REG - Connect Group Plc - Interim Results for the 6 months ended 28 Feb 15 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 3
15/07/2015 14:02
- Part 3: For the preceding part double click ID:nRSV9157Kb
Interest cost 10.3 (9.1) (1.7) (0.5)
Interest income on scheme assets
Total amount recognised in income statement 9.0 (7.8) (1.7) (0.5)
Return on plan assets excluding amounts included in net interest 35.5 - - 35.5
Actuarial loss arising from experience - (22.4) - (22.4)
Actuarial loss arising from changes in financial assumptions - - - -
Actuarial loss arising from changes in demographic assumptions - - - -
Change in surplus not recognised excluding amounts recognised in net interest - - (14.4) (14.4)
Amount recognised in other comprehensive income 35.5 (22.4) (14.4) (1.3)
Employer contributions 2.5 - - 2.5
Benefit payments (7.5) 7.5 - -
Amounts included in cash flow statement (5.0) 7.5 - 2.5
At 31 August 2014 522.7 (450.7) (93.0) (21.0)
£m Fair value of scheme assets Defined benefit obligation Surplus not recognised Net asset / (liability) on balance sheet
At 31 August 2014 522.7 (450.7) (93.0) (21.0)
Current service cost - (0.1) - (0.1)
Administration expenses - - - -
Interest cost 9.7 (8.2) (1.8) (0.3)
Interest income on scheme assets - - - -
Total amount recognised in income statement 9.7 (8.3) (1.8) (0.4)
Return on plan assets excluding amounts included in net interest 29.2 - - 29.2
Actuarial gains/ (losses) on scheme liabilities 0.2 (24.5) - (24.3)
Change in surplus not recognised - - (5.2) (5.2)
Amount recognised in other comprehensive income 29.4 (24.5) (5.2) (0.3)
Employer contributions 2.3 - - 2.3
Employee contributions - - - -
Benefit payments (8.1) 8.1 - -
Amounts included in cash flow statement (5.8) 8.1 - 2.3
Acquisition of subsidiaries 10.6 (12.5) - (1.9)
At 28 February 2015 566.6 (487.9) (100.0) (21.3)
Included within Non-current assets 0.3
Included within Current liabilities (4.1)
Included within Non-current liabilities (17.5)
6 Income Tax Expense
£m 6 months to Feb 2015 6 months to Feb 2014 12 months to Aug 2014
Underlying Non-recurring and other items Total Underlying Non-recurring and other items Total Underlying Non-recurring and other items Total
Current tax 5.5 (0.5) 5.0 5.1 (0.1) 5.0 12.3 (1.0) 11.3
Adjustment in respect of prior year UK corporation tax (0.4) (0.3) (0.7) - - - (2.4) - (2.4)
Total current tax charge 5.1 (0.8) 4.3 5.1 (0.1) 5.0 9.9 (1.0) 8.9
Deferred tax - current period (0.2) (0.4) (0.6) (0.1) - (0.1) (0.4) - (0.4)
Deferred tax - prior year - - - 0.2 - 0.2 (0.2) - (0.2)
Total tax on profit 4.9 (1.2) 3.7 5.2 (0.1) 5.1 9.3 (1.0) 8.3
Effective tax rate 20.5% 27.1% 21.5% 23.1% 18.7% 19.4%
The effective underlying income tax rate for the period was 20.5% (Feb 2014: 21.5%). After adjusting for the impact of
non-recurring and other items of £1.2m (Feb 2014: £0.1m), the effective statutory income tax rate was 27.1% (Feb 2014:
23.1%).
