REG - Reach PLC - Annual Results for 52 weeks ended 26 December 2021
01/03/2022 07:00
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RNS Number : 1134D Reach PLC 01 March 2022
Reach plc - Full Year Results - 52 weeks to 26 December 2021
1 March 2022
Initial phase of digital growth strategy complete; on track to double digital
revenue by the end of 2024
Business Highlights
Strategy creating a stronger business
· Increase in Group revenue with digital growth more than offsetting
print decline
· 10m registrations, ahead of FY22 target; first party data approach
enables growth of data-led PLUS+( (1)) portfolio
· PLUS+ revenue c. 25% of growth in digital - over 200 campaigns since
Q2 launch at significantly higher yields
· Page views up by 28.7% versus 2019; down only 2.8% on 2020 which
benefitted from COVID-19 driven traffic
· Growing customer engagement - audience, page views per visitor and
loyalty all strongly ahead versus 2019
Investment supporting future profit growth
· Strength of cash generation and balance sheet underpins investment in
sustainable long-term profit growth
· Print driven cost inflation expected to affect 2022 profits,
mitigated in part by ongoing efficiency programmes
· New digital tech platform, Neptune, supports more sophisticated use
of data and deeper customer profiles
· Increasing focus on product development driving personalised customer
experience and expansion of PLUS+
Jim Mullen Chief Executive
"We've made significant progress as a business and I'm grateful to the whole
Reach team for making 2021 such a successful year. We've completed the first
phase of our Customer Value Strategy delivering a strong performance, with
digital growth more than offsetting print decline. We've now hit our 10
million registrations target ahead of time and advertisers are embracing our
portfolio of data-led products, which support significantly higher yields.
Despite inflationary pressures in print, we're committed to maintaining our
focus on sustainable long-term profit growth, investing in product innovation
and a more personalised user experience. Our strong balance sheet and cash
generation underpins continued investment as we transition to an increased mix
of higher quality digital earnings."
Financial Summary
52 weeks to 26 Dec 2021 Adjusted results((2)) Statutory results
2021 2020 Change 2021 2020 Change
Revenue £m 615.8 600.2 2.6% 615.8 600.2 2.6%
Operating profit £m 146.1 133.8 9.2% 79.3 7.6 N/A
Operating profit margin % 23.7% 22.3% 140bps 12.9% 1.3% N/A
Earnings/(loss) per share Pence 37.6 34.4 9.3% 0.9 (8.6) N/A
Net cash £m 65.7 42.0 56.4% 65.7 42.0 56.4%
Dividend per share((3)) Pence 7.21 4.26 N/A 7.21 4.26 N/A
Results Overview
Group revenue growth as strong digital performance offsets moderated print
decline
· Digital revenue £148.3m up 25.4% or 38.6% on two-year view((4));
digital now 24% of revenue mix (2019 c.15%)
· Significant contribution to digital uplift driven by Customer Value
Strategy revenues, including PLUS+ portfolio
· Print revenue LFL((4)) down 4.7% with circulation down 4.6% and
advertising down 4.9%
· Print recovery better than originally anticipated; investment in
availability, marketing and product enhancement supports resilient circulation
· Strong H2 performance over more normalised period of trading, having
lapped soft H1 comparatives driven by COVID-19 lockdowns last year; digital up
13.3% and print down 4.1% LFL in second half
Adjusted operating profit growth in line with expectations
· Adjusted operating profit of £146.1m up £12.3m or 9.2%; profit
margin 23.7% up 140bps
· Efficiency savings from 2020 transformation programme and print site
closures support strategic investment including expansion of editorial (c.400
journalists), data insight and product teams
· Statutory operating profit of £79.3m impacted by £66.8m of adjusted
items, largely related to property rationalisation after moving to flexible
working model ('Home & Hub') and increased HLI provision of £29.0m.
· Operating adjusted items of £66.8m (2020: £126.2m) significantly
reduced year on year, with transformation programme and print site closures
costs included in 2020 comparative
· Adjusted EPS increased by 9.3%. Statutory EPS of 0.9p impacted by the
operating adjusted items and the deferred tax charge resulting from the future
increase in the UK corporation tax rate
Strong cash generation and balance sheet allows balanced capital allocation
· Cash conversion of 85% adjusted EBITDA to adjusted operating cash
flow((5))
· Strengthening business performance supports expanded credit facility,
increased to £120m with minimum four-year term, providing increased
flexibility for investment
· Cash((6)) balances up £23.7m; retained cash balance £65.7m
· Ongoing discussions to agree resolution of 2019 triennial review of
pension commitments. We are committed to working towards the objective of
achieving funding of all schemes as previously agreed in our 2016 triennial
review, taking in to account the interests of all stakeholders
· Final dividend proposed of 4.46 pence per share, an increase of 4.7%
(2020: 4.26 pence)
A responsible business - focus on Diversity and Inclusion, wellbeing and
sustainability
· Investment in journalism reinforces our purpose as champions,
campaigners and changemakers for communities; our newsbrands continue to
challenge, inform and entertain
· Transformative year around Diversity and Inclusion, culminating in
ranking in UK 50 Most Inclusive Companies
· Wellbeing focus extends healthcare provision, including mental health
support to all colleagues
· Appointed Online Safety Editor, an industry first, to help protect
our people and tackle rise of online abuse
· ESG strategy and net zero target to be formalised during 2022
Outlook and current trading
The Customer Value Strategy is progressing and enabling an evolution of the
business, with digital revenue on track to double by the end of 2024 from its
2020 base. Trading to date has been ahead of Q4 2021. On a like-for-like basis
print revenue down 4.2%, digital growing by 10.3% and overall Group revenue
down 0.7% for the first 8 weeks of the year. We expect digital revenue growth
to again offset print decline, with total revenue flat for the full year 2022.
The business is transitioning to become more digitally driven and the ongoing
cost base reshaping will in part help fund continued investment. However, the
impact from inflation, which began to affect the business towards the end of
2021, has now intensified, particularly in print production. This has
primarily been reflected in the cost of newsprint (paper for printed
products), which having previously been impacted by rising distribution costs
and supply challenges, now also reflects the significant increase in energy
prices. As a result, the gross impact of inflation in 2022 is expected to be
higher than in recent years.
While ongoing efficiencies are expected to partly mitigate this impact, we
anticipate the net effect to be a modest year-on-year reduction in operating
profit as we continue to invest for the future.
Notes
(1) PLUS+ describes our portfolio of data-led products which
we started to roll-out to brands and advertising agencies in Q2 2021.
(2) Set out in note 20 is the reconciliation between the
statutory and adjusted results. The current period is for the 52 weeks ended
26 December 2021 ('2021') and the comparative period is for the 52 weeks ended
27 December 2020 ('2020').
(3) Full year dividend of 7.21 pence per share comprised of
interim dividend of 2.75 pence per share and proposed final dividend of 4.46
pence per share. This compares to a non-cash bonus issue of shares issued in
lieu of and with a value equivalent to an interim dividend in 2020 of 2.63
pence per share and a final dividend for 2020 of 4.26 pence per share.
(4) The Group presents results on an actual and like-for-like (LFL)
basis. The LFL trends exclude the Independent Star acquisition and the impact
of portfolio changes which impacts print revenues only. A table showing LFL
revenue movements on a one year basis versus 2020 and a two year basis versus
2019 is included in the Financial Review on page 9. Set out in note 21 is the
reconciliation between the statutory and LFL revenue.
(5) An adjusted cash flow is presented in note 22 which reconciles the
adjusted operating profit to the net change in cash and cash equivalents. Note
23 provides a reconciliation between the statutory and adjusted cash flows.
(6) Cash balance comprises cash and cash equivalents of
£65.7m.
Enquiries
Reach
Jim Mullen, Chief Executive Officer communications@reachplc.com
Simon Fuller, Chief Financial Officer 07341 470 722
Ciaran O'Brien, Director of Communications
Matt Sharff, Investor Relations Director
Tulchan Communications reachplc@tulchangroup.com
Giles Kernick 020 7353 4200
Jim Mullen, Chief Executive Officer, Simon Fuller, Chief Financial Officer
and Lloyd Embley, Group Editor-in-Chief, will be hosting a live webcast at
9:00am (UK) on 1 March 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 (UK). An archive of the webcast and the presentation script and slides
will also be available.
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Please either listen to the Q&A session via the webcast or to ask a
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Forward looking statements
This announcement has been prepared in relation to the financial results for
the 52 weeks ended 26 December 2021. 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
An expanded team delivering on our core purpose
2021 has been a year of investment in journalism, with the successful
recruitment of over 400 new roles. We invested behind our national social
teams, expanded our national sports coverage and expanded a number of regional
newsrooms.
The expansion demonstrates the progress we are making in creating the Reach of
tomorrow. Reach is transitioning from a company that was primarily focused on
managing print decline to one that is establishing a sustainable future with a
digital business that is growing strongly.
It also reinforces our purpose as champions, campaigners and changemakers for
communities throughout the UK and Ireland.
26 new sites were launched during the year, to deliver on our promise of local
digital news coverage across every county in England and Wales, and more
counties in both Northern Ireland and Scotland. The investment enabled us to
deepen MyLondon's borough-by-borough coverage, more than quadrupling the team
to over 80 roles, including the site's first Race and Diversity Editor. An
expansion of our sports team means we will be offering more and better sports
coverage, including coverage of Formula 1, where the Daily Express recruited a
new correspondent, reflecting its historic associations with the sport.
Our newsbrands have had another incredible year of campaigning, winning awards
and delivering real change that has impacted people's lives for the better.
From the Express's award-winning environmental campaigning to the Daily
Record's Campaign of the Year in Scotland on the decriminalisation of drugs,
our journalism has been widely praised by campaigners and politicians.
And of course our newsbrands have set the agenda throughout the year from the
Mirror's exposure of the Downing Street lockdown gatherings that have rocked
the Government, to six of our Northern titles sharing the same 'Trainspotting'
front page in response to the Government's U-turn on HS2.
When a number of Premier League clubs were plotting to set up a European Super
League, nine of our regional titles combined to campaign for 'Our Clubs, Our
Future', voicing the fans' anger and leading to a swift climbdown from the
club executives. Special mention must go to the Manchester Evening News for
their coverage of the Manchester bomb inquiry and to Birmingham Live for their
coverage of the tragic case of Arthur Labinjo‑Hughes. The Irish Daily Star
was also recognised at the NewsBrands Ireland Journalism Awards, including the
award for Crime Journalist of the Year.
These awards reflect the strength of our editorial culture and our core
purpose, and we will continue to hold power to account, highlight hypocrisy
and champion the voices of our communities. This ongoing focus on journalism
and content ensures the continued strength of our audience, acting as the
foundation for the Customer Value Strategy.
Strong growth in customer registrations and engagement
The trust in our titles is a key reason we continue to achieve the biggest
monthly audience of any commercial publisher, with just under 42m people
visiting our sites every month. The growth of accessing news digitally has
disrupted publishers' business models but continues to represent a huge
opportunity for Reach with more people than ever reading our content across
print and digital. Our scale audience represents the UK's fifth-largest
digital asset and a huge opportunity, given that we have not historically
achieved our full digital potential.
While page views declined set against numbers inflated by pandemic-related
stories in the spring and summer of 2020, they have grown strongly on a
two-year basis, up 29% compared to 2019. Our investment in content began to
drive increased volume during the latter part of H2, with page views in Q4
growing at 4%, with that uplift strengthening significantly in the early part
of 2022.
Data is central to the Customer Value Strategy, with the first stage about
focusing on growing our registered audience, enabling us to understand more
about our customers. We set a target of 10m by the end of 2022, and by the end
of 2021 we had already achieved over 9m - up from 5m at the end of 2020. We
achieved our 10m target in early 2022, several months ahead of schedule.
In October, we launched 'one tap' registration, which has led to a step change
in the customer registration experience, making it more seamless than before.
It enables users to register and then log in with one click, significantly
increasing the number of logged in sessions per month. With more of our
registered customers logged in we can track their content consumption and
develop the insights that are key to our data-led advertising products. While
the initial development benefits Google users, we are already planning to
launch other frictionless log-in services.
Newsletters also remain a key source of customer registrations and enable us
to build daily relationships with our readers. We have launched over 300
newsletters which cover daily briefings, common interests and 'obsessions.'
The latter focuses on areas which generate spikes in interest around topics
readers obsess about in short-term bursts such as the Olympics or the latest
TV series which our reader data tells us will be popular. Total page views
from newsletters more than doubled during 2021 and they drive over 50m page
views a month.
In October we began assembling our customer relationship management (CRM) team
under a new Audience Transformation Director. The focus of these roles is to
develop editorial products to drive customer loyalty and engagement.
Increasing the use of data and insights in our newsrooms will be key for the
team as we look to increase our focus on customer acquisition, retention and
activity.
PLUS+ products help drive digital growth
Our commercial team has put in a strong performance this year - fully
justifying their Campaign Commercial Team of the Year and Consumer Business of
the Year awards. The team delivered another year of strong digital revenue
growth of 25% with two-year growth at 39%. This is another major step towards
our key objective of doubling digital revenue by the end of 2024 from the 2020
base.
