (25.3) 23.7
Cash and cash equivalents at the beginning of the period 16 65.7 42.0
Cash and cash equivalents at the end of the period 16 40.4 65.7
Consolidated balance sheet
at 25 December 2022 (at 26 December 2021)
notes 2022 2021
£m £m
Non-current assets
Goodwill 12 35.9 35.9
Other intangible assets 12 832.9 824.3
Property, plant and equipment 13 140.1 157.3
Right-of-use assets 14 10.9 12.7
Finance lease receivable 10.4 -
Investment in associates 14.6 17.4
Retirement benefit assets 15 51.2 107.9
1,096.0 1,155.5
Current assets
Inventories 12.9 5.5
Trade and other receivables 95.2 102.3
Current tax receivable 13.9 13.5
Finance lease receivable 0.6 -
Cash and cash equivalents 16 40.4 65.7
163.0 187.0
Total assets 1,259.0 1,342.5
Non-current liabilities
Trade and other payables (4.5) (6.4)
Deferred consideration 16 - (7.0)
Lease liabilities 16 (26.8) (30.7)
Retirement benefit obligations 15 (202.1) (261.8)
Provisions 17 (36.6) (43.6)
Deferred tax liabilities (191.6) (188.1)
(461.6) (537.6)
Current liabilities
Trade and other payables (106.7) (114.7)
Deferred consideration 16 (7.0) (17.1)
Borrowings 16 (15.0) -
Lease liabilities 16 (4.9) (5.5)
Provisions 17 (26.3) (28.8)
(159.9) (166.1)
Total liabilities (621.5) (703.7)
Net assets 637.5 638.8
Equity
Share capital 18 32.2 32.2
Share premium account 18 605.4 605.4
Merger reserve 18 17.4 17.4
Capital redemption reserve 18 4.4 4.4
Accumulated loss and other reserves 18 (21.9) (20.6)
Total equity attributable to equity holders of the parent 637.5 638.8
Notes to the consolidated financial statements
for the 52 weeks ended 25 December 2022 (52 weeks ended 26 December 2021)
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 26 December 2021 have been filed with the
Registrar of Companies and those for the 52 weeks ended 25 December 2022 will
be filed following the Annual General Meeting on 3 May 2023. The auditors'
reports on the statutory accounts for the 52 weeks ended 26 December 2021 and
for the 52 weeks ended 25 December 2022 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 25 December 2022 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 2023 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 3 May 2023.
The Consolidated Financial Information has been prepared for the 52 weeks
ended 25 December 2022 and the comparative period has been prepared for the 52
weeks ended 26 December 2021. Throughout this report, the Consolidated
Financial Information for the 52 weeks ended 25 December 2022 is referred to
and headed 2022 and for the 52 weeks ended 26 December 2021 is referred to and
headed 2021. The presentational 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
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
The Group transitioned to UK-adopted International Accounting Standards in its
consolidated financial statements on 27 December 2021. This change constitutes
a change in accounting framework. However, there is no impact on recognition,
measurement or disclosure in the period reported as a result of the change in
framework.
The Consolidated Financial Information has been prepared in accordance with
UK-adopted international accounting standards ('IFRS') and the applicable
legal requirements of the Companies Act 2006. 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 25 December 2022 and for the 52 weeks ended
26 December 2021 have been consistently applied to all the periods presented.
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.
The key factors considered by the directors were as follows:
• The performance of the business in 2022 and the progress being made in the
implementation of the Group's Customer Value Strategy and the implications of
the current macroeconomic environment including inflationary pressures. The
Group undertakes regular forecasts and projections of trading, identifying
areas of focus for management to improve the delivery of the Customer Value
Strategy and mitigate the impact of any deterioration in the economic outlook;
• The impact of the competitive environment within which the Group's businesses
operate;
• The impact on our business of key suppliers (in particular newsprint) being
unable to meet their obligations to the Group;
• The impact on our business of key customers being unable to meet their
obligations for services provided by the Group;
• The deficit funding contributions to the defined benefit pension schemes and
payments in respect of historical legal issues; and
• The available cash reserves and committed finance facilities available to the
Group. During the year, the Group extended the expiry date of its £120.0m
facility for a further year to 19 November 2026. The Group has drawn down
£15.0m on the facility at the reporting date.
Having considered all the factors impacting the Group's businesses, including
downside sensitivities (relating to trading and cash flow), 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
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 26
December 2021.
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. 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 20 sets out the reconciliation between the
statutory and adjusted results. An adjusted cash flow is presented in note 21
which reconciles the adjusted operating profit to the net change in cash and
cash equivalents. Set out in note 22 is the reconciliation between the
statutory and adjusted cash flow. Note 23 shows the reconciliation between the
statutory and like-for-like revenues.
Adjusting items
Adjusting items relate to costs or income 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 20 with additional information
in notes 5, 8 and 15.
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:
Historical Legal Issues (notes 17 and 19)
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. The
key uncertainties in relation to this matter relate to how many claims will be
received, how each claim progresses, the amount of any settlement and the
associated legal costs. Our assumptions have been based on historical trends,
our experience and the expected evolution of claims and costs.
During 2022, a charge of £11.0m (2021: £29.0m) has been made, which relates
to an increase in the estimate for claim settlement values and the associated
legal costs, and an increase in common court costs as cases progress. The
charge has decreased from the prior year with the number of new claims arising
in the year, being in line with expectation. At the period end, a provision of
£43.0m remains outstanding and this represents the current best estimate of
the amount required to resolve this historical matter. The majority of the
provision is expected to be utilised within the next three years.
Our view on the range of outcomes at the reporting date for the provision,
applying more and less favourable outcomes to all aspects of the provision is
£32m to £56m (2021: £32m to £53m). However, it is unknown how long it will
take to fully resolve this matter and despite making a best estimate of the
provision, the timing of utilisation and possible range, the total universe of
claims is unknown and there are both ongoing legal matters (including a trial
currently listed in May 2023 where a number of claims are expected to be
heard) and the potential for new legal matters which could mean that the final
outcome is outside of the range of outcomes. Due to these unquantifiable
uncertainties, a contingent liability has been highlighted in note 19.
Taxation (note 8)
There is uncertainty as to the tax deductibility of expenditure relating to
historical legal issues in the current year and additional tax liabilities
that may fall due in relation to earlier years. At the reporting date, the
maximum amount of the additional unprovided tax exposure relating to this
uncertain tax item is £8.1m (2021: £7.4m). There is uncertainty as to the
final outcome and timing of this item, with a possible range of outcomes for
the potential tax exposure being nil to £27.2m (2021: nil to £25.1m).
Retirement benefits (note 15)
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.
Restructuring and property provisions (note 17)
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. There is uncertainty in relation to the
size and length of property related provisions.
