REG - Connect Group Plc - Preliminary Results Annoucement y/e 31 August 14 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 29
29/10/2014 12:03
- Part 29: For the preceding part double click ID:nRSO3218UB
7.5
Inter segment transfer - - - (4.1) 4.1 -
Disposals - - (1.2) (0.3) (1.1) (2.6)
At 31 August 2013 4.9 0.4 11.9 7.3 38.7 63.2
Accumulated depreciation:
At 1 September 2012 0.4 0.3 8.2 5.8 19.1 33.8
Depreciation charge - - 0.7 0.5 4.1 5.3
Inter segment transfer - - - (0.5) 0.5 -
Disposals - - (1.1) (0.3) (1.1) (2.5)
At 31 August 2013 0.4 0.3 7.8 5.5 22.6 36.6
Net book value at 31 August 2013 4.5 0.1 4.1 1.8 16.1 26.6
The Group leases plant and equipment under a number of finance lease arrangements and has the option to purchase the
equipment at the end of each lease. The net book value of finance leases contained within these balances is £4.1m at 31
August 2014 (2013: £1.8m).
15. Interests in jointly controlled entities
The Group's share of the results, assets and liabilities of jointly controlled entities is as follows:
£m 2014 2013
Revenue 9.6 9.4
Profit after tax 0.3 0.2
Non-current assets 1.2 1.2
Current assets 2.6 2.2
Total assets 3.8 3.4
Current liabilities (2.3) (1.9)
Non-current liabilities (0.1) (0.3)
Total liabilities (2.4) (2.2)
Goodwill 2.9 2.9
Share of net assets 4.3 4.1
The jointly controlled entities of the Group are as follows:
FMD Limited The Group has a 50% investment in FMD Limited, the holding company of Worldwide Magazine Distribution Limited, a company incorporated in England (2013: 50%). The latest statutory accounts of FMD Limited were drawn up to 30 April 2014.
Rascal Solutions Limited The Group has a 50% interest in the ordinary shares of Rascal Solutions Limited, a company incorporated in England (2013: 50%). The latest statutory accounts of Rascal Solutions Limited were drawn up to 31 August 2013.
BlueBox Avionics Limited The Group has a 50% interest in the ordinary shares of Bluebox Avionics Limited, a company incorporated in England (2013: 50%). The latest statutory accounts of Bluebox Avionics Limited were drawn up to 31 August 2013.
16. Inventories
£m 2014 2013
Goods held for resale 45.3 44.2
17. Trade and other receivables
£m 2014 2013
Trade receivables 107.9 107.6
Allowance for doubtful debts (0.7) (0.7)
107.2 106.9
Other debtors 12.4 10.3
Prepayments and accrued income 8.5 9.9
Trade and other receivables 128.1 127.1
Trade receivables
Total trade receivables net of allowances for doubtful debts held by the Group at 31 August 2014 amounted to £107.2m (2013:
£106.9m), comprising the amounts presented above.
The average credit period taken on sale of goods is 21 days (2013: 19 days). Trade receivables are generally non-interest
bearing. The Group provides for receivables on an individual customer basis based on circumstances known at that time and
the likelihood of recovery.
Included in the outstanding trade receivables balance are debtors with overdue amounts of £8.5m (2013: £9.5m) that the
Group has not provided for as these amounts are still considered recoverable and fall outside our pre-determined
provisioning policy.
Ageing of past due but not impaired receivables:
£m 2014 2013
30-60 days 5.3 6.0
61-90 days 1.4 1.1
91-120 days 0.6 0.9
Over 120 days 1.2 1.5
8.5 9.5
Included within the 2014 number is an expected seasonal peak of £4.6m (2013: £4.6m) largely within the 30-60 day ageing
relating to the Consortium business.
Of the trade receivables balance at the end of the year:
· One customer (2013: one) had an individual balance that represented more than 10% of the total trade receivables
balance. The total of these were £15.3m (2013: £29.0m); and
· A further six customers (2013: three) had individual balances that represented more than 5% of the total trade
receivables balance. The total of these was £42.2m (2013: £24.4m).
