REG - Reach PLC - Half-year Report
26/07/2022 07:00
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RNS Number : 6846T Reach PLC 26 July 2022
Reach plc - Interim Results - 26 weeks to 26 June 2022
26 July 2022
Customer Value Strategy delivering to plan; Management action addressing macro
headwinds
Business Highlights
Investment driving stronger digital mix with higher yielding, data-led
products continuing to outperform
• Strong growth in revenue from data-led products((1)) e.g. PLUS+; now over 30%
of total digital (less than 20% H121)
• Traffic and audience outperforming publishing sector - page views and UK
audience up 8% and 2% respectively
• Around 25% of total UK audience registered, with registered users now over 11m
(from 5m in 2020)
• Engagement and loyalty growing; page views per user +2%, loyal users((2))
+17%, registered page views +103%
Print cover price increases help mitigate impact of lower yield on open market
programmatic advertising
• Digital revenue up 5.4%; Q2 affected by Ukraine impact on brand safety and
sector slowdown in advertiser demand
• Yield on open market programmatic advertising (affects c. 50% of total ad
volume) in Q2 down 40% year-on-year
• Cover price increases and resilient volume performance drive stronger
circulation with print revenue down 3.9%
• Overall revenue down 1.6%; expect stronger circulation revenue to counter
impact of lower digital yields in H2
H1 profit impacted by newsprint cost; management actions strengthen outlook
for H2
• Energy prices fuelling all-time high newsprint cost; not forecasting any
improvement during FY22
• Savings from operating model changes and cost management mitigating H2
newsprint impact
• Timing of increased cover prices, management of costs and normal event-driven
seasonality, supporting stronger than recent H2 contribution to operating
profit
Jim Mullen Chief Executive
"We are making steady and significant progress in delivering our Customer
Value Strategy. While the macro-environment is naturally presenting
challenges, we're committed to investing in the data and digital capabilities
that are shaping the future of our business. Our ongoing strategic
transformation strengthens us financially and operationally while we continue
to deliver positive change through our editorial impact.
We have acted swiftly to address the headwinds facing the business and expect
the further cost efficiencies and cover price increases to mitigate the impact
of newsprint inflation and reduced advertiser demand which are affecting the
whole sector.
Our strategic shift towards greater customer engagement and data-driven
revenue is driving a more sustainable and profitable future. We are a
stronger, more streamlined, and more efficient organisation, with the Group
well placed to benefit once industry trends return to more normalised levels
of activity. In addition, the strength of our balance sheet and cash
generation underpin both a growing dividend and continued investment as we
transition to an increasing mix of higher quality digital earnings."
Financial Summary
26 weeks to 26 Jun 2022 Adjusted results((3)) Statutory results
2022 2021 Change 2022 2021 Change
Revenue £m 297.4 302.3 (1.6%) 297.4 302.3 (1.6%)
Operating profit £m 47.2 68.9 (31.5%) 34.5 28.6 20.6%
Operating profit margin % 15.9% 22.8% (690bps) 11.6% 9.5% 210bps
Earnings/(loss) per share Pence 12.0 17.8 (32.6%) 8.1 (11.2) N/A
Net cash £m 43.8 54.7 (19.9%) 43.8 54.7 (19.9%)
Dividend per share Pence 2.88 2.75 4.7% 2.88 2.75 4.7%
Results overview
Group revenue marginally down - stronger circulation mitigating impact of
lower digital yield
• Print revenue £223.4m down 3.9% - circulation and advertising down 5.1% and
9.9% respectively, printing and other revenue up 19.0%
• Additional cover price increases strengthen circulation revenue with minimal
adverse impact on print volumes
• Digital revenue £72.5m (H121: £68.8m) up 5.4% (Q2: 0.3%) against strong
prior year comparatives
• Lower digital growth in Q2 with less brand-safe advertising space, resulting
from the war in Ukraine and a market driven reduction in advertiser demand,
reflected in lower yields for open market programmatic revenues
• Strategy delivering improvement in digital mix with significant growth in
higher-yielding, data-driven revenues which were around one third of total
digital in the period
H1 profit impacted by cost of newsprint; timing of cost actions and cover
prices drives increased H2 weighting
• Adjusted operating profit £47.2m down 31.5% (£21.7m); reflecting
unprecedented increase in newsprint cost which was up £14m or £17m (c.65%)
on a like-for-like volume basis
• Acceleration of operating model changes enabling further significant
efficiencies in H2, in addition to savings from changes to print production
and distribution
• Statutory operating profit £34.5m (H121: £28.6m) up 20.6%, driven by
significant year on year reduction in operating adjusted items £12.7m (H121:
£40.3m)
• Statutory EPS of 8.1p (H121: (11.2p)) significantly ahead driven by property
rationalisation charges and reflection of future change to UK corporation tax
rate, in last year's comparator
Cash & Capital Allocation
• Adjusted operating cash flow((4)) of £39.2m (H121: £82.6m) represents cash
conversion of 69% with neutral working capital position versus positive inflow
in comparator period due to non-repeating trading timing benefit
• Retained cash((5)) decreased by £21.9m to £43.8m, after payment of FY21
final dividend and penultimate payment for acquisition of The Express and Star
• Further reduction in IAS19 pension accounting deficit to £69.1m (FY21:
£117.2m); yet to achieve resolution of 2019 triennial review of pension
commitments
• Board recognises the importance of a growing dividend for shareholders -
interim dividend of 2.88p up 4.7%
Building a culture fit for the future
• New family friendly policies, including more support for carers and continued
hybrid flexibility for staff giving us clear offering in a competitive talent
market, alongside continued progress around Diversity and Inclusion
• Work to formalise sustainability strategy and net zero target ongoing; plan to
disclose as part of full year results
Outlook and current trading
Over the past three years, the evolution towards a more digitally focused
operating model has made us a more agile and more efficient business, with our
Customer Value Strategy driving a more sustainable, longer term growth
trajectory. The phasing out of third-party cookies and evolving trend away
from creative display in favour of more performance led advertising is
creating opportunities for growth, with our continued investment in
data-driven digital solutions, supporting higher and more predictable returns.
We expect PLUS+ and other data-driven revenues to continue to outperform
during H2, though expect yield on open market programmatically driven revenues
will remain depressed, reflecting broader macro pressures. We therefore expect
total H2 digital growth to remain subdued. Circulation will benefit from a
full half of increased cover prices during H2, strengthening print revenues.
We expect a year over year improvement in total operating costs during H2,
with the benefit of further strategically driven changes to our operating
model and additional cost management actions mitigating the impact of
inflation and preserving our ongoing investment plans. We do not anticipate an
improvement in the existing rate of newsprint during the second half.
In the context of an uncertain macro and political climate, we remain mindful
of the risk of further deterioration in economic conditions. We currently
expect management actions and the natural phasing of our business, to support
a stronger than historical H2 profit contribution.
Quarterly and Half Year Year-on-Year Revenue Movements
2022 Q1 YOY Q2 YOY HY YOY
% % %
Digital Revenue 10.4% 0.3% 5.4%
Print Revenue (3.9%) (3.9%) (3.9%)
- circulation revenue (6.2%) (4.0%) (5.1%)
- advertising revenue (8.5%) (11.4%) (9.9%)
Group Revenue (0.5%) (2.8%) (1.6%)
Notes
(1) 'Data-led' includes revenues from all
campaigns/advertising activity which utilise data (e.g. PLUS+) generated
either via registrations, audience behavioural data or Mantis contextual.
It also includes other revenues resulting from our Customer Value Strategy.
(2) Loyal users are defined as those who visit our websites on
at least 8 days in every 16 or every other day.
(3) Set out in note 18 is the reconciliation between the
statutory and adjusted results. The current period is for the 26 weeks ended
26 June 2022 ('2022') and the comparative period is for the 26 weeks ended 27
June 2021 ('2021').
(4) An adjusted cash flow is presented in note 19 which
reconciles the adjusted operating profit to the net change in cash and cash
equivalents. Note 20 provides a reconciliation between the statutory and
adjusted cash flows.
(5) Cash balance comprises cash and cash equivalents of
£43.8m.
Enquiries
Reach
Jim Mullen, Chief Executive Officer 07341 470 722
Simon Fuller, Chief Financial Officer
Matt Sharff, Investor Relations Director
Tulchan Communications reachplc@tulchangroup.com
David Allchurch 020 7353 4200
Giles Kernick
Jim Mullen, Chief Executive Officer, Simon Fuller, Chief Financial Officer and
Lloyd Embley, Group Editor-in-Chief, will present the results at 9:00am (BST)
on 26 July 2022. It will be followed by a live question and answer session.
The presentation slides will be available on www.reachplc.com from 7.00am
(BST).
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Forward looking statements
This announcement has been prepared in relation to the financial results for
the 26 weeks ended 26 June 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
Customer Value Strategy delivering higher quality digital revenue and growing
engagement
We're financially, operationally, and culturally a stronger business than we
were when we launched our Customer Value Strategy three years ago. The action
we've taken in response to the changing economy will ensure this progress
continues, as we keep investing. Despite significant macro pressures, the
strategy remains on track and we're seeing consistent and tangible results
from our increased investment to develop higher yielding digital revenues
through a focus on customer data.
Increasing proportion of higher yielding revenues
Investment is supporting an increase in the proportion of our revenues driven
by data-led products, such as PLUS+, and by starting to develop other sources
of digital income such as ecommerce, we are increasing the value of our
digital revenue, driving a greater part of the mix from higher yielding
products.
There is clear momentum in our PLUS+ portfolio, with revenue generated during
H1 around 85% of PLUS+ revenue for the whole of last year. This reflects our
drive to broaden the range and scale of data-led revenues, which enable
stronger pricing; PLUS+ for example with a yield around ten times greater than
that on the open market. Total 'data-driven' revenues (including PLUS+) grew
by around 80% during the period, reaching 31% (H121: 18%) of digital revenues
overall. This is particularly relevant within the context of advertisers'
growing preference for performance-based marketing and the upcoming removal of
third-party cookies.
Engagement and loyalty growing
We have continued to grow the number of customers registered on our websites
to 11.5m, representing around 25% of our total UK digital audience. We are
also seeing a consistent increase in the volume of those customers who most
regularly engage with us, with close to 5m, over 4 in every 10, active in the
last 28 days.