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. The brands are central to
the delivery of the Customer Value Strategy which is delivering digital
revenue growth. 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
2022 2021
£m £m
Print 448.6 465.1
Circulation 307.7 312.9
Advertising 86.9 103.3
Printing 23.1 20.4
Other 30.9 28.5
Digital 149.8 148.3
Other 3.0 2.4
Total revenue 601.4 615.8
The Group's operations are located primarily in the UK.
5. Operating adjusted items
2022 2021
£m £m
Provision for historical legal issues (note 17) (11.0) (29.0)
Restructuring charges in respect of cost reduction measures (note 17) (15.5) (2.8)
Sublet of closed print site (note 14 and 17) 16.6 -
Home and Hub project - (23.7)
Pension administrative expenses and past service costs (note 15) (14.8) (3.7)
Other items (note 20) (8.7) (6.0)
Operating adjusted items included in administrative expenses (33.4) (65.2)
Operating adjusted items included in share of results of associates (1.4) (1.6)
Total operating adjusted items (34.8) (66.8)
Operating adjusted items relate to costs or income 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 20 is the reconciliation between the statutory and adjusted results which
includes descriptions of the items included in adjusted items.
The Group has recorded a £11.0m (2021: £29.0m) 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 17).
Restructuring charges of £15.5m (2021: £2.8m) incurred in respect of cost
reduction measures are principally severance costs that relate to cost
management actions taken in the period.
The sublet of the vacant print site which was closed in 2020 has resulted in
the reversal of an impairment in right-of-use assets of £11.0m (note 14) and
previously onerous costs of the vacant print site of £5.6m (note 17). The
impairment and onerous closure costs of the vacant print site were recognised
in operating adjusted items in 2020.
Pension costs of £14.8m (2021: £3.7m) comprise pension administrative
expenses of £4.2m and past service costs relating to a Barber Window
equalisation adjustment of £10.6m.
Other adjusted items comprise the Group's legal fees in respect of historical
legal issues (£5.2m), adviser costs in relation to the triennial funding
valuations (£1.6m), impairment of vacant freehold property (£4.2m) and plant
and equipment (0.8m) less a reduction in National Insurance costs relating to
share awards (£2.7m) and the profit on sale of impaired assets (£0.4m). In
2021 other adjusted items related to adviser costs in relation to triennial
funding valuations (£1.2m), an increase in National Insurance costs relating
to share awards (£2.6m), the write-off of an old debit balance (£2.9m) and
the profit on sale of an impaired asset (£0.7m).
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
were closed. The project resulted in charges of £23.7m (impairments of £2.3m
relating to property, plant and equipment and £10.5m relating to right-of-use
assets and a £10.9m property rationalisation charge relating to onerous costs
of vacant properties).
6. Interest income
2022 2021
£m £m
Interest income on bank deposits 0.1 0.1
7. Finance costs
2022 2021
£m £m
Interest and charges on borrowings (1.8) (1.4)
Interest on lease liabilities (1.1) (1.3)
Finance costs (2.9) (2.7)
8. Tax charge
2022 2021
£m £m
Corporation tax charge for the period (4.5) (4.8)
Prior period adjustment (0.7) 0.9
Current tax charge (5.2) (3.9)
Deferred tax charge for the period (9.0) (12.8)
Prior period adjustment 0.3 0.2
Deferred tax rate change - (53.9)
Deferred tax charge (8.7) (66.5)
Tax charge (13.9) (70.4)
Reconciliation of tax charge 2022 2021
£m £m
Profit before tax 66.2 73.3
Standard rate of corporation tax of 19% (2021: 19%) (12.6) (13.9)
Tax effect of permanent items that are not included in determining taxable (1.2) (4.0)
profit
Change in rate of deferred tax - (53.9)
Prior period adjustment (0.4) 1.1
Tax effect of share of results of associates 0.3 0.3
Tax charge (13.9) (70.4)
The standard rate of corporation tax for the period is 19% (2021: 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 of £13.9m (2021: £13.5m) is net of the uncertain
tax provision of £19.1m (2021: £17.7m). At the reporting date, the maximum
amount of the additional unprovided tax exposure relating to an uncertain tax
item is £8.1m (2021: £7.4m). There is uncertainty as to the final outcome
and timing of this item, with a possible range of outcomes for the potential
tax exposure being nil to £27.2m (2021: nil to £25.1m).
The Budget on 5 March 2021 increased the rate of corporation tax from 19% to
25% with effect from 1 April 2023. At 26 December 2021, this rate change had
been substantively enacted by parliament meaning that the opening deferred tax
position was 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 losses (2021: gains) on defined benefit pension schemes
taken to the consolidated statement of comprehensive income is a deferred tax
credit of £7.4m (2021: charge of £26.0m).
The amount taken to the consolidated income statement as a result of pension
contributions was £7.1m (2021: £10.1m).
9. Dividends
2022 2021
Pence Pence
per share per share
Amounts recognised as distributions to equity holders in the period
Dividends paid per share - prior year final dividend 4.46 4.26
Dividends paid per share - interim dividend 2.88 2.75
Total dividends paid per share 7.34 7.01
Dividend proposed per share but not paid nor included in the accounting 4.46 4.46
records
The Board proposes a final dividend for 2022 of 4.46 pence per share. An
interim dividend for 2022 of 2.88 pence per share was paid on 23 September
2022 bringing the total dividend in respect of 2022 to 7.34 pence per share.
The 2022 final dividend payment is expected to amount to £14.0m.
On 5 May 2022, the final dividend proposed for 2021 of 4.46 pence per share
was approved by shareholders at the Annual General Meeting and was paid on 10
June 2022.
Total dividends paid in 2022 were £22.9m (2021 final dividend payment of
£13.9m and 2022 interim dividend payment of £9.0m).
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.
2022 2021
Thousand Thousand
Weighted average number of ordinary shares for basic earnings per share 312,153 310,282
Effect of potential dilutive ordinary shares in respect of share awards 4,828 8,971
Weighted average number of ordinary shares for diluted earnings per share 316,981 319,253
The weighted average number of potentially dilutive ordinary shares not
currently dilutive was 5,406,814 (2021: 1,704,886).
Statutory earnings per share 2022 2021
Pence Pence
Earnings per share - basic 16.8 0.9
Earnings per share - diluted 16.5 0.9
Adjusted earnings per share 2022 2021
Pence Pence
Earnings per share - basic 27.1 37.6
Earnings per share - diluted 26.7 36.5
Set out in note 20 is the reconciliation between the statutory and adjusted
results.
