REG - Connect Group Plc - Preliminary Results Annoucement y/e 31 August 14 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 28
29/10/2014 12:03
- Part 28: For the preceding part double click ID:nRSO3218UA
requires that items of Other comprehensive income that may in
future be recycled to the Consolidated Income Statement are presented separately from those which will not. This
presentational change has been made to the Consolidated Statement of Comprehensive Income in the current year. The
following Standards with an effective date of 1 January 2013 have been adopted without any significant impact on the
amounts reported in these financial statements: − IFRS 7 (amended) 'Disclosures - Offsetting Financial Assets and Financial
Liabilities'− IFRS 13 'Fair Value Measurement'− IAS 12 (amended) 'Deferred Tax: Recovery of Underlying Assets'
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', Group management has identified its operating segments. The performance of
these operating segments is reviewed, on a monthly basis, by the Board. The Board monitors the tangible, intangible and
financial assets attributable to each segment to determine the allocation of resources and the performance of each
segment.
These operating segments are:
Connect News & Media: News Distribution (referred to as Smiths News) The UK market leading distributor of newspapers and magazines to 30,000 retailers across England and Wales from 43 distribution centres.
Connect News & Media: Media(referred to as DMD) A supplier of newspaper and magazines to airlines and a provider of inflight services.
Connect Books(referred to as Bertram, Dawson Books and Wordery) A leading UK distributor of physical and digital books to high street and on-line retailers, public libraries, academic institutions and direct to consumers with a strong international presence, supplying 100 countries.
Connect Education and Care(referred to as The Consortium) A leading distributor of education and care consumable products servicing 30,000 customers across the UK.
The following is an analysis of the Group's revenue and results by reportable segment:
Revenue Operating profit
£m 2014 20131Restated 2014 20131Restated
Connect News & Media: News Distribution 1,524.8 1,529.3 42.9 40.0
Connect News & Media: Media 25.1 25.9 2.3 1.8
Connect Books 193.7 187.9 2.5 7.2
Connect Education and Care 64.9 63.8 7.8 7.4
Total group - underlying 1,808.5 1,806.9 55.5 56.4
Non-recurring and other items (Note 4) - 3.9 (6.9) (10.8)
Total Group revenue and operating profit 1,808.5 1,810.8 48.6 45.6
Net finance expense (5.5) (6.7)
Profit before taxation 43.1 38.9
1 - Restatement in respect of retirement benefit obligations, see Note 34.
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 1.
Information about major customers
Included in revenues arising from newspaper and magazine wholesaling are revenues of approximately £162.1m
(2013: £164.5m) which arose from sales to the Group's largest customer. No other single customer contributed 10% or more of
the Group's revenue in either 2014 or 2013.
Segment assets and liabilities
Assets Liabilities Net assets/(liabilities)
£m 2014 2013 2014 2013 2014 2013
Connect News & Media: News 143.5 142.3 (260.1) (266.5) (116.6) (124.2)
Connect News & Media: Media 18.8 16.0 (7.2) (7.3) 11.6 8.7
Connect Books 80.8 75.7 (57.9) (54.6) 22.9 21.1
Connect Education and Care 57.8 55.0 (17.8) (17.5) 40.0 37.5
Consolidated assets/ (liabilities) 300.9 289.0 (343.0) (345.9) (42.1) (56.9)
Segment depreciation, amortisation and non-current asset additions
Depreciation Amortisation Additions to non-current assets
£m 2014 2013 2014 2013 2014 2013
Connect News & Media: News (4.0) (4.3) (1.4) (1.3) 7.7 6.7
Connect News & Media: Media (0.1) (0.1) (0.3) (0.3) - -
Connect Books (0.6) (0.4) (2.4) (2.2) 2.5 5.6
Connect Education and Care (0.5) (0.5) (1.7) (1.2) 1.2 1.6
Consolidated total (5.2) (5.3) (5.8) (5.0) 11.4 13.9
Geographical analysis
£m Revenue by destination Non-current assets by location of operation
2014 2013 2014 2013
United Kingdom 1,729.9 1,734.4 98.6 98.7
Europe 51.2 47.9 0.2 0.2
Rest of World 27.4 28.5 - -
Consolidated total 1,808.5 1,810.8 98.8 98.9
3. Operating profit
The Group's results are analysed as follows:
£m 2014 Restated 20131
Note Underlying Non-Recurring Total Underlying Non-Recurring Total
Revenue 1,808.5 - 1,808.5 1,806.9 3.9 1,810.8
Cost of inventories recognised as an expense (1,607.7) - (1,607.7) (1,606.2) - (1,606.2)
Write down of inventories recognised as an expense (0.6) - (0.6) - - -
Other cost of sales (1.2) - (1.2) (0.1) (2.2) (2.3)
Cost of sales (1,609.5) - (1,609.5) (1,606.3) (2.2) (1,608.5)
Gross profit 199.0 - 199.0 200.6 1.7 202.3
Distribution costs (73.9) - (73.9) (81.0) (2.9) (83.9)
Administrative expenses (65.6) (3.4) (69.0) (59.3) (6.8) (66.1)
Share-based payment expense 31 (1.5) - (1.5) (1.9) - (1.9)
Amortisation of intangibles 11 (2.8) (3.0) (5.8) (2.2) (2.8) (5.0)
Impairment 11 - (0.5) (0.5) - - -
Administrative expenses (69.9) (6.9) (76.8) (63.4) (9.6) (73.0)
Share of profits from jointly controlled entities 15 0.3 - 0.3 0.2 - 0.2
Operating profit 55.5 (6.9) 48.6 56.4 (10.8) 45.6
1 - Restatement in respect of retirement benefit obligations, see Note 34.