Reconciliation of the tax charge
£m 6 months to Feb 2015 6 months to Feb 2014 12 months to Aug 2014
Profit before tax 14.1 22.1 43.1
Tax on profit at the standard rate of UK corporation tax 20.6% (Aug 2014: 22.2%, Feb 2014: 22.2%) 2.9 4.9 9.5
Permanent differences 1.4 0.5 1.3
Share schemes - (0.5) (0.2)
Adjustment in respect of prior year UK corporation tax (0.7) 0.2 (2.6)
Impact of overseas tax rates 0.1 - 0.3
Total tax charge 3.7 5.1 8.3
Tax (credit)/ charge to other comprehensive income
£m 6 months to Feb 2015 6 months to Feb 2014 12 months to Aug 2014
Current tax relating to the defined benefit pension scheme (0.4) (0.5) (0.7)
Current tax relating to share based payments (0.1) - (0.5)
Deferred tax relating to derivative financial instruments - 0.1 0.1
Deferred tax relating to share based payments 0.1 0.1 (0.5)
Deferred tax related to retirement benefit obligations 0.3 0.6 0.6
Tax (credit) /charge to other comprehensive income (0.1) 0.3 (1.0)
7 Dividends
Proposed dividends for the period 6 months to Feb 2015 6 months to Feb 20141 12 months to Aug 20141 6 months to Feb 2015 6 months to Feb 2014 12 months to Aug 2014
Per share Per share Per share £m £m £m
Final dividend - - 5.9p - - 12.3
Interim dividend 2.9p 2.8p 2.8p 7.0 6.1 5.8
2.9p 2.8p 8.7p 7.0 6.1 18.1
Recognised dividends for the period
Per share Per share Per share £m £m £m
Final dividend - prior year 5.9p 5.7p 5.7p 14.4 11.9 11.9
Interim dividend - current year - - 2.8p - - 5.8
5.9p 5.7p 8.5p 14.4 11.9 17.7
1 Rebased DPS adjusts last years reported figures by the rights issue bonus factor adjustment of 0.9015 following the 2 for
7 rights issue in December 2014
During the six month period to 28 February 2015, the final dividend for the year ended 31 August 2014 of 5.9p (Feb 2014:
5.7p) per ordinary share was paid to shareholders. In addition the directors are recommending an interim dividend in
respect of the period ended 28 February 2015 of 2.9p per ordinary share (Feb 2014: 2.8p). This has not been included as a
liability in these condensed financial statements. This will be paid on 10 July 2015 to shareholders on the Register at the
close of business on 12 June 2015.
8 Earnings Per Share
6 months to Feb 2015 6 months to Feb 2014 12 months to Aug 2014
Earnings (£m) Weighted average number of shares million Pence per share Earnings (£m) Weighted average number of shares million Rebased1 Pence per share Earnings (£m) Weighted average number of shares million Rebased1 Pence per share
Weighted average number of shares in issue 223.8 206.3 208.0
Shares held by the ESOP (weighted) (2.8) (1.2) (1.6)
Basic earnings per share (EPS)
Underlying earnings attributable to ordinary shareholders 19.0 221.0 8.6p 18.7 205.1 9.1p 40.5 206.4 19.6p
Non-recurring items (8.8) (1.8) (5.9)
Earnings attributable to ordinary shareholders 10.2 221.0 4.6p 16.9 205.1 8.2p 34.6 206.4 16.8p
Diluted earnings per share (EPS)
Effect of dilutive securities 5.4 11.1 7.0
Diluted underlying EPS 19.0 226.4 8.4p 18.7 216.2 8.7p 40.5 213.4 19.0p
Diluted EPS 10.2 226.4 4.5p 16.9 216.2 7.8p 34.6 213.4 16.2p
1 Rebased EPS and rebased DPS adjust last year reported figures by the rights issue bonus factor adjustment of 0.9015
following the 2 for 7 rights issue in December 2014
Dilutive shares increased the basic number of shares at February 2015 by 5.4m to 226.4m (Feb 2014 rebased: 216.2m) and
resulted in a diluted underlying EPS of 8.4p, a decrease of 0.3p or 3.4% on prior year.
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 3.6m dilutive shares
(Feb 2014: 7.8m) and a weighted 1.8m shares being the time apportioned share capital relating to the deferred consideration
for the acquisition of The Big Green Parcel Holding Company Limited.
9 Net Cash Inflow from Operating Activities
6 months to 6 months to 12 months to
£m Feb 2015 Feb 2014 Aug 2014
Operating profit 17.7 24.9 48.6
Share of profits of jointly controlled entities - - (0.3)
Pension funding (2.3) (2.1) (4.6)
Gains/ losses on disposal of assets (0.1) - -
Depreciation of property, plant and equipment 3.3 2.5 5.2
Amortisation and impairment of intangible assets 4.3 2.9 6.3
Share based payments 1.5 0.8 1.1
(Increase) /decrease in inventories 2.3 (1.7) (1.7)
Decrease/ (increase) in receivables 15.8 4.3 (2.4)
(Decrease)/ increase in payables (22.0) (6.3) 7.3
Income tax paid (3.4) (5.2) (9.8)
Increase/ (decrease) in provisions 1.5 (3.1) (2.3)
Net cash inflow from operating activities 18.6 17.0 47.4
10 Contingent Liability
The Group has a potential liability that could crystallise in respect of previous assignments of leases where the liability
could revert to the Group if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC in
2006, any such contingent liability, which becomes an actual liability will be apportioned between Connect Group PLC and WH
Smith PLC in the ratio 35:65 (the actual liability of Connect Group PLC in any 12 month period is limited to £5m). The
Group's share of such liability has an estimated future cumulative gross rental commitment at 28 February 2015 of £5.3m (28
February 2014: £7.3m).