11. Cash flows from operating activities
2022 2021
£m £m
Operating profit 71.3 79.3
Depreciation of property, plant and equipment 15.2 15.3
Depreciation of right-of-use assets 2.9 3.6
Amortisation of other intangible assets 2.1 0.4
Impairment of property, plant and equipment 5.0 2.3
Reversal of impairment of right-of-use assets (11.0) -
Impairment of right-of-use assets - 10.5
Profit on disposal of property, plant and equipment (0.4) (0.7)
Share of results of associates (1.4) (1.6)
Share-based payments charge 1.5 1.7
Pension administrative expenses and past service costs 14.8 3.7
Operating cash flows before movements in working capital 100.0 114.5
Increase in inventories (7.4) (0.9)
Decrease in receivables 7.2 5.6
(Decrease)/increase in payables (19.7) 44.5
Cash flows from operating activities 80.1 163.7
12. Goodwill and other intangible assets
The carrying value of goodwill and other intangible assets is:
Goodwill Publishing Internally generated assets Intangible
£m rights and titles £m assets
£m £m
Opening carrying value 35.9 818.7 5.6 860.2
Additions - - 10.7 10.7
Amortisation - - (2.1) (2.1)
Closing carrying value 35.9 818.7 14.2 868.8
During the year, the Group capitalised internally generated assets relating to
software and website development costs of £10.7m. These assets are amortised
using the straight-line method over their estimated useful lives (3-5 years).
Publishing rights and titles are not amortised. 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 brands are central to the delivery of the Customer Value
Strategy which is delivering digital revenue growth. This, combined with our
inbuilt and relentless focus on maximising efficiency, gives 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, cash flows have been prepared using the approved
Budget for 2023 and projections for a further nine years as this is the period
over which the transformation to digital can be assessed. The projections for
2024 to 2032 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 1.0%
(2021: 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 10.8% (2021:
10.8%) and 13.9% (2021: 14.2%) respectively.
The impairment review is highly sensitive to reasonably possible changes in
key assumptions used in the value-in-use calculations and there is uncertainty
relating to the current challenging macroeconomic environment. The headroom in
the impairment review is £183m (2021: £411m). EBITDA in the 10 year
projections is forecast to grow at a CAGR of 1.6% (2021: 1.3%). 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 if these resulted
in the EBITDA in the 10-year projections declining at a CAGR of 0.9% (2021:
-5.0%). Alternatively an increase in the discount rate by 2.4 percentage
points (2021: 5.6 percentage points) would lead to the removal of the
headroom.
13. Property, plant and equipment
Freehold land and buildings Plant and equipment Asset under construction Total
£m £m £m £m
Cost
At 26 December 2021 204.6 360.5 2.2 567.3
Additions - 1.7 1.3 3.0
Disposals - (24.0) - (24.0)
Reclassification - 3.0 (3.0) -
At 25 December 2022 204.6 341.2 0.5 546.3
Accumulated depreciation and impairment
At 26 December 2021 (99.3) (310.7) - (410.0)
Charge for the period (2.6) (12.6) - (15.2)
Eliminated on disposal - 24.0 - 24.0
Impairment (4.2) (0.8) - (5.0)
At 25 December 2022 (106.1) (300.1) - (406.2)
Carrying amount
At 26 December 2021 105.3 49.8 2.2 157.3
At 25 December 2022 98.5 41.1 0.5 140.1
Impairment of vacant freehold property of £4.2m (note 5) is as a result of
the carrying value of certain Group properties being in excess of their market
value at the reporting date. Plant and equipment has been impaired by £0.8m
(note 5) in the period due to the closure of a print site.
£24.0m of disposals in cost and accumulated depreciation relate to the
scrapping of plant and equipment as a result of the sublet of the vacant print
site, which was fully impaired in 2020.
14. Right-of-use assets
Properties Vehicles Total
£m £m £m
Cost
At 26 December 2021 43.1 3.4 46.5
Additions 1.1 - 1.1
Derecognition at start of sublease classified as finance lease (14.6) - (14.6)
Derecognition at end of lease term (2.2) (0.2) (2.4)
At 25 December 2022 27.4 3.2 30.6
Accumulated depreciation and impairment
At 26 December 2021 (31.8) (2.0) (33.8)
Charge for the period (2.2) (0.7) (2.9)
Reversal of impairment 11.0 - 11.0
Derecognition at start of sublease classified as finance lease 3.6 - 3.6
Derecognition at end of lease term 2.2 0.2 2.4
At 25 December 2022 (17.2) (2.5) (19.7)
Carrying amount
At 26 December 2021 11.3 1.4 12.7
At 25 December 2022 10.2 0.7 10.9
The sublet of the vacant print site which was closed in 2020, has resulted in
the reversal of an impairment in right-of-use assets of £11.0m in 2022 (note
5). The sublet has been classified as a finance lease and the net investment
in the lease of £11.0m is recognised as a finance lease receivable in the
consolidated balance sheet.
15. Retirement benefit schemes
Defined contribution pension schemes
The Group operates defined contribution pension schemes for qualifying
employees, where the assets of the schemes 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 £18.1m (2021: £17.1m) 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:
• the MGN Pension Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit
Scheme (the 'Trinity Scheme'), the Midland Independent Newspapers Pension
Scheme (the 'MIN Scheme'), 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% to deferred pensioners. The
average term from the period end to payment of the remaining uninsured
benefits is expected to be around 12 years. Uninsured pension payments in
2022, excluding lump sums and transfer value payments, were £73m and these
are projected to rise to an annual peak in 2034 of £104m 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 latest valuation date for all six of the Group's schemes was 31 December
2019, although the process to determine the 31 December 2022 valuations is now
due to commence.
Discussions in relation to the funding valuations of the MGN Scheme at 31
December 2019 are ongoing. The funding valuation of the MGN scheme: at 31
December 2016 showed a deficit of £476.0m. The Group paid contributions of
£40.9m to the MGN Scheme in 2022 and the current schedule of contributions
includes payments of £40.9m pa from 2023 to 2027.
The funding valuation of the Trinity Scheme at 31 December 2019 was agreed on
21 December 2022. This showed a deficit of £57.2m. The Group paid
contributions of £5.2m to this scheme in 2022 and agreed an unchanged
schedule of contributions of payments of £5.2m pa from 2023 to 2027.
The funding valuation of the MIN Scheme at 31 December 2019 was agreed after
the year end on 3 February 2023. This showed a deficit of £73.8m. The Group
paid contributions of £5.9m to this scheme in 2022 and the agreed schedule of
contributions features payments of £6.9m pa from 2023 to 2025, £7.8m pa in
2026 and 2027 and £8.6m pa in 2028 and 2029.