The operating profit is stated after charging/(crediting):
£m Note 2014 2013
Depreciation on property, plant & equipment 14 5.2 5.3
Amortisation of intangible assets 11 5.8 5.0
Operating lease charges
· occupied land and buildings 8.5 8.9
· vacant land and buildings 0.5 0.9
· equipment and vehicles 0.8 2.2
Operating lease rental income - land and buildings (0.1) (0.4)
Loss on disposal of fixed assets - 0.2
Staff costs 5 93.4 92.7
Included in administrative expenses are amounts payable to Deloitte LLP and their associates by the Company and its
subsidiary undertakings in respect of audit and non-audit services which are as follows:
£m 2014 2013
Fees payable to the Company's auditor for the audit of the Company's annual accounts 0.1 0.1
Fees payable to the Company's auditor for the audit of the Company's subsidiaries 0.2 0.2
Total audit fees 0.3 0.3
Digital strategy review - 0.3
Other services 0.1 0.1
Total non-audit fees 0.1 0.4
Total fees 0.4 0.7
In the current year the Group incurred £0.1m of non-audit fees with Deloitte relating to remuneration advice and other
advisory services.
During the prior year the Group commissioned an extension of the digital strategy review of the books market to consider
technology and market entry strategies. After careful consideration of proposals from a number of providers the Board
appointed a Deloitte digital strategy team based on market understanding, service and price.
4. Non-recurring and other items
£m 2014 20131Restated
Integration costs - (1.1)
Network re-organisation costs (a) (3.0) (3.3)
Acquisition and disposal costs (b) (0.9) (3.7)
Release of property provisions (c) 0.5 -
Impairment (d) (0.5) -
Amortisation of acquired intangibles (e) (3.0) (2.8)
Disposal of MMC (f) - 0.1
Total before, finance costs and taxation (6.9) (10.8)
Finance costs - (0.2)
Total before taxation (6.9) (11.0)
Income tax expense 1.0 1.3
Total after taxation (5.9) (9.7)
1 - Restatement in respect of retirement benefit obligations, see Note 34.
The Group incurred a total of £5.9m (2013: £9.7m) in non-recurring and other costs, after tax. This comprises:
(a) Network reorganisation costs
Network reorganisation costs of £3.0m have been incurred across the Group. The largest elements of which relate to the
network restructuring programme within Connect News and Media. In addition cost reduction actions taken within Connect
Books resulted in a cost of £0.5m. The largest cost category was redundancy costs of £1.6m.
(b) Acquisition and disposal costs
Acquisition and disposal costs of £0.9m relate primarily to reviewing and targeting future acquisitions, together with the
final apportionment of deferred consideration from the acquisition of The Consortium in April 2012 and costs associated
with the acquisition of Martin Lavell in September 2013.
In the prior year acquisition costs of £3.7m have been incurred including the Consortium acquisition deferred consideration
of £3.2m which has been recognised in the Income Statement, the costs having been spread over the earn out periods at the
expected payout levels given the business' strong profit performance. Acquisition and new venture set up costs in respect
of Erasmus, selected contracts from Blackwell Books Limited and Bertrams direct to consumer proposition were £0.5m.