While traffic growth in 2021 was suppressed versus a COVID inflated comparator
in the prior year, we have returned to growth, with page views ahead of the
rest of the publishing sector, up by 8% for the period. Page views per user
for the period was up by 2%.
With loyal users generating a significant proportion of our page views, a key
objective for our newsroom and audience team has been to grow our loyal user
base, while also converting anonymous users to registered. We saw 17% growth
in loyal users during the period, with page views from registered users, a
strong indicator of engagement, up over 100%. Page views generated by loyal
customers who are also registered have almost trebled in the last 18 months.
Our continued page view growth has been significantly supported by the
development of an Al based recommender tool which is part of our proprietary
advertising and data platform 'Neptune'. The Neptune recommender, which is
powered by Mantis, showcases relevant 'next best' content, using AI and
contextual sentiment analysis to serve our readers more effectively with
content they'll be interested in. Since it launched towards the end of last
year, it has generated around 50m additional page views per month, equivalent
to c.40% of our growth.
Mantis demonstrates our ability to develop our own tech solutions which will
not only drive engagement and loyalty, strengthening our commercial
resilience, but also offer us the opportunity to licence our IP to others in
the sector.
Headline digital growth held back by market slowdown; print resilience
supports investment
Increase in brand unsafe content and lower advertiser demand
Following the start of the war in Ukraine at the end of February, we have seen
a broad doubling in the amount of content considered 'brand unsafe' by many
advertisers. While this ad space continues to be sold, it has been at a lower
than expected rate, contributing to a lower average yield per page.
During Q2 we have also started to see a sector-wide slowdown in advertiser
spend, reflected in a 40% lower yield on advertising sold programmatically
through the open market. We expect our higher yielding data-driven products to
continue to perform better than the overall market during H2, though expect
overall digital growth will remain subdued within the context of broader macro
trends.
Stronger print supports group revenue
Print remains a large-scale, resilient business which provides the foundation
for our investment in digital. Newspapers are an habitual purchase for many
consumers with our titles reaching around 13 million people a month, around a
quarter of all adults in the UK. Although we have made additional cover price
increases this year in response to the increased cost of newsprint, cover
prices are still relatively low, and we have a loyal readership, demonstrated
by the strong recovery in circulation trends from the impacts of the pandemic.
We have a long history of actively managing volume decline within the print
business, with our expertise in evolving production to ensure editorial
integrity at lowest cost, generating sustainable and reliable cash flows.
In response to the significant inflationary pressures currently impacting the
business, particularly in newsprint, we have made further process changes
which will help mitigate inflationary headwinds. By reducing printed volumes
or supply, without any significant impact on availability and by reducing
pagination, both by around 5-6%, we expect to realise significant efficiencies
during H2.
Circulation revenue (c.70% of print) improved through the period (Q1: (6.2%),
Q2: (4.0%)) benefitting from price increases across national and some regional
titles, which will continue to strengthen circulation in the second half of
the year. Print advertising was 9.9% lower, broadly in line with the long-term
trend. During the period we saw a decrease in public health related spending,
which in the prior year was driven by COVID. This was in part offset by a
recovery in both the travel and retail sectors, with a significant increase in
the number of cover wraps in both regional and national titles.
Customer experience and format innovation
Platform improvements to enhance customer experience
Much of our investment last year supported increased content generation and
the expansion of our digital editorial function. Great content is only part of
the story though and we're now looking closely at improving customer
experience, specifically at ensuring our existing platforms can showcase
content in a fast, personalised, and engaging way. We began by addressing load
speeds and have materially reduced the time it takes for customers to start
engaging with our pages. We have also begun testing different ad
configurations to ensure we're able to maximise both revenue and user loyalty.
Looking further ahead, our product and data teams are focused on the agility
of our infrastructure and the tools we can develop to truly differentiate our
offer.
Exploring new formats and extending our audience
As well as enhancing the customer experience around our content, we're focused
on ensuring that our portfolio reaches the broadest possible audience. For the
16-34s demographic, video content within social media, as opposed to search,
direct or email, has become the primary route to accessing news. We're well
positioned to take advantage of this with our brands reaching around 70% of
the youth audience every month. We've had good early success, rapidly growing
a new TikTok audience for the Daily Star and Mirror.
To further accelerate our ambitions in this space we have also made changes to
our executive committee, creating a new role of Chief Digital Publisher, whose
team will work alongside editorial and product to attract and build a home for
the youth audience. To achieve these aims we will continue to invest in
content as well as in formats and platforms which appeal to the digital native
population.
The stories that matter
Our newsrooms have continued to set the agenda this year, starting with the
Mirror's Partygate scoop which has served as another reminder of the
importance of the work we do, which often has major real-world impact.
We also invested significantly in ensuring we had a presence in Ukraine at the
outbreak of the Russian invasion. Our journalists at home reported on the
outpouring of support here in the UK for Ukrainian refugees, with the Express
setting up a "Ukrainians in the UK" site to help refugees adjust.
The cost of living crisis will undoubtedly be one of this year's biggest
stories, on which our audiences have been seeking out trusted information.
Some of our titles are tackling the crisis by devoting specialist journalists
to the subject, with Lancs Live appointing a cost of living editor and the
Manchester Evening News hiring three new Cost of Living editor roles.
Elsewhere across the portfolio, our journalists engaged millions of readers on
topics ranging from Westminster to Wagatha Christie to the Champions League
final. Not every story has to be serious to have an impact or bring some joy -
our goal is always to engage our audience by understanding what they care
about.
Continuing to reshape the business
While our journalists pursue the scoops and campaigns that form our core
purpose, my team and I focus on delivering the strategy to ensure that their
journalism continues to have an impact for generations to come. To this point,
we were very proud to take home the 'Best Newsroom Transformation' prize at
the 2022 INMA Global Media Awards, recognition on a world stage that our
journey to create a customer-driven newsroom has been pioneering.
We continued to challenge ourselves this year to rethink the way we structure
our newsrooms and deploy journalists across our areas. In May we launched the
Network Newsroom, an evolution of Reach Wire which allows us to act swiftly to
deploy greater resources to the big stories, wherever they're happening. By
working more strategically we can maximise our scale and hyperlocal presence,
with a ready-made newsroom operation ready to go wherever it's most needed to
serve our audiences.
We made similar changes to the structure of our commercial teams, dissolving
the old split between regional and national and bringing our teams together to
serve advertisers more effectively. In a digital world, the distinction
between regional and national has become increasingly blurred and we are now
set up to make it easier for advertisers to get what they need.
Board changes
The Board welcomed two new appointments today: Priya Guha and Wais Shaifta.
Priya brings leadership expertise in the tech and innovation space while Wais
has a proven track record in e-commerce and customer engagement. Both will
bring valuable insights to the Board as our strategy continues to progress.
Building a culture fit for the future
Recruiting talent continues to be challenging, and forward-thinking policies
not only give us an edge but simply make Reach a better place to work. Through
our hybrid working model we have been able to offer candidates a flexible work
environment, which is increasingly a priority for top talent.
We also recognise the limitations of remote working and have provided tailored
solutions to individual situations. In some areas, we have met the needs of
regional editorial teams by forming partnerships with local universities,
providing state of the art facilities and strengthening our newsroom's
relationships with the next generation of journalists.
We recently extended our commitment to work/life balance with the introduction
of a new set of policies around family life, including more support for carers
- a growing demographic - and enhanced policies which now offer more time for
both parents to manage difficult family moments such as pregnancy loss and
IVF.
Changes such as these, as part of a powerful Diversity and Inclusion (D&I)
movement across the business, have helped us to address the gender pay gap,
which this year, has seen the biggest single decrease since we began
reporting.
Further testament to our efforts across the D&I space this year was the
listing as a Top Performer in the recent McKenzie Review, a clear testament to
the progress we've made. We are also beginning to see the results of this work
surface in our editorial content in exciting ways, for example in the launch
of the Belonging Project which has spurred all of our regional newsrooms to
more proactively engage with their local communities - the creation and
success of the Brummie Muslims newsletter being only one standout result of
this.
A proven track record in uncertain times
Our award-winning commercial team, this year's recipients of the Commercial
Team of the Year (Consumer) and Best Use of Data prizes at the British Media
Awards, are continuously taking the temperature of their advertising contacts
to provide us with the fullest possible picture of the advertising market.
The whole sector is experiencing a slowdown in advertising demand, which the
team are witnessing first-hand through a growing number of delayed or pulled
briefs from brands and agencies at a national level. The regional business and
the wider SME community is recovering from the effects of COVID and successive
lockdowns and we continue to work hard as a trusted partner to support them in
this difficult trading period.
The growing cost of living crisis, declining consumer confidence, while
presenting a challenging outlook for all businesses, only reaffirms our
strategy to drive a higher and more predictable level of returns through
investment in data. Although we find ourselves once again in an uncertain
environment, we take confidence from our track record in facing the COVID
crisis two years ago, firm in the knowledge that the investments we've made to
date are making us stronger for the future.
The strength of our balance sheet and significant cash generation not only
ensures we can pay a growing dividend; it also underpins continued strategic
investment. We are a stronger, more efficient, and digitally enabled business
and delivery of the strategy is ensuring we're well placed to better serve a
new generation of digital customers when conditions once again shift.
Jim Mullen
Chief Executive Officer
26 July 2022
Finance Review
A half year performance showing continued strategic progress and digital
revenue growth, despite a more challenging macro environment, particularly
during Q2 with the war in Ukraine and more subdued demand from advertisers
reflected in a lower digital yield. Print revenue remains resilient with cover
price increases supporting stronger circulation revenues. Adjusted operating
profit has been impacted by increasing inflation, particularly within
newsprint. Several mitigating actions have been put in place to help mitigate
the full year impact of this.
Our statutory performance reflects a continued year over year reduction in
adjusted items, with the prior year comparative including charges relating to
the rationalisation of our estate and the future change in the corporation tax
rate. The Group has a strong balance sheet and liquidity with a net cash
positive position of £43.8m, with no draw down during the period from the
Group's revolving credit facility of £120.0m.