Key to the performance has been our suite of data-led PLUS+ products which has
contributed significantly to digital revenue growth this year, despite having
only launched in Q2 of 2021. These products enable us to categorise data sets
by geography, by reader behaviour and preferences, and produce targeted data
sets for client campaigns. PLUS+ driven campaigns are driving improved results
for advertisers, while attracting significantly higher digital revenue yield.
These campaigns also utilise our AI tool Mantis to refine the data sets for
emotion and context, in addition to content subject matter ensuring greater
accuracy. These products have far exceeded our expectations with over 200
campaigns run during 2021.
There is more potential to come as we enrich our customer data, adding breadth
and depth over time with additional content consumption, as well as modelling
the behaviour of unknown or unregistered customers based on the behaviour of
our registered customer base.
Brands are starting to recognise the importance of news publishers' digital
offerings, and a number of agencies have launched their own curated
marketplaces to enable ease of access for their clients to news publisher
inventory. We anticipate extending use of our data sets to these marketplaces,
increasing the scale opportunity to extend access to PLUS+.
While we continue to see a decline in print advertising revenue, the trends in
early 2022 are more moderate than those seen in early 2021. Although
structural challenges remain and some sectors, such as leisure and travel,
have yet to fully recover post the pandemic, others, like food retail, have
remained buoyant. Cover-wraps are an effective marketing or promotional tool
and we continue to see strong interest from the likes of Sainsbury's and
Coca-Cola.
The commercial team has also placed greater emphasis on partnerships with a
promising tie-up with Imagine Cruises, a beer club and a partnership with Rank
Group. Campaign wins from the likes of Barclays, BT and Tesco demonstrate the
ongoing appeal of print campaigns and we continued to benefit from the
industry-wide Government advertising spend.
Resilience in print and continued efficiencies
Our print titles continued to generate the bulk of our revenues during 2021
and saw a resilient performance despite the ongoing challenges of COVID-19,
with a like-for-like revenue decline of 4.7% for the year. We increased
availability of our titles and have closely managed distribution based on
latest data sets from the various outlet types. The regular use of front-page
free offers for customers has also helped support sales including free books,
free bets and shopping discounts.
We began to see the impact of increasing inflation towards the end of the
year, particularly in the cost of newsprint, which is being heavily impacted
by rising energy costs. We expect this to continue in 2022.
A responsible business - focus on Diversity and Inclusion (D&I), wellbeing
and sustainability
We continue to prioritise D&I in the business. Key to any D&I policy
is benchmarking and data, and we carried out a Company-wide survey for the
first time. Over 87% of colleagues participated, providing us with a detailed
breakdown of race, gender, disability and religion. This data will help shape
the next stage of our D&I journey in 2022.
We signed up to the 30% Club and Valuable 500 to show our commitment to
increase representation of women at senior levels, as well as ethnicity, and
to focus on disability inclusion. These initiatives, together with our
inclusion groups and champions, helped Reach secure a place in the Inclusive
Top 50 Employers list for the first time. While we are pleased with the
progress to date, we will continue to prioritise D&I during 2022.
Colleague wellbeing has continued to be a focus with both Sanctus mental
health coaching and free access to the meditation app Headspace proving
popular.
Online abuse towards journalists has become a concerning trend, so we surveyed
our people to better understand the scale of the problem. As a result, in
October we announced an industry-leading step to tackle online abuse, by
appointing an Online Safety Editor. The role is dedicated to supporting
colleagues and working with social media platforms to find solutions.
During 2021, we launched our hybrid working policy after extensive research
with colleagues. The model promotes flexible working and helps attract people
from broader talent pools across the country.
Our titles continue to highlight the climate emergency, and it was pleasing to
see the Express Environment Correspondent John Ingham receive the British
Journalism Award for Energy and Environment.
In recognition of the increasing importance placed on Environmental, Social
and Governance (ESG) by the Board and stakeholders, we established a
Sustainability Committee to review the Company's approach to sustainability
and its wider ESG strategy.
In advance of that process we, together with a number of industry peers,
committed to the Ad Net Zero commitment through Newsworks, which will see us
ensure we produce our advertising without impacting the environment through
carbon emissions. During 2022, we will evolve our approach following a review
of the wider ESG landscape.
The Customer Value Strategy in 2022 - B2C focus
The introduction of 'One Tap' registration to our sites has increased the
number of logged-in user sessions, significantly enhancing our ability to
gather data and enrich customer profiles. During 2022, we aim to grow the
number of our registered customers using more than one product or platform
which we believe is an early opportunity to drive engagement and loyalty.
A new, more personalised user experience will help with this target, as will
our own in-house developed content recommendation tool and a tool to
prioritise next actions - from serving an ad, to promoting content or
registration to data-gathering opportunities.
The day-to-day operation of our newsrooms will be increasingly data-led and
our CRM approach more sophisticated. Data and insights will inform our
approach to drive customer retention, engagement frequency and dwell time to
grow overall digital average revenue per user.
The Customer Value Strategy in 2022 - B2B focus
In January 2022, we built further on our progress with data-led advertising
products by launching Neptune - our ad tech solution. Neptune brings together
all the elements of our first-party data platform with our growing slate of
data matching capabilities and custom-built AI contextual tools. We also
recently announced the creation of a dedicated in-house Ad Tech Workshop,
unique in the publishing space in that the team will sit in the commercial
division and focus entirely on commercial product development - both for
in-house use and, where appropriate, to license to other publishers.
Looking forward, we will continue to innovate and enhance our use of AI and
other tech solutions to help monetise our first-party data sets. We will also
build on the early success of our PLUS+ products which have now been used in
over 200 campaigns. Our teams are focused on extending access to data-led
campaigns via curated marketplaces, which an increasing number of agencies are
launching to provide clients with alternatives to the traditional programmatic
routes for digital advertising, OMP (Open Market Place).
The progress in registrations and data capabilities has enabled us to grow
yields through offering advertisers more targeted campaigns. However, there is
more potential in this area and we are still at a relatively early stage. As
we enrich our data sets by geography, content interest and demographic, and
utilise contextual tools to provide further insight, we are able to offer a
wider choice of data-led campaigns and drive higher yields.
Building a culture where people can thrive
The workplace has changed forever as a result of the pandemic, and we continue
to focus on evolving the culture of the business. In an increasingly
competitive job market, a strong employer value proposition is key to ensuring
we attract and retain the right people. We have made strong progress through
the introduction of our hybrid working policy and by developing an extensive
package of wellbeing support. Moving forward, we will seek to leverage the
strength of the organisation's core purpose more effectively across the
business. We have initiated an employer value proposition process to refine
what Reach stands for as an employer and will bring this to the fore in
recruitment and communications. In terms of talent development, we are
introducing a new management and leadership development programme to develop
leaders of the future, and we're increasing our focus and investment in
training and recruiting the next generation of talent through outreach
activity and work experience placements.
Balance sheet strength
In November, we announced that we had secured an increase in our revolving
credit facility with an expanded syndicate of relationship banks. The increase
in available facilities from £65m to £120m demonstrates growing confidence
in the strength of the business and provides us with the optionality to
accelerate our growth plans should we identify investment opportunities which
enable us to progress faster towards becoming a data-led, insight-driven
business.
Investing in the future
With digital revenue now 24% of our overall revenues, up from just 15% two
years ago, and growing strongly, the potential of the business is clear.
We will continue to seek cost efficiencies as we transition to a more
digitally-driven future. This will help to fund our investment and partially
mitigate the impacts of inflation, where we are seeing significant increases
in the cost of newsprint in particular.
In 2022, machine learning and AI will deliver insights across customer
relationship management, editorial, marketing and ad tech, and will to
continue to drive our digital transition.
As we enter the next phase of the Customer Value Strategy, we are on track to
double digital revenue from the 2020 base by the end of 2024.
Jim Mullen
Chief Executive Officer
1 March 2022
Financial Review
Investing to grow Reach
Our financial results this year reflect a strong recovery against a year
significantly impacted by COVID-19, while also demonstrating the benefits of
strategic delivery. The Group has delivered like-for-like growth in revenue
for the first time since 2007, with growth of digital revenue (which was 24%
of Group revenue in 2021) more than offsetting the decline in print and other
revenues.
From a profit perspective, our results show a recovery in adjusted operating
profit, with top-line growth and cost savings from last year's transformation
programme supporting investment in the Customer Value Strategy. Our statutory
performance was impacted by adjusting items and the impact of the future
change in the corporation tax rate.
Our business remains cash generative, delivering £141.3m of adjusted
operating cash flow during the year, with cash balances growing to £65.7m and
no bank debt. The Group has continued to maintain a strong balance sheet with
liquidity enhanced by the recent expansion of our revolving credit facility
which has been increased from £65.0m to £120.0m, supporting resilience and
investment optionality.
Adjusted Adjusted Statutory Statutory
2021 2020 2021 2020
£m £m £m £m
Revenue 615.8 600.2 615.8 600.2
Costs (472.9) (469.0) (538.1) (594.0)
Associates 3.2 2.6 1.6 1.4
Operating profit 146.1 133.8 79.3 7.6
Finance costs (2.6) (2.5) (6.0) (7.2)
Profit before tax 143.5 131.3 73.3 0.4
Tax charge (26.9) (24.9) (70.4) (27.1)
Profit/(loss) after tax 116.6 106.4 2.9 (26.7)
Earnings/(loss) per share - basic (p) 37.6 34.4 0.9 (8.6)
Revenue
Revenue is presented on an actual and like-for-like basis which excludes the
impact of the Irish Daily Star acquisition from 2021 and 2020 and the impact
of portfolio changes from 2020, both of which affect print comparisons only.
Further details on the reconciliation between the actual and like-for-like
revenue are set out in note 21.
Actual Actual Like-for-like Like-for-like
2021 2020 2021 2020
£m £m £m £m
Print 465.1 479.3 454.5 476.8
Circulation 312.9 319.7 304.2 318.9
Advertising 103.3 108.4 101.5 106.7
Printing 20.4 25.2 20.4 25.2
Other 28.5 26.0 28.4 26.0
Digital 148.3 118.3 148.3 118.3
Other 2.4 2.6 2.4 2.6
Total revenue 615.8 600.2 605.2 597.7
Revenue increased by £15.6m or 2.6% on an actual basis and by £7.5m or 1.3%
on a like-for-like basis. Like-for-like adjustments relate to a £9.6m full
year benefit from the Irish Daily Star (£10.6m in 2021 less £1.0m in 2020)
partially offset by the impact of £1.5m from other portfolio changes (nil in
2021 less £1.5m in 2020) both of which impact print not digital.
On a like-for-like basis print revenue fell by £22.3m or 4.7%, digital
revenue grew by £30.0m or 25.4% and other revenue fell by £0.2m or 7.7%. The
growth in digital exceeded the fall in print and other revenues on both an
actual and like-for-like basis.
Revenue bridge
Actual YOY
£m LFL
%
2020 revenue 600
Circulation (7) (4.6)
Advertising (5) (4.9)
Printing (5) (19.0)
Other 2.5 9.2
Print (14) (4.7)
Digital 30 25.4
2021 revenue 616 1.3; 2.6% Act
Revenue was significantly impacted by COVID-19 during 2020, particularly
during Q2 and Q3 (down 27.5% and 14.8% respectively), before beginning to ease
towards the end of the year. Consequently, year-on-year revenue comparisons
reflect both the progress made during 2021 and the relatively soft
comparatives of 2020. For this reason and to provide additional insight into
our performance, we show revenue movements on a two-year like-for-like basis
in the table below:
YOY YOY YOY 2yr 2yr 2yr
H1 H2 FY H1 H2 FY
% % % % % %
Digital 42.7 13.3 25.4 41.4 36.3 38.6
Print (5.2) (4.1) (4.7) (23.9) (20.5) (22.2)
Circulation (5.1) (4.0) (4.6) (16.0) (15.7) (15.9)
Advertising (4.3) (5.3) (4.9) (33.7) (26.8) (30.3)
Total revenue 2.6 Flat 1.3 (14.9) (11.0) (13.0)
YOY compares 2021 with 2020 and 2yr movement compares 2021 with 2019
Print declined by £22.3m or 4.7% on a like-for like basis (2020: -18.9%), a
stronger performance than we had originally anticipated. The two-year decline
was 22.2% with recent performance more reflective of expected trends going
forward.
Circulation revenue was down 4.6% on a like-for-like basis (2020: -11.6%),
with second-half volume declines easing, following the lows brought about by
COVID-19 related lockdowns. Circulation volumes (excluding the impact of
sampling) for our national daily titles fell by 10.1%, with national Sunday
titles down 12.6%. Volume declines for our regional titles were 12.5% for
paid-for dailies, 18.5% for paid-for weeklies and 13.3% for paid-for Sundays.