(c) Release of property provisions
During the year the Group has released £0.5m relating to the historical property reversionary lease provisions following
the settlement of two historical claims.
(d) Impairment
During the year we have reviewed the carrying value of acquired intangibles from the acquisition of Blackwell customer
relationships in the Books division and as a result of lower than anticipated sales conversion we have written off £0.5m.
(e) Amortisation of acquired intangibles
Amortisation of acquired intangibles of £3.0m has been incurred relating to acquisitions amortised over their expected
economic lives for which there is no ongoing cash impact. This leaves a further £15.2m net book value to be amortised over
future years. During the year the estimated useful economic lives of Customer Relationships and Trade Names have been
reviewed and have been reduced from a maximum of 10 years to a maximum of 7.5 years. As a result an incremental
amortisation charge of £0.6m has been incurred in the year.
(f) Disposal of MMC
On 1 May 2013, the Group disposed of 100% of the share capital in Dawson Marketing Services Limited and its trading
subsidiary Marketlink Marketing Communications Limited ('MMC') for £0.3m. Due to the nature and size of the business
disposed investment, it has not been separately disclosed as a discontinued operation as defined by IFRS5 - Non Current
Assets Held for Sale and Discontinued Operations.
MMC contributed £3.9m to revenue and £0.1m to the Group's operating profit in 2013.
5. Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive directors) was:
£m Note 2014 2013Restated
Wages and salaries 82.5 81.2
Social security 6.6 6.5
Pension costs 6 2.8 3.1
Share based payments 31 1.5 1.9
Total 93.4 92.7
Pension costs shown above exclude charges and credits for pension scheme financing and actuarial gains and losses arising
on the pension scheme.
For comparability, prior year has been restated to exclude costs of £10.9m for individuals not directly under contracts of
service.
(b) Employee numbers
The average total monthly number of employees (including executive directors) was:
Number 2014 2013
Operations 3,446 4,036
Support functions 932 758
Total 4,378 4,794
6. Retirement benefit obligation
Defined benefit pension schemes
The Group operates three defined benefit schemes, of which the WH Smith Pension Trust (the 'Pension Trust') represents over
96% of the total obligation at 31 August 2013. As part of the acquisition of the Consortium, the Group acquired the assets
and liabilities in respect of two other defined benefit schemes (the 'Consortium CARE' and 'Platinum' schemes).
The Group's defined benefit pension plans are final salary pension plans, which provide benefits to members in the form of
a guaranteed level of pension payable for life. The level of benefits provided depends on members' length of service and
their salary in the final years leading up to retirement. Benefits are paid to members from trustee-administered funds, the
trustees are responsible for ensuring that the plan is sufficiently funded to meet current and future benefit payments. If
investment experience is worse than expected, the Group's obligations are increased.
The trustees must agree a funding plan with the sponsoring company such that any funding shortfall is expected to be met by
additional contributions and investment performance. In order to assess the level of contributions required, triennial
valuations are carried out with plan's obligations measured using prudent assumptions (relative to those used to measure
accounting liabilities). The trustees' other duties include managing the investment of plan assets, administration of plan
benefits and exercising of discretionary powers.
The amounts recognised in the balance sheet are as follows:
£m WH Smith Pension Trust Consortium CARE Platinum 2014 WH Smith Pension Trust Consortium CARE Platinum 2013
Present value of defined benefit obligation (431.6) (18.4) (0.6) (450.6) (402.1) (16.8) (0.3) (419.2)
Fair value of assets 507.3 14.4 0.9 522.6 455.3 13.8 0.5 469.6
Net surplus 75.7 (4.0) 0.3 72.0 53.2 (3.0) 0.2 50.4
Amounts not recognised due to asset limit (75.7) - - (75.7) (53.2) - - (53.2)
- (4.0) 0.3 (3.7) - (3.0) 0.2 (2.8)
Additional liability recognised due to minimum funding requirements (17.3) - - (17.3) (20.3) - - (20.3)
Pension liability (17.3) (4.0) - (21.3) (20.3) (3.0) - (23.3)
Pension asset - - 0.3 0.3 - - 0.2 0.2
The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of
£75.7m at 31 August 2014 (2013 £53.2m surplus) which the Group does not recognise in the accounts as the investment policy
being used means that the amount available on a reduction of future contributions is expected to be £nil (2013: £nil). The
valuation of the defined benefit schemes for the IAS 19 disclosures have been carried out by independent qualified
actuaries based on updating the most recent funding valuations of the respective schemes, adjusted as appropriate for
membership experience and changes in the actuarial assumptions.