Summary income statement
Adjusted Adjusted Statutory Statutory
2022 2021 2022 2021
£m £m £m £m
Revenue 297.4 302.3 297.4 302.3
Costs (251.6) (234.9) (263.6) (274.5)
Associates 1.4 1.5 0.7 0.8
Operating profit 47.2 68.9 34.5 28.6
Finance costs (1.3) (1.1) (2.5) (2.9)
Profit before tax 45.9 67.8 32.0 25.7
Tax charge (8.5) (12.6) (6.8) (60.5)
Profit/(loss) after tax 37.4 55.2 25.2 (34.8)
Earnings/(loss) per share - basic 12.0 17.8 8.1 (11.2)
Group revenue fell by £4.9m or 1.6% with print down 3.9% offset by digital
revenue growth of 5.4%.
Adjusted costs increased by £16.7m or 7.1.%, reflecting the increase in the
cost of newsprint. Statutory costs were lower by £10.9m or 4.0%, with the
increase in newsprint offset by the reduction in adjusted items of £27.6m
(H122: £12.0m versus H121: £39.6m).
The lower revenue and higher adjusted operating costs drove a £21.7m or 31.5%
decrease in adjusted operating profit and an adjusted operating margin of
15.9% compared to 22.8% for the first half of 2021. Statutory operating profit
increased by £5.9m or 20.6% due to the reduction in operating adjusted items.
Adjusted earnings per share decreased by 5.8p or 32.6%. Statutory earnings per
share of 8.1p was higher than the prior period due to the £53.9m deferred tax
charge from the multi-year impact of the future change in the corporation tax
rate in 2021.
Revenue
2022 2021
Actual Actual
£m £m
Print 223.4 232.4
Circulation 151.8 160.0
Advertising 45.3 50.3
Printing 11.5 9.6
Other 14.8 12.5
Digital 72.5 68.8
Other 1.5 1.1
Total revenue 297.4 302.3
Revenue fell by £4.9m or 1.6% 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 21.
Digital increased by £3.7m or 5.4% while print declined by £9.0m or 3.9%.
Other revenue is derived from our specialist digital recruitment websites.
Revenue bridge
Actual YOY
£m %
2021HY revenue 302
Circulation (8) (5.1)
Advertising (5) (9.9)
Printing 2 19.8
Other 2 18.4
Print (9) (3.9)
Digital 4 5.4
Other 0.4 36.4
2022HY revenue 297 (1.6)
Like-for-like
Q1 2022 YOY Q2 2022 YOY HY 2022 YOY HY 2021 YOY
% % % %
Digital Revenue 10.4% 0.3% 5.4% 42.7%
Print Revenue (3.9%) (3.9%) (3.9%) (5.2%)
Circulation (6.2%) (4.0%) (5.1%) (5.1%)
Advertising (8.5%) (11.4%) (9.9%) (4.3%)
Group Revenue (0.5%) (2.8%) (1.6%) 2.6%
Print revenue decreased by £9.0m or 3.9% (2021: down 5.2% on a like-for-like
basis).
Circulation revenue was down 5.1% for the period, with a stronger performance
during Q2 which benefitted 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 9.9% (2021: down 4.3% on a like-for-like
basis), with the prior year comparative still benefitting from public health
advertising relating to COVID. This was partly offset by a stronger
performance in both the travel and retail sectors, with a significant increase
in the number of cover wraps across regional and national titles.
Print revenue also includes external printing revenues and other print-related
revenues. Printing revenue increased by 19.8% (2021: decreased 18.6% on a
like-for-like basis) reflecting the increase in newsprint costs passed on to
third parties. Other print revenue increased by 18.4% (2021: increased 2.5% 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 revenues increased by 5.4% to £72.5m (2021: 42.7%). Growth reflects
an increase in page views for the period of 8% and continued strong delivery
of our Customer Value Strategy, which is driving the outperformance of higher
yielding products and a higher quality mix of digital revenues. We saw a
marked slowdown during Q2, with growth of 0.3% reflecting stronger prior year
comparatives, and a reduction in open-market yields following the war in
Ukraine, which has impacted brand safety and a general softening of advertiser
demand.
Costs
2022 2021 2022 2021
Adjusted Adjusted Statutory Statutory
£m £m £m £m
Labour (119.0) (115.0) (119.0) (115.0)
Newsprint (38.8) (25.2) (38.8) (25.2)
Depreciation (9.9) (9.9) (9.9) (9.9)
Other (83.9) (84.8) (95.9) (124.4)
Total costs (251.6) (234.9) (263.6) (274.5)
Adjusted costs of £251.6m (2021: £234.9m) increased by £16.7m or 7.1%,
impacted by the higher cost of newsprint during the period due to the growing
demand for packaging materials, reduced availability of recycled fibre,
increasing costs of shipping and rising energy prices.
Changes to print production, including a reduction in supply and lower
pagination, are expected to help mitigate the impact of higher newsprint costs
during the second half of the year.
Statutory costs decreased by £10.9m or 4.0% primarily due to lower operating
adjusted items which were £27.6m lower (£12.0m compared to £39.6m in 2021).
Operating adjusted items included in statutory costs related to the following:
Statutory Statutory
2022 2021
£m £m
Provision for historical legal issues (5.9) (13.0)
Restructuring charges in respect of cost reduction measures (5.4) (1.4)
Home and Hub project - (23.7)
Other (0.7) (1.5)
Operating adjusted items in statutory costs (12.0) (39.6)
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, has increased by £5.9m (2021:
£13.0m).
Restructuring charges of £5.4m (2021: £1.4m) incurred in respect of cost
reduction measures are principally severance costs that relate to cost
management actions taken in the period.
Other adjusted items comprise pension administrative expenses (£2.2m),
adviser costs in relation to the triennial funding valuations (£0.8m), less a
reduction in National Insurance costs relating to share awards (£1.9m) and
the profit on sale of impaired assets (£0.4m). In 2021 other adjusted items
related to pension administrative expenses.
The Group announced a Home and Hub project in March 2021 which set out the
vision for how the Group's offices would look and where job roles would be
based and resulted in the closure of a number of offices. The project resulted
in charges of £23.7m in 2021 (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).
Reconciliation of statutory to adjusted results
Operating Pension Tax
Statutory adjusted finance £m Adjusted
results items charge results
£m £m £m £m
Revenue 297.4 - - - 297.4
Operating profit 34.5 12.7 - - 47.2
Profit before tax 32.0 12.7 1.2 - 45.9
Profit after tax 25.2 11.2 1.0 - 37.4
Basic earnings per share (p) 8.1 3.6 0.3 - 12.0
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 18.
Balance Sheet and cash flows
Adjusted cash flow
£m £m
EBITDA 57
Tax (4)
Restructuring (4)
Capex (7)
Lease payments (3)
Operating cash flow 39
Historic legal issues (6)
Pension payments (23)
Dividends (14)
Purchase for share awards (1)
Net cash flow (5)
Payment for Express & Star (17)
Cash retained (22)
Opening cash 66
Closing cash 44
Historical legal issues
The historical legal issues provision relates to the cost associated with
dealing with and resolving civil claims in relation to historical phone
hacking and unlawful information gathering. Payments of £6.1m have been made
during the year and the provision has been increased by £5.9m. At the half
year a provision of £40.8m 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 15.
Decrease in accounting pension deficit
The IAS 19 pension deficit (net of deferred tax) in respect of the Group's six
defined benefit pension schemes decreased by £48.1m from £117.2m at the year
end to £69.1m at the half year. The decrease was driven by an increase in the
discount rate and Group contributions which has been partially offset by asset
return decreases. Changes in the accounting pension deficit do not have an
immediate impact on the agreed funding commitments. The triennial valuation
for funding of the defined benefit pension schemes as at 31 December 2019
would usually have been completed by 31 March 2021. We have agreed the funding
for three of the schemes, and the discussions with the remaining three schemes
are ongoing, having been delayed by COVID-19 and more recently differences
between the Group and the Trustees as to possible de-risking and the required
pace of funding. We continue to be in active discussions with both the
Trustees and the Pensions Regulator.
Group contributions in respect of the defined benefit pension schemes in the
first half were £23.0m (2021: £37.1m), under the current schedule of
contributions of the five schemes. Contributions in 2022 are expected to be
£55.1m under the current schedule of contributions for the remaining five
schemes. In 2021, the Trustees of the West Ferry scheme purchased a bulk
annuity and the scheme now has all pension liabilities 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 (payable on 28 February
2023).
Cash Balances
Cash decreased by £21.9m from £65.7m at the year end to a cash position of
£43.8m at the half year. This decrease is impacted by the deferred
consideration payment of £17.1m made in the first half of the year.
The Group has a revolving credit facility of £120.0m which expires in
November 2025 and is undrawn.
Cash generated from operations on a statutory basis was £47.5m (2021:
£95.7m). 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 19. A reconciliation between the statutory and the
adjusted cash flow is set out in note 20. The adjusted operating cash flow was
£39.2m (2021: £82.6m).
Dividends
The Group paid a final dividend for 2021 of 4.46 pence per share in June 2022.
An interim dividend for 2022 of 2.88 pence per share will be paid on 23
September 2022 to shareholders on the register on 12 August 2022 (an increase
of 4.7% compared to the interim dividend for 2021 of 2.75 pence per share).
The Board recognises the importance of growing dividends for shareholders
while also investing to grow the business and meeting our funding commitments
to the defined benefit pension schemes. The Board expects to continue to adopt
a policy of paying dividends which are aligned to the free cash generation of
the Group. Free cash generation for this purpose is the net cash flow
generated by the Group before the repayment of debt, dividend payments, other
capital returns to shareholders and additional contributions made to the
defined benefit pension schemes because of any substantial increase in
dividends and/or capital returns to shareholders.
Principal risks and uncertainties
The Group recognises the importance of the effective understanding and
management of risk in enabling us to identify factors, both externally and
internally, that may materially affect our ability to achieve our goals. There
is an ongoing process for the identification, evaluation and management of the
principal risks faced by the Group, including emerging risks. Appropriate
mitigating actions are in place to minimise the impact of the risks and
uncertainties which are identified as part of the risk process. All risks are
considered in the context of our strategic objectives, the changing regulatory
and compliance landscape and enabling the continuity of our operations.