The circulation volume trend is impacted by cover price differentials and
reflects our strategy to increase cover prices annually to protect revenue
performance.
Advertising revenue was down 4.9% on a like-for-like basis (2020: -28.9%), a
much improved performance. Nationally sourced advertising continues to
outperform locally sourced activity. At a national level, while certain
sectors, such as leisure and travel remained subdued throughout much of the
year, others, such as food, retail and entertainment, have remained buoyant.
We've also benefitted from additional Government spend generated by public
health messaging. The impact of the pandemic on locally sourced advertising
has been more prolonged, with many smaller businesses not advertising at all,
combined with much reduced classified activity.
Print revenue also includes external printing revenues and other print-related
revenues. Printing revenue decreased 19.0% on a like-for-like basis (2020:
-34.5%) due to a further reduction in contract print volumes and the closure
of two of our six print plants at the end of 2020. Other print revenue
increased by 9.2% on a like-for-like basis (2020: -32.6%), with event-driven
enterprise revenues and sports contract printing returning in the second half
of the year.
Digital revenue increased by £30.0m or 25.4% (up 38.6% on a two-year basis)
reflecting both a recovery in the digital advertising market and our Customer
Value Strategy, which focuses on growing reader consumption of our content (or
page views) and delivering more targeted or relevant advertising to our
customers.
Digital is an increasing part of the business and was 24% of Group revenue in
2021 (2019: 15%), with growth supported by strong strategic delivery, in
particular relating to our new data-led advertising product portfolio, PLUS+,
demand for which has helped grow our digital yield. Worldwide page views
declined by 2.8%, though 2020 benefitted from significant one-off digital
traffic, driven by COVID-19 related stories, which did not contribute
significantly to revenue. On a two-year basis page views were up 29%.
Costs
Adjusted costs of £472.9m (2020: £469.0m) increased by £3.9m or 0.8%.
Statutory costs decreased by £55.9m or 9.4% primarily due to lower operating
adjusted items which were £59.8m lower (£65.2m compared to £125.0m in
2020).
Adjusted Adjusted Statutory Statutory
2021 2020 2021 2020
£m £m £m £m
Labour (232.1) (217.2) (232.1) (217.2)
Newsprint (52.9) (45.8) (52.9) (45.8)
Depreciation (19.3) (27.4) (19.3) (27.4)
Other (168.6) (178.6) (233.8) (303.6)
Total costs (472.9) (469.0) (538.1) (594.0)
Labour costs of £232.1m were 6.9% higher year-on-year driven by three key
elements; (i) the reversal of actions taken in 2020, which included the
temporary salary reduction (repaid in 2021), bonus suspension and furlough,
(ii) investment in the Customer Value Strategy, particularly in editorial with
around 400 more journalists hired during the year and in data and technology,
and (iii) the benefit of cost savings related to last year's transformation
programme and print site closures and this year's Home and Hub project.
The higher cost of newsprint during the year reflects both a reduction in
industry production capacity and a strong recovery in demand compared to the
previous year, when demand was suppressed by COVID-19. Growing demand for
packaging materials, reduced availability of recycled fibre and increasing
costs of shipping and energy contributed to a significant increase in
newsprint prices versus 2020.
Depreciation and other costs include the benefit of the cost-saving
initiatives in 2020 and 2021.
Operating adjusted items included in statutory costs related to the following:
Statutory Statutory
2021 2020
£m £m
Provision for historical legal issues (29.0) (12.5)
Transformation programme - (16.5)
Closure of two print plants (0.7) (65.3)
Home and Hub project (23.7) -
Other (11.8) (30.7)
Operating adjusted items in statutory costs (65.2) (125.0)
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 £29.0m (2020:
£12.5m).
The Group announced in July 2020 a transformation programme to reshape the
Group into a streamlined, more efficient organisation across editorial,
advertising and central operations which was implemented in the year. In
September 2020 a review of print capacity requirements concluded with the
closure of two print plants at the end of the year. The transformation
programme resulted in a restructuring charge of £16.5m and the closure of the
two print plants resulted in total charges of £65.3m comprising a
restructuring charge of £16.9m, an impairment to property, plant and
equipment of £34.7m and an impairment to right-of-use assets of £13.7m. In
2021 additional restructuring costs of £1.4m have been charged less the
profit on sale of impaired assets of £0.7m.
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 have been
closed. The project has resulted in charges of £23.7m (impairments of £2.3m
relating to property, plant and equipment and £10.5m relating to right-of-use
assets and a £10.9m property rationalisation charge relating to onerous costs
of vacant properties).
In 2021, other operating adjusted items comprises pension administrative
expenses (£3.7m), restructuring charges relating to the integration costs of
the Irish Daily Star which was acquired in 2020 (£1.4m), adviser costs in
relation to the triennial funding valuations (£1.2m), National Insurance
costs relating to share awards (£2.6m) and the write-off of an old debit
balance (£2.9m). In 2020, other operating adjusted items comprised pension
administrative expenses (£4.6m), GMP equalisation charge (£1.5m),
restructuring charge for other cost-saving initiatives (£3.0m), a goodwill
impairment charge (£6.1m) and a charge relating to a historic property
development (£15.5m).
Profit
Adjusted operating profit of £146.1m was up 9.2% or £12.3m. Adjusted
operating profit increased due to the benefit of higher revenues and cost
savings more than offsetting the reversal of actions taken in 2020,
inflationary increases and investment in the Customer Value Strategy. The
adjusted operating profit margin of 23.7% was up 140bps.
Cost include £46m of year on year savings relating to the transformation
actions in 2020 and 2021. Those comprised the full year benefit from the July
2020 reshaping of the Group, the delivery of the targeted savings from the
print site closures at the end of December 2020 and the in year benefit from
the Home and Hub project. The reversal of the actions taken in 2020 include no
furlough being taken in 2021, the repayment of the employee salary reduction
and the resumption of bonuses.
Statutory operating profit was £79.3m (2020: £7.6m), significantly higher
year-on-year due to the increase in adjusted profit and reduction in the level
of adjusted cost items.
Adjusted operating profit bridge
Adjusted YOY
£m %
2020 operating profit 134
2020 reversals (23)
Transformation savings 46
2021 net costs (11)
Investment (14)
Revenue 14
2021 operating profit 146 9.2
Earnings per share
Adjusted earnings per share increased by 3.2p or 9.3% with lower adjusted
finance costs and an adjusted tax rate broadly in line with the corporation
tax rate of 19%. Statutory earnings per share of 0.9p was impacted by
operating adjusted items of £66.8m and a £53.9m deferred tax charge arising
from the multi-year impact of the planned future increase in the UK's
corporation tax rate (2020: loss per share of 8.6p).
Reconciliation of statutory to adjusted results
Operating Pension Tax
Statutory adjusted finance £m Adjusted
results items charge 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
The Group excludes from the adjusted results: operating adjusted items,
pension finance charge and tax movements arising from changes in the
corporation tax rate. 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 current 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 5.
Balance sheet and cash flows
Adjusted cash flow
£m £m
EBITDA 165
Tax (15)
Restructuring (15)
Capex (12)
Lease payments (8)
Working capital and other 26
Operating cash flow 141
Historic legal issues (11)
Pension payments (65)
Dividends (22)
Purchase for share awards (3)
Net cash flow 41
Payment for Express & Star (17)
Cash retained 24
Opening cash 42
Closing cash 66
Note: All amounts are rounded.
Historical legal issues provision
The historical legal issues provision relates to the cost associated with
dealing with and resolving civil claims in relation to historical phone
hacking and unlawful information gathering. Payments of £11.0m have been made
during the year and the provision has been increased by £29.0m. At the
year-end a provision of £41.0m remains outstanding and this represents the
current best estimate of the amount required to resolve this historical
matter. Further details relating to the nature of the liability, the
calculation basis and the expected timing of payments are set out in note 17.
Decrease in accounting pension deficit
The IAS 19 pension deficit (net of deferred tax) in respect of the Group's six
defined benefit pension schemes decreased by £138.3m from £255.5m to
£117.2m. The decrease was driven by an increase in the discount rate, asset
returns and as a result of Group contributions. 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
year were £64.7m (2020: £53.9m). This comprised £9.6m to the West Ferry
scheme (in relation to closure of the Luton print site in 2021) and £55.1m
under the current schedule of contributions of the remaining five schemes. The
payment of £9.6m enabled the Trustees of the West Ferry scheme to purchase a
bulk annuity and the scheme now has all pension liabilities covered by annuity
policies. Contributions in 2022 are expected to be £55.1m under the current
schedule of contributions for the remaining five schemes.
Deferred consideration
Deferred consideration is in respect of the acquisition of Express & Star.
Payment of the second instalment of £16.0m was made on 28 February 2021. Of
the remaining amount of £24.1m, £17.1m is classified as current liabilities
(payable on 28 February 2022) and £7.0m is classified as non-current
liabilities (payable on 28 February 2023).
Employee Benefit Trust
The Group funded the Trustees of the Employee Benefit Trust in the second half
to enable the Trustees to purchase 883,315 shares at a total cost of £3.3m
(average cost 374p per share). The shares are held by the Trustees and will be
used to satisfy awards granted under the Company's employee share plans that
are expected to vest in future years.
Cash balances
Cash increased by £23.7m from £42.0m at the prior year end to a cash
position of £65.7m at the year end. The Group entered into a new £120m
revolving credit facility in November 2021 which replaced the existing £65m
facility. The new facility expires in November 2025 and is undrawn.
Cash generated from operations on a statutory basis was £163.7m (2020:
£121.3m). 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 22. A reconciliation between the statutory and the
adjusted cash flow is set out in note 23. The adjusted operating cash flow was
£141.3m (2020: £121.8m).
Dividends
The Board proposes a final dividend of 4.46 pence per share for 2021 (2020:
4.26 pence per share). The final dividend, which is subject to approval by
shareholders at the Annual General Meeting on 5 May 2022, will be paid on 10
June 2022 to shareholders on the register at 13 May 2022.
An interim dividend for 2021 of 2.75 pence per share was paid on 24 September
2021 (2020: non-cash bonus issue of shares to shareholders, in lieu of and
with a value equivalent to an interim dividend for 2020 of 2.63 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.
Current trading and outlook
The Customer Value Strategy is progressing and enabling an evolution of the
business, with digital revenue on track to double by the end of 2024 from its
2020 base. Trading to date has been ahead of Q4 2021. On a like-for-like basis
print revenue down 4.2%, digital growing by 10.3% and overall Group revenue
down 0.7% for the first 8 weeks of the year. We expect digital revenue growth
to again offset print decline, with total revenue flat for the full year 2022.
The business is transitioning to become more digitally driven and the ongoing
cost base reshaping will in part help fund continued investment. However, the
impact from inflation, which began to affect the business towards the end of
2021, has now intensified, particularly in print production. This has
primarily been reflected in the cost of newsprint (paper for printed
products), which having previously been impacted by rising distribution costs
and supply challenges, now also reflects the significant increase in energy
prices. As a result, the gross impact of inflation in 2022 is expected to be
higher than in recent years.
While ongoing efficiencies are expected to partly mitigate this impact, we
anticipate the net effect to be a modest year-on-year reduction in operating
profit as we continue to invest for the future.
Simon Fuller
Chief Financial Officer
1 March 2022
Statement of Directors' Responsibilities
The directors are responsible for preparing the Preliminary Audited Results
Announcement in accordance with applicable laws and regulations. The
responsibility statement below has been prepared in connection with the
Company's full Annual Report for the 52 weeks ended 26 December 2021. Certain
points thereof are not included within this Preliminary Audited Results
Announcement.
The directors confirm to the best of their knowledge:
a) the consolidated financial statements, which have been prepared in
accordance with both international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets, liabilities,
financial position and profit and loss of the Group; and
b) the Preliminary Audited Results Announcement includes a fair review of
the development and performance of the business and the position of the Group
together with a description of the principal risks and uncertainties that it
faces.
By order of the Board of Directors
Simon Fuller
Chief Financial Officer
1 March 2022
Consolidated income statement
for the 52 weeks ended 26 December 2021 (52 weeks ended 27 December 2020)
Adjusted Items Adjusted Items
Adjusted 2021 2021 Statutory Adjusted 2020 Statutory
£m £m 2021 2020 £m 2020
notes £m £m £m
Revenue 4 615.8 - 615.8 600.2 - 600.2
Cost of sales (329.4) - (329.4) (303.2) - (303.2)
Gross profit 286.4 - 286.4 297.0 - 297.0
Distribution costs (41.1) - (41.1) (46.2) - (46.2)
Administrative expenses (102.4) (65.2) (167.6) (119.6) (125.0) (244.6)
Share of results of associates 3.2 (1.6) 1.6 2.6 (1.2) 1.4
Operating profit 146.1 (66.8) 79.3 133.8 (126.2) 7.6
Interest income 6 0.1 - 0.1 0.1 - 0.1
Pension finance charge 15 - (3.4) (3.4) - (4.7) (4.7)
Finance costs 7 (2.7) - (2.7) (2.6) - (2.6)
Profit before tax 143.5 (70.2) 73.3 131.3 (130.9) 0.4
Tax charge 8 (26.9) (43.5) (70.4) (24.9) (2.2) (27.1)
Profit/(loss) for the period attributable to equity holders of the parent 116.6 (113.7) 2.9 106.4 (133.1) (26.7)
Earnings/(loss) per share notes 2021 2021 2020 2020
Pence Pence Pence Pence
Earnings/(loss) per share - basic 10 37.6 0.9 34.4 (8.6)
Earnings/(loss) per share - diluted 10 36.5 0.9 33.6 (8.6)
The above results were derived from continuing operations. Set out in note 20
is the reconciliation between the statutory and adjusted results.