The actuarial valuation for funding purposes produces a scheme deficit due to different assumptions and calculation
methodologies used compared to those under IAS 19, most notably the use of a discount rate that reflects the actual
investment strategy, rather than corporate bond yields as required under IAS 19.
In the prior year the triennial actuarial valuation of the Smiths News section of the WH Smith Pension Trust, effective 31
March 2012 was agreed at a liability of £33.0m. The deficit in the scheme was £23.0m when last estimated at 19 June 2013,
reduced from £50.0m at the last valuation date of March 2009. The next valuation date for the scheme will be 31 March
2015.
Future cash contributions by the Group to address this reduced deficit will be £4.1m per annum through to March 2019. The
Group recognises the present value of these agreed contributions as a pension liability of £17.3m (FY2013 £20.3m).
IAS 19 (Revised) has been adopted in the year ended 31 August 2014. This required a change in accounting policy to reflect
pension interest in the income statement calculated on the net balance sheet position at the beginning of the period. The
resulting non-cash pension charge for the period ended 31 August 2014 was £0.9m. The prior period for the year ended 31
August 2013 was restated as described in Note 34.
Other defined benefit schemes
For the Consortium CARE and Platinum schemes, the Group contributed £0.4m in 2014. The next funding valuation of the
Consortium CARE scheme was due on 31 December 2013 and has not yet been finalised. The results of the Platinum scheme's 31
December 2012 funding valuation are not yet finalised.
Across all three of the Groups' schemes the expected level of contributions for FY2015 is £4.9m.
The weighted average duration of the schemes is 18 years for the Pension Trust, 21 years for the Consortium Care scheme and
31 years for the Platinum scheme.
The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:
% p.a. 2014 2013
Discount rate 3.85 4.45
Inflation assumptions - CPI 2.25 2.45
Inflation assumptions - RPI 3.25 3.45
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 21.7 23.9 21.9 24.1
Member currently aged 45 23.1 25.4 23.2 25.6
A summary of the movements in the net balance sheet asset/(liability) and amounts recognised in the Group Income Statement
and Other Comprehensive Income are as follows:
£m Fair value of scheme assets Defined benefit obligation Impact of IFRIC 14 on defined benefit pension schemes Net asset / (liability) on balance sheet
At 31 August 2012 433.1 (395.3) (73.8) (36.0)
Current service cost - (0.4) - (0.4)
Net interest cost- Restated1 17.6 (16.1) (3.1) (1.6)
Total amount recognised in income statement - Restated1 17.6 (16.5) (3.1) (2.0)
Actual less expected return on scheme assets 27.9 - - 27.9
Actuarial losses arising from experience - (1.4) - (1.4)
Actuarial loss arising from changes in financial assumptions - (21.6) - (21.6)
Actuarial loss arising from changes in demographic assumptions - (0.4) - (0.4)
Change in surplus not recognised - Restated1 - - 3.4 3.4
Amount recognised in other comprehensive income 27.9 (23.4) 3.4 7.9
Employer contributions 7.0 - - 7.0
Benefit payments (16.0) 16.0 - -
Amounts included in cash flow statement (9.0) 16.0 - 7.0
At 31 August 2013 469.6 (419.2) (73.5) (23.1)
Current service cost (1.3) 1.2 - (0.1)
Net interest cost 20.6 (18.2) (3.3) (0.9)
Total amount recognised in income statement 19.3 (17.0) (3.3) (1.0)
Actual less expected return on scheme assets 44.6 - - 44.6
Actuarial losses arising from experience - 0.8 - 0.8
Actuarial loss arising from changes in financial assumptions - (33.3) - (33.3)
Actuarial loss arising from changes in demographic assumptions - 2.6 - 2.6
Change in surplus not recognised - - (16.2) (16.2)
Amount recognised in other comprehensive income 44.6 (29.9) (16.2) (1.5)
Employer contributions 4.6 - - 4.6
Benefit payments (15.4) 15.4 - -
Amounts included in cash flow statement (10.8) 15.4 - 4.6
At 31 August 2014 522.7 (450.7) (93.0) (21.0)
Included within Non-current assets 0.3
Included within Current liabilities (4.1)
Included within Non-current liabilities (17.2)
1 -Restatement in respect of retirement benefit obligations, see Note 34.