These principal risks and uncertainties, the risk appetite in relation to
these and the resulting actions are set out in the Reach plc 2021 Annual
Report which is available on our website at www.reachplc.com
(http://www.reachplc.com) .
The principal risks and uncertainties continue to be: Macro-economic
deterioration; Print revenue decline acceleration; Insufficient digital
revenue growth; Cyber security breach; Data protection failure; Supply chain
failure; Health and safety issue; Lack of funding capability; Inability to
recruit and retain talent and Brand reputation damage.
Going concern statement
The directors assessed the Group's prospects, both as a going concern and its
longer term viability, at the time of approval of the Group's 2021 Annual
Report. Further information is set out in the Reach plc 2021 Annual Report.
At the half year, the directors have prepared a going concern assessment,
specifically considering the potential impact of the downturn in digital
advertiser demand seen in Q2. The Group undertakes regular forecasts and
projections of trading identifying areas of focus for management to improve
delivery of the Strategy and to mitigate the current impact of macroeconomic
headwinds. The Group has a strong balance sheet and liquidity with a net cash
positive position of £43.8m. This represents a cash balance of £43.8m with
no draw down from the Group's revolving credit facility of £120.0m.
Accordingly, the directors have adopted the going concern basis of accounting
in the preparation of the Group's half-yearly financial report.
Statement of directors' responsibilities
The directors are responsible for preparing the half-yearly financial report
in accordance with applicable laws and regulations. The directors confirm to
the best of their knowledge:
a) that the interim condensed consolidated financial statements have been
prepared in accordance with UK-adopted International Accounting Standard 34,
'Interim Financial Reporting' and that the interim management report includes
a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely:
i. an indication of important events that have occurred during the first six
months and their impact on the interim condensed consolidated financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
ii. material related-party transactions in the first six months and any material
changes in the related-party transactions described in the last annual report.
By order of the Board of Directors
Simon Fuller
Chief Financial Officer
26 July 2022
Condensed interim consolidated financial statements
Consolidated income statement
for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks
ended 26 December 2021)
Adjusted Adjusted Items Statutory Adjusted Adjusted Items Statutory Adjusted Adjusted Items Statutory
26 weeks 26 weeks 26 weeks
26 weeks 26 weeks 26 weeks 52 weeks 52 weeks 52 weeks
ended
ended
ended
ended
ended
ended
ended
ended
ended
26 June
26 June
26 June
27 June
27 June
27 June
26 December
26 December
26 December
2022 (unaudited)
2022
2022
2021
2021
2021
2021
2021
2021
£m
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(audited)
(audited)
(audited)
notes
£m
£m £m
£m
£m £m £m £m
Revenue 4 297.4 - 297.4 302.3 - 302.3 615.8 - 615.8
Cost of sales (187.3) - (187.3) (160.0) - (160.0) (329.4) - (329.4)
Gross profit 110.1 - 110.1 142.3 - 142.3 286.4 - 286.4
Distribution costs (19.9) - (19.9) (21.7) - (21.7) (41.1) - (41.1)
Administrative expenses (44.4) (12.0) (56.4) (53.2) (39.6) (92.8) (102.4) (65.2) (167.6)
Share of results of associates 1.4 (0.7) 0.7 1.5 (0.7) 0.8 3.2 (1.6) 1.6
Operating profit 47.2 (12.7) 34.5 68.9 (40.3) 28.6 146.1 (66.8) 79.3
Interest income 6 - - - - - - 0.1 - 0.1
Pension finance charge 13 - (1.2) (1.2) - (1.8) (1.8) - (3.4) (3.4)
Finance costs 7 (1.3) - (1.3) (1.1) - (1.1) (2.7) - (2.7)
Profit before tax 45.9 (13.9) 32.0 67.8 (42.1) 25.7 143.5 (70.2) 73.3
Tax (charge)/credit 8 (8.5) 1.7 (6.8) (12.6) (47.9) (60.5) (26.9) (43.5) (70.4)
Profit/(loss) for the period attributable to equity holders of the parent 37.4 (12.2) 25.2 55.2 (90.0) (34.8) 116.6 (113.7) 2.9
Earnings per share Notes 2022 2022 2021 2021 2021 2021
Pence Pence Pence Pence Pence Pence
Earnings/(loss) per share - basic 10 12.0 8.1 17.8 (11.2) 37.6 0.9
Earnings/(loss) per share - diluted 10 11.7 7.9 17.3 (11.2) 36.5 0.9
The above results were derived from continuing operations. Set out in note 18
is the reconciliation between the statutory and adjusted results.
Consolidated statement of comprehensive income
for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks
ended 26 December 2021)
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
notes
Profit/(loss) for the period 25.2 (34.8) 2.9
Items that will not be reclassified to profit and loss:
Actuarial gain on defined benefit pension schemes 13 42.9 125.6 102.9
Tax on actuarial gain on defined benefit pension schemes 8 (10.7) (31.4) (26.0)
Deferred tax credit resulting from change in tax rate - 13.9 13.9
Share of items recognised by associates after tax - - (0.6)
Other comprehensive income for the period 32.2 108.1 90.2
Total comprehensive income for the period 57.4 73.3 93.1
Consolidated cash flow statement
for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks
ended 26 December 2021)
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
notes
Cash flows from operating activities
Cash generated from operations 11 47.5 95.7 163.7
Pension deficit funding payments 13 (23.0) (37.1) (64.7)
Income tax paid (4.0) (9.2) (14.6)
Net cash inflow from operating activities 20.5 49.4 84.4
Investing activities
Interest received - - 0.1
Dividends received from associated undertakings - - 2.5
Proceeds on disposal of property, plant and equipment 0.4 - 0.7
Purchases of property, plant and equipment (3.1) (2.8) (6.5)
Expenditure on internally generated development 12 (4.0) - (6.0)
Deferred consideration payment 14 (17.1) (16.0) (16.0)
Acquisition of associate undertaking - - (0.8)
Net cash used in investing activities (23.8) (18.8) (26.0)
Financing activities
Dividends paid 9 (13.9) (13.2) (21.8)
Interest and charges paid on bank borrowings (0.9) (0.4) (1.4)
Purchase of own shares 16 (1.0) - (3.3)
Interest paid on leases (0.5) (0.7) (1.3)
Repayments of obligations under leases (2.3) (3.6) (6.9)
Net cash used in financing activities (18.6) (17.9) (34.7)
Net (decrease)/increase in cash and cash equivalents (21.9) 12.7 23.7
Cash and cash equivalents at the beginning of the period 14 65.7 42.0 42.0
Cash and cash equivalents at the end of the period 14 43.8 54.7 65.7
Consolidated statement of changes in equity
for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks
ended 26 December 2021)
Retained earnings / (accumulated loss) and other reserves
Share premium Capital £m
Share account Merger redemption
capital £m reserve reserve Total
£m £m £m £m
At 26 December 2021 (audited) 32.2 605.4 17.4 4.4 (20.6) 638.8
Profit for the period - - - - 25.2 25.2
Other comprehensive income for the period - - - - 32.2 32.2
Total comprehensive income for the period - - - - 57.4 57.4
Purchase of own shares - - - - (1.0) (1.0)
Credit to equity for equity-settled share-based payments - - - - 1.1 1.1
Dividends paid (note 9) - - - - (13.9) (13.9)
At 26 June 2022 (unaudited) 32.2 605.4 17.4 4.4 23.0 682.4
At 27 December 2020 (audited) 32.2 605.4 17.4 4.4 (92.7) 566.7
Loss for the period - - - - (34.8) (34.8)
Other comprehensive income for the period - - - - 108.1 108.1
Total comprehensive income for the period - - - - 73.3 73.3
Credit to equity for equity-settled share-based payments - - - - 0.8 0.8
Dividends paid - - - - (13.2) (13.2)
At 27 June 2021 (unaudited) 32.2 605.4 17.4 4.4 (31.8) 627.6
At 27 December 2020 (audited) 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 - - - - (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 (audited) 32.2 605.4 17.4 4.4 (20.6) 638.8
Consolidated balance sheet
at 26 June 2022 (at 27 June 2021 and 26 December 2021)
Restated
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
notes £m £m £m
Non-current assets
Goodwill 12 35.9 35.9 35.9
Other intangible assets 12 827.6 818.7 824.3
Property, plant and equipment 153.1 161.2 157.3
Right-of-use assets 11.1 12.9 12.7
Investment in associates 18.1 18.9 17.4
Retirement benefit assets 13 94.4 100.1 107.9
1,140.2 1,147.7 1,155.5
Current assets
Inventories 7.5 3.9 5.5
Trade and other receivables 91.2 95.6 102.3
Current tax receivable 8 13.1 7.3 13.5
Cash and cash equivalents 14 43.8 54.7 65.7
155.6 161.5 187.0
Total assets 1,295.8 1,309.2 1,342.5
Non-current liabilities
Trade and other payables (6.2) (7.8) (6.4)
Deferred consideration 14 - (7.0) (7.0)
Lease liabilities 14 (27.8) (32.6) (30.7)
Retirement benefit obligations 13 (185.8) (255.1) (261.8)
Provisions 15 (40.6) (41.7) (43.6)
Deferred tax liabilities (201.2) (185.2) (188.1)
(461.6) (529.4) (537.6)
Current liabilities
Trade and other payables (110.5) (104.7) (114.7)
Deferred consideration 14 (7.0) (17.1) (17.1)
Lease liabilities 14 (5.9) (5.6) (5.5)
Provisions 15 (28.4) (24.8) (28.8)
(151.8) (152.2) (166.1)
Total liabilities (613.4) (681.6) (703.7)
Net assets 682.4 627.6 638.8
Equity
Share capital 16 32.2 32.2 32.2
Share premium account 16 605.4 605.4 605.4
Merger reserve 16 17.4 17.4 17.4
Capital redemption reserve 16 4.4 4.4 4.4
Retained earnings/(accumulated loss) and other reserves 16 23.0 (31.8) (20.6)
Total equity attributable to equity holders of the parent 682.4 627.6 638.8
The consolidated balance sheet at 27 June 2021 has been restated to show the
net amount of deferred tax assets and deferred tax liabilities, to show
current tax receivable and to show non-current trade and other payables
separately on the face of the balance sheet.