Consolidated statement of comprehensive income
for the 52 weeks ended 26 December 2021 (52 weeks ended 27 December 2020)
2021 2020
notes £m £m
Profit/(loss) for the period 2.9 (26.7)
Items that will not be reclassified to profit and loss:
Actuarial gain/(loss) on defined benefit pension schemes 15 102.9 (61.6)
Tax on actuarial gain/(loss) on defined benefit pension schemes 8 (26.0) 11.7
Deferred tax credit resulting from future change in rate 8 13.9 5.9
Share of items recognised by associates (0.6) (0.5)
Other comprehensive income/(loss) for the period 90.2 (44.5)
Total comprehensive income/(loss) for the period 93.1 (71.2)
Consolidated statement of changes in equity
for the 52 weeks ended 26 December 2021 (52 weeks ended 27 December 2020)
Accumulated loss and other reserves
Share premium Capital £m
Share account Merger redemption
capital £m reserve reserve Total
£m £m £m £m
At 30 December 2019 30.9 606.7 17.4 4.4 (24.2) 635.2
Loss for the period - - - - (26.7) (26.7)
Other comprehensive loss for the period - - - - (44.5) (44.5)
Total comprehensive loss for the period - - - - (71.2) (71.2)
Bonus issue of shares (note 18) 1.3 (1.3) - - - -
Credit to equity for equity-settled share-based payments - - - - 2.7 2.7
At 27 December 2020 32.2 605.4 17.4 4.4 (92.7) 566.7
Profit for the period - - - - 2.9 2.9
Other comprehensive income for the period - - - - 90.2 90.2
Total comprehensive income for the period - - - - 93.1 93.1
Purchase of own shares (note 18) - - - - (3.3) (3.3)
Credit to equity for equity-settled share-based payments - - - - 1.7 1.7
Deferred tax credit for equity-settled share-based payments - - - - 2.4 2.4
Dividends paid (note 9) - - - - (21.8) (21.8)
At 26 December 2021 32.2 605.4 17.4 4.4 (20.6) 638.8
Consolidated cash flow statement
for the 52 weeks ended 26 December 2021 (52 weeks ended 27 December 2020)
2021 2020
notes £m £m
Cash flows from operating activities
Cash generated from operations 11 163.7 121.3
Pension deficit funding payments 15 (64.7) (53.9)
Income tax paid (14.6) (14.2)
Net cash inflow from operating activities 84.4 53.2
Investing activities
Interest received 6 0.1 0.1
Dividends received from associated undertakings 2.5 0.5
Proceeds on disposal of property, plant and equipment 0.7 0.3
Purchases of property, plant and equipment 13 (6.5) (1.9)
Expenditure on internally generated development 12 (6.0) -
Deferred consideration payment 16 (16.0) (18.9)
Acquisition of associated undertaking (0.8) (0.2)
Acquisition of subsidiary undertaking - (3.4)
Cash acquired on acquisition of subsidiary undertaking - 2.3
Net cash used in investing activities (26.0) (21.2)
Financing activities
Dividends paid 9 (21.8) -
Interest and charges paid on bank borrowings (1.4) (1.2)
Drawdown of bank borrowings - 25.0
Repayment of bank borrowings - (25.0)
Purchase of own shares 18 (3.3) -
Interest paid on leases 16 (1.3) (1.5)
Repayment of obligation under leases 16 (6.9) (7.7)
Net cash used in financing activities (34.7) (10.4)
Net increase in cash and cash equivalents 23.7 21.6
Cash and cash equivalents at the beginning of the period 16 42.0 20.4
Cash and cash equivalents at the end of the period 16 65.7 42.0
Consolidated balance sheet
at 26 December 2021 (at 27 December 2020)
Restated
notes 2021 2020
£m £m
Non-current assets
Goodwill 12 35.9 35.9
Other intangible assets 12 824.3 818.7
Property, plant and equipment 13 157.3 168.4
Right-of-use assets 14 12.7 25.3
Investment in associates 17.4 18.1
Retirement benefit assets 15 107.9 50.4
1,155.5 1,116.8
Current assets
Inventories 5.5 4.6
Trade and other receivables 102.3 107.7
Current tax receivable 13.5 2.8
Cash and cash equivalents 16 65.7 42.0
187.0 157.1
Total assets 1,342.5 1,273.9
Non-current liabilities
Trade and other payables (6.4) -
Deferred consideration 16 (7.0) (24.1)
Lease liabilities 16 (30.7) (35.5)
Retirement benefit obligations 15 (261.8) (364.8)
Provisions 17 (43.6) (25.2)
Deferred tax liabilities (188.1) (111.9)
(537.6) (561.5)
Current liabilities
Trade and other payables (114.7) (92.1)
Deferred consideration 16 (17.1) (16.0)
Lease liabilities 16 (5.5) (6.1)
Provisions 17 (28.8) (31.5)
(166.1) (145.7)
Total liabilities (703.7) (707.2)
Net assets 638.8 566.7
Equity
Share capital 18 32.2 32.2
Share premium account 18 605.4 605.4
Merger reserve 18 17.4 17.4
Capital redemption reserve 18 4.4 4.4
Accumulated loss and other reserves 18 (20.6) (92.7)
Total equity attributable to equity holders of the parent 638.8 566.7
The 2020 consolidated balance sheet has been restated to show the net amount
of deferred tax assets and deferred tax liabilities, and to show current tax
receivable separately on the face of the balance sheet.
Notes to the consolidated financial statements
for the 52 weeks ended 26 December 2021 (52 weeks ended 27 December 2020)
1. General information
The financial information, which comprises the Consolidated income statement,
the Consolidated statement of comprehensive income, the Consolidated cash flow
statement, the Consolidated statement of changes in equity and the
Consolidated balance sheet and related notes ('Consolidated Financial
Information') in the Preliminary Audited Results announcement is derived from
but does not represent the full statutory accounts of Reach plc. The statutory
accounts for the 52 weeks ended 27 December 2020 have been filed with the
Registrar of Companies and those for the 52 weeks ended 26 December 2021 will
be filed following the Annual General Meeting on 5 May 2022. The auditors'
reports on the statutory accounts for the 52 weeks ended 27 December 2020 and
for the 52 weeks ended 26 December 2021 were unqualified, do not include
reference to any matters to which the auditors drew attention by way of
emphasis of matter without qualifying the reports and do not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006.
Whilst the Consolidated Financial Information included in this Preliminary
Audited Results Announcement has been prepared in accordance with the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS), this announcement does not itself contain sufficient
information to comply with IFRS. This Preliminary Audited Results Announcement
constitutes a dissemination announcement in accordance with Section 6.3 of the
Disclosure and Transparency Rules (DTR). The Annual Report for the 52 weeks
ended 26 December 2021 will be available on the Company's website at
www.reachplc.com and at the Company's registered office at One Canada Square,
Canary Wharf, London E14 5AP before the end of March 2022 and will be sent to
shareholders who have elected to receive a hard copy with the documents for
the Annual General Meeting to be held on 5 May 2022.
The Consolidated Financial Information has been prepared for the 52 weeks
ended 26 December 2021 and the comparative period has been prepared for the 52
weeks ended 27 December 2020. Throughout this report, the Consolidated
Financial Information for the 52 weeks ended 26 December 2021 is referred to
and headed 2021 and for the 52 weeks ended 27 December 2020 is referred to and
headed 2020. The presentational and functional currency of the Group is
Sterling. The Company presents the results on a statutory and adjusted basis
and revenue trends on a statutory and like-for-like basis as described in note
2.
2. Accounting policies
Basis of preparation
The Consolidated Financial Information has been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 ('IFRS') and the applicable legal requirements of the
Companies Act 2006. In addition to complying with international accounting
standards in conformity with the requirements of the Companies Act 2006, the
consolidated financial statements also comply with international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union. These standards are subject to ongoing
amendment by the International Accounting Standards Board and are therefore
subject to change. As a result, the Consolidated Financial Information
contained herein will need to be updated for any subsequent amendment to IFRS
or any new standards that are issued. The Consolidated Financial Information
has been prepared under the historical cost convention.
The accounting policies used in the preparation of the Consolidated Financial
Information for the 52 weeks ended 26 December 2021 and for the 52 weeks ended
27 December 2020 have been consistently applied to all the periods presented.
These Consolidated Financial Statements have been prepared on a going concern
basis.
Going concern basis
The directors have made appropriate enquires and consider that the Company and
the Group have adequate resources to continue in operational existence for the
foreseeable future, which comprises the period of at least 12 months from the
date of approval of the financial statements.
In accordance with LR 9.8.6(3) of the Listing Rules, and in determining
whether the Group's annual consolidated financial statements can be prepared
on a going concern basis, the directors considered all factors likely to
affect its future development, performance and its financial position,
including cash flows, liquidity position and borrowing facilities, and the
principal risks and uncertainties relating to its business activities.
The key factors considered by the directors were as follows:
• The performance of the business in 2021 and the
progress being made in the implementation of the Group's Customer Value
Strategy and the implications of the current economic environment including
the continuing impact of COVID-19 and inflationary pressures. The Group
undertakes regular forecasts and projections of trading, identifying areas of
focus for management to improve the delivery of the Customer Value Strategy
and mitigate the impact of any deterioration in the economic outlook;
• The impact of the competitive environment within
which the Group's businesses operate;
• The impact on our business of key suppliers (in
particular newsprint) being unable to meet their obligations to the Group;
• The impact on our business of key customers
being unable to meet their obligations for services provided by the Group;
• The deficit funding contributions to the defined
benefit pension schemes and payments in respect of historical legal issues;
and
• The available cash reserves and committed
finance facilities available to the Group. On 19 November 2021 the Group
agreed a £120m facility which expires on 18 November 2025. Drawings can be
made with 24 hours' notice and the facility was undrawn at the reporting date.
Having considered all the factors impacting the Group's businesses, including
downside sensitivities (relating to trading and cash flows), the directors are
satisfied that the Company and the Group will be able to operate within the
terms and conditions of the Group's financing facilities for the foreseeable
future.
The directors have reasonable expectations that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing the Group's annual consolidated financial statements.
Changes in accounting policy
The same accounting policies, presentation and methods of computation are
followed in the Consolidated Financial Information as applied in the Group's
latest annual consolidated financial statements for the 52 weeks ended 27
December 2020.
Alternative performance measures
The Company presents the results on a statutory and adjusted basis and revenue
trends on a statutory and like-for-like basis. The Company believes that the
adjusted basis and like-for-like trends will provide investors with useful
supplemental information about the financial performance of the Group, enable
comparison of financial results between periods where certain items may vary
independent of business performance, and allow for greater transparency with
respect to Key Performance Indicators used by management in operating the
Group and making decisions. Although management believes the adjusted basis is
important in evaluating the Group, it is not intended to be considered in
isolation or as a substitute for, or as superior to, financial information on
a statutory basis. The alternative performance measures are not recognised
measures under IFRS and do not have standardised meanings prescribed by IFRS
and may be different to those used by other companies, limiting the usefulness
for comparison purposes. Note 20 sets out the reconciliation between the
statutory and adjusted results. Note 21 shows the reconciliation between the
statutory and like-for-like revenues. An adjusted cash flow is presented in
note 22 which reconciles the adjusted operating profit to the net change in
cash and cash equivalents. Set out in note 23 is the reconciliation between
the statutory and adjusted cash flow.
Adjusting items
Adjusting items relate to costs or income that derive from events or
transactions that fall within the normal activities of the Group, but are
excluded from the Group's adjusted profit measures, individually or, if of a
similar type in aggregate, due to their size and/or nature in order to better
reflect management's view of the performance of the Group. The adjusted profit
measures are not recognised profit measures under IFRS and may not be directly
comparable with adjusted profit measures used by other companies. All
operating adjusting items are recognised within administrative expenses.
Details of adjusting items are set out in note 20 with additional information
in notes 5, 8 and 15.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation
uncertainty that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year,
are discussed below:
Historical Legal Issues (notes 17 and 19)
The historical legal issues provision relates to the cost associated with
dealing with and resolving civil claims in relation to historical phone
hacking and unlawful information gathering. There are three parts to the
provision: known claims, potential future claims and common court costs. The
key uncertainties in relation to this matter relate to how many claims will be
received, how each claim progresses, the amount of any settlement and the
associated legal costs. Our assumptions have been based on historical trends,
our experience and the expected evolution of claims and costs.