Movement in the allowance for doubtful debts:
£m 2014 2013
At 1 September 0.7 0.9
Impairment losses recognised 0.7 0.3
Amounts written off as uncollectible (0.6) (0.4)
Amounts recovered during the year (0.1) (0.1)
At 31 August 0.7 0.7
Ageing of past due and impaired trade receivables:
£m 2014 2013
30-60 days - -
61-90 days 0.1 0.1
91-120 days 0.1 0.1
Over 120 days 0.5 0.5
0.7 0.7
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
Other debtors and prepayments
The largest items included within this balance are £7.6m (2013: £4.9m) of publisher debtors and £4.0m (2013: £4.5m) of
accrued revenue.
18. Trade and other payables
£m 2014 2013
Trade payables 156.1 147.2
Other tax and social security 3.1 3.5
Other creditors 11.9 15.7
Accruals and deferred income 21.2 22.3
192.3 188.7
Trade and other payables principally comprise amounts outstanding for trade purchases and on-going costs. The average
credit period taken for trade purchases is 30 days (2013: 26 days). No interest is charged on trade payables. The Directors
consider that the carrying amount of trade and other payables approximates to their fair value.
19. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
£m Sterling Euro US Dollar Other Total 2014 2013
Cash and cash equivalents 17.7 1.8 0.4 0.5 20.4 10.1
Term loan - disclosed within current liabilities - - - - - (3.0)
Term loan - disclosed within non-current liabilities (48.4) - - - (48.4) (34.0)
Revolving credit facility (59.0) (1.9) - - (60.9) (62.9)
Asset backed facility - - - - - (6.9)
Total borrowings (107.4) (1.9) - - (109.3) (106.8)
Net borrowings (89.7) (0.1) 0.4 0.5 (88.9) (96.7)
Total borrowings
Amount due for settlement within 12 months (59.0) (1.9) - - (60.9) (72.8)
Amount due for settlement after 12 months (48.4) - - - (48.4) (34.0)
(107.4) (1.9) - - (109.3) (106.8)
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.
Available Group bank facilities are outlined in Note 20. At 31 August 2014, the Group had £90.7m (2013: £70.2m) of undrawn
committed borrowing facilities in respect of which all conditions precedents had been met. Interest payable under the
current facility is calculated as the cost of one month LIBOR plus an interest margin of between 1.35% and 2.35% dependent
on the net debt/ adjusted EBITDA covenant ratio.
20. Financial Instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group's funding requirements and financial risks in line
with the Board approved treasury policies and procedures and their delegated authorities. Treasury's role is to ensure that
appropriate financing is available for running the businesses of the Group on a day to day basis, allowing for investments
and acquisitions whilst minimising interest cost. No transactions of a speculative nature are undertaken. Dealings are
restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while
maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the
Group consists of debt, which includes the borrowings, cash and cash equivalents as disclosed in Note 19 and equity
attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the
Group Statement of Changes in Equity.
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and
actual cash flows. The facilities that the Group has at its disposal to further reduce liquidity risk are as follows:
As at 31 August 2014, the Group had £200m committed bank facilities in place (2013: £177m).
Bank facilities now comprise:
· a £50m syndicated term loan with £5m repayable in February 2017, August 2017, February 2018 and August 2018 with the
balance repayable in November 2018;
· a £150m syndicated revolving credit facility which is expires in November 2018;
The facility described above is subject to the following covenants:
· Leverage cover - the net debt: adjusted EBITDA ratio which must remain below 2.75x. At 31 August 2014 the ratio was
1.4x
· Interest cover - the consolidated net interest: adjusted EBITDA ratio which must remain above 3.0x. As at 31 August
2014 the ratio was 11.8x
· Fixed charge cover - the ratio of adjusted EBITDA to consolidated fixed charges is not less than 2.00 to 1. As at 31
August 2014 the ratio was 4.7x
· Guarantor cover - The annual turnover, gross assets and pre-tax profits of the guarantors contribute at any time 80
per cent or more of the annual consolidated turnover, gross assets and pre-tax profits of the Group for each of its
financial years. The guarantors, which are all 100% owned or wholly owned subsidaries of the Connect Group PLC, are Connect
Group PLC, Dawson Holdings Limited, Hedgelane Limited, Smiths News Holdings Limited, Smiths News Investments Limited,
Smiths News Trading Limited, Bertram Trading Limited, Connect2U Limited, The Consortium for Purchasing and Distribution
Limited, Smiths News Instore Limited and Dawson Books Limited.