Notes to the consolidated financial statements
for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks
ended 26 December 2021)
1. General information
The financial information in respect of the 52 weeks ended 26 December 2021
does not constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006. A copy of the statutory accounts for that period has
been delivered to the Registrar of Companies and is available at the Company's
registered office at One Canada Square, Canary Wharf, London E14 5AP and on
the Company's website at www.reachplc.com. The auditors' report was
unqualified, did not include reference to any matters to which the auditors
drew attention by way of emphasis without qualifying the report and did not
contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The financial information for the 26 weeks ended 26 June 2022 and the 26 weeks
ended 27 June 2021 do not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006 and have not been audited. No statutory
accounts for these periods have been delivered to the Registrar of Companies.
This half-yearly financial report constitutes a dissemination announcement in
accordance with Section 6.3 of the Disclosure and Transparency Rules.
The auditors, PricewaterhouseCoopers LLP, have carried out a review of the
condensed set of financial statements and their report is set out at the end
of this announcement.
The half-yearly financial report was approved by the directors on 26 July
2022. This announcement is available at the Company's registered office at One
Canada Square, Canary Wharf, London E14 5AP and on the Company's website at
www.reachplc.com.
2. Accounting policies
Basis of preparation
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 Company 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 Group's annual consolidated financial statements are prepared
in accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards. The condensed consolidated financial statements
included in this half-yearly financial report have been prepared in
accordance with the UK-adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. Taxes on
income in the interim period are accrued using the tax rate that would be
applicable to expected total annual profit or loss. There are no material
changes to the nature and type of related party transactions since the 2021
Annual Report.
Consolidated balance sheet restatement of deferred tax at 27 June 2021
The Group has restated the consolidated balance sheet at 27 June 2021 to
reclassify deferred tax assets of £41.0m in non-current assets and £226.2m
deferred tax liabilities in non-current liabilities to show a net amount of
deferred tax of £185.2m in non-current liabilities, in accordance with the
offsetting requirements of IAS 12. This restatement has not impacted the net
financial performance or position of the Group at 27 June 2021. The
consolidated balance sheet at 27 December 2020 has deferred tax assets of
£60.5m and deferred tax liabilities of £172.4m which shows a net amount of
deferred tax liabilities of £111.9m. This restatement has also not impacted
the net financial performance or position of the Group at 27 December 2020.
Consolidated balance sheet restatement of current tax receivable at 27 June
2021
The Group has restated the consolidated balance sheet at 27 June 2021 to show
current tax receivable of £7.3m separately on the face of the consolidated
balance sheet. This was previously included within current trade and other
receivables. The balance sheet at 27 December 2020 had current tax receivable
of £2.8m. This restatement has not impacted the net financial performance or
position of the Group at 27 June 2021 and 27 December 2020.
Consolidated balance sheet restatement of non-current trade and other payables
at 27 June 2021
The Group has restated the consolidated balance sheet at 27 June 2021 to show
non-current trade and other payables of £7.8m separately on the face of the
consolidated balance sheet. This was previously included within current trade
and other payables. There were no non-current trade and other payables at 27
December 2020. This restatement has not impacted the net financial performance
or position of the Group at 27 June 2021 and 27 December 2020.
Going concern
The directors assessed the Group's prospects, both as a going concern and its
longer term viability, at the time of approval of the Group's 2021 Annual
Report. Further information is set out in the Reach plc 2021 Annual Report.
At the half year, the directors have prepared a going concern assessment,
specifically considering the potential impact of the downturn in digital
advertiser demand seen in Q2. The Group undertakes regular forecasts and
projections of trading identifying areas of focus for management to improve
delivery of the Strategy and to mitigate the current impact of macroeconomic
headwinds. The Group has a strong balance sheet and liquidity with a net cash
positive position of £43.8m. This represents a cash balance of £43.8m with
no draw down from the Group's revolving credit facility of £120.0m.
Accordingly, the directors have adopted the going concern basis of accounting
in the preparation of the Group's half-yearly financial report.
Changes in accounting policy
The same accounting policies, presentation and methods of computation are
followed in the interim condensed consolidated financial statements as applied
in the Group's latest annual consolidated financial statements. The basis of
preparation section shows the impact of the Company transitioning to
UK-adopted International Accounting Standards.
Alternative performance measures
The Company presents the results on a statutory and adjusted basis and revenue
trends on a statutory and like-for-like basis. The Company believes that the
adjusted basis and like-for-like trends will provide investors with useful
supplemental information about the financial performance of the Group, enable
comparison of financial results between periods where certain items may vary
independent of business performance, and allow for greater transparency with
respect to key performance indicators used by management in operating the
Group and making decisions. Although management believes the adjusted basis is
important in evaluating the Group, they are not intended to be considered in
isolation or as a substitute for, or as superior to, financial information on
a statutory basis. Revenue trends on an actual and like-for-like basis are the
same for the 26 weeks ended 26 June 2022. The alternative performance measures
are not recognised measures under IFRS and do not have standardised meanings
prescribed by IFRS and may be different to those used by other companies,
limiting the usefulness for comparison purposes. Note 18 sets out the
reconciliation between the statutory and adjusted results. An adjusted cash
flow is presented in note 19 which reconciles the adjusted operating profit to
the net change in cash and cash equivalents. Set out in note 20 is the
reconciliation between the statutory and adjusted cash flow. Note 21 shows the
reconciliation between statutory and like-for-like revenues for the 26 weeks
ended 27 June 2021.
Adjusted items
Adjusted items relate to costs or incomes that derive from events or
transactions that fall within the normal activities of the Group, but are
excluded from the Group's adjusted profit measures, individually or, if of a
similar type in aggregate, due to their size and/or nature in order to better
reflect management's view of the performance of the Group. The adjusted profit
measures are not recognised profit measures under IFRS and may not be directly
comparable with adjusted profit measures used by other companies. Details of
adjusted items are set out in notes 5 and 18.
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 (note 15)
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 the first half of the year, the progression of claims and the
settlement amount have been ahead of historical trends and experience. This
has resulted in a change to the provision estimate and a further charge of
£5.9m in the year. At the period end, a provision of £40.8m 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 £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 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 17.
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 £7.7m (27 June 2021: £7.0m and 26 December 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
£26.2m.
Retirement benefits (note 13)
Actuarial assumptions adopted and external factors can significantly impact
the surplus or deficit of defined benefit pension schemes. Valuations for
funding and accounting purposes are based on assumptions about future economic
and demographic variables. These result in risk of a volatile valuation
deficit and the risk that the ultimate cost of paying benefits is higher than
the current assessed liability value. Advice is sourced from independent and
qualified actuaries in selecting suitable assumptions at each reporting date.
Impairment review (note 12)
There is uncertainty in the value-in-use calculation. The most significant
area of uncertainty relates to expected future cash flows for each
cash-generating unit. Determining whether the carrying values of assets in a
cash-generating unit are impaired requires an estimation of the value in use
of the cash-generating unit to which these have been allocated. The
value-in-use calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate
in order to calculate present value. Projections are based on both internal
and external market information and reflect past experience. The discount rate
reflects the weighted average cost of capital of the Group.
Restructuring and property provisions (note 15)
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
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Print 223.4 232.4 465.1
Circulation 151.8 160.0 312.9
Advertising 45.3 50.3 103.3
Printing 11.5 9.6 20.4
Other 14.8 12.5 28.5
Digital 72.5 68.8 148.3
Other 1.5 1.1 2.4
Total revenue 297.4 302.3 615.8
The Group's operations are located primarily in the UK.
5. Operating adjusted items
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Provision for historical legal issues (note 15) (5.9) (13.0) (29.0)
Restructuring charges in respect of cost reduction measures (note 15) (5.4) (1.4) (2.8)
Pension administrative expenses and past service costs (note 13) (2.2) (1.5) (3.7)
Other items (note 18) 1.5 - (6.0)
Impairment of property, plant and equipment - (2.3) (2.3)
Impairment of right-of-use assets - (10.5) (10.5)
Provision for property rationalisation - (10.9) (10.9)
Operating adjusted items included in administrative expenses (12.0) (39.6) (65.2)
Operating adjusted items included in share of results of associates (0.7) (0.7) (1.6)
Total operating adjusted items (12.7) (40.3) (66.8)
Operating adjusted items relate to costs or incomes that derive from events or
transactions that fall within the normal activities of the Group, but are
excluded from the Group's adjusted profit measures, individually or, if of a
similar type in aggregate, due to their size and/or nature in order to better
reflect management's view of the performance of the Group. The adjusted profit
measures are not recognised profit measures under IFRS and may not be directly
comparable with adjusted profit measures used by other companies. Set out in
note 18 is the reconciliation between the statutory and adjusted results which
includes descriptions of the items included in adjusted items.
The Group has recorded a £5.9m increase in the provision for historical legal
issues relating to the cost associated with dealing with and resolving civil
claims in relation to historical phone hacking and unlawful information
gathering (note 15).
Restructuring charges of £5.4m (2021: £1.4m) incurred in respect of cost
reduction measures are principally severance costs that relate to cost
management actions taken in the period.
Other adjusted items comprise a National Insurance Cost credit relating to
share awards (£1.9m) and the profit on sale of impaired assets (£0.4m) less
adviser costs in relation to the triennial funding valuations (£0.8m).
The Group announced a Home and Hub project in March 2021 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 in the 26 weeks ended 27
June 2021 (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
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Interest income on bank deposits - - 0.1
7. Finance costs
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Interest and charges on bank borrowings (0.8) (0.4) (1.4)
Interest on lease liabilities (0.5) (0.7) (1.3)
Finance costs (1.3) (1.1) (2.7)
8. Tax (charge)/credit
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Corporation tax charge for the period (4.4) (4.7) (4.8)
Prior period adjustment - - 0.9
Current tax charge (4.4) (4.7) (3.9)
Deferred tax charge for the period (2.4) (1.9) (12.8)
Prior period adjustment - - 0.2
Deferred tax charge for rate change - (53.9) (53.9)
Deferred tax charge (2.4) (55.8) (66.5)
Tax charge (6.8) (60.5) (70.4)
Reconciliation of tax charge £m £m
Profit before tax 32.0 25.7 73.3
Standard rate of corporation tax of 19% (2021: 19%) (6.1) (4.9) (13.9)
Tax effect of items that are not deductible in determining taxable profit (0.8) (1.8) (4.0)
Change in rate of deferred tax - (53.9) (53.9)
Prior period adjustment - - 1.1
Tax effect of share of results of associates 0.1 0.1 0.3
Tax charge (6.8) (60.5) (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 amounted to £13.1m (27 June 2021: £7.3m
receivable and 26 December 2021: £13.5m receivable). At the reporting date
the maximum amount of the unprovided tax exposure relating to uncertain tax
items is some £7.7m (27 June 2021: £7.0m and 26 December 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
£26.2m.