During 2021, the number of new claims, the progression of claims, the
settlement amount and the associated legal costs have been ahead of historical
trends and experience. This has resulted in a change to the provision estimate
and a further charge of £29.0m in the year. At the period end, a provision of
£41.0m remains outstanding and this represents the current best estimate of
the amount required to resolve this historical matter. The majority of the
provision is expected to be utilised within the next three years.
Our view on the range of outcomes at the reporting date for the provision,
applying more and less favourable outcomes to all aspects of the provision is
£32m to £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 19.
Taxation (note 8)
There is uncertainty as to the tax deductibility of expenditure relating to
historical legal issues in the current year and additional tax liabilities
that may fall due in relation to earlier years. At the reporting date, the
maximum amount of the additional unprovided tax exposure relating to this
uncertain tax item is £7.4m (2020: £6.0m). 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 £25.1m.
Retirement benefits (note 15)
Actuarial assumptions adopted and external factors can significantly impact
the surplus or deficit of defined benefit pension schemes. Valuations for
funding and accounting purposes are based on assumptions about future economic
and demographic variables. These result in risk of a volatile valuation
deficit and the risk that the ultimate cost of paying benefits is higher than
the current assessed liability value. Advice is sourced from independent and
qualified actuaries in selecting suitable assumptions at each reporting date.
Impairment review (note 12)
There is uncertainty in the value-in-use calculation. The most significant
area of uncertainty relates to expected future cash flows for each
cash-generating unit. Determining whether the carrying values of assets in a
cash-generating unit are impaired requires an estimation of the value-in-use
of the cash-generating unit to which these have been allocated. The
value-in-use calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate
in order to calculate present value. Projections are based on both internal
and external market information and reflect past experience. The discount rate
reflects the weighted average cost of capital of the Group.
Restructuring and property provisions (note 17)
Provisions are measured at the best estimate of the expenditure required to
settle the obligation based on the assessment of the related facts and
circumstances at each reporting date. There is uncertainty in relation to the
size and length of property related provisions.
Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies, described above,
management has made the following judgements that have the most significant
effect on the amounts recognised in the financial statements:
Indefinite life assumption in respect of publishing rights and titles (note
12)
There is judgement required in continuing to adopt an indefinite life
assumption in respect of publishing rights and titles. The directors consider
publishing rights and titles (with a carrying amount of £818.7m) have
indefinite economic lives due to the longevity of the brands and the ability
to evolve them in an ever-changing media landscape. The brands are central to
the delivery of the Customer Value Strategy which is delivering digital
revenue growth. At each reporting date management review the suitability of
this assumption.
Identification of cash-generating units (note 12)
There is judgement required in determining the cash-generating unit relating
to our Publishing brands. At each reporting date management review the
interdependency of revenues across our portfolio of Publishing brands to
determine the appropriate cash-generating unit. The Group operates its
Publishing brands such that a majority of the revenues are interdependent and
revenue would be materially lower if brands operated in isolation. As such,
management do not consider that an impairment review at an individual brand
level is appropriate or practical. As the Group continues to centralise
revenue generating functions and has moved to a matrix operating structure
over the past few years, all of the individual brands in Publishing have
increased revenue interdependency and are assessed for impairment as a single
Publishing cash-generating unit.
3. Segments
The performance of the Group is presented as a single reporting segment as
this is the basis of internal reports regularly reviewed by the Board and
chief operating decision maker (executive directors) to allocate resources and
to assess performance. The Group's operations are primarily located in the UK
and the Group is not subject to significant seasonality during the year.
4. Revenue
2021 2020
£m £m
Print 465.1 479.3
Circulation 312.9 319.7
Advertising 103.3 108.4
Printing 20.4 25.2
Other 28.5 26.0
Digital 148.3 118.3
Other 2.4 2.6
Total revenue 615.8 600.2
The Group's operations are located primarily in the UK.
5. Operating adjusted items
2021 2020
£m £m
Provision for historical legal issues (note 17) (29.0) (12.5)
Impairment of property, plant and equipment (note 13) (2.3) (34.7)
Impairment of right-of-use assets (note 14) (10.5) (13.7)
Provision for property rationalisation (note 17) (10.9) -
Restructuring charges in respect of cost reduction measures (note 17) (2.8) (36.4)
Pension administrative expenses and past service costs for GMP equalisation (3.7) (6.1)
(note 15)
Impairment of goodwill (note 12) - (6.1)
Provision for historical property development (note 17) - (15.5)
Other items (note 20) (6.0) -
Operating adjusted items included in administrative expenses (65.2) (125.0)
Operating adjusted items included in share of results of associates (1.6) (1.2)
Total operating adjusted items (66.8) (126.2)
Operating adjusted items relate to costs or income that derive from events or
transactions that fall within the normal activities of the Group, but are
excluded from the Group's adjusted profit measures, individually or, if of a
similar type in aggregate, due to their size and/or nature in order to better
reflect management's view of the performance of the Group. The adjusted profit
measures are not recognised profit measures under IFRS and may not be directly
comparable with adjusted profit measures used by other companies. Set out in
note 20 is the reconciliation between the statutory and adjusted results which
includes descriptions of the items included in adjusted items.
The Group has recorded a £29.0m increase in the provision for historical
legal issues relating to the cost associated with dealing with and resolving
civil claims in relation to historical phone hacking and unlawful information
gathering (note 17).
In the first half of 2021, the Group implemented a Home and Hub project which
set out the vision for how the Group's offices would look and where job roles
would be based. As a consequence of the project a number of offices or floors
have been closed. The project has resulted in charges of £23.7m (impairments
of £2.3m relating to property, plant and equipment and £10.5m relating to
right-of-use assets and a £10.9m property rationalisation charge relating to
onerous costs of vacant properties).
Restructuring charges include £1.4m of costs relating to the integration of
the Irish Daily Star which was acquired in 2020 and a further £1.4m of
restructuring relating to the closure of two print sites at the end of 2020.
Other items relate to adviser costs in relation to the triennial funding
valuations (£1.2m), National Insurance costs relating to share awards
(£2.6m) and the write-off of an old debit balance (£2.9m) partially offset
by profit on sales of print assets (£0.7m).
6. Interest income
2021 2020
£m £m
Interest income on bank deposits 0.1 0.1
7. Finance costs
2021 2020
£m £m
Interest and charges on bank borrowings (1.4) (1.1)
Interest on lease liabilities (1.3) (1.5)
Finance costs (2.7) (2.6)
8. Tax charge
2021 2020
£m £m
Corporation tax charge for the period (4.8) (2.7)
Prior period adjustment 0.9 -
Current tax charge (3.9) (2.7)
Deferred tax charge for the period (12.8) (5.7)
Prior period adjustment 0.2 0.3
Deferred tax rate change (53.9) (19.0)
Deferred tax charge (66.5) (24.4)
Tax charge (70.4) (27.1)
Reconciliation of tax charge 2021 2020
£m £m
Profit before tax 73.3 0.4
Standard rate of corporation tax of 19% (2020: 19%) (13.9) (0.1)
Tax effect of items that are not deductible in determining taxable profit (4.0) (6.1)
Change in rate of deferred tax (53.9) (19.0)
Prior period adjustment 1.1 0.3
Tax effect of share of results of associates 0.3 0.3
Release of deferred tax on losses no longer expected to be recoverable - (2.5)
Tax charge (70.4) (27.1)
The standard rate of corporation tax for the period is 19% (2020: 19%). The
tax effect of items that are not deductible in determining taxable profit
includes certain costs where there is uncertainty as to their deductibility.
The current tax receivable of £13.5m (2020: £2.8m current tax receivable) is
net of the uncertain tax provision of £17.7m (2020: £13.8m). At the
reporting date, the maximum amount of the additional unprovided tax exposure
relating to an uncertain tax item is £7.4m (2020: £6.0m). 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 £25.1m.
The Budget on 5 March 2021 increased the rate of corporation tax from 19% to
25% with effect from 1 April 2023. At 26 December 2021, this rate change had
been substantively enacted by parliament meaning that the opening deferred tax
position has been recalculated in the period resulting in a £53.9m debit in
the consolidated income statement and a £13.9m credit in the consolidated
statement of comprehensive income.
The tax on actuarial gains or losses on defined benefit pension schemes taken
to the consolidated statement of comprehensive income is a deferred tax charge
of £26.0m (2020: credit of £11.7m).
The amount taken to the consolidated income statement as a result of pension
contributions was £10.1m (2020: £11.7m).
9. Dividends
2021 2020
Pence Pence
per share per share
Amounts recognised as distributions to equity holders in the period
Dividends paid per share - prior year final dividend 4.26 -
Dividends paid per share - interim dividend 2.75 -
Total dividends paid per share 7.01 -
Dividend proposed per share but not paid nor included in the accounting 4.46 4.26
records
The Board proposes a final dividend for 2021 of 4.46 pence per share. An
interim dividend for 2021 of 2.75 pence per share was paid on 24 September
2021 bringing the total dividend in respect of 2021 to 7.21 pence per share.
The 2021 final dividend payment is expected to amount to £14.0m.
On 6 May 2021, the final dividend proposed for 2020 of 4.26 pence per share
was approved by shareholders at the Annual General Meeting and was paid on 2
June 2021.
Total dividends paid in 2021 were £21.8m (2020 final dividend payment of
£13.2m and 2021 interim dividend payment of £8.6m).
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.
2021 2020
Thousand Thousand
Weighted average number of ordinary shares for basic earnings per share 310,282 309,430
Effect of potential dilutive ordinary shares in respect of share awards 8,971 6,818
Weighted average number of ordinary shares for diluted earnings per share 319,253 316,248
The weighted average number of potentially dilutive ordinary shares not
currently dilutive was 1,704,886 (2020: 2,542,234).
Statutory earnings/(loss) per share 2021 2020
Pence Pence
Earnings/(loss) per share - basic 0.9 (8.6)
Earnings/(loss) per share - diluted 0.9 (8.6)
Adjusted earnings per share 2021 2020
Pence Pence
Earnings per share - basic 37.6 34.4
Earnings per share - diluted 36.5 33.6
Set out in note 20 is the reconciliation between the statutory and adjusted
results.
11. Cash flows from operating activities
2021 2020
£m £m
Operating profit 79.3 7.6
Depreciation of property, plant and equipment 15.3 20.2
Depreciation of right-of-use assets 3.6 7.2
Amortisation of other intangible assets 0.4 -
Impairment of goodwill - 6.1
Impairment of right-of-use assets 10.5 13.7
Impairment of property, plant and equipment 2.3 36.5
Write-off of property, plant and equipment - 1.4
Profit on disposal of property, plant and equipment (0.7) -
Share of results of associates (1.6) (1.4)
Share-based payments charge 1.7 3.6
Pension administrative expenses 3.7 4.6
Pension past service costs - 1.5
Operating cash flows before movements in working capital 114.5 101.0
(Increase)/decrease in inventories (0.9) 1.3
Decrease in receivables 5.6 8.9
Increase in payables 44.5 10.1
Cash flows from operating activities 163.7 121.3
12. Goodwill and other intangible assets
The carrying value of goodwill and other intangible assets is:
Goodwill Publishing Intangible
£m rights and titles assets
£m £m
Opening carrying value 35.9 818.7 854.6
Additions - 6.0 6.0
Amortisation - (0.4) (0.4)
Closing carrying value 35.9 824.3 860.2
The Group has two cash-generating units (Publishing and Digital Classified
Recruitment). All intangible assets at the reporting date relate to
Publishing.
During the year, the Group has capitalised internally generated assets
relating to software and website development costs of £6.0m. These assets are
amortised using the straight-line method over their estimated useful lives
(3-5 years).
Publishing rights and titles are not amortised. There is judgement required in
continuing to adopt an indefinite life assumption in respect of publishing
rights and titles. The directors consider publishing rights and titles (with a
carrying amount of £818.7m) have indefinite economic lives due to the
longevity of the brands and the ability to evolve them in an ever-changing
media landscape. The brands are central to the delivery of the Customer Value
Strategy which is delivering digital revenue growth. This, combined with our
inbuilt and relentless focus on maximising efficiency, gives confidence that
the delivery of sustainable growth in revenue, profit and cash flow is
achievable in the future.
There is judgement required in determining the cash-generating units. At each
reporting date management review the interdependency of revenues across our
Publishing brands to determine the appropriate cash-generating unit. The Group
operates its Publishing brands such that a majority of the revenues are
interdependent and revenue would be materially lower if brands operated in
isolation. As such, management do not consider that an impairment review at an
individual brand level is appropriate or practical. As the Group continues to
centralise revenue generating functions and has moved to a matrix operating
structure over the past few years all of the individual brands in Publishing
have increased revenue interdependency and are assessed for impairment as a
single Publishing cash-generating unit.