At 31 August 2014, the Group had available £90.7m (2013: £70.2m) of undrawn committed borrowing facilities. There were no
breaches of loan agreements during either the current or prior years.
As the Group is cash generative its liquidity risk is considered low. The Group's cash generation allows it to meet all
loan commitments as they fall due as well as sustain a negative working capital position.
The Group invests significant resources in the forecasting and management of its cash flows. This is critical given a
routine cash cycle that results in significant predictable swings within each month of around £50m.
The following is an analysis of the undiscounted contractual cash flows payable under financial liabilities and
derivatives. The undiscounted cash flows will differ from both the carrying value and fair value. Floating rate interest is
estimated using the prevailing rate at the balance sheet date.
£m Due within 1 Year Due between 1 and 2 years Due between 2 and 3 years Greater than 3 years
At 31 August 2014
Non derivative financial liabilities
Bank and other borrowings (62.0) (1.1) (10.9) (41.1)
Finance leases (0.9) (1.1) (1.2) (1.2)
Derivative and other financial liabilities
Net settled derivative contracts - receipts 0.1 - - -
Net settled derivative contracts - payments (0.3) - - -
Derivative and other financial assets
Net settled derivative contracts - receipts 0.3 0.3 0.3 0.1
Total (62.8) (1.9) (11.8) (42.2)
At 31 August 2013
Non derivative financial liabilities
Bank and other borrowings (72.8) (34.0) - -
Finance leases (1.0) (0.8) - -
Derivative and other financial liabilities
Net settled derivative contracts - receipts 0.3 0.1 - -
Net settled derivative contracts - payments (1.3) (0.3) - -
Derivative and other financial assets
Net settled derivative contracts - receipts 0.2 0.2 0.2 0.2
Total (74.6) (34.8) 0.2 0.2
Counterparty risk
Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is
monitored.
Foreign currency risk
· The Group does not hedge the translation effect of exchange rate movements on the Income Statement. The majority of
the Group's transactions are however carried out in the functional currencies of its operations, and so transactional
exposure is limited.
· The majority of the Group's net assets are held in Sterling, with only £3.9m (2013: £3.1m) of net assets held in
overseas currencies. Translation exposure arises on the re-translation of overseas subsidiaries profits and net assets into
sterling for financial reporting purposes and is not seen as significant.
· Note 19 denotes borrowings by currency.
· There are no material currency exposures to disclose.
Interest rate risk
The Group regularly monitors its exposure to interest rate risk. The Group uses interest rate swaps to manage its exposure
to interest rate movements on its bank borrowings. The Group avoids the use of derivatives or other financial instruments
in circumstances when the outcome would effectively be largely dependent upon speculation on future rate movements. As at
31 August 2014, 100% of the Group's borrowings were at fixed rates achieved through hedging.
It is, and has been throughout the period of review, the Group's policy that no trading in derivative financial instruments
shall be undertaken.
Hedge accounting
There are £60m of interest rate hedges in place until November 2014 and a further £60m in place until November 2017
contracted at an average effective rate of 3.5%.