The tax on actuarial gains or losses on defined benefit pension schemes taken
to the consolidated statement of comprehensive income is a deferred tax charge
of £10.7m (26 weeks ended 27 June 2021: charge of £31.4m and 52 weeks ended
26 December 2021: charge of £26.0m).
9. Dividends
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
Pence Pence Pence
Per share 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 4.26
Dividends paid per share - interim dividend - - 2.75
Total dividend paid per share 4.46 4.26 7.01
Dividend proposed per share but not paid nor included in the accounting 2.88 2.75 4.46
records
The Board has approved an interim dividend for 2022 of 2.88 pence per share.
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. The total dividend payment amounted to £13.9m.
10. Earnings per share
Basic earnings per share is calculated by dividing profit for the period
attributable to equity holders of the parent by the weighted average number of
ordinary shares during the period and diluted earnings per share is calculated
by adjusting the weighted average number of ordinary shares in issue on the
assumption of conversion of all potentially dilutive ordinary shares.
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
Thousand Thousand Thousand
Weighted average number of ordinary shares for basic earnings per share 311,636 310,128 310,282
Effect of potential dilutive ordinary shares in respect of share awards 6,848 9,247 8,971
Weighted average number of ordinary shares for diluted earnings per share 318,484 319,375 319,253
The weighted average number of potentially dilutive ordinary shares not
currently dilutive was 4,414,629 (27 June 2021: 846,947 and 26 December 2021:
1,704,886).
Statutory earnings per share
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December
2022 2021 2021
(unaudited) (unaudited) (audited)
Pence Pence Pence
Earnings/(loss) per share - basic 8.1 (11.2) 0.9
Earnings/(loss) per share - diluted 7.9 (11.2) 0.9
Adjusted earnings per share
26 weeks ended 26 weeks ended 52 weeks ended
26 June 27 June 26 December
2022 2021 2021
(unaudited) (unaudited) (audited)
Pence Pence Pence
Earnings per share - basic 12.0 17.8 37.6
Earnings per share - diluted 11.7 17.3 36.5
Set out in note 18 is the reconciliation between the statutory and adjusted
results.
11. Cash flows from operating activities
26 weeks 26 weeks 52 weeks
ended ended ended
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (audited)
£m (unaudited) £m
£m
Operating profit 34.5 28.6 79.3
Depreciation of property, plant and equipment 7.7 7.7 15.3
Depreciation of right-of-use assets 1.5 2.2 3.6
Amortisation of other intangible assets 0.7 - 0.4
Share of results of associates (0.7) (0.8) (1.6)
Share-based payments charge 0.9 0.9 1.7
Impairment of property, plant and equipment - 2.3 2.3
Impairment of right-of-use assets - 10.5 10.5
Profit on disposal of property, plant and equipment (0.4) - (0.7)
Pension administrative expenses 2.2 1.5 3.7
Operating cash flows before movements in working capital 46.4 52.9 114.5
(Increase)/decrease in inventories (2.0) 0.7 (0.9)
Decrease in receivables 11.0 12.0 5.6
(Decrease)/increase in payables (7.9) 30.1 44.5
Cash generated from operations 47.5 95.7 163.7
12. Goodwill and other intangible assets
Other intangible assets
Goodwill Publishing rights Internally generated assets Total
and titles
£m £m £m £m
Cost
At 26 December 2021 (audited) 189.9 2,100.3 6.0 2,296.2
Additions - - 4.0 4.0
At 26 June 2022 (unaudited) 189.9 2,100.3 10.0 2,300.2
Accumulated depreciation and impairment
At 26 December 2021 (audited) (154.0) (1,281.6) (0.4) (1,436.0)
Charge for the period - - (0.7) (0.7)
At 26 June 2022 (unaudited) (154.0) (1,281.6) (1.1) (1,436.7)
Carrying amount
At 26 December 2021 (audited) 35.9 818.7 5.6 860.2
At 26 June 2022 (unaudited) 35.9 818.7 8.9 863.5
The Group has two cash-generating units (Publishing and Digital Classified
Recruitment). All intangible assets at the reporting date relate to
Publishing.
During the period, the Group has capitalised internally generated assets
relating to software and website development costs of £4.0m (2021: nil).
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 reduction in the Group's share price and downturn in digital advertiser
demand seen in Q2 required that an impairment review was performed at the
half-year. The impairment review concluded that no impairment charge was
required.
For the impairment review, cash flows have been prepared using the approved
forecast for 2022 and projections for a further nine years as this is the
period over which the transformation to digital can be assessed. The
projections for 2023 to 2031 are internal projections based on continued
decline in print revenues and growth in digital revenues and the associated
change in the cost base as a result of the changing revenue mix. The Group's
medium-term internal projections are that growth in digital revenue will be
sufficient to offset the decline in print revenue and that overall revenue
will stabilise. The long-term growth rates beyond the 10-year period have been
assessed at 0% based on the Board's view of the market position and maturity
of the relevant market. We continue to believe that there are significant
longer-term benefits of our scale national and local digital audiences and
there are opportunities to grow revenue and profit in the longer term.
The discount rate reflects the weighted average cost of capital of the Group.
The current post-tax and equivalent pre-tax discount rate used is 10.8% (26
December 2021: 10.8%) and 14.2% (26 December 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, which has been
seen in Q2 with the war in Ukraine and more subdued demand from advertisers.
The headroom in the impairment review is £401m. EBITDA in the 10 year
projections is forecast to grow at a CAGR of 1.1%. 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 5.1%. Alternatively an increase in
the discount rate by 5.5 percentage points would lead to the removal of the
headroom.
13. Retirement benefit schemes
Defined contribution pension schemes
The Group operates a defined contribution pension 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
period of £9.0m (26 weeks ended 27 June 2021: £8.2m and 52 weeks ended 26
December 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:
· Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension
Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity
Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN
Scheme'); and
· Express & Star schemes (the 'E&S Schemes'): the
Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the Express
Newspapers Senior Management Pension Fund (the 'ENSM Scheme') and the West
Ferry Printers Pension Scheme (the 'WF Scheme').
Characteristics
The defined benefit pension schemes provide pensions to members, which are
based on the final salary pension payable, normally from age 65 (although some
schemes have some pensions normally payable from an earlier age) plus
surviving spouses or dependants' benefits following a member's death. Benefits
increase both before and after retirement either in line with statutory
minimum requirements or in accordance with the scheme rules if greater. Such
increases are either at fixed rates or in line with retail or consumer prices
but subject to upper and lower limits. All of the schemes are independent of
the Group with assets held independently of the Group. They are governed by
Trustees who administer benefits in accordance with the scheme rules and
appropriate UK legislation. The schemes each have a professional or
experienced independent Trustee as their Chairman with generally half of the
remaining Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across all of the schemes, the uninsured liabilities related 60% to current
pensioners and their spouses or dependants and 40% to deferred pensioners. The
average term from the period end to payment of the remaining uninsured
benefits is expected to be around 14 years. Uninsured pension payments in
2021, excluding lump sums and transfer value payments, were £71m and these
are projected on the prior reporting date assumptions 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. Discussions in relation to the funding valuations of the TM Schemes at
31 December 2019 are ongoing. The funding valuations of the schemes: at 31
December 2016 for the MGN Scheme showed a deficit of £476.0m, for the Trinity
Scheme showed a deficit of £78.0m and for the MIN Scheme showed a deficit of
£68.2m. The Group paid contributions of £21.7m to the TM Schemes in the
first half of 2022 and contributions in the second half are expected to be
£30.3m under the current schedule of contributions. The current schedule of
contributions includes payments of £52.0m pa from 2023 to 2027.
The funding valuations of the E&S Schemes at 31 December 2019 have been
agreed. For the EN88 Scheme this showed a deficit of £25.1m and for the ENSM
Scheme this showed a deficit of £0.9m. Group contributions in respect of
these defined benefit pension schemes in the first half were £1.3m and
contributions in the second half are expected to be £1.8m under the current
schedule of contributions. The agreed schedule of contributions includes
payments of £3.1m in 2023, £2.9m pa in 2024, 2025 and 2026 and £0.9m in
2027. 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
period were £23.0m (2021: £37.1m). £32.1m of Group contributions relating
to these schemes will be paid in the second half of the year.
At the prior year end, the funding deficits in all schemes were expected to be
removed before or around 2027 by a combination of the contributions and asset
returns. Contributions (which include funding for pension administrative
expenses) are payable monthly. Contributions per the current schedule of
contributions are for £55.1m in 2023, £54.9m pa in 2024 to 2026 and £52.9m
in 2027.
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 prior reporting date the insured
annuity policies covered 14% 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 prior
reporting date non-equity assets amounted to 82% of assets excluding the
insured annuity policies;
· investing a proportion of assets in equities: with the
aim of achieving outperformance and so reducing the deficits over the long
term. At the prior reporting date this amounted to 18% 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 E&S Schemes and the Trinity Scheme have an accounting surplus at the
reporting date, before allowing for the IFRIC 14 asset ceiling. Across the MGN
Scheme and the MIN Scheme, the invested assets are expected to be sufficient
to pay the uninsured benefits due up to 2047, based on the prior reporting
date assumptions. The remaining uninsured benefit payments, payable from 2048,
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 MIN Scheme, actuarial projections at the prior reporting date show removal
of the combined accounting deficit by the end of 2025 due to scheduled
contributions and asset returns at the target rate assumed at the last
reporting date. From this point, the assets are projected to be sufficient to
fully fund the liabilities on the accounting basis. The Group is not exposed
to any unusual, entity specific or scheme specific risks. Other than the
impact of GMP equalisation, there were no plan amendments, settlements or
curtailments which in the current and prior period resulted in a pension cost.