The funding valuations of the EN88 Scheme, and ENSM Scheme at 31 December 2019
were agreed on 10 December 2021. For the EN88 Scheme this showed a deficit of
£25.1m. The Group paid contributions of £2.8m to this scheme in 2022 and the
agreed schedule of contributions includes payments of £2.8m pa from 2023 to
2026 and £0.8m in 2027. During the year, the Trustees of the ENSM Scheme
purchased a bulk annuity at no cost to the Group and the scheme now has all
pension liabilities covered by annuity policies and no further funding is
expected. The Group paid £9.6m to the WF Scheme in 2021 which together with
the payment of £5.0m made in 2020 enabled the Trustees to purchase a bulk
annuity and the scheme now has all pension liabilities covered by annuity
policies and no further funding is expected.
Group contributions in respect of the defined benefit pension schemes in the
year were £55.1m (2021: £64.7m).
At the reporting date, the funding deficits in all schemes are expected to be
removed before or around 2029 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 are £55.8m pa in 2023 to 2025, £56.7m pa in 2026, £54.7m pa
in 2027 and £8.6m pa in 2028 and 2029.
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 in respect 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 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 reporting date the insured annuity policies covered 16% 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 those of the liabilities and
so the values may still move differently. At the reporting date non-equity
assets amounted to 93% 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 7% 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 seek to be 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 also seek to
be aligned in reducing pensions risk over the long term and at a pace which is
affordable to the Group.
The EN88 Scheme, the ENSM Scheme, the Trinity Scheme and the WF 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 2041,
based on the reporting date assumptions. The remaining uninsured benefit
payments, payable from 2042, are due to be funded by a combination of asset
outperformance and the deficit contributions currently scheduled to be paid up
to 2027 for the MGN Scheme and 2029 for the MIN Scheme. For the MGN Scheme and
MIN Scheme, actuarial projections at the year-end reporting date show removal
of the accounting deficit by the end of 2026 for the MGN Scheme and 2028 for
the MIN Scheme 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 and the Barber Window equalisation adjustment,
there were no plan amendments, settlements or curtailments in 2022 or 2021
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 25 December 2022.
Based on actuarial advice, the assumptions used in calculating the scheme
liabilities are:
2022 2021
Financial assumptions (nominal % pa)
Discount rate 4.90 1.83
Retail price inflation rate 3.29 3.46
Consumer price inflation rate 1.0% pa lower than RPI to 2030 and equal to RPI thereafter 1.0% pa lower than RPI to 2030 and equal to RPI thereafter
Rate of pension increases in deferment 2.90 3.24
Rate of pension increases in payment 3.38 3.40
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65 21.6 21.8
Female currently aged 65 24.0 24.1
Male currently aged 55 21.3 21.5
Female currently aged 55 24.5 24.6
The defined benefit pension liabilities are valued using actuarial assumptions
about future benefit increases and scheme member demographics, and the
resulting projected benefits are discounted to the reporting date at
appropriate corporate bond yields. For 2021 and 2022, the financial
assumptions have been derived for each scheme based on their individual
circumstances, rather than considering the schemes in aggregate as has been
done in the past. Note that the assumptions provided in the table above for
2021 and 2022 are the average assumptions across all of the schemes.
The discount rate should be chosen to be equal to the yield available on 'high
quality' corporate bonds of appropriate term and currency. For 2021 and 2022,
the discount rate has been set to reflect the full corporate bond yield curve
with a different assumption for each scheme, based on the scheme-specific cash
flows and set separately for uninsured and insured liabilities within each
scheme, reflecting their respective durations.
The inflation assumptions are based on market expectations over the period of
the liabilities. For 2021 and 2022, the inflation assumptions have been set
using the full inflation curve. The RPI assumption is set based on a margin
deducted from 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. 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). The CPI assumption is set
based on a margin deducted from the RPI assumption, due to lack of market data
on CPI expectations. Based on an analysis of the CPI-linkage of the cash flow
profile of the schemes the assumed gap between RPI and CPI inflation is 1.0%
per annum up to 2030 and 0.0% per annum beyond 2030, consistent with 2021.
The estimated impacts on the IAS 19 liabilities and on the IAS 19 deficit at
the reporting date, due to a reasonably possible change in key assumptions
over the next year, are set out in the table below:
Effect on Effect on
liabilities deficit
£m
£m
Discount rate +/- 1.0% pa -190/+230 -160/+200
Retail price inflation rate +/- 0.5% pa +23/-23 +15/-15
Consumer price inflation rate +/- 0.5% pa +25/-23 +24/-21
Life expectancy at age 65 +/- 1 year +75/-80 +60/-65
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 amounts 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 are
as follows:
Past service costs of £10.6m relates to a Barber Window equalisation
adjustment identified by the Trustees of the MGN Scheme during the year. The
impact relates to the equalisation of retirement ages to 65, which was
previously implemented from 17 May 1990, rather than the date of the Deed of
Amendment of the Rules which was 4 April 1991.
Consolidated income statement 2022 2021
£m £m
Pension administrative expenses (4.2) (3.7)
Past service costs (10.6) -
Pension finance charge (2.3) (3.4)
Defined benefit cost recognised in income statement (17.1) (7.1)
Consolidated statement of comprehensive income 2022 2021
£m £m
Actuarial loss due to liability experience (60.1) (22.0)
Actuarial gain due to liability assumption changes 940.4 30.5
Total liability actuarial gain 880.3 8.5
Returns on scheme assets (less)/greater than discount rate (915.9) 48.6
Impact of IFRIC 14 0.6 45.8
Total (loss)/gain recognised in statement of comprehensive income (35.0) 102.9
Consolidated balance sheet 2022 2021
£m £m
Present value of uninsured scheme liabilities (1,571.5) (2,395.0)
Present value of insured scheme liabilities (288.5) (393.4)
Total present value of scheme liabilities (1,860.0) (2,788.4)
Invested and cash assets at fair value 1,421.8 2,242.9
Value of liability matching insurance contracts 288.5 393.4
Total fair value of scheme assets 1,710.3 2,636.3
Funded deficit (149.7) (152.1)
Impact of IFRIC 14 (1.2) (1.8)
Net scheme deficit (150.9) (153.9)
Non-current assets - retirement benefit assets 51.2 107.9
Non-current liabilities - retirement benefit obligations (202.1) (261.8)
Net scheme deficit (150.9) (153.9)
Net scheme deficit included in consolidated balance sheet (150.9) (153.9)
Deferred tax included in consolidated balance sheet 37.0 36.7
Net scheme deficit after deferred tax (113.9) (117.2)
Movement in net scheme deficit 2022 2021
£m £m
Opening net scheme deficit (153.9) (314.4)
Contributions 55.1 64.7
Consolidated income statement (17.1) (7.1)
Consolidated statement of comprehensive income (35.0) 102.9
Closing net scheme deficit (150.9) (153.9)
Changes in the present value of scheme liabilities 2022 2021
£m £m
Opening present value of scheme liabilities (2,788.4) (2,864.1)
Past service costs (10.6) -
Interest cost (49.9) (41.8)
Actuarial loss - experience (60.1) (22.0)
Actuarial gain - change to demographic assumptions 6.7 1.6
Actuarial gain - change to financial assumptions 933.7 28.9
Benefits paid 108.6 109.0
Closing present value of scheme liabilities (1,860.0) (2,788.4)
Impact of IFRIC 14 2022 2021
£m £m
Opening impact of IFRIC 14 (1.8) (47.6)
Decrease in impact of IFRIC 14 0.6 45.8
Closing impact of IFRIC 14 (1.2) (1.8)
Changes in the fair value of scheme assets 2022 2021
£m £m
Opening fair value of scheme assets 2,636.3 2,597.3
Interest income 47.6 38.4
Actual return on assets (less)/greater than discount rate (915.9) 48.6
Contributions by employer 55.1 64.7
Benefits paid (108.6) (109.0)
Administrative expenses (4.2) (3.7)
Closing fair value of scheme assets 1,710.3 2,636.3
Fair value of scheme assets 2022 2021
£m £m
UK equities 27.5 58.7
US equities 48.5 157.1
Other overseas equities 28.4 181.1
Property 33.2 40.5
Corporate bonds 315.9 260.9
Fixed interest gilts 6.7 34.9
Index linked gilts - 18.3
Liability driven investment 816.5 903.4
Cash and other 145.1 588.0
Invested and cash assets at fair value 1,421.8 2,242.9
Value of insurance contracts 288.5 393.4
Fair value of scheme assets 1,710.3 2,636.3
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.