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest
amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the cash flow
exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is based on
the market values of equivalent instruments at the balance sheet date, and is disclosed below. The average interest rate is
based on the outstanding balances at the end of the financial year.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding
as at the reporting date:
Average contract fixed interest rate Notional principal amount Fair value
2014 2013 2014 2013 2014 2013
Outstanding receive floating, pay fixed contracts
Less than 1 year 1.6% 1.6% £60.0m - (£0.3m) -
2 to 5 years 1.0% 1.0% £60.0m £120.0m £0.9m (£0.4m)
The interest rate swaps are settled on a monthly basis. The floating rate on the interest rate swaps is 1 month LIBOR. The
Group settles the difference between fixed and floating interest rates on a net basis. All interest rate swap contracts
exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to
reduce the Group's cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the
interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in the income statement
over the period that the floating rate interest payments on debt impact the income statement.
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).
Current Non-current
£m 2014 2013 2014 2013
Derivatives that are designated and effective as hedging instruments carried at fair value:
Interest rate swaps - Liabilities - (0.8) - -
- (0.8) - -
Interest rate swaps - Assets - - 0.6 0.4
- (0.8) 0.6 0.4
At 31 August 2014 it was determined that £50m of a £60m hedge put in place in September 2012 could not be designated within
a hedge relationship as a result the movement of the fair value of this part of the hedge was recognised in the Income
Statement, resulting in a £0.4m credit being recognised in finance costs with the remainder of the mark to market
valuations being recognised in reserves.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and
non-derivative instruments at the balance sheet date. For floating rate liabilities the analysis assumes the amount of
liability outstanding at the balance sheet date was outstanding for the whole year.
If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group's profit and equity for
the year ended 31 August 2014 would decrease/increase by £0.1m (2013: £0.4m) due to the interest rate swaps that are used
to mitigate this risk.
Credit risk
The Group considers its exposure to credit risk at 31 August 2014 to be as follows:
£m 2014 2013
Bank deposits 20.4 10.1
Trade receivables 107.9 106.9
128.3 117.0
Further detail on the Group's policy relating to trade receivables can be found in Note 17 to the accounts.
21. Obligations under finance leases
£m 2014 2013
Minimum lease payments Present value of minimum lease payments Minimum lease payments Present value of minimum lease payments
Amount payable under finance leases:
Within one year 1.0 1.0 1.0 1.0
In the second to fifth years inclusive 3.4 3.1 0.9 0.8
Total 4.4 4.1 1.9 1.8
Less: future finance charges (0.3) - (0.1) -
Present value of lease obligations 4.1 4.1 1.8 1.8
Less: amount due for settlement within 12 months (shown under current liabilities) (0.9) (1.0)
Amount due for settlement after 12 months 3.2 0.8
Group policy is to acquire certain items of its fixtures and equipment under finance leases. The average lease term is 3.5
years. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have
been entered into for contingent rental payments.
The fair value of the Group's lease obligations approximates to their carrying amount.
22. Other non-current liabilities
£m 2014 2013
Other creditors 1.4 1.6
The balance disclosed as other creditors within non-current liabilities relates to operating lease incentives which are
being recognised over the lease term.
23. Deferred tax
Deferred tax assets and liabilities are attributable to the following:
£m Accelerated tax depreciation Other Share based payments Intangible assets Retirement benefits Total
At 1 September 2013 0.1 0.6 1.5 (3.5) 4.9 3.6
Charge to income 0.5 (0.4) 0.2 0.4 (0.1) 0.6
Charge to other comprehensive income - (0.1) 0.5 - (0.6) (0.2)
At 31 August 2014 0.6 0.1 2.2 (3.1) 4.2 4.0
Deferred tax assets 0.7 0.1 2.2 - 4.2 7.2
Deferred tax liabilities (0.1) - - (3.1) - (3.2)
At 1 September 2012 (0.2) 1.1 0.9 (4.1) 8.2 5.9
Charge to income 0.4 (0.2) 0.1 0.6 - 0.9
Charge to other comprehensive income - (0.3) 0.5 - (3.3) (3.1)
Acquisition/ disposal of subsidiary (0.1) - - - - (0.1)
At 31 August 2013 0.1 0.6 1.5 (3.5) 4.9 3.6
Deferred tax assets 0.4 1.3 1.5 - 4.9 8.1
Deferred tax liabilities (0.3) (0.7) - (3.5) - (4.5)
The Company has capital losses carried forward of £23.9m (2013: £23.9m). Deferred tax assets have not been recognised in
respect of the capital losses carried forward due to the uncertainty of their utilisation.