11 Intangible Assets
During the six months to 28 February 2015, goodwill and intangibles totalling £109.5m arose on the acquisition of the
Group's acquisition of Tuffnells on 19 December 2014. Further details of the acquisition are disclosed in note 12.
Acquired intangible assets are written off over their expected useful life. Goodwill is not amortised, but tested annually
for impairment with the recoverable amount being determined from value in use calculations. The Group prepares cash flow
forecasts derived from the most recent budgets and forecasts for the following 12 months as approved by the Board and
extrapolates these cash flows on an estimated growth rate of 1% over a 20 year period. The rate used to discount the
forecast cash flows is 11%, being the Group's risk adjusted pre-tax WACC, specific for each cash generating unit. The
calculation of value in use is most sensitive to the discount rate and growth rates used. Management believes that no
reasonable potential change in any of the above key assumptions would cause the carrying value to exceed its recoverable
amount.
Goodwill Acquired Intangibles Total
£m On acquisition HY2015 HY2014 FY2014 On acquisition HY2015 HY2014 FY2014 On acquisition HY2015 HY2014 FY2014
Connect Books 17.6 17.6 17.6 17.6 12.7 5.0 6.3 5.6 30.3 22.6 23.9 23.2
Connect Media 5.7 5.7 5.7 5.7 2.6 1.4 1.7 1.6 8.3 7.1 7.4 7.3
Connect News - - - - 0.2 0.2 - 0.2 0.2 0.2 - 0.2
Connect Parcel Freight 51.4 51.4 - - 58.1 57.1 - - 109.5 108.5 - -
Connect Education and care 20.9 20.9 20.9 20.9 10.4 6.9 8.6 7.8 31.3 27.8 29.5 28.7
95.6 95.6 44.2 44.2 84.0 70.6 16.6 15.2 179.6 166.2 60.8 59.4
Other intangibles 6.7 6.2 6.3
Total Intangible assets 172.9 67.0 65.7
12. Acquisitions
The acquisition of Tuffnells made during the period contributed £28.4m to the Group's revenue and £1.5m to the Group's
operating profit before acquired intangible amortisation and acquisition related costs.
The estimated contributions of the acquired business to the results of the Group, as if the acquisition had been made at
the beginning of the period, are as follows:
£m
Revenue 75.4
Operating profit before intangible amortisation and acquisition related costs 6.4
The net cash outflow in respect of acquisitions in the year comprised:
£m
Cash consideration (113.6)
Cash acquired 8.3
Net cash outflow relating to acquisition (105.3)
Acquisition related costs (recorded in non-recurring items) (4.0)
Total cash outflow in respect of acquisitions (109.3)
Acquisitions are accounted for under the acquisition method of accounting. The Group undertakes a process to identify the
fair values of the assets acquired and the liabilities assumed, including the separate identification of intangible assets
in accordance with IFRS3 'Business Combinations'. Until this assessment is complete, the allocation period remains open up
to twelve months from the acquisition date. At 28 February 2015, the allocation period for all acquisitions completed
since 1 September 2014 remained open and accordingly the fair values presented are provisional.
On 19 December 2014, Smiths News Holdings Limited acquired 100% of the issued share capital of The Big Green Parcel Holding
Company Limited (Tuffnells) which has been accounted for in accordance with IFRS3 Business Combinations. The Big Green
Parcel Holding Company Limited's main trading subsidiary is Tuffnells Parcels Express Limited. Tuffnells Parcels Express
Limited is a leading UK provider of next-day B2B delivery of mixed freight and parcel consignments, specialising in items
of irregular dimension and weight, examples of which include bulky furnishings, building materials and automotive parts.
The acquisition is a new division for the Group known as Connect Parcel Freight and the acquisition represents another
important step in the Group's diversification strategic aim of delivering 50% of underlying profits from activities outside
of newspaper and magazine wholesaling.
The initial cash cost of the acquisition was £113.6m, financed by a combination of increased debt facilities and a £55m
Rights Issue. The initial cash cost of £113.6m plus £0.5m of deferred consideration is consideration as defined by IFRS3
and has been allocated against the identified net assets with the balance recorded as goodwill.