16. Net cash
The net cash for the Group is as follows:
27 December 2021 Cash IFRS 16 lease liabilities movement
£m flow
£m
25 December 2022
Loan Interest New leases £m
drawdown £m £m
£m
Liabilities from financing activities
Borrowings - - (15.0) - - (15.0)
Lease liabilities (36.2) 6.7 - (1.1) (1.1) (31.7)
(36.2) 6.7 (15.0) (1.1) (1.1) (46.7)
Current assets
Cash and cash equivalents 65.7 (40.3) 15.0 - - 40.4
Net cash less lease liabilities 29.5 (6.3)
Net cash 65.7 (40.3) - - - 25.4
Cash and cash equivalents comprise cash held by the Group and short-term bank
deposits with an original maturity of one week or less. The carrying amount of
these assets approximates their fair value.
The Group has a revolving credit facility of £120.0m which was extended for a
further year in 2022 and now expires on 19 November 2026. The Group had
drawings of £15.0m at the reporting date. The facility is subject to two
covenants: Interest Cover and Net Debt to EBITDA, both of which were met at
the reporting date.
Acquisition deferred consideration
Deferred consideration (which is shown separately on the face of the
consolidated balance sheet) is in respect of the acquisition of Express &
Star. Payment of the first instalment of £18.9m was made on 28 February 2020.
The second instalment of £16.0m was made on 28 February 2021 and the third
instalment of £17.1m was made on 28 February 2022. The remaining amount of
£7.0m is classified as 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.
17. Provisions
Share-based payments Historical
£m
Property Restructuring legal issues Other Total
£m £m £m £m £m
At 27 December 2021 (4.0) (12.3) (10.3) (41.0) (4.8) (72.4)
Charged to income statement (0.3) - (15.7) (11.0) (1.0) (28.0)
Released to income statement 2.7 0.4 5.6 - 1.1 9.8
Utilisation of provision 0.7 2.5 13.8 9.0 1.7 27.7
At 25 December 2022 (0.9) (9.4) (6.6) (43.0) (3.0) (62.9)
The provisions have been analysed between current and non-current as follows:
2022 2021
£m £m
Current (26.3) (28.8)
Non-current (36.6) (43.6)
(62.9) (72.4)
The share-based payments provision relates to National Insurance obligations
attached to the future crystallisation of awards. This provision will be
utilised over the next three years.
The property provision relates to property-related onerous contracts and
onerous committed costs related to 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 charge includes £15.5m of
principally severance costs relating to cost management actions taken in the
period (note 5). The sublet of a vacant print plant has resulted in the
release of £5.6m of previously onerous costs (note 5). The balance at the
period end comprises severance costs of £4.1m and closure costs relating to a
print plant of £2.5m. The severance costs provision is expected to be
utilised within the next year. The closure costs provision includes £0.5m
expected to be utilised within the next year and £2.0m expected to be
utilised at the end of a long-term print plant lease related to the print
restructure in 2020.
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. The
key uncertainties in relation to this matter relate to how many claims will be
received, how each claim progresses, the amount of any settlement and the
associated legal costs. Our assumptions have been based on historical trends,
our experience and the expected evolution of claims and costs. The known and
common costs part of the provision is calculated using the most likely outcome
method, with the expected value method used for the potential claims
provision.
During 2022, a charge of £11.0m (2021: £29.0m) has been made, which relates
to an increase in the estimate for claim settlement values and the associated
legal costs, and an increase in common court costs as cases progress. The
charge has decreased from the prior year with the number of new claims arising
in the year, being in line with expectation. At the period end, a provision of
£43.0m remains outstanding and this represents the current best estimate of
the amount required to resolve this historical matter. The majority of the
provision is expected to be utilised within the next three years.
Our view on the range of outcomes at the reporting date for the provision,
applying more and less favourable outcomes to all aspects of the provision is
£32m to £56m (2021: £32m to £53m). However, it is unknown how long it will
take to fully resolve this matter and despite making a best estimate of the
provision, the timing of utilisation and possible range, the total universe of
claims is unknown and there are both ongoing legal matters (including a trial
currently listed in May 2023 where a number of claims are expected to be
heard) and the potential for new legal matters which could mean that the final
outcome is outside of the range of outcomes. Due to these unquantifiable
uncertainties, a contingent liability note has been highlighted in note 19.
The other provision balance of £3.0m at the period end relates to libel and
other matters and is expected to be utilised over the next two years.
18. Share capital and reserves
The share capital comprises 322,085,269 (2021: 322,085,269) allotted, called
up and fully paid ordinary shares of 10p each.
The share premium account 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 5,014,410 shares as Treasury shares (2021: 8,128,176
shares). On 4 March 2022, 1,106,273 shares, 27 July 2022, 992,627 shares and 2
December 2022, 1,013,951 shares were individually withdrawn from Treasury and
transferred to the Reach Employee Benefit Trust to satisfy the vesting of
awards granted in 2019 under the Reach Long Term Incentive Plan. In the first
half of 2022, 915 shares were withdrawn from Treasury to satisfy the vesting
of the share award to colleagues granted in December 2020 under the Reach
All-Employee Share Plan.