The Finance Act 2013, which provides for a reduction in the main rate of corporation tax from 21% to 20%, effective from 1
April 2015, was substantively enacted on 2 July 2013. This rate reduction has been reflected in the calculation of deferred
tax at the balance sheet date.
24. Provisions
£m Reorganisation provisions Insurance provision Deferred consideration Property provisions Total
Gross provision:
At 1 September 2013 1.4 1.4 1.9 6.4 11.1
Additions 0.7 0.2 0.2 1.3 2.4
Released (0.1) - - (1.5) (1.6)
Utilised in year (1.3) (0.2) (2.1) (2.6) (6.2)
At 31 August 2014 0.7 1.4 - 3.6 5.7
Discount:
At 1 September 2013 - - - (0.8) (0.8)
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 2012 0.3 1.3 2.1 10.8 14.5
Additions 1.4 0.5 1.8 0.6 4.3
Disposal - - - (0.9) (0.9)
Utilised in year (0.3) (0.4) (2.0) (4.1) (6.8)
At 31 August 2013 1.4 1.4 1.9 6.4 11.1
Discount:
At 1 September 2012 - - - (2.0) (2.0)
Additions - - - 0.2 0.2
Unwinding of discount utilisation - - - 1.0 1.0
At 31 August 2013 - - - (0.8) (0.8)
Net book value at 31 August 2013 1.4 1.4 1.9 5.6 10.3
£m 2014 2013
Included within current liabilities 3.4 7.5
Included within non-current liabilities 1.9 2.8
Total 5.3 10.3
Reorganisation provisions include amounts for programmes, primarily redundancy costs, that have been announced prior to the
year end and are all expected to be utilised during the following financial year.
Insurance provisions represent the expected future costs of employer's liability, public liability and motor accident
claims.
The property provision represents the estimated future cost of the Group's onerous and reversionary leases in non-trading
properties based on known and estimated rental sub-leases. This provision has been discounted at a risk free rate and this
discount will be unwound over the life of the leases. The provision is expected to be utilised over the period to 2019,
when all of the leases provisions will have expired.
Deferred consideration relates to amounts provided in relation to the acquisition of Hedgelane Ltd on 23 April 2012, the
cost was contingent upon future employment. The provision has been fully utilised in the year with the issue of 4,530,012
shares in January 2014.
25. Contingent liabilities and capital commitments
£m 2014 2013
Bank and other loans guaranteed 2.1 3.6
Other potential liabilities that could crystallise are 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, any such contingent
liability in respect of assignment prior to demerger, which becomes an actual liability, will be apportioned between
Connect Group PLC and WH Smith PLC in the ratio 35:65 (provided that the actual liability of Connect Group PLC in any 12
month period does not exceed £5m). The Company's share of these leases has an estimated future cumulative gross rental
commitment at 31 August 2014 of £6.3m (2013: £8.4m). This excludes the reversionary lease provision included within
property provisions in Note 24.
Contracts placed for future capital expenditure approved by the directors but not provided for amount to: £nil (2013:
£nil).
26. Operating lease commitments
The group as lessee:
Minimum lease payments under non-cancellable operating leases are as follows:
2014 2013
£m Land & buildings Equipment & vehicles Total Land & buildings Equipment & vehicles Total
Within one year 7.7 2.1 9.8 8.1 1.6 9.7
In the second to fifth years inclusive 25.6 1.5 27.1 26.2 1.6 27.8
In more than five years 24.3 - 24.3 26.7 - 26.7
57.6 3.6 61.2 61.0 3.2 64.2
61.0
3.2
64.2
The Group leases various distribution properties and plant and equipment under non-cancellable operating lease agreements.
The leases have varying terms, escalation clauses and renewal rights.
The group as lessor:
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
£m 2014 2013
Within one year 0.1 -
In the second to fifth years inclusive 0.2 0.3
0.3 0.3
Property rental income earned during the year was £0.1m (2013: £0.4m).