IFRS3 requires that any payments that are contingent on future employment be charged to the income statement. The total
£15.3m of deferred consideration includes £14.8m that is contingent on both profit targets and the continued employment of
the former owners of The Big Green Parcel Holding Company Limited. This comprises:
- Up to £4.8m of deferred share capital and £3.8m in cash being the fair value of deferred consideration payable
conditional on the financial performance and on continued employment in the 12 month period from 1 September 2014 to 31
August 2015;
- Up to a further £2.0m of deferred share capital and £1.1m of cash payable conditional on the financial performance
and continued employment in the 12 month period from 1 September 2015 to 31 August 2016; and
- Up to a further £2.0m of deferred share capital and £1.1m of cash payable conditional on the financial performance
and continued employment in the 12 month period from 1 September 2016 to 31 August 2017.
The remaining £0.5m deferred consideration is contingent solely upon future profit targets across the 36 month period from
1 September 2014 to 31 August 2017 and is included on the Director's best estimate of the likely overall payment.
The provisional effect of the acquisition on the Group's assets and liabilities is as follows:
Indicative allocation of purchase price
£m Acquired balance sheet Fair value adjustments Provisional fair value
Fixed Assets 21.7 (2.8) 18.9
Stock 0.6 - 0.6
Trade and other receivables 13.1 (0.2) 12.9
Acquired intangible assets - 58.1 58.1
Deferred tax 0.9 (10.0) (9.1)
Other liabilities (3.6) (4.3) (7.9)
Trade and other payables (15.4) (1.8) (17.2)
Net debt 8.3 - 8.3
Fair value adjustments - - -
Pensions (1.9) - (1.9)
Net assets 62.7
Cash consideration 113.6
Contingent purchase consideration 0.5
Total Consideration 114.1
Goodwill arising on acquisition 51.4
The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by
customer related intangibles of £26.9m, the value of the 'Big Green Parcel Machine' trade name of £30.4m and other
intangibles of £0.8m with residual goodwill arising of £51.4m. The goodwill represents;
- The value of the acquired workforce.
- Potential to leverage the expertise and achieve synergies with other Connect Group distribution businesses.
The potential undiscounted amount of all future payments that Connect Group plc could be required to make under the
contingent consideration arrangement, which has been measured based on current expectations of future performance is £15.3m
and the fair value is £15.3m.
13 Cash and Borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
£m Sterling Euro USD Other TotalFeb 2015 At 28Feb 2014 At 31Aug 2014
Cash and cash equivalents 8.7 2.3 0.9 0.8 12.7 12.5 20.4
Term loan - disclosed within non-current liabilities (98.0) - - - (98.0) (48.3) (48.4)
Revolving credit facility (63.0) (1.5) - - (64.5) (67.9) (60.9)
Total borrowings (161.0) (1.5) - - (162.5) (116.2) (109.3)
Net borrowings (152.3) 0.8 0.9 0.8 (149.8) (103.7) (88.9)
Total borrowings
Amount due for settlement within 12 months (63.0) (1.5) - - (64.5) (67.9) (60.9)
Amount due for settlement after 12 months (98.0) - - - (98.0) (48.3) (48.4)
(161.0) (1.5) - - (162.5) (116.2) (109.3)
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three
months or less. The carrying amount of these assets approximates their fair value.
At 28 February 2015, the Group had £87.5m (28 February 2014: £83.8m) of undrawn committed borrowing facilities in respect
of which all conditions precedent had been met.
14 Financial Instruments
The fair value of interest rate swaps at the reporting date is based on market values of equivalent instruments at the
balance sheet date and is disclosed below. All derivative financial instruments are classified as level 2 based upon the
degree to which the fair value movements are observable. Level 2 fair value measurements are defined as those derived from
inputs other than quoted prices that are observable for the asset or liability, either directly (prices from third parties)
or indirectly (derived from third party prices). There are no non-recurring fair value measurements.