Cumulative goodwill written off to accumulated loss and other reserves in
respect of continuing businesses acquired prior to 1998 is £25.9m (2021:
£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 accumulated loss and other reserves.
Shares purchased by the Reach Employee Benefit Trust are included in
accumulated loss and other reserves at £3.9m (2021: £5.2m). During the year
the Trust purchased 521,310 (2021: 883,315) for a cash consideration of £1.0m
(2021: £3.3m). The Trust received a payment of £1.0m (2021: £3.3m) from the
Company to purchase these shares. During the year, 2,621,142 were released
relating to grants made in prior years (2021: 1,241,171).
During the year, awards relating to 667,448 shares were granted to executive
directors on a discretionary basis under the Long Term Incentive Plan (2021:
608,136). The exercise price of each award is £1 for each block of awards
granted. 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 1,256,413 shares were granted to senior
managers on a discretionary basis under the Long Term Incentive Plan (2021:
1,010,227). The exercise price of each award is £1 for each block of awards
granted. 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 121,575 shares were granted to executive
directors under the Restricted Share Plan (2021: nil). The award was based on
the average share price over the three months prior to the date of the award
of £2.207. The award vests after three years.
19. Contingent liabilities
Historical Legal Issues
It is unknown how long it will take to fully resolve historical legal issues
set out in note 17 and despite making a best estimate of the provision, the
timing of utilisation and possible range, the total universe of claims is
unknown and there are both ongoing legal matters (including a trial currently
listed in May 2023 where a number of claims are expected to be heard) and the
potential for new legal matters which could mean that the final outcome is
outside our view on the range of outcomes of £32m to £56m (2021: £32m to
£53m).
20. Reconciliation of statutory to adjusted results
52 weeks ended 25 December 2022
Operating Pension
adjusted finance
Statutory items charge Tax Adjusted
results (a) (b) (c) results
£m £m £m £m £m
Revenue 601.4 - - - 601.4
Operating profit 71.3 34.8 - - 106.1
Profit before tax 66.2 34.8 2.3 - 103.3
Profit after tax 52.3 30.3 1.9 - 84.5
Basic earnings per share (p) 16.8 9.7 0.6 - 27.1
52 weeks ended 26 December 2021
Operating Pension
adjusted finance
Statutory items charge Tax Adjusted
results (a) (b) (c) results
£m £m £m £m £m
Revenue 615.8 - - - 615.8
Operating profit 79.3 66.8 - - 146.1
Profit before tax 73.3 66.8 3.4 - 143.5
Profit after tax 2.9 57.0 2.8 53.9 116.6
Basic earnings per share (p) 0.9 18.4 0.9 17.4 37.6
(a) Operating adjusted items relate to the items charged or
credited to operating profit as set out in note 5.
(b) Pension finance charge relates to the defined benefit pension
schemes as set out in note 15.
(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.
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 on the basis that they distort the underlying performance
of the business where they relate to material items that can recur (including
impairment, restructuring, tax rate changes) or relate to historical
liabilities (including historical legal and contractual issues, defined
benefit pension schemes which are all closed to future accrual). Other items
may be included in adjusted items if they are not expected to recur in future
years, such as the property rationalisation in the prior year and items such
as transaction and restructuring costs incurred on acquisitions or the profit
or loss on the sale of subsidiaries, associates or freehold buildings.
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 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 impacts 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.
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.
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, past service costs and the pension finance
charge are included in adjusted items as the amounts are significant and they
relate to the historical pension commitment.
Included in adjusted items in 2022 are the reversal of an impairment in
right-of-use assets of £11.0m and previously onerous costs of £5.6m due to
the sublet of a vacant print site which was closed in 2020. Other adjusted
items comprise the Group's legal fees in respect of historical legal issues
(£5.2m), adviser costs in relation to the triennial funding valuations
(£1.6m), impairment of vacant freehold property (£4.2m) and plant and
equipment (£0.8m) less a reduction in National Insurance costs relating to
share awards (£2.7m) and the profit on sale of impaired assets (£0.4m).
These are included in adjusted items as they relate to historic liabilities or
are one-off items not expected to recur.
Included in adjusted items in 2021 are costs relating to 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 have been closed. The project has resulted in charges of
£23.7m (impairments of £2.3m relating to property, plant and equipment and
£10.5m relating to right-of-use assets and a £10.9m property rationalisation
charge relating to onerous costs of vacant properties). Restructuring charges
include £1.4m of costs relating to the integration of the Irish Daily Star
which was acquired in 2020 and a further £1.4m of restructuring relating to
the closure of two print sites at the end of 2020. Other items relate to
adviser costs in relation to the triennial funding valuations costs (£1.2m),
National Insurance costs relating to share awards (£2.6m) and the write-off
of an old debit balance (£2.9m) partially offset by profit on sales of print
assets (£0.7m). These are included in adjusted items as they relate to
historic liabilities or are one-off items not expected to recur.
21. Adjusted cash flow
2022 2021
£m £m
Adjusted operating profit 106.1 146.1
Depreciation and amortisation 20.2 19.3
Adjusted EBITDA 126.3 165.4
Net interest and charges paid on borrowings (1.8) (1.3)
Income tax paid (5.0) (14.6)
Restructuring payments (13.8) (15.1)
Net capital expenditure (13.3) (11.8)
Interest paid on leases (1.1) (1.3)
Repayment of obligation under leases (5.6) (6.9)
Working capital and other (20.9) 26.9
Adjusted operating cash flow 64.8 141.3
Historical legal issues payments (9.0) (11.0)
Dividends paid (22.9) (21.8)
Purchase of own shares (1.0) (3.3)
Pension funding payments (55.1) (64.7)
Adjusted net cash flow (23.2) 40.5
Bank facility drawdown 15.0 -
Acquisition-related cash flows (17.1) (16.8)
Net (decrease)/increase in cash and cash equivalents (25.3) 23.7
22. Reconciliation of statutory to adjusted cash flow
52 weeks ended 25 December 2022 Statutory (a) (b) Adjusted
2022 £m £m 2022
£m £m
Cash flows from operating activities
Cash generated from operations 80.1 (24.3) 9.0 64.8 Adjusted operating cash flow
Pension deficit funding payments (55.1) - - (55.1) Pension funding payments
- - (9.0) (9.0) Historical legal issues payments
Income tax paid (5.0) 5.0 - -
Net cash inflow from operating activities 20.0
Investing activities
Interest received 0.1 (0.1) - -
Dividends received from associated undertakings 2.5 (2.5) - -
Proceeds on disposal of property, plant and equipment 0.4 (0.4) - - Net capital expenditure
Purchases of property, plant and equipment (3.0) 3.0 - - Net capital expenditure
Expenditure on capitalised internally generated development (10.7) 10.7 - - Net capital expenditure
Deferred consideration payment (17.1) - - (17.1) Acquisition-related cash flow
Net cash used in investing activities (27.8)
Financing activities
Interest and charges paid on borrowings (1.9) 1.9 - -
Dividends paid (22.9) - - (22.9) Dividends paid
Interest paid on leases (1.1) 1.1 - -
Repayment of obligations under leases (5.6) 5.6 - -
Purchase of own shares (1.0) - - (1.0) Purchase of own shares
Drawdown of borrowings 15.0 - - 15.0 Bank facility drawdown
Net cash used in financing activities (17.5)
Net decrease in cash and cash equivalents (25.3) - - (25.3)
(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 are shown
separately in the adjusted cash flow.