27. Net cash inflow from operating activities
£m 2014 2013
Operating profit 48.6 45.6
Acquisition costs - 3.2
Share of profits of jointly controlled entities (0.3) -
Adjustment for pension funding (4.6) (6.5)
Depreciation of property, plant and equipment 5.2 5.3
Amortisation and impairment of intangible assets 6.3 5.0
Share based payments 1.1 1.9
(Increase)/ decrease in inventories (1.7) 0.4
Increase in receivables (2.4) (5.8)
Decrease in payables 7.3 1.5
Income tax paid (9.8) (10.5)
Decrease in provisions (2.3) (2.2)
Net cash inflow from operating activities 47.4 37.9
28. Share Capital
(a) Share capital
£m 2014 2013
Authorised:
300.0m ordinary shares of 5p each 15.0 15.0
Issued and fully paid:
189.3m ordinary shares of 5p each (2013:184.3m) 9.5 9.2
(b) Movement in share capital
£m Ordinary shares of 5p each
31 August 2013 9.2
Shares issued during the year 0.3
At 31 August 2014 9.5
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 general meetings of the Company. The Company has one class of ordinary shares, which carry no right to
fixed income.
During the year 4,959,905 (2013: 763,101) ordinary 5p shares were issued for a consideration of £4,373,469 (2013:
£655,352), resulting in a share premium of £4,125,474 (2013: £617,197). Of these 4,530,012 relate 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.
The concept of authorised share capital was repealed by the Companies Act 2006 with effect from 1 October 2009, and on 15
January 2010, the Company passed a Special Resolution dis-applying the existing provisions of its Memorandum of Association
from applying to its Articles of Association.
(c) Share premium
£m 2014 2013
Balance at 1 September 1.2 0.6
Premium arising on issue of equity shares 4.1 0.6
Balance at 31 August 5.3 1.2
29. Reserves
(a) Demerger reserve
£m 2014 2013
At 1 September (280.1) (280.1)
At 31 August (280.1) (280.1)
This relates to reserves created following the capital re-organisation undertaken as part of the demerger of WH Smith PLC
in 2006. The balance represented the difference between the share capital and reserves of the Group restated on a pro-forma
basis as at 31 August 2004 and the previously reported share capital.
(b) ESOP reserve
£m 2014 2013
Balance at 1 September (1.5) (1.7)
Acquired in the period (6.3) (3.0)
Disposed of on exercise of options 2.6 3.2
Balance at 31 August (5.2) (1.5)
The ESOP reserve represents the cost of shares in Connect Group PLC purchased in the market and held by the Smiths News
Employee Benefit Trust to satisfy awards and options granted under the Group's Executive Share Schemes (see Note 31). The
number of ordinary shares held by the Trust at 31 August 2014 was 2,203,191 (2013: 1,070,854).
(c) Hedging & translation reserve
£m 2014 2013
Balance at 1 September (0.6) (2.3)
Gain recognised on cash flow hedges (net of tax) 0.5 1.7
Exchange differences on translating net assets of foreign operations (0.2) -
Balance at 31 August (0.3) (0.6)
The hedging reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash
flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in the profit or loss only when
the hedged transaction impacts the profit or loss.
30. Retained Earnings
£m
Balance at 1 September 2012 196.7
Total comprehensive income for the year 33.9
Dividends paid (16.0)
Employee share schemes (0.2)
Credit for equity-settled share based payments 0.5
Balance at 31 August 2013 214.9
Total comprehensive income for the year 33.3
Dividends paid (17.7)
Employee share schemes (2.6)
Equity-settled share based payments, net of tax 0.6
Balance at 31 August 2014 228.5
31. Share-based payments
The Group recognised total expenses of £1.5m in 2014 (2013: £1.9m) related to equity-settled share-based payment
transactions.