The charge for the current service cost is included within administrative expenses. 'Net interest costs' are calculated by
applying a discount rate to the net defined benefit asset or liability scheme assets and are included within finance income
and expense.
An analysis of the assets at the balance sheet date is detailed below:
£m 2014 2013
Swap financing portfolio (1) Unquoted 477.0 439.1
Interest rate and inflation swaps Unquoted 6.2 (11.8)
Loan fund (2) Unquoted 24.2 -
Equity call options (3) Unquoted - 27.9
Equities (CARE) Unquoted 10.4 10.2
Bonds (CARE, Platinum) Unquoted 4.7 4.2
Cash (CARE ) 0.2 -
522.7 469.6
1. Investments with the aim of generating a return above LIBOR to finance the interest and inflation swaps in the
Pension Trust. At 31 August 2014 this comprised £270m in asset and total return swap contracts and £180m in a fund
comprising a range of assets from government bonds to hedge funds that targets a return above LIBOR.
2. The loan fund looks to generate a return over a portfolio of loans.
3. The equity option portfolio as at 31 August 2013 represented a notional upside exposure to equities of around
£140m.
The assets held in the swap financing portfolio provide a swap-based hedge against the change in value of a proportion of
the Trust's liabilities for changes in long-term interest rates and inflation expectations.
The actual return on scheme assets during 2014 was a gain of £65.2m (2013: a gain of £45.5m).
The value of the assets held by the trust in Connect Group PLC issued financial instruments is nil (2013: nil).
Sensitivity of results to changes in the main assumptions:
Assumption Change in assumption Impact on IAS 19 liabilities
Discount rate Decrease by 0.5% p.a. Increase by £41m
Rate of inflation Increase by 0.5% p.a. Increase by £36m
Life expectancy Increase by 1 year Increase by £16m
The sensitivity analysis for each significant actuarial assumption has been determined based on reasonably possible changes
to the assumptions at the end of the reporting period. It is based on a change in the key assumption while holding all
other assumptions constant. The effect of a change in more than one assumption will be different to the sum of the
individual changes. When calculating the sensitivities, the same methodology used to calculate the liability recognised in
the balance sheet has been applied. The methodology and types of assumptions used in preparing the sensitivity analysis is
consistent with the previous period.
The history of experience adjustments is as follows:
£m 2014 2013 2012 2011 2010
Present value of defined benefit obligation (450.7) (419.2) (395.3) (348.3) (367.4)
Fair value of assets 522.7 469.6 433.1 375.1 408.6
Impact of IFRIC 14 on defined benefit pension schemes (93.0) (73.5) (73.8) (63.1) (41.2)
Net deficit in the schemes (21.0) (23.1) (36.0) (36.3) -
Experience adjustments on scheme liabilities 0.8 (1.4) (1.0) (4.1) (1.4)
Experience adjustments on scheme assets 44.6 27.9 34.0 (45.8) 39.1
The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income since the adoption
of IFRS is a loss of £21.4m (2013: a loss of £36.2m restated).
The group's defined benefit pension plans have a number of areas of risk, the most significant of which and they ways in
which the Group has sought to manage them are set out below:
Risk Description
Changes in bond yields Falling bond yields tend to increase the funding and accounting liabilities. The assets held in the swap financing portfolio of the Trust provide a swap-based hedge against the change in value of a proportion of the Trust's liabilities for changes in long
-term interest rates and inflation expectations, reducing the exposure to changes in bond yields. The Care and Platinum schemes both hold investments in corporate and government bonds which offer a degree of matching, i.e. the movement in assets arising
from changes in bond yields partially matches the movement in the funding or accounting liabilities. In this way, the exposure to movements in bond yields is reduced.
Inflation risk The plans' benefit obligations are linked to inflation and higher inflation will lead to higher liabilities (although in most cases caps on the level of inflationary increases are in place to protect the plan against extreme inflation). The assets held in
the swap financing portfolio of the Trust provide a swap-based hedge against the change in value of a proportion of the Trust's liabilities for changes in long-term interest rates and inflation expectations, reducing the exposure to inflation. For the Care
and Platinum schemes the majority of the assets are either unaffected by inflation (fixed interest bonds) or loosely correlated with inflation (equities), meaning that an increase in inflation will also increase the deficit.
Life expectancy The majority of the plans' obligations are to provide a pension for the life of the member, so increases in life expectancy will result in an increase in the plans' liabilities.