The Group tests the carrying value of assets at the cash-generating unit level
for impairment annually or more frequently if there are indicators that assets
might be impaired. The review is undertaken by assessing whether the carrying
value of assets is supported by their value-in-use which is calculated as the
net present value of future cash flows derived from those assets, using cash
flow projections. If an impairment charge is required this is allocated first
to reduce the carrying amount of any goodwill allocated to the cash-generating
unit and then to the other assets of the cash-generating unit but subject to
not reducing any asset below its recoverable amount.
The impairment review in respect of the Publishing cash-generating unit
concluded that no impairment charge was required.
For the impairment review, cash flows have been prepared using the approved
Budget for 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% (2020:
10.9%) and 14.2% (2020: 13.4%) respectively.
The impairment review is highly sensitive to reasonably possible changes in
key assumptions used in the value-in-use calculations and there is continued
uncertainty due to COVID-19. The headroom in the impairment review is £411m.
EBITDA in the 10 year projections is forecast to grow at a CAGR of 1.3%. A
combination of reasonably possible changes in key assumptions such as print
revenue declining at a faster rate than projected, digital revenue growth
being significantly lower than projected or the associated change in the cost
base being different than projected, could lead to an impairment if these
resulted in the EBITDA in the 10-year projections declining at a CAGR of 5.0%.
Alternatively an increase in the discount rate by 5.6 percentage points would
lead to the removal of the headroom.
13. Property, plant and equipment
Land and buildings Plant and equipment Assets under construction Total
£m £m £m £m
Cost
At 27 December 2020 204.6 368.9 0.6 574.1
Additions - 4.3 2.2 6.5
Disposals - (13.3) - (13.3)
Reclassification - 0.6 (0.6) -
At 26 December 2021 204.6 360.5 2.2 567.3
Accumulated depreciation and impairment
At 27 December 2020 (96.7) (309.0) - (405.7)
Charge for the period (2.6) (12.7) - (15.3)
Disposals - 13.3 - 13.3
Impairment - (2.3) - (2.3)
At 26 December 2021 (99.3) (310.7) - (410.0)
Carrying amount
At 27 December 2020 107.9 59.9 0.6 168.4
At 26 December 2021 105.3 49.8 2.2 157.3
Impairment of property, plant and equipment amounted to £2.3m in the period
as a result of the Home and Hub project which means that a number of offices
or floors have been closed.
14. Right-of-use assets
Properties Vehicles Total
£m £m £m
Cost
At 27 December 2020 43.2 3.0 46.2
Additions 1.1 0.4 1.5
Derecognition at end of lease term (1.2) - (1.2)
At 26 December 2021 43.1 3.4 46.5
Accumulated depreciation and impairment
At 27 December 2020 (19.9) (1.0) (20.9)
Charge for the period (2.6) (1.0) (3.6)
Impairment (10.5) - (10.5)
Derecognition at end of lease term 1.2 - 1.2
At 26 December 2021 (31.8) (2.0) (33.8)
Carrying amount
At 27 December 2020 23.3 2.0 25.3
At 26 December 2021 11.3 1.4 12.7
Right-of-use assets of £10.5m have been impaired as a result of the Home and
Hub project which means that a number of offices or floors have been closed.
15. Retirement benefit schemes
Defined contribution pension schemes
The Group operates defined contribution pension schemes for qualifying
employees, where the assets of the schemes are held separately from those of
the Group in funds under the control of Trustees.
The current service cost charged to the consolidated income statement for the
year of £17.1m (2020: £17.4m) represents contributions paid by the Group at
rates specified in the scheme rules. All amounts that were due have been paid
over to the schemes at all reporting dates.
Defined benefit pension schemes
Background
The defined benefit pension schemes operated by the Group are all closed to
future accrual. The Group has six defined benefit pension schemes:
· Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension
Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity
Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN
Scheme'); and
· Express & Star schemes (the 'E&S Schemes'): the
Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the Express
Newspapers Senior Management Pension Fund (the 'ENSM Scheme') and the West
Ferry Printers Pension Scheme (the 'WF Scheme').
Characteristics
The defined benefit pension schemes provide pensions to members, which are
based on the final salary pension payable, normally from age 65 (although some
schemes have some pensions normally payable from an earlier age) plus
surviving spouses or dependants' benefits following a member's death. Benefits
increase both before and after retirement either in line with statutory
minimum requirements or in accordance with the scheme rules if greater. Such
increases are either at fixed rates or in line with retail or consumer prices
but subject to upper and lower limits. All of the schemes are independent of
the Group with assets held independently of the Group. They are governed by
Trustees who administer benefits in accordance with the scheme rules and
appropriate UK legislation. The schemes each have a professional or
experienced independent Trustee as their Chairman with generally half of the
remaining Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across all of the schemes, the uninsured liabilities related 60% to current
pensioners and their spouses or dependants and 40% to deferred pensioners. The
average term from the period end to payment of the remaining uninsured
benefits is expected to be around 16 years. Uninsured pension payments in
2021, excluding lump sums and transfer value payments, were £71m and these
are projected to rise to an annual peak in 2034 of £104m and reducing
thereafter.
Funding arrangements
The funding of the Group's schemes is subject to UK pension legislation as
well as the guidance and codes of practice issued by the Pensions Regulator.
Funding targets are agreed between the Trustees and the Group and are reviewed
and revised usually every three years. The funding targets must include a
margin for prudence above the expected cost of paying the benefits and so are
different to the liability value for IAS 19 purposes. The funding deficits
revealed by these triennial valuations are removed over time in accordance
with an agreed recovery plan and schedule of contributions for each scheme.
The latest valuation date for all six of the Group's schemes was 31 December
2019.
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 £52.0m to the TM Schemes in 2021 and
the current schedule of contributions includes payments of £52.0m pa from
2022 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. The Group paid contributions of £3.1m
to these schemes in 2021 and the agreed schedule of contributions includes
payments of £3.1m pa in 2022 and 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
year were £64.7m (2020: £53.9m).
At the reporting date, the funding deficits in all schemes are 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 pa in 2022 and 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 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 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 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 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 year-end reporting date show
removal of the combined accounting deficit by the end of 2025 due to scheduled
contributions and asset returns at the current target rate. From this point,
the assets are projected to be sufficient to fully fund the liabilities on the
accounting basis. The Group is not exposed to any unusual, entity specific or
scheme specific risks. Other than the impact of GMP equalisation, there were
no plan amendments, settlements or curtailments in 2021 or 2020 which resulted
in a pension cost.
Results
For the purposes of the Group's consolidated financial statements, valuations
have been performed in accordance with the requirements of IAS 19 with scheme
liabilities calculated using a consistent projected unit valuation method and
compared to the estimated value of the scheme assets at 26 December 2021.
Based on actuarial advice, the assumptions used in calculating the scheme
liabilities are:
2021 2020
Financial assumptions (nominal % pa)
Discount rate 1.83 1.49
Retail price inflation rate 3.46 2.86
Consumer price inflation rate 1.0% pa lower than RPI to 2030 and equal to RPI thereafter 2.26
Rate of pension increases in deferment 3.24 2.36
Rate of pension increases in payment 3.40 3.25
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65 21.8 21.9
Female currently aged 65 24.1 24.2
Male currently aged 55 21.5 21.6
Female currently aged 55 24.6 24.2
The defined benefit pension liabilities are valued using actuarial assumptions
about future benefit increases and scheme member demographics, and the
resulting projected benefits are discounted to the reporting date at
appropriate corporate bond yields. For 2021, the financial assumptions have
been derived for each scheme based on their individual circumstances, rather
than considering the schemes in aggregate as has been done in the past. This
is considered to be a more robust and accurate approach to setting assumptions
and is estimated to have increased the net deficit by £20m. Note that the
assumptions provided in the table above for the 2021 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. For 2021, the
discount rate has been set to reflect the full corporate bond yield curve with
a different assumption for each scheme, based on the scheme-specific cash
flows and set separately for uninsured and insured liabilities within each
scheme, reflecting their respective durations.
The inflation assumptions are based on market expectations over the period of
the liabilities. Previously the same inflation assumption was adopted for all
six schemes, having regard to the duration of the schemes' combined inflation
linkage. For 2021, the inflation assumptions have been set using the full
inflation curve. The RPI assumption is set based on a margin deducted from the
break-even RPI inflation curve. This margin, called an inflation risk premium,
reflects the fact that the RPI market implied inflation curve can be affected
by market distortions and as a result it is thought to overstate the
underlying market expectations for future RPI inflation. Allowing for the
extent of RPI linkage on the schemes' benefits pre and post 2030, the average
inflation risk premium has been set at 0.3% (to broadly reflect 0.2% to 2030
and 0.4% thereafter). The CPI assumption is set based on a margin deducted
from the RPI assumption, due to lack of market data on CPI expectations. Based
on an analysis of the CPI-linkage of the cash flow profile of the schemes the
assumed gap between RPI and CPI inflation is 1.0% per annum up to 2030 and
0.0% per annum beyond 2030, consistent with 2020.
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 -195/+220 -175/+195
Retail price inflation rate +/- 0.5% pa +45/-44 +31/-30
Consumer price inflation rate +/- 0.5% pa +53/-48 +50/-45
Life expectancy at age 65 +/- 1 year +155/-150 +130/-125
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 2021 2020
£m £m
Pension administrative expenses (3.7) (4.6)
Past service costs - (1.5)
Pension finance charge (3.4) (4.7)
Defined benefit cost recognised in income statement (7.1) (10.8)
Consolidated statement of comprehensive income 2021 2020
£m £m
Actuarial (loss)/gain due to liability experience (22.0) 48.2
Actuarial gain/(loss) due to liability assumption changes 30.5 (304.6)
Total liability actuarial gain/(loss) 8.5 (256.4)
Returns on scheme assets greater than discount rate 48.6 209.6
Impact of IFRIC 14 45.8 (14.8)
Total gain/(loss) recognised in statement of comprehensive income 102.9 (61.6)
Consolidated balance sheet 2021 2020
£m £m
Present value of uninsured scheme liabilities (2,395.0) (2,545.5)
Present value of insured scheme liabilities (393.4) (318.6)
Total present value of scheme liabilities (2,788.4) (2,864.1)
Invested and cash assets at fair value 2,242.9 2,278.7
Value of liability matching insurance contracts 393.4 318.6
Total fair value of scheme assets 2,636.3 2,597.3
Funded deficit (152.1) (266.8)
Impact of IFRIC 14 (1.8) (47.6)
Net scheme deficit (153.9) (314.4)
Non-current assets - retirement benefit assets 107.9 50.4
Non-current liabilities - retirement benefit obligations (261.8) (364.8)
Net scheme deficit (153.9) (314.4)
Net scheme deficit included in consolidated balance sheet (153.9) (314.4)
Deferred tax included in consolidated balance sheet 36.7 58.9
Net scheme deficit after deferred tax (117.2) (255.5)
Movement in net scheme deficit 2021 2020
£m £m
Opening net scheme deficit (314.4) (295.9)
Contributions 64.7 53.9
Consolidated income statement (7.1) (10.8)
Consolidated statement of comprehensive income 102.9 (61.6)
Closing net scheme deficit (153.9) (314.4)
Changes in the present value of scheme liabilities 2021 2020
£m £m
Opening present value of scheme liabilities (2,864.1) (2,663.9)
Past service costs - (1.5)
Interest cost (41.8) (50.5)
Actuarial (loss)/gain - experience (22.0) 48.2
Actuarial gain/(loss) - change to demographic assumptions 1.6 (93.5)
Actuarial gain/(loss) - change to financial assumptions 28.9 (211.1)
Benefits paid 109.0 108.2
Closing present value of scheme liabilities 2,788.4 (2,864.1)
Impact of IFRIC 14 2021 2020
£m £m
Opening impact of IFRIC 14 (47.6) (32.8)
Decrease/(increase) in impact of IFRIC 14 45.8 (14.8)
Closing impact of IFRIC 14 (1.8) (47.6)
Changes in the fair value of scheme assets 2021 2020
£m £m
Opening fair value of scheme assets 2,597.3 2,400.8
Interest income 38.4 45.8
Actual return on assets greater than discount rate 48.6 209.6
Contributions by employer 64.7 53.9
Benefits paid (109.0) (108.2)
Administrative expenses (3.7) (4.6)
Closing fair value of scheme assets 2,636.3 2,597.3
Fair value of scheme assets 2021 2020
£m £m
UK equities 58.7 70.6
US equities 157.1 180.4
Other overseas equities 181.1 182.6
Property 40.5 40.2
Corporate bonds 260.9 320.6
Fixed interest gilts 34.9 99.0
Index linked gilts 18.3 72.7
Liability driven investment 903.4 819.8
Cash and other 588.0 492.8
Invested and cash assets at fair value 2,242.9 2,278.7
Value of insurance contracts 393.4 318.6
Fair value of scheme assets 2,636.3 2,597.3
The assets of the schemes are primarily held in pooled investment vehicles
which are unquoted. The pooled investment vehicles hold both quoted and
unquoted investments. Scheme assets include neither direct investments in the
Company's ordinary shares nor any property assets occupied nor other assets
used by the Group.