Results
For the purposes of the Group's consolidated financial statements, valuations
have been performed in accordance with the requirements of IAS 19 with scheme
liabilities calculated using a consistent projected unit valuation method and
compared to the estimated value of the scheme assets at 26 June 2022.
Based on actuarial advice, the assumptions used in calculating the scheme
liabilities are:
26 June 27 June 26 December 2021
2022 2021 £m
£m £m
Financial assumptions (nominal % pa)
Discount rate 3.72 1.98 1.83
Retail price inflation rate 3.40 3.19 3.46
Consumer price inflation rate 1.0% pa lower than RPI to 2030 and equal to RPI thereafter 2.59 1.0% pa lower than RPI to 2030 and equal to RPI thereafter
Rate of pension increase in deferment (non-GMP) 3.08 2.69 3.24
Rate of pension increases in payment (weighted average across the scheme's) 3.38 3.34 3.40
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65 21.8 21.8 21.8
Female currently aged 65 24.1 24.2 24.1
Male currently aged 55 21.5 21.6 21.5
Female currently aged 55 24.6 24.2 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 the 2021 year-end and 2022 half year,
the financial assumptions have been derived as a yield curve with different
rates per year, with the figures in the tables above representing a weighted
average of these rates. This is considered to be a more robust and accurate
approach to setting assumptions as it allows for each scheme's individual
circumstances rather than considering the schemes in aggregate as has been
done in the past, and is estimated to have increased the net deficit by £20m
at the prior reporting date. Note that the assumptions provided in the table
above for the current and prior reporting date 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. Previously the same
discount rate assumption was adopted for all six schemes, having regard to the
duration of the schemes' combined uninsured liabilities. At the prior year
end, the discount rate has been set to reflect the full corporate bond yield
curve with a different average 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. Previously the same inflation assumption was adopted for all
six schemes, having regard to the duration of the schemes' combined inflation
linkage. For the 2021 year-end and 2022 half year, 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 0.2% per
annum to 2030 and 0.4% per annum thereafter. The CPI assumption is set based
on a margin deducted from the RPI assumption, due to lack of market data on
CPI expectations. Following the UK Statistics Authority's announcement of the
intention to align RPI with CPIH from 2030 the assumed gap between RPI and CPI
inflation is 1.0% per annum up to 2030 and 0.0% per annum beyond 2030.
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 +/- 0.5% pa -130/+145 -115/+125
Retail price inflation rate +/- 0.5% pa +29/-29 +20/-19
Consumer price inflation rate +/- 0.5% pa +33/-30 +31/-28
Life expectancy at age 65 +/- 1 year +100/-100 +80/-80
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:
Consolidated income statement 26 weeks ended 26 weeks 52 weeks
26 June ended ended
2022 (unaudited) 27 June 26 December 2021
£m 2021 (unaudited) (audited)
£m £m
Pension administrative expenses (2.2) (1.5) (3.7)
Pension finance charge (1.2) (1.8) (3.4)
Defined benefit cost recognised in income statement (3.4) (3.3) (7.1)
Consolidated statement of comprehensive income 26 weeks ended 26 weeks 52 weeks
26 June ended ended
2022 (unaudited) 27 June 26 December 2021
£m 2021 (unaudited) (audited)
£m £m
Actuarial loss due to liability experience (34.3) (0.3) (22.0)
Actuarial gain due to liability assumption changes 645.7 153.2 30.5
Total liability actuarial gain 611.4 152.9 8.5
Returns on scheme assets (less)/greater than discount rate (568.8) (72.4) 48.6
Change in impact of IFRIC 14 0.3 45.1 45.8
Total gain recognised in statement of comprehensive income 42.9 125.6 102.9
Consolidated balance sheet 26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Present value of uninsured scheme liabilities (1,836.7) (2,299.1) (2,395.0)
Present value of insured scheme liabilities (312.2) (376.4) (393.4)
Total present value of scheme liabilities (2,148.9) (2,675.5) (2,788.4)
Invested and cash assets at fair value 1,746.8 2,146.6 2,242.9
Value of liability matching insurance contracts 312.2 376.4 393.4
Total fair value of scheme assets 2,059.0 2,523.0 2,636.3
Funded deficit (89.9) (152.5) (152.1)
Impact of IFRIC 14 (1.5) (2.5) (1.8)
Net scheme deficit (91.4) (155.0) (153.9)
Non-current assets - retirement benefit assets 94.4 100.1 107.9
Non-current liabilities - retirement benefit obligations (185.8) (255.1) (261.8)
Net scheme deficit (91.4) (155.0) (153.9)
Net scheme deficit included in consolidated balance sheet (91.4) (155.0) (153.9)
Deferred tax included in consolidated balance sheet 22.3 36.3 36.7
Net scheme deficit after deferred tax (69.1) (118.7) (117.2)
Movement in net scheme deficit 26 weeks 26 weeks 52 weeks
ended ended ended
26 June 27 June 26 December 2021
2022 2021 (audited)
(unaudited) (unaudited) £m
£m £m
Opening net scheme deficit (153.9) (314.4) (314.4)
Contributions 23.0 37.1 64.7
Consolidated income statement (3.4) (3.3) (7.1)
Consolidated statement of comprehensive income 42.9 125.6 102.9
Closing net scheme deficit (91.4) (155.0) (153.9)
Changes in the present value of scheme liabilities 26 weeks 26 weeks 52 weeks
ended ended ended
26 June 27 June 26 December 2021
2022 2021 (audited)
(unaudited) (unaudited) £m
£m £m
Opening present value of scheme liabilities (2,788.4) (2,864.1) (2,864.1)
Interest cost (25.0) (20.9) (41.8)
Actuarial loss - experience (34.3) (0.3) (22.0)
Actuarial (loss)/gain - change to demographic assumptions (3.4) 2.7 1.6
Actuarial gain - change to financial assumptions 649.1 150.5 28.9
Benefits paid 53.1 56.6 109.0
Closing present value of scheme liabilities (2,148.9) (2,675.5) (2,788.4)
Changes in impact of IFRIC 14 26 weeks 26 weeks 52 weeks
ended ended ended
26 June 27 June 26 December 2021
2022 2021 (audited)
(unaudited) (unaudited) £m
£m £m
Opening impact of IFRIC 14 (1.8) (47.6) (47.6)
Decrease in impact of IFRIC 14 0.3 45.1 45.8
Closing impact of IFRIC 14 (1.5) (2.5) (1.8)
Changes in the fair value of scheme assets 26 weeks 26 weeks 52 weeks
ended ended ended
26 June 27 June 26 December 2021
2022 2021 (audited)
(unaudited) (unaudited) £m
£m £m
Opening fair value of scheme assets 2,636.3 2,597.3 2,597.3
Interest income at discount rate 23.8 19.1 38.4
Actual return on assets (less)/greater than discount rate (568.8) (72.4) 48.6
Contributions by employer 23.0 37.1 64.7
Benefits paid (53.1) (56.6) (109.0)
Administrative expenses (2.2) (1.5) (3.7)
Closing fair value of scheme assets 2,059.0 2,523.0 2,636.3
Fair value of scheme assets 26 June 27 June 26 December 2021
2022 (unaudited) 2021 (audited)
£m (unaudited) £m
£m
UK equities 53.5 72.0 58.7
US equities 159.7 178.9 157.1
Other overseas equities 102.1 181.0 181.1
Property 39.5 42.1 40.5
Corporate bonds 291.3 277.8 260.9
Fixed interest gilts 37.7 85.7 34.9
Index linked gilts 13.9 93.0 18.3
Liability driven investment 564.6 888.1 903.4
Cash and other 484.5 328.0 588.0
Invested and cash assets at fair value 1,746.8 2,146.6 2,242.9
Value of insurance contracts 312.2 376.4 393.4
Fair value of scheme assets 2,059.0 2,523.0 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.
14. Net cash
The net cash for the Group is as follows:
26 December IFRS 16 lease liabilities movement £m
2021 Cash
(audited) flow
£m £m
Interest New leases Other movements (a) 26 June
£m £m £m 2022
(unaudited)
£m
Current assets
Cash and cash equivalents 65.7 (21.9) 43.8
Net cash 65.7 (21.9) 43.8
Lease liabilities (36.2) 2.8 (0.5) (1.2) 1.4 (33.7)
Net cash less lease liabilities 29.5 10.1
(a) Other movements include lease modifications in the
period.
The Group has a revolving credit facility of £120.0m which expires on 18
November 2025. The Group had no drawings at the reporting date and the
facility is subject to two covenants: Interest Cover and Net Debt to EBITDA,
both of which were met at the reporting date.
Deferred consideration is in respect of the acquisition of Express & Star.
Payment of the first instalment of £18.9m was made on 28 February 2020. 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.
15. Provisions
Share-based payments Historical legal issues
£m
Property Restructuring £m Other Total
£m £m £m £m
At 26 December 2021 (audited) (4.0) (12.3) (10.3) (41.0) (4.8) (72.4)
Charged to income statement (0.2) - (5.6) (5.9) (0.6) (12.3)
Released to income statement 1.9 - - - 0.8 2.7
Utilisation of provision 0.6 1.0 4.0 6.1 1.3 13.0
At 26 June 2022 (unaudited) (1.7) (11.3) (11.9) (40.8) (3.3) (69.0)
The provisions have been analysed between current and non-current as follows:
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Current (28.4) (24.8) (28.8)
Non-current (40.6) (41.7) (43.6)
(69.0) (66.5) (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 occupied, let and vacant properties. The
provision will be utilised over the remaining term of the leases or expected
period of vacancy.
The restructuring provision relates to restructuring charges incurred in the
delivery of cost reduction measures. The balance at the period end comprises
severance costs of £2.7m and closure costs relating to print plants of
£9.2m. The severance costs provision is expected to be utilised within the
next year. The closure costs provision includes £1.9m expected to be utilised
within the next year and £7.3m expected to be utilised over the remaining
term 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 the first half of the year, the progression of claims and the
settlement amount have been ahead of historical trends and experience. This
has resulted in a change to the provision estimate and a further charge of
£5.9m in the year. At the period end, a provision of £40.8m 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 £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 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 17.
The other provision balance of £3.3m at the period end relates to libel and
other matters and is expected to be utilised over the next two years.