Defined contribution schemes
The Group operates a number of defined contribution schemes. For the year ended 31 August 2014, company contributions
totalled £2.8m (2013: £3.1m) which is included in the Income Statement.
A defined contribution plan is a pension plan under which the group pays contributions to an independently administered
fund - such contributions are based upon a fixed percentage of employees' pay. The group has no legal or constructive
obligations to pay further contributions to the fund once the contributions have been paid. Members' benefits are
determined by the amount of contributions paid by the Company and the member, together with investment returns earned on
the contributions arising from the performance of each individual's chosen investments and the type of pension the member
chooses to buy at retirement. As a result, actuarial risk (that benefits will be lower than expected) and investment risk
(that assets invested in will not perform in line with expectations) fall on the employee.
7. Investment revenue and finance costs
£m Note 2014 2013 Restated1
Net change in fair value of derivative assets 0.4 0.3
Investment revenue 0.4 0.3
Interest on bank overdrafts and loans (4.7) (4.7)
Net interest expense on defined benefit obligation 6 (0.9) (1.6)
Interest payable on finance leases (0.2) (0.2)
Unwinding of discount on provisions - trading (0.1) (0.3)
Underlying finance costs (5.9) (6.8)
Underlying net finance costs (5.5) (6.5)
Unwinding of discount on provisions - non-recurring - (0.2)
Net finance costs (5.5) (6.7)
1 -Restatement in respect of retirement benefit obligations, see Note 34.
8. Income tax expense
£m 2014 2013
Underlying Non-recurring and other items Total Restated1Underlying Non-recurring and other items Total
Current tax 12.3 (1.0) 11.3 15.1 (1.3) 13.8
Adjustment in respect of prior year UK corporation tax (2.4) - (2.4) (2.6) - (2.6)
Total current tax charge 9.9 (1.0) 8.9 12.5 (1.3) 11.2
Deferred tax - current year (0.4) - (0.4) (0.7) - (0.7)
Deferred tax - prior year (0.2) - (0.2) (0.3) - (0.3)
Total tax on profit 9.3 (1.0) 8.3 11.5 (1.3) 10.2
Effective tax rate 18.7% 19.4% 23.0% 26.2%
The effective underlying income tax rate for the year was 18.7% (2013: 23.0%). After adjusting for the impact of
non-recurring and other items of £1.0m (2013: £1.3m), the effective statutory income tax rate was 19.4% (2013: 26.2%).
The tax rates used in the 2014 and 2013 reconciliations of the tax charge are the main rates of UK corporation tax, those
being 22.2% (2013: 23.6%).
Reconciliation of the tax charge
£m 2014 2013Restated1
Profit before tax 43.1 38.9
Tax on profit at the standard rate of UK corporation tax 22.2% (2013: 23.6%) 9.5 9.2
Permanent differences 1.3 2.9
Share schemes (0.2) (0.4)
Adjustment in respect of prior year UK corporation tax (2.6) (2.9)
Impact of overseas tax rates 0.3 1.4
Total tax charge 8.3 10.2
Tax charges to other comprehensive income and directly in equity
£m 2014 2013
Current tax relating to the defined benefit pension scheme 0.7 0.6
Current tax relating to share based payments 0.5 -
Deferred tax relating to derivative financial instruments (0.1) (0.3)
Deferred tax relating to share based payments 0.5 0.5
Deferred tax relating to retirement benefit obligations (0.6) (3.3)
Tax charges to other comprehensive income 1.0 (2.5)
1 -Restatement in respect of retirement benefit obligations, see Note 34.
9. Dividends
Amounts paid & proposed as distributions to equity shareholders in the years:
Paid & proposed dividends for the year 2014 2013 2014 2013
Per share Per share £m £m
Interim dividend - paid 3.1p 3.0p 5.8 5.5
Final dividend - proposed 6.6p 6.3p 12.3 11.6
9.7p 9.3p 18.1 17.1
Recognised dividends for the year
Final dividend - prior year 6.3p 5.8p 11.9 10.5
Interim dividend - current year 3.1p 3.0p 5.8 5.5
9.4p 8.8p 17.7 16.0
The proposed final dividend for the year ended 31 August 2014 of 6.6p is subject to approval by shareholders at the Annual
General Meeting on 4 February 2015 and in line with IAS10 - 'Events after the reporting period', this dividend has not been
included as a liability in these accounts. The proposed dividend, if approved, will be paid on 6 February 2015 to
shareholders on the register at close of business on 9 January 2015.