16. Net cash
The net cash for the Group is as follows:
27 December 2020 Cash IFRS 16 lease liabilities movement
£m flow
£m
26 December 2021
Interest New Leases £m
£m £m
Current assets
Cash and cash equivalents 42.0 23.7 - - 65.7
Net cash 42.0 23.7 - - 65.7
Lease liabilities (41.6) 8.2 (1.3) (1.5) (36.2)
Net cash less lease liabilities 0.4 29.5
On 19 November 2021, the Group entered into a new revolving credit facility of
£120.0m which expires on 18 November 2025 and is an increase from the
previous available facility of £65.0m. 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 and
second instalment of £16.0m was made on 28 February 2021. Of the remaining
amount of £24.1m, £17.1m is classified as current liabilities (payable on 28
February 2022) and £7.0m is classified as non-current liabilities (payable on
28 February 2023). There are no conditions attached to the payment of the
deferred consideration and the transaction was structured such that no
interest accrues on these payments. However, under the sale and purchase
agreement the Group has the right to offset agreed claims arising from a
breach of warranties and indemnities and can also offset any shortfalls on the
contracted advertising from the Health Lottery. The deferred consideration has
not been discounted as we do not believe that the impact of such discounting
is material.
17. Provisions
Share-based payments Historical
£m
Property Restructuring legal issues Other Total
£m £m £m £m £m
At 27 December 2020 (1.6) (5.1) (19.8) (23.0) (7.2) (56.7)
Charged to income statement (2.8) (11.1) (5.6) (29.0) (2.1) (50.6)
Released to income statement - 0.4 - - 2.4 2.8
Utilisation of provision 0.4 3.5 15.1 11.0 2.1 32.1
At 26 December 2021 (4.0) (12.3) (10.3) (41.0) (4.8) (72.4)
The provisions have been analysed between current and non-current as follows:
2021 2020
£m £m
Current (28.8) (31.5)
Non-current (43.6) (25.2)
(72.4) (56.7)
The share-based payments provision relates to National Insurance obligations
attached to the future crystallisation of awards. This provision will be
utilised over the next three years.
The property provision relates to property-related onerous contracts and
onerous committed costs related to vacant properties. The charge includes
£10.9m of onerous property costs relating to the Home and Hub project (note
5), which has meant that a number of offices or floors have been closed. The
provision will be utilised over the remaining term of the leases or expected
period of vacancy.
The restructuring provision relates to restructuring charges incurred in the
delivery of cost reduction measures. The charge includes £1.4m of costs
relating to the integration of the Irish Daily Star which was acquired in 2020
and a further £1.4m of restructuring relating to the closure of two print
sites at the end of 2020 (note 5). The balance at the period end comprises
severance costs of £1.4m and closure costs relating to print plants of
£8.9m. The severance costs provision is expected to be utilised within the
next year. The closure costs provision includes £1.8m expected to be utilised
within the next year and £7.1m 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. Due to an increase in the rate of new claims in 2021, the potential
claims provision was changed to the expected value method, in order to more
accurately forecast the number of potential claims included in the provision,
albeit recognising the uncertainties.
During 2021, the number of new claims, the progression of claims, the
settlement amount and the associated legal costs have been ahead of historical
trends and experience. This has resulted in a change to the provision estimate
and a further charge of £29.0m in the year. At the period end, a provision of
£41.0m remains outstanding and this represents the current best estimate of
the amount required to resolve this historical matter. The majority of the
provision is expected to be utilised within the next three years.
Our view on the range of outcomes at the reporting date for the provision,
applying more and less favourable outcomes to all aspects of the provision is
£32m to £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 19.
The other provision balance of £4.8m at the period end relates to libel and
other matters and is expected to be utilised over the next two years.
18. Share capital and reserves
The share capital comprises 322,085,269 allotted, called up and fully paid
ordinary shares of 10p each. On 23 October 2020, 12,798,952 ordinary shares
were issued in respect of the bonus issue of shares with the issue being made
out of the share premium account in accordance with the Companies Act 2006.
The share premium reflects the premium on issued ordinary shares. The merger
reserve comprises the premium on the shares allotted in relation to the
acquisition of Express & Star. The capital redemption reserve represents
the nominal value of the shares purchased and subsequently cancelled under
share buy-back programmes.
The Company holds 8,128,176 shares (2020: 10,017,620 shares) as Treasury
shares. On 13 May 2021, 675,381 shares were withdrawn from Treasury and
transferred to the Reach Employee Benefit Trust to satisfy the vesting of
awards granted in 2018 under the Reach Long Term Incentive Plan. On 14
December 2021, 1,214,063 shares were withdrawn from Treasury to satisfy the
vesting of the share award to colleagues granted in December 2020 under the
Reach All-Employee Share Plan. Cumulative goodwill written off to accumulated
loss and other reserves in respect of continuing businesses acquired prior to
1998 is £25.9m (2020: £25.9m). On transition to IFRS, the revalued amounts
of freehold properties were deemed to be the cost of the asset and the
revaluation reserve has been transferred to accumulated loss and other
reserves.
Shares purchased by the Reach Employee Benefit Trust are included in
accumulated loss and other reserves at £5.2m (2020: £2.7m). During the year
the Trust purchased 883,315 (2020: 366) for a cash consideration of £3.3m
(2020: nil). The Trust received a payment of £3.3m (2020: nil) from the
Company to purchase these shares. During the year, 1,241,171 were released
relating to grants made in prior years (2020: 778,658).
During the year, awards relating to 608,136 shares were granted to executive
directors on a discretionary basis under the Long Term Incentive Plan (2020:
1,218,530). The exercise price of each award is £1 for each block of awards
granted. The awards vest after three years, subject to the continued
employment of the participant and satisfaction of certain performance
conditions and are required to be held for a further two years.
During the year, awards relating to 1,010,227 shares were granted to senior
managers on a discretionary basis under the Senior Management Incentive Plan
(2020: 2,358,715). The exercise price of each award is £1 for each block of
awards granted. The awards vest after three years, subject to the continued
employment of the participant and satisfaction of certain performance
conditions.
During the year, awards relating to 1,500,736 shares were granted to employees
on a discretionary basis under the Save As You Earn Plan (2020: nil). The
exercise price of each award is 246.0 pence. The awards vest after three
years, subject to the continued employment of the participant. The estimated
fair value of the options was £1,753,760.
In the prior year, awards relating to 50,618 shares were granted to executive
directors under the Restricted Share Plan. The awards vest after three years.
19. Contingent liabilities
Historical Legal Issues
It is unknown how long it will take to fully resolve historical legal issues
set out in note 17 and despite making a best estimate of the provision, the
timing of utilisation and possible range, the total universe of claims is
unknown and there are both ongoing legal matters 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.
20. Reconciliation of statutory to adjusted results
52 weeks ended 26 December 2021
Operating Pension
adjusted finance
Statutory items charge Tax Adjusted
results (a) (b) (c) results
£m £m £m £m £m
Revenue 615.8 - - - 615.8
Operating profit 79.3 66.8 - - 146.1
Profit before tax 73.3 66.8 3.4 - 143.5
Profit after tax 2.9 57.0 2.8 53.9 116.6
Basic earnings per share (p) 0.9 18.4 0.9 17.4 37.6
52 weeks ended 27 December 2020
Operating Pension
adjusted finance
Statutory items charge Tax Adjusted
results (a) (b) (c) results
£m £m £m £m £m
Revenue 600.2 - - - 600.2
Operating profit 7.6 126.2 - - 133.8
Profit before tax 0.4 126.2 4.7 - 131.3
(Loss)/profit after tax (26.7) 110.3 3.8 19.0 106.4
Basic (loss)/earnings per share (p) (8.6) 35.7 1.2 6.1 34.4
(a) Operating adjusted items relate to the items charged or
credited to operating profit as set out in note 5.
(b) Pension finance charge relating to the defined benefit pension
schemes as set out in note 15.
(c) Tax items relate to the impact of tax legislation changes
due to the change in the future corporation tax rate on the opening deferred
tax position as set out in note 8.
Set out in note 2 is the rationale for the alternative performance measures
adopted by the Group. The reconciliations in this note highlight the impact on
the respective components of the income statement.
Items are adjusted on the basis that they distort the underlying performance
of the business where they relate to material items that can recur (including
impairment, restructuring, tax rate changes) or relate to 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 current year and items such as transaction
and restructuring costs incurred on acquisitions or the profit or loss on
the sale of subsidiaries, associates or freehold buildings.
Impairments to non-current assets arise following impairment reviews or where
a decision is made to close or retire printing assets. These non-cash items
are included in adjusted items on the basis that they are material and vary
considerably each year, distorting the underlying performance of the business.
The opening deferred tax position is recalculated in the period in which a
change in the standard rate of corporation tax has been enacted or
substantively enacted by parliament. The impacts of the change in rates are
included in adjusted items on the basis that when they occur they are
material, distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost associated with
dealing with and resolving civil claims for historical phone hacking and
unlawful information gathering. This is included in adjusted items as the
amounts are material, it relates to historical matters and movements in the
provision can vary year to year.
The Group's defined benefit pension schemes are all closed to new members and
to future accrual and are therefore not related to the current business. The
pension administration expenses, past service costs and the pension finance
charge are included in adjusted items as the amounts are significant and they
relate to the historical pension commitment.
Included in adjusted items in 2021 are costs relating to a Home and Hub
project which set out the vision for how the Group's offices would look and
where job roles would be based. As a consequence of the project a number of
offices or floors have been closed. The project has resulted in charges of
£23.7m (impairments of £2.3m relating to property, plant and equipment and
£10.5m relating to right-of-use assets and a £10.9m property rationalisation
charge relating to onerous costs of vacant properties). Restructuring charges
include £1.4m of costs relating to the integration of the Irish Daily Star
which was acquired in 2020 and a further £1.4m of restructuring relating to
the closure of two print sites at the end of 2020. Other items relate to
adviser costs in relation to the triennial funding valuations costs (£1.2m),
National Insurance costs relating to share awards (£2.6m) and the write-off
of an old debit balance (£2.9m) partially offset by profit on sales of print
assets (£0.7m). These are included in adjusted items as they relate to
historic liabilities or are one-off items not expected to recur.
Included in adjusted items in 2020 were costs relating to a transformation
programme to reshape the Group into a streamlined, more efficient organisation
across editorial, advertising and central operations and of print capacity
requirements which concluded with the closure of two print plants. The Group
also recorded a £15.5m charge reflecting a historic property development,
which as a result of COVID-19 became onerous, resulting in the Group making a
payment to the joint venture party to resolve the matter.
21. Reconciliation of statutory to like-for-like revenue
2021 v 2020 Statutory Like-for-like Statutory like-for-like
2021 (a) 2021 2020 (a) (b) 2020
£m £m £m £m £m £m £m
Print 465.1 (10.6) 454.5 479.3 (1.0) (1.5) 476.8
Circulation 312.9 (8.7) 304.2 319.7 (0.8) - 318.9
Advertising 103.3 (1.8) 101.5 108.4 (0.2) (1.5) 106.7
Printing 20.4 - 20.4 25.2 - - 25.2
Other 28.5 (0.1) 28.4 26.0 - - 26.0
Digital 148.3 - 148.3 118.3 - - 118.3
Other 2.4 - 2.4 2.6 - - 2.6
Total revenue 615.8 (10.6) 605.2 600.2 (1.0) (1.5) 597.7
(a) Exclusion of Irish Daily Star (purchased on 24 November
2020).
(b) Exclusion of Manchester Metro following ending of franchise
agreement in June 2020 and other portfolio changes in 2020.
There was no adjustment made for the Manchester Metro and other portfolio
changes from statutory to like-for-like revenue for the 52 weeks ending 27
December 2020.
2021 v 2019 Statutory Like-for-like Statutory Like-for-like
2021 (a) 2021 2019 (b) 2019
£m £m £m £m £m £m
Print 465.1 (10.6) 454.5 591.3 (7.0) 584.3
Circulation 312.9 (8.7) 304.2 361.7 - 361.7
Advertising 103.3 (1.8) 101.5 152.5 (6.9) 145.6
Printing 20.4 - 20.4 38.5 - 38.5
Other 28.5 (0.1) 28.4 38.6 (0.1) 38.5
Digital 148.3 - 148.3 107.0 - 107.0
Other 2.4 - 2.4 4.2 - 4.2
Total revenue 615.8 (10.6) 605.2 702.5 (7.0) 695.5
(a) Exclusion of Irish Daily Star (purchased on 24 November
2020).
(b) Exclusion of Manchester Metro following ending of franchise
agreement in June 2020 and other portfolio changes in 2019 and 2020.