52 weeks ended 26 December 2021 Statutory (a) (b) Adjusted
2021 £m £m 2021
£m £m
Cash flows from operating activities
Cash generated from operations 163.7 (33.4) 11.0 141.3 Adjusted operating cash flow
Pension deficit funding payments (64.7) - - (64.7) Pension funding payments
- - (11.0) (11.0) Historical legal issues payments
Income tax paid (14.6) 14.6 - -
Net cash inflow from operating activities 84.4
Investing activities
Interest received 0.1 (0.1) - -
Dividends received from associated undertakings 2.5 (2.5) - -
Proceeds on disposal of property, plant and equipment 0.7 (0.7) - - Net capital expenditure
Purchases of property, plant and equipment (6.5) 6.5 - - Net capital expenditure
Expenditure on capitalised internally generated development (6.0) 6.0 - - Net capital expenditure
Deferred consideration payment (16.0) - - (16.0) Acquisition-related cash flow
Acquisition of associate undertaking (0.8) - - (0.8) Acquisition-related cash flow
Net cash used in investing activities (26.0)
Financing activities
Dividends paid (21.8) - - (21.8) Dividends paid
Interest and charges paid on borrowings (1.4) 1.4 - -
Purchase of own shares (3.3) - - (3.3) Purchase of own shares
Interest paid on leases (1.3) 1.3 - -
Repayment of obligations under leases (6.9) 6.9 - -
Net cash used in financing activities (34.7)
Net increase in cash and cash equivalents 23.7 - - 23.7
(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 are shown
separately in the adjusted cash flow.
23. Reconciliation of statutory to like-for-like revenue
Revenue trends on an actual and like-for-like basis are the same in 2022.
For 2021 versus 2020 revenue, the like-for-like trends excluded the
Independent Star acquisition and the impact of portfolio changes and impacted
print revenue only.
2021 v 2020 Statutory Like-for-like Statutory Like-for-like
2021 (a) 2021 2020 (a) (b) 2020
£m £m £m £m £m £m £m
Print 465.1 (10.6) 454.5 479.3 (1.0) (1.5) 476.8
Circulation 312.9 (8.7) 304.2 319.7 (0.8) - 318.9
Advertising 103.3 (1.8) 101.5 108.4 (0.2) (1.5) 106.7
Printing 20.4 - 20.4 25.2 - - 25.2
Other 28.5 (0.1) 28.4 26.0 - - 26.0
Digital 148.3 - 148.3 118.3 - - 118.3
Other 2.4 - 2.4 2.6 - - 2.6
Total revenue 615.8 (10.6) 605.2 600.2 (1.0) (1.5) 597.7
(a) Exclusion of Irish Daily 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.
Principal Risks and Uncertainties
We have considered all risks in the context of delivering our strategy, and
the continuing economic uncertainty following the COVID pandemic, inflationary
challenges, supply chain challenges, and the changing regulatory and
compliance landscape. The continuing economic uncertainty has caused the
following risks to increase - deterioration in the macroenvironment;
deceleration of digital growth; and supply chain disruption. The risk of a
cyber security breach has also become more likely given the external
environment. Throughout the year we have worked further to enhance the
mitigating actions we have in place. The Board has undertaken a robust risk
assessment and review of our principal risks in this context, which are set
out in the table below.
Principal risks and uncertainties
Risk Description Mitigation What we've done this year
Deterioration in macroeconomic conditions Continued deterioration in macroeconomic conditions could result in an The economic uncertainty continues. We closely monitor the risk and imapact We have closely monitored and assessed the macroeconomic factors and during
uncertain trading environment with reduced customer and advertiser spending, and continue to take action when needed. We have a proven track record of the year we have seen increased inflation pressure in relation to energy and
higher interest rates, higher inflation and increased costs, leading to lower responding quickly and delivering additional cost savings as necessary when newsprint costs. We have continued to take action to closely monitor costs and
cash flow and profits. faced with unexpected revenue declines. be as efficient as possible, taking timely actions to mitigate inflation cost
Risk owner: Executive Committee pressures in the year.
Increase
Deceleration of digital growth alongside acceleration in decline of print Changes in the traditional publishing industry have led to an ongoing decline Our strategic development is led by an experienced Board and Executive Our strategy, led by an experienced Executive Committee, is built around
revenues in print advertising and circulation revenues, which is being exacerbated by Committee. moving to a digital-led model and remains the key strategic focus for the
macro-economic factors. A lack of appropriate strategic focus could result in
Executive Committee.
us losing further revenue from existing products, while also failing to grow We have an Investment Committee in place to approve business plans when
digital revenues quickly enough to offset the decline in print. reviewed against strategic goals. During the year we have focused on building our direct relationships with
Risk owner: Executive Committee
customers; social video content; our strategy for affiliates; and launched
We focus on developing digital revenue streams through the Customer Value Curiously which aims to grow revenue from new audiences.
Strategy.
Increase We continue to take tactical measures to minimise print revenue declines and
maintain profits, such as taking appropriate cash mitigation or pricing
measures.
We have governance structures which enable the ongoing review of performance
against targets and strategic goals, including a weekly structured trading
meeting.
We keep under consideration acquisition, joint venture and other corporate
development opportunities, which are aligned to our Customer Value Strategy.
Risk Description Mitigation What we've done this year
Cyber security breach An internal or external cyber threat or attack, or a breach within one of our All business-critical systems are well established and are supported by Given our increasing focus on customer data as part of our strategy, the
suppliers, could lead to breaches of confidential data, interruption to our appropriate disaster recovery plans. potential impact of a cyber security breach is increasing all the time. During
systems and services, reputational damage with our stakeholders and financial
the year we continued to deliver our cyber security improvement programme and
loss. We regularly assess our vulnerability to cyber attack and our ability to have focused on raising awareness of cyber security, provided cyber security
Risk owner: Chief Financial Officer/Chief Information Officer re-establish operations in the event of a failure. training, enhanced segregation of our network, completed further work on the
mitigations to reduce the impact of a ransomware incident, performed a series
The technical infrastructure supporting our websites is within the cloud and of penetration tests, undertaken cyber incident training, and run exercises to
our sites have been designed to provide adequate resilience and continued re-establish operations in the event of a failure.