10. Earnings per share
2014 2013Restated1
£m Pence £m Pence
Earnings Weighted average number of shares million per share Earnings Weighted average number of shares million per share
Weighted average number of shares in issue 187.7 183.9
Shares held by the ESOP (weighted) (1.4) (1.7)
Basic earnings per share (EPS)
Underlying earnings attributable to ordinary shareholders 40.5 186.3 21.7p 38.4 182.2 21.1p
Non-recurring & other items (5.9) (9.7)
Earnings attributable to ordinary shareholders 34.6 186.3 18.6p 28.7 182.2 15.7p
Diluted earnings per share (EPS)
Effect of dilutive share options 6.3 11.7
Diluted underlying EPS 40.5 192.6 21.0p 38.4 193.9 19.8p
Diluted EPS 34.6 192.6 18.0p 28.7 193.9 14.8p
1 -Restatement in respect of retirement benefit obligations, see Note 34.
The acquisition of Hedgelane Limited in April 2012 included £4.0 million of deferred share capital payable contingent on
profit targets and the continued employment of the former owners of Hedgelane Limited. In January 2014, 4.5 million shares
were allotted in satisfaction of the deferred share capital. The weighted effect of this has been included in diluted EPS.
11. Intangible assets
11a Intangible assets
Acquired Intangibles Internally generated development costs Computer software costs
£m Goodwill Customer relationships Trade name Software Total
Cost:
At 1 September 2013 44.2 21.7 3.0 0.7 5.6 25.3 100.5
Additions - 0.3 - - 1.6 1.9 3.8
Disposals - - - - (1.2) (20.4) (21.6)
At 31 August 2014 44.2 22.0 3.0 0.7 6.0 6.8 82.7
Accumulated amortisation:
At 1 September 2013 - 5.6 0.9 0.5 3.5 21.8 32.3
Amortisation charge - 2.4 0.5 0.1 1.6 1.2 5.8
Impairment - 0.5 - - - - 0.5
Disposal - - - - (1.2) (20.4) (21.6)
At 31 August 2014 - 8.5 1.4 0.6 3.9 2.6 17.0
Net book value at 31 August 2014 44.2 13.5 1.6 0.1 2.1 4.2 65.7
Cost:
At 1 September 2012 43.1 19.7 2.9 0.7 3.9 24.9 95.2
Additions 0.3 - - - 1.7 1.2 3.2
Acquisition of subsidiaries 0.8 2.3 0.1 - - - 3.2
Disposals - (0.3) - - - (0.8) (1.1)
At 31 August 2013 44.2 21.7 3.0 0.7 5.6 25.3 100.5
Accumulated amortisation:
At 1 September 2012 - 3.4 0.6 0.3 2.3 21.5 28.1
Amortisation charge - 2.3 0.3 0.2 1.2 1.0 5.0
Disposal - (0.1) - - - (0.7) (0.8)
At 31 August 2013 - 5.6 0.9 0.5 3.5 21.8 32.3
Net book value at 31 August 2013 44.2 16.1 2.1 0.2 2.1 3.5 68.2
0.2
2.1
3.5
68.2
In the year the Group acquired the trade and assets of Martin Lavell giving rise to the recognition of an intangible asset
of £0.3m for customer relationships.
In the prior year the £2.3m of additions to customer relationships is primarily £2.0m in relation to the acquisition of
certain European and African academic library services customer relationships from Blackwell UK Limited on 20 May 2013 by
Dawson Books Limited, a 100% owned subsidiary of the Group. The remaining £0.3m related to the Erasmus acquisition.
11b. Goodwill and intangibles by segment and CGU
Goodwill of £4.1m and acquired intangibles totalling £5.1m arose from the acquisition of the business and assets of
Bertrams on 20 March 2009 have been allocated to the Connect Books combined cash generating unit (CGU).
The acquisition of Dawson Holdings PLC on 23 August 2011, resulted in goodwill of £18.1m and acquired intangibles of £7.8m.
These have been allocated to the two remaining individual CGU's identified at the time of the acquisition; Dawson Books and
Media Direct.
On the acquisition of Hedgelane Limited on 24 April 2012, the Group recognised goodwill of £20.9m and acquired intangibles
of £10.4m which have been allocated to the Education and Care CGU.
The acquisition of 100% of the issued share capital of Houtschild Internationale Boekhandel B.V. on 13 June 2012 produced a
further £0.3m of goodwill.