Current Non-current
Feb 2015 Feb 2014 Aug 2014 Feb 2015 Feb 2014 Aug 2014
Derivatives that are being designated and effective as hedging instruments carried at fair value
Interest rate swaps - Liabilities - (0.8) - - - -
- (0.8) - - - -
Interest rate swaps - Assets - 1.0 - - 1.0 0.6
- 1.0 - - 1.0 0.6
15 Provisions
£m Reorganisation provisions Insurance provisions Deferred consideration Property provisions Total
Gross provision:
At 1 September 2013 1.4 1.4 1.9 6.4 11.1
Additions - 0.5 0.2 - 0.7
Utilised in period (1.2) (0.6) (2.1) (1.7) (5.6)
At 28 February 2014 0.2 1.3 - 4.7 6.2
Discount:
At 1 September 2013 - - - (0.8) (0.8)
Additions - - - - -
Unwinding of discount utilisation - - - 0.2 0.2
At 28 February 2014 - - - (0.6) (0.6)
Net book value at 28 February 2014 0.2 1.3 - 4.1 5.6
Gross provision:
At 1 March 2014: 0.2 1.3 - 4.7 6.2
Additions 0.7 - - 1.3 2.0
Disposal - - - - -
Released (0.1) - - (1.5) (1.6)
Utilised in period (0.1) 0.1 - (0.9) (0.9)
At 31 August 2014 0.7 1.4 - 3.6 5.7
Discount:
At 1 March 2014 - - - (0.6) (0.6)
Additions - - - (0.1) (0.1)
Released - - - 0.4 0.4
Unwinding of discount utilisation - - - (0.1) (0.1)
At 31 August 2014 - - - (0.4) (0.4)
Net book value at 31 August 2014 0.7 1.4 - 3.2 5.3
Gross provision:
At 1 September 2014 0.7 1.4 - 3.6 5.7
Additions - 0.2 2.4 2.6
Acquisition of subsidiary - 1.2 - 4.0 5.2
Utilised in period (0.4) (0.1) - (0.1) (0.6)
At 28 February 2015 0.3 2.7 2.4 7.5 12.9
Discount:
At 1 September 2014 - - - (0.4) (0.4)
Acquisition of subsidiary - - - (0.1) (0.1)
Unwinding of discount utilisation - - - 0.1 0.1
At 28 February 2015 - - - (0.4) (0.4)
Net book value at 28 February 2015 0.3 2.7 2.4 7.1 12.5
£m Feb 2015 Feb 2014 Aug 2014
Included within current liabilities 6.6 3.9 3.4
Included within non-current liabilities 5.9 1.7 1.9
Total 12.5 5.6 5.3
The property provision represents the estimated future cost of the Group's historic onerous and reversionary leases in
non-trading properties and newly acquired properties based on known and estimated rental sub-leases. This provision has
been discounted at 8%, and this discount will be unwound over the life of the leases. Insurance provisions represent the
expected future costs of employer's liability, public liability and motor accident claims.
16 Share Capital
(a) Called up share capital
£m Feb 2015 Feb 2014 Aug 2014
Authorised:
300.0m ordinary shares of 5p each 15.0 15.0 15.0
£m Feb 2015 Feb 2014 Aug 2014
Issued and fully paid ordinary shares of 5p each
At 1 September 9.5 9.2 9.2
Shares issued in the period/ year 2.7 0.3 0.3
At 31 August 12.2 9.5 9.5
During the period to 28 February 2015, 54,483,497 ordinary 5p shares were issued for a consideration of £52,536,482
resulting in a share premium of £49,812,308. During the prior year to 31 August 2014, 4,959,905 ordinary 5p shares were
issued for a consideration of £4,373,469, resulting in a share premium of £4,125,474. Of these 4,530,012 related to the
deferred share capital payable to the former owners of Hedgelane Limited following its acquisition in April 2012, the
remainder were issued to satisfy share scheme exercises.
(b) Movement in share capital
Number (m) Ordinary shares of 5p each
At 1 September 2014 189.3
Issued in the year 54.4
At 28 February 2015 243.7
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to one vote
per share at the meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed
income.
(c) Share premium
£m Feb 2015 Feb 2014 Aug 2014
Balance at 1 September 5.3 1.2 1.2
Share issues during the year 49.8 3.9 4.1
Balance at 31 August 55.1 5.1 5.3
The rights issue in December 2014 incurred £3.0m of directly attributable costs which have been accounted for in share
premium.
17 Related Party Transactions
No related party transactions had a material impact on the financial performance in the period or financial position of the
Group at 28 February 2015. There have been no material changes to or material transactions with related parties as
disclosed in Note 32 of the Annual Report and Accounts for the year ended 31 August 2014.
18 Responsibility Statement
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial
Reporting';
- the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of
important events during the first six months and description of principal risks and uncertainties for the remaining six
months of the year); and
- the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of
related parties' transactions and changes therein).
By order of the Board.
Mark Cashmore Nick Gresham
Group Chief Executive Chief Financial Officer
22 April 2015 22 April 2015
This information is provided by RNS
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