Increase performance in the event of a significant failure.
We continue to invest in enhancing our cyber security infrastructure as new
threats emerge.
Supply chain disruption Disruption or failure in our supply chain could lead to business disruption, We carefully monitor and manage all our third-party print and information A number of our print suppliers are seeing the longer-term trend of declining
increased costs, reduced service and product quality, and ultimately mean we systems and technology providers - these include: demand being exacerbated in recent times by the COVID pandemic and followed
are unable to deliver our strategy.
more recently by increases in the costs of materials and energy. This in turn
· Ad producers and planners increases the risk of supply chain disruption and price increases. During the
Risk owner: Chief Operating Officer/Chief Financial Officer Print: Our print products, which rely on a small number of key suppliers (for
year we have increased the monitoring of our key suppliers, reviewed our
example, newsprint suppliers, wholesalers and distributors), could be · wholesalers and distributors contingency arrangements and ensured there are contingency measures in place
adversely affected, operationally and financially, by changes to supplier
with our suppliers, and reviewed and enhanced our stock management processes.
dynamics. · newsprint suppliers
Increase
Information systems and technology: A major failure, breach or prolonged · manufacturing maintenance and parts providers
performance issues at a third-party provider could have an adverse impact on
our business. · IT providers; and
· global digital partners
We have business continuity/disaster recovery plans in place with all our key
partners.
For our IT partners, we have clear governance arrangements covering risk
management, change control, security and service delivery.
Risk Description Mitigation What we've done this year
Health and safety issue Failure to adhere to our health and safety systems could result in our Every site has a professionally qualified and experienced health and safety During the year we reviewed our Health and Safety policy and framework to
employees or other workers on our sites having accidents, including, manager and an occupational health provider. The health and safety manager further enhance our current arrangements.
potentially, fatal ones. oversees the implementation of our health and safety management system, which
includes an adverse event reporting system. This allows investigations to be We have continued to enhance our risk assessment processes for events, and for
Risk owner: Chief Operations Officer carried out in a timely manner by the Health and Safety team. work in both hostile and high risk environments.
The system includes a process for assessing risks in different areas of the We have continued to offer appropriate health and wellbeing support to all of
business, and covers risks such as external work in hostile and high risk our employees. Online threats and abuse towards our journalists is an area of
No change environments. increasing concern, considering the impact it can have on their wellbeing, so
this year we invested in online safety. Addressing this issue and protecting
It also includes internal and external auditing to ensure continuing our journalists will continue to be a priority for us.
compliance across our print and publishing sites.
We offer health and wellbeing support, including mental health, to all our
employees.
Lack of funding capability Our main financial risk is the lack of funding capability to meet business Financing Financing
needs. This may be caused by a lack of working capital, unexpected increases
in interest rates or increased liabilities, in particular: · We have committed loan facilities sufficient to deliver our strategy · During the year we extended our full loan facility by another year,
reducing the immediate risk of any unexpected increases in interest rates or
Risk owner: Chief Financial Officer · Through regular dialogue, we maintain constructive relationships with liabilities
our syndicate banks
· pension deficits may grow at such a rate that annual funding costs
consume a disproportionate level of profit; and · We forecast and monitor cash flow regularly through our Treasury
No change
reporting processes Commitments
· volume and level of claims for historical legal issues (HLI) may
continue to have significant cost implications. · Our exposure to foreign exchange fluctuation is limited · We made significant payments to our pension schemes in the year and
we remain committed to addressing our historical pension deficits
· During the year we continued to deal with HLI claims in a
Commitments professional and efficient manner, and will continue to do so
· Regular reporting to the Board
· We hold regular discussions with pension scheme trustees
· We continually review ways of de-risking our pension liabilities
· We continually monitor and manage ongoing HLI claim levels, and work
with external lawyers on HLI civil claims and related investigations
Inability to recruit and retain talent The inability to recruit, develop and retain talent with appropriate skills, We continually monitor and review: During the year we reviewed the effectiveness of how we recruit people, and
knowledge and experience would compromise our ability to deliver our strategy.
restructured our approach to align it with our approach to diversity and
· digital capabilities of our workforce; inclusion, to ensure we are recruiting and developing staff from the widest
possible pool of talent.
Risk owner: Group Human Resources Director · turnover levels;
· pay and benefits;
No change · opportunities to expand our talent pool (for example, outside
London);
· the recruitment channels we use; and
· diversity and inclusion.
Risk Description Mitigation What we've done this year
Damage to brand reputation Breaches of regulations or editorial best practice guidelines; editorial We have highly experienced and capable people in our key senior management As we continue to embed our strategy, we continue to be aware of the risk
errors; and issues with employees' behaviour or the tone of our editorial roles. created in a digital-led environment due to the 24/7 nature of our operations
could damage our reputation, cause us to lose readership, and put us at risk
and the need to move with pace.
of legal proceedings. Our governance structures provide clear accountability for compliance with all
Risk owner: Executive Committee laws and regulations, and we have policies and procedures in place to meet all During the year we enhanced our Editorial Risk Policy, including reviewing all
relevant requirements, including a crisis management procedure that is relevant policies, raised awareness in this area, and enhanced our training
communicated to all relevant staff. arrangements.
No change We train editorial employees on how to create content that complies with
relevant legislation.
We continually monitor upcoming legislative changes and emerging trends.
Data protection failure A contravention of the General Data Protection Regulation (GDPR) could lead to We have clear governance structures to direct and oversee our data protection During the year we continued to focus on embedding data protection controls
monetary penalties, reputational damage and a loss of customer trust. strategy. and processes and ensuring that data protection forms part of 'business as
usual' in everything we do. This included reviewing and enhancing our Data
We have a Senior Data Protection team and a Data Governance team to monitor Protection risk and reporting framework, implementing new workflow systems to
Risk owner: Group General Counsel/Data Protection Officer and improve how we use customer data across the Company. improve effectiveness and efficiency, and ensuring all colleagues completed
their mandatory data protection awareness training.
Our Data Protection Officer and Data Protection Team promote and advise on
compliance with data protection regulation, address rights requests, provide
No change oversight and help mitigate the risk of compliance breaches.
We have established data protection policies and processes to govern how
colleagues carry out day-to-day activities involving the handling of personal
data, and all our staff must undergo awareness training.
When developing new products and services, we use a 'data protection by design
and default' approach to collecting and using personal data, to ensure we
remain compliant with data protection regulation.
LEI: 213800GNI5XF3XOATR61
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