The acquisition of Erasmus on 17 January 2013 generated £0.8m of goodwill and £0.3m of acquired intangible assets.
The acquisition of certain Blackwell contracts on 16 April 2013 generated £2.0m of acquired intangibles.
The acquisition of trade and assets of Martin Lavell acquired on 1 September 2013 generated acquired intangibles of £0.3m.
During the year the original useful economic lives of customer relationship and trade names were reviewed and reduced from
10 years to a maximum of 7.5 years based upon managements revised assessment of future contractual renewal rates. The
impact in the current year was an additional amortisation charge of £0.6m.
Goodwill is not amortised, but tested annually for impairment or more frequently if there are indications that goodwill
might be impaired with the recoverable amount being determined from value in use calculations. The recoverable amounts of
the combined cash generating units are determined from the value in use calculations. The Group prepares cash flow
forecasts derived from the most recent budgets and forecasts for the following 3 years as approved by the Board and
extrapolates these cash flows on an estimated growth rate of 1% into perpetuity. The rate used to discount the forecast
cash flows range from 13.5% to 13.9%, being the Group's risk adjusted pre-tax WACC, specific for each cash generating unit.
Pre-tax discount rates are derived from the Group's post-tax WACC of 9% risk adjusted by 2%. The calculation of value in
use is most sensitive to the discount rate and growth rates used. In analysing the sensitivity of key assumptions,
management consider that potential changes in certain assumptions could cause the carrying value to fall below recoverable
amount for Connect Books. Using the key assumptions stated above the value in use exceeded the carrying amount by £16.1m.
An impairment would be recognised if the discount rate was 1.9% higher or if forecast cash flows were more than 34% lower.
Management believes that no other 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 2014 2013 On acquisition 2014 2013 On acquisition 2014 2013 On acquisition
Connect Books 17.6 17.6 17.6 5.6 7.6 12.7 23.2 25.2 30.3
Connect Media 5.7 5.7 5.7 1.6 1.8 2.6 7.3 7.5 8.3
Connect News - - - 0.2 - 0.3 0.2 - 0.3
Connect Education and Care 20.9 20.9 20.9 7.8 9.0 10.4 28.7 29.9 31.3
44.2 44.2 44.2 15.2 18.4 26.0 59.4 62.6 70.2
The individual material intangible assets relate to the customer relationships acquired with Dawson Holdings PLC and
Hedgelane Ltd. The carrying value of these assets at 31 August 2014 is £4.6m and £7.0m respectively with a remaining
amortisation period of 4 and 5 years respectively.
12. Acquisitions
The Group acquired the trade and assets from Martin Lavell Ltd on 1 September 2013, a significant distributor in the
Business-to-Business sector of newspaper and magazine supplies in London, for a consideration of £0.3m. The acquisition
gives rise to the recognition of £0.3m intangible asset for customer relationships and contributed a profit before tax of
£0.3m in year.
13. Disposals
2014
There were no disposals in the period.
2013
On 30 April 2013, the Group disposed of 100% of the share capital in Dawson Marketing Services Limited and its trading
subsidiary Marketlink Marketing Communications Limited ('MMC') for £0.3m. Due to the nature and size of the business
disposed investment, it has not been separately disclosed as a discontinued operation as defined by IFRS5 - Non Current
Assets Held for Sale and Discontinued Operations.
MMC contributed £3.9m to revenue and £0.1m to the Group's operating profit in 2013.
14. Property, plant and equipment
£m Land & Buildings
Freehold properties Long term leasehold Short term leasehold Fixtures & fittings Equipment & vehicles Total
Cost:
At 1 September 2013 4.9 0.4 11.9 7.3 38.7 63.2
Additions - - 0.5 1.3 5.8 7.6
Disposals - - (0.4) (0.3) (5.5) (6.2)
At 31 August 2014 4.9 0.4 12.0 8.3 39.0 64.6
Accumulated depreciation:
At 1 September 2013 0.4 0.3 7.8 5.5 22.6 36.6
Depreciation charge 0.1 - 0.8 0.7 3.6 5.2
Disposals - - (0.4) (0.3) (5.5) (6.2)
At 31 August 2014 0.5 0.3 8.2 5.9 20.7 35.6
Net book value at 31 August 2014 4.4 0.1 3.8 2.4 18.3 29.0
Cost:
At 1 September 2012 4.9 0.4 12.4 11.1 29.5 58.3
Additions - - 0.7 0.6 6.2
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