22. Adjusted cash flow
2021 2020
£m £m
Adjusted operating profit 146.1 133.8
Depreciation and amortisation 19.3 27.4
Adjusted EBITDA 165.4 161.2
Net interest and charges paid on bank borrowings (1.3) (1.1)
Income tax paid (14.6) (14.2)
Restructuring payments (15.1) (18.0)
Net capital expenditure (11.8) (1.6)
Interest paid on leases (1.3) (1.5)
Repayment of obligation under leases (6.9) (7.7)
Working capital and other 26.9 4.7
Adjusted operating cash flow 141.3 121.8
Historical legal issues payments (11.0) (10.6)
Historical contract issues payments - (15.5)
Dividends paid (21.8) -
Purchase of own shares (3.3) -
Pension funding payments (64.7) (53.9)
Adjusted net cash flow 40.5 41.8
Bank facility drawdown - 25.0
Bank facility repayment - (25.0)
Acquisition-related cash flow (16.8) (20.2)
Net increase in cash and cash equivalents 23.7 21.6
23. Reconciliation of statutory to adjusted cash flow
52 weeks ended 26 December 2021 Statutory (a) (a) Adjusted
2021 £m £m 2021
£m £m
Cash flows from operating activities
Cash generated from operations 163.7 (33.4) 11.0 141.3 Adjusted operating cash flow
Pension deficit funding payments (64.7) - - (64.7) Pension funding payments
- - (11.0) (11.0) Historical legal issues payments
Income tax paid (14.6) 14.6 - -
Net cash inflow from operating activities 84.4
Investing activities
Interest received 0.1 (0.1) - -
Dividends received from associated undertakings 2.5 (2.5) - -
Proceeds on disposal of property, plant and equipment 0.7 (0.7) - - Net capital expenditure
Purchases of property, plant and equipment (6.5) 6.5 - - Net capital expenditure
Expenditure on 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 - -
Repayment of obligations under leases (6.9) 6.9 - -
Net cash used in financing activities (34.7)
Net increase in cash and cash equivalents 23.7 - - 23.7
(a) Items included in the statutory cash flow on separate
lines which for the adjusted cash flow are included in adjusted operating cash
flow.
(b) Payments in respect of historical legal issues are shown
separately in the adjusted cash flow.
52 weeks ended 27 December 2020 Statutory (a) (a) Adjusted
2020 £m £m 2020
£m £m
Cash flows from operating activities
Cash generated from operations 121.3 (25.6) 26.1 121.8 Adjusted operating cash flow
Pension deficit funding payments (53.9) - - (53.9) Pension funding payments
- - (15.5) (15.5) Historical contract issues payments
- - (10.6) (10.6) Historical legal issues payments
Income tax paid (14.2) 14.2 - -
Net cash inflow from operating activities 53.2
Investing activities
Interest received 0.1 (0.1) - -
Dividends received from associated undertakings 0.5 (0.5) - -
Proceeds on disposal of property, plant and equipment 0.3 (0.3) - - Net capital expenditure
Purchases of property, plant and equipment (1.9) 1.9 - - Net capital expenditure
Deferred consideration payment (18.9) - - (18.9) Acquisition-related cash flow
Acquisition of associate undertaking (0.2) - - (0.2) Acquisition-related cash flow
Acquisition of subsidiary undertaking (3.4) - - (3.4) Acquisition-related cash flow
Cash acquired on acquisition of subsidiary undertaking 2.3 - - 2.3 Acquisition-related cash flow
Net cash used in investing activities (21.2)
Financing activities
Interest and charges paid on bank borrowings (1.2) 1.2 - -
Drawdown of borrowings 25.0 - - 25.0 Bank facility drawdown
Repayment of borrowings (25.0) - - (25.0) Bank facility repayment
Interest paid on leases (1.5) 1.5 - -
Repayment of obligations under leases (7.7) 7.7 - -
Net cash used in financing activities (10.4)
Net increase in cash and cash equivalents 21.6 - - 21.6
(a) Items included in the statutory cash flow on separate lines
which for the adjusted cash flow are included in adjusted operating cash flow.
(b) Payments in respect of historical legal issues and historical
contract issues are shown separately in the adjusted cash flow.
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, the primary one
for the period ahead being identified as 'Climate Change' risk.
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. 2021 has been an economically uncertain period against the
backdrop of the ongoing COVID-19 pandemic, inflationary concerns and supply
chain challenges. The Board have undertaken a robust risk assessment and the
principal risks deemed to be facing the Group at this time are shown below,
including a description of each risk, the current positioning and key
mitigating actions.
Principal risks and uncertainties
Risk Description Mitigation Update
Macro-economic deterioration Macro-economic factors may have a negative impact on several areas of our The global COVID-19 pandemic persists, and we will continue to monitor the There remains the ongoing monitoring and assessment of macro-economic factors
business which may restrict our ability to protect profit levels. impact and take necessary mitigating actions as we have previously done. which may affect the risk exposure of our business.
No change
This risk encompasses the economic impact of the COVID-19 pandemic and We do have a strong record of responding quickly and delivering additional
follow-on effects. cost savings as necessary when faced with unexpected revenue declines.
Print revenue decline Structural changes in the traditional publishing industry have led to ongoing Strategic development led by an experienced Board and Executive Committee. Renewed strategic focus offset by continued revenue challenges. This risk has
acceleration decline in print advertising and circulation revenues.
been amplified by the COVID-19 pandemic resulting in the acceleration of plans
and the Group-wide transformation project.
Investment Committee in place to approve business plans when reviewed against
No change Macro-economic factors contribute to a larger than expected decline. strategic goals.
The key strategic focus for the Executive Committee remains on unlocking
customer value which is seen as integral to the future success of the Company
and moving to overall revenue stability and then growth.
A lack of appropriate strategic focus results in accelerated revenue loss for Focus on developing digital revenue streams through the Customer Value
existing products. Strategy.
Continued tactical measures to minimise print revenue declines and maintain
profits, such as by taking appropriate cash mitigation or pricing measures.
Governance structures which enable the ongoing review of performance against
targets and strategic goals, including a weekly structured trading meeting.
Acquisition, joint venture and other corporate development opportunities,
which are aligned to our Customer Value Strategy, remain under consideration.
Insufficient digital revenue growth A failure to grow digital revenues quickly enough to offset print declines.
No change
Cyber security breach A cyber security incident which leads to a serious data breach or the loss of All business-critical systems are well established and are supported by Continued recognition of the need for cyber security investment against an
systems/data and reputational damage. appropriate disaster recovery plans. ever-changing - and currently heightened - external threat landscape.
Increase
Regular reviews assess our vulnerability and our ability to re-establish Our Customer Value Strategy, with an increased focus on customer data,
operations in the event of a failure. increases the impact of a cyber security breach.
The technical infrastructure supporting the websites is within the cloud and Information security in a remote working environment provides new challenges
the sites have been designed effectively, providing adequate resilience and which are being addressed.
continued performance in the event of a significant failure.
Continued investment to be made to enhance cyber security infrastructure as
necessary.
Data protection failure A contravention of the General Data Protection Regulation (GDPR) leads to Data protection governance structures have been established to direct and The ongoing focus and challenge remains embedding data protection controls and
monetary penalties, reputational damage and a loss of customer trust. oversee the data protection strategy. processes, and ensuring that data protection forms part of 'business as usual'
thinking.
No change
A Senior Data Protection team and a Data Governance team are in place to
improve Group-wide oversight of how customer data is utilised. As with the cyber security risk, the impact of a data protection failure is
amplified by our strategic focus on customer data.
A Data Protection Officer and Data Protection team are in place to promote and
advise on data protection compliance, provide oversight and help mitigate the
risk of compliance breaches.
Data protection policies and processes have been implemented to govern how
colleagues carry out day-to-day activities involving the handling of personal
data and compulsory awareness training has been implemented for all
colleagues.
Steps have been established to ensure the organisation adopts a 'data
protection by design and default' approach when developing new products and
services that involve the collection and use of personal data, to ensure
output deliverables are legally compliant.
Supply chain failure Our print products, which rely on a small number of key suppliers (for Well-established long-term relationships with trusted suppliers. A decreasing number of key suppliers, and an increasing number of outsourced
example, newsprint suppliers, wholesalers and distributors), are adversely
arrangements, means it becomes increasingly important to stabilise and
affected, operationally and financially, by changes to supplier dynamics. optimise arrangements and ensure appropriate contingency plans are in place.
Increase Strong ongoing management and/or monitoring of providers including:
A major failure, breach or prolonged performance issues at a third-party - IT providers Our supply chains remain under pressure from the global impact of the pandemic
provider has an adverse impact on our business. This risk is amplified due to
which may have cost implications.
the increasing dependency placed on the reliability and capability of key - Outsourced ad production and planning
information systems and technology supplied to us.
- Wholesalers and distributors
- Newsprint suppliers
This risk encompasses the general business continuity risk.
- Manufacturing maintenance and parts providers
- Global digital partners
Business continuity/disaster recovery plans in place, including at our key
partners. Our own plans were successfully invoked as a result of the COVID-19
pandemic requiring the majority of the workforce to work remotely.
Industry-wide response likely should key common elements of the publishing
supply chain be compromised.
Ongoing review of the operating model, including the assessment of alternative
options.
In IT, governance oversight arrangements and committee structures are in place
covering areas such as risk management, change control, security and service
delivery.
Appropriate contractual protections in place.
Health and safety issue An accident, incident or occupational ill health affecting Group employees or Health and safety management system in place. Adverse event reporting system We strive for continual improvements to maintain a culture where health and
others linked to our business activities. allows timely investigations to be carried out by the Health and Safety team. safety is prioritised.
No change
During the pandemic, there is an amplified strategic or operational risk All parts of the Group are serviced by professionally qualified and We recognise the potential impact that online threats and abuse may have on
should key employees, or their family members, be directly affected. experienced Health and Safety Managers and Occupational Health service the wellbeing of our journalists. Providing appropriate support to all our
providers. employees remains a priority for the business
Internal and external auditing to ensure continuing compliance across our We continue to follow the latest Government guidance in relation to COVID-19
print and publishing sites. control measures.
Risk assessment processes in place to cover all areas of the business,
including external work in hostile and high risk environments.
Practical implementation of Government COVID-19 controls and recommendations
across all areas of the Group.
Health and wellbeing, including mental health, support is in place for all
Group employees.
Lack of funding capability The main financial risk is the lack of funding capability to meet business Financing We recognised that the global pandemic amplified the risk and quickly took
needs. This may be caused by a lack of working capital, unexpected increases
appropriate mitigating action to conserve cash last year.
in interest rates or increased liabilities, in particular:
No change Strong cash generating business.
Financing
Pension deficits may grow at such a rate that annual funding costs consume a
disproportionate level of profit; and
A re-negotiated larger facility now in place with a wider banking syndicate
Committed loan facilities are in place to deliver our strategy. which reduces the immediate risk.
Volume and level of historical legal issues (HLI) claims may continue to have
significant cost implications. Ongoing constructive relationships and regular dialogue with syndicate banks. Commitments
We remain committed to addressing our historical pension deficits and continue
to make significant payments to the schemes.
Regular cash flow forecasting and monitoring through Treasury reporting
processes.
We continue to deal with the HLI claims in a professional and efficient
manner, although the final outcome of the civil claims remains uncertain.
Limited foreign exchange fluctuation exposure.
Commitments
Regular reporting to the Board.
Regular discussions with Pension Scheme Trustees.
Ongoing review of options to de-risk pension liabilities.
Ongoing HLI claim level monitoring and management.
Working with external lawyers on HLI civil claims and related investigations.
Inability to recruit and retain talent The inability to recruit, develop and retain talent with the appropriate Ongoing considerations of: Retention and recruitment of appropriately skilled staff will remain an
skills, knowledge and experience compromises our ability to deliver strategic
ongoing challenge.
business plans.
Increase - Digital capabilities of workforce
Our Diversity and Inclusion strategy will help ensure we are recruiting and
- Turnover levels developing staff from the widest possible pool of talent.
- Pay and benefits
- Opportunities to expand talent pool (for example, outside London)
- Recruitment channels used
- Diversity and inclusion
Brand reputation damage Damage to reputation arising from employee actions or behaviours, including Recruitment of highly experienced and capable people into key senior There remains awareness that an indiscretion could lead to significant
breaches of regulations or best practice guidelines. management roles. financial and reputational damage.
No change
Editorial errors, behaviours or tone leads to loss of readership, damaged Governance structures provide clear accountability for compliance with all In editorial, we are aware of the heightened risk created in a digital-led
reputation and legal proceedings. laws and regulations. environment due to the 24/7 nature of our operations and the need to move with
pace.
An incident which has an adverse impact on the environment/climate. Policies and procedures are designed to meet all relevant requirements.
Operationally, we have had to be reactive in light of the COVID-19 situation,
with stretched resources at times, so it is important to recognise that an
increased risk of error or oversight exists.
Employees trained to comply with all relevant legislation.
Climate matters are recognised as an emerging risk area for the Group, and
Ongoing consideration of upcoming legislative changes and emerging trends. work will be undertaken to develop a fuller picture of the associated risks
and opportunities for our business.
Crisis management procedure developed and communicated.
New committee structure to develop and drive our Environmental, Social and
Governance strategy.
LEI: 213800GNI5XF3XOATR61
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