16. Share capital and reserves
The share capital comprises 322,085,269 allotted, called-up and fully paid
ordinary shares of 10p each.
The share premium reflects the premium on issued ordinary shares. The merger
reserve comprises the premium on the shares allotted in relation to the
acquisition of Express & Star. The capital redemption reserve represents
the nominal value of the shares purchased and subsequently cancelled under
share buy-back programmes.
The Company holds 7,020,988 shares (27 June 2021: 9,342,239 shares and 26
December 2021: 8,128,176 shares) as Treasury shares. On 4 March 2022,
1,106,273 shares were 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 retained earnings/(accumulated loss) and
other reserves in respect of continuing businesses acquired prior to 1998 is
£25.9m (27 June 2021: £25.9m and 26 December 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 retained
earnings/(accumulated loss) and other reserves.
Shares purchased by the Reach Employee Benefit Trust are included in retained
earnings/(accumulated loss) and other reserves at £5.0m (27 June 2021: £1.5m
and 26 December 2021: £5.2m).
During the year the Trust purchased 521,314 (27 June 2021: nil and 26 December
2021: 883,315) for a cash consideration of £1.0m (27 June 2021: nil and 26
December 2021: £3.3m). The Trust received a payment of £1.0m (27 June 2021:
nil and 26 December 2021: £3.3m) from the Company to purchase these shares.
During the period, 1,118,050 were released relating to grants made in prior
years (27 June 2021: 960,974 and 26 December 2021: 1,241,171).
During the period, awards relating to 667,448 shares were granted to executive
directors on a discretionary basis under the Long Term Incentive Plan (27 June
2021: 608,136 and 26 December 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 period, awards relating to 1,138,083 shares were granted to senior
managers on a discretionary basis under the Long Term Incentive Plan under the
Senior Management Incentive Plan (27 June 2021: 935,431 and 26 December 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 period, awards relating to 121,575 shares were granted to executive
directors under the Restricted Share Plan (27 June 2021 and 26 December 2021:
nil). The awards vest after three years.
17. Contingent liabilities
It is unknown how long it will take to fully resolve historical legal issues
set out in note 15 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 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 £53m.
18. Reconciliation of statutory to adjusted results
26 weeks ended 26 June 2022 (unaudited)
Operating Pension Tax
adjusted finance (c)
Statutory items charge £m Adjusted
results (a) (b) results
£m £m £m £m
Revenue 297.4 - - - 297.4
Operating profit 34.5 12.7 - - 47.2
Profit before tax 32.0 12.7 1.2 - 45.9
Profit after tax 25.2 11.2 1.0 - 37.4
Basic earnings per share (p) 8.1 3.6 0.3 - 12.0
26 weeks ended 27 June 2021 (unaudited)
Operating Pension Tax
adjusted finance (c)
Statutory items charge £m Adjusted
results (a) (b) results
£m £m £m £m
Revenue 302.3 - - - 302.3
Operating profit 28.6 40.3 - - 68.9
Profit before tax 25.7 40.3 1.8 - 67.8
(Loss)/profit after tax (34.8) 34.6 1.5 53.9 55.2
Basic (loss)/earnings per share (p) (11.2) 11.1 0.5 17.4 17.8
52 weeks ended 26 December 2021 (audited)
Operating Pension Tax
adjusted finance (c)
Statutory items charge £m Adjusted
results (a) (b) results
£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 relating to the defined benefit pension
schemes as set out in note 13.
(c) Tax items relate to the impact of tax legislation changes
due to the change in the future corporation tax rate on the opening deferred
tax position in the prior year.
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 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.
Provision for historical legal issues relates to the cost associated with
dealing with and resolving civil claims for historical phone hacking and
unlawful information gathering. This is included in adjusted items as the
amounts are material, it relates to historical matters and movements in the
provision can vary year to year.
Impairments to non-current assets arise following impairment reviews or where
a decision is made to close or retire printing assets. These non-cash items
are included in adjusted items on the basis that they are material and vary
considerably each year, distorting the underlying performance of the business.
The Group's defined benefit pension schemes are all closed to new members and
to future accrual and are therefore not related to the current business. The
pension administration expenses, the past service costs and the pension
finance charge are included in adjusted items as the amounts are significant
and they relate to the historical pension commitment.
The opening deferred tax position is recalculated in the period in which a
change in the standard rate of corporation tax has been enacted or
substantively enacted by parliament or when a decision is reversed. The impact
of the change in rates are included in adjusted items, on the basis that when
they occur they are material, distorting the underlying performance of the
business.
Included in adjusted items in 2022 are restructuring charges of £5.4m,
principally severance costs that relate to cost management actions taken in
the period. Other items relate to a National Insurance Cost credit relating to
share awards (£1.9m) and the profit on sale of impaired assets (£0.4m) less
adviser costs in relation to the triennial funding valuations (£0.8m).
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 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). Restructuring charges include
£1.4m of costs relating to the integration of the Irish Daily Star which was
acquired in 2020.
19. Adjusted cash flow
26 June 27 June 26 December 2021
2022 (unaudited) 2021 (unaudited) (audited)
£m £m £m
Adjusted operating profit 47.2 68.9 146.1
Depreciation and amortisation 9.9 9.9 19.3
Adjusted EBITDA 57.1 78.8 165.4
Net interest and charges paid on bank borrowings (0.9) (0.4) (1.3)
Income tax paid (4.0) (9.2) (14.6)
Restructuring payments (4.0) (10.3) (15.1)
Net capital expenditure (6.7) (2.8) (11.8)
Interest paid on leases (0.5) (0.7) (1.3)
Repayment of obligation under leases (2.3) (3.6) (6.9)
Working capital and other 0.5 30.8 26.9
Adjusted operating cash flow 39.2 82.6 141.3
Historical legal issues payments (6.1) (3.6) (11.0)
Dividends paid (13.9) (13.2) (21.8)
Purchase of own shares (1.0) - (3.3)
Pension funding payments (23.0) (37.1) (64.7)
Adjusted net cash flow (4.8) 28.7 40.5
Acquisition-related cash flows (17.1) (16.0) (16.8)
Net (decrease)/increase in cash and cash equivalents (21.9) 12.7 23.7
20. Reconciliation of statutory to adjusted cash flow
26 weeks ended 26 June 2022 2022 2022
Statutory (a) (b) Adjusted
£m £m £m £m
Cash flows from operating activities
Cash generated from operations 47.5 (14.4) 6.1 39.2 Adjusted operating cash flow
Pension deficit funding payments (23.0) - - (23.0) Pension funding payments
- (6.1) (6.1) Historical legal issues payments
Income tax paid (4.0) 4.0 - -
Net cash inflow from operating activities 20.5
Investing activities
Proceeds on disposal of property, plant and equipment 0.4 (0.4) - - Net capital expenditure
Purchases of property, plant and equipment (3.1) 3.1 - - Net capital expenditure
Expenditure on internally generated development (4.0) 4.0 - - Net capital expenditure
Deferred consideration payment (17.1) - - (17.1) Acquisition related cash flow
Net cash used in investing activities (23.8)
Financing activities
Dividends paid (13.9) - - (13.9) Dividends paid
Interest and charges paid on bank borrowings (0.9) 0.9 - -
Purchase of own shares (1.0) - - (1.0) Purchase of own shares
Interest paid on leases (0.5) 0.5 - -
Repayments of obligations under leases (2.3) 2.3 - -
Net cash used in financing activities (18.6)
Net decrease in cash and cash equivalents (21.9) - - (21.9)
(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.
26 weeks ended 27 June 2021 2021 2021
Statutory (a) (b) Adjusted
£m £m £m £m
Cash flows from operating activities
Cash generated from operations 95.7 (16.7) 3.6 82.6 Adjusted operating cash flow
Pension deficit funding payments (37.1) - - (37.1) Pension funding payments
- - (3.6) (3.6) Historical legal issues payments
Income tax paid (9.2) 9.2 - -
Net cash inflow from operating activities 49.4
Purchases of property, plant and equipment (2.8) 2.8 - -
Deferred consideration payment (16.0) - - (16.0) Acquisition related cash flow
Net cash used in investing activities (18.8)
Dividends paid (13.2) - - (13.2) Dividends paid
Interest and charges paid on bank borrowings (0.4) 0.4 - -
Interest paid on leases (0.7) 0.7 - -
Repayments of obligations under leases (3.6) 3.6 - -
Net cash received from financing activities (17.9)
Net increase in cash and cash equivalents 12.7 - - 12.7
(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.
52 weeks ended 26 December 2021 2021 2021
Statutory (a) (b) Adjusted
£m £m £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
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 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 bank 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 - -
Repayments 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.
21. 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.
26 weeks 26 weeks 26 weeks 26 weeks
ended ended ended ended
27 June 27 June 28 June 28 June
2021 2021 2020 2020
(unaudited) (a) (like-for-like) (unaudited) (b) (like-for-like)
£m £m £m £m £m £m
Print 232.4 (5.4) 227.0 241.0 (1.5) 239.5
Circulation 160.0 (4.5) 155.5 163.9 - 163.9
Advertising 50.3 (0.9) 49.4 53.1 (1.5) 51.6
Printing 9.6 - 9.6 11.8 - 11.8
Other 12.5 - 12.5 12.2 - 12.2
Digital 68.8 - 68.8 48.2 - 48.2
Other 1.1 - 1.1 1.6 - 1.6
Total revenue 302.3 (5.4) 296.9 290.8 (1.5) 289.3
(a) Exclusion of Irish Star (purchased on 24 November 2020).
(b) Exclusion of Manchester Metro following ending of franchise
agreement in June 2020 and other portfolio changes in 2020.
Independent review report to Reach plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Reach plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim Results of
Reach plc for the 26 week period ended 26 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the consolidated balance sheet as at 26 June 2022;
· the consolidated income statement and the consolidated statement of
comprehensive income for the period then ended;
· the consolidated cash flow statement for the period then ended;
· the consolidated statement of changes in equity for the period then
ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results of Reach plc
have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim Results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Interim Results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the Interim Results, including the
interim financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 July 2022
LEI: 213800GNI5XF3XOATR61
Classification: 1.2 Half yearly financial reports and audit reports/limited
reviews
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