Average share price throughout the year was 191.5p (2013: 158.8p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Smiths News Sharesave Scheme, the Board may grant options to purchase ordinary shares in the Company to eligible employees who enter into an HM
Revenue & Customsapproved Save-As-You-Earn ('SAYE') savings contract for a term of three or five years. Options are granted at a 20% discount to the market price of the
shares on the day preceding the date of offer and are normally exercisable for a period of six months after completion of the SAYE contract.
Executive Share Option Schemes (ESOS) Under the terms of the Smiths News Executive Share Option Scheme, the Board may grant options to purchase ordinary shares in the Company to executives up to an annual
limit of 200% of base salary. The exercise of options is conditional on the achievement of a three year performance target, which is determined by the Remuneration
Committee at the time of grant. Provided that the target is met, options are normally exercisable until the day preceding the 10th anniversary of the date of grant.
LTIP Under the terms of the Connect Group LTIP, executive directors and key senior executives may be awarded each year conditional entitlements to ordinary shares in the
Company (in the form of nil cost options) or, in order to retain flexibility and at the Company's discretion, a cash sum linked to the value of a notional award of shares
up to a value of 200% of base salary. The vesting of awards is subject to the satisfaction of a three year performance condition, which is determined by the Remuneration
Committee at the time of grant. Subject to the satisfaction of the performance condition, awards are normally exercisable until the 10th anniversary of the date of grant.
Deferred Bonus Plan (DBP) Under the terms of the Connect Group Deferred Bonus Plan, executive directors and key senior executives may be granted each year share awards (in the form of nil cost
options) dependent on the achievement of the Annual Bonus Plan and Economic Profit Plan performance targets. Awards are normally exercisable after two years subject to
continued employment.
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number of options/ awards No of shares Weighted average exercise price No of shares Weighted average exercise price No of shares Weighted average exercise price No of shares Weighted average exercise price
At 31 Aug 2012 2,853,975 83.4p 6,612,582 91.5p 2,310,894 - 1,117,654 -
Granted 665,877 140.0p 1,032,399 152.9p 715,988 - 517,767 -
Exercised (763,101) 85.9p (2,821,302) 89.0p (454,506) - (638,319) -
Expired /Forfeited (301,193) 82.8p (235,511) 97.1p (27,896) - - -
At 31 Aug 2013 2,455,558 98.0p 4,588,168 106.5p 2,544,480 - 997,102 -
Granted 850,693 158.0p 895,607 210.3p 601,195 - 450,021 -
Exercised (429,893) 86.9p (503,897) 92.8p (969,253) - (486,519) -
Expired /Forfeited (249,000) 101.4p (255,367) 134.2p (125,231) - (19,219) -
At 31 Aug 2014 2,627,338 118.9p 4,724,511 126.1p 2,051,191 - 941,385 -
Exercisable at 31 Aug 2014 232,584 80.7p 1,652,486 92.7p - - - -
Exercisable at 31 Aug 2013 213,815 93.2p 604,592 94.3p - - - -
The weighted average remaining contractual life in years of options/awards is as follows:
Sharesave ESOS LTIP DBP
Outstanding at 31 August 2014 1.5 7.5 8.1 1.7
Outstanding at 31 August 2013 1.8 7.6 8.4 0.6
Details of the options/awards granted or commencing during the current and comparative year are as follows:
Sharesave ESOS LTIP DBP
During 2014:
Effective date of grant or commencement date June 2014 Nov 2013 Nov 2013 Nov 2013
Average fair value at date of grant or scheme commencement - pence 42.5 28.6 188.2 188.2
During 2013:
Effective date of grant or commencement date June 2013 Nov 2012 Nov 2012 Nov 2012
Average fair value at date of grant or scheme commencement - pence 38.6 19.5 156.6 156.6
The options outstanding at 31 August 2014 had exercise prices ranging from nil to 210.3p (2013: nil to 152.9p).
The weighted average share price on the date of exercise was 200p (2013: 161p).
The sharesave and ESOS options granted during each period have been valued using the Black-Scholes model, the LTIP and DBP
schemes are valued by reference to the share price at the date of grant discounted by the estimated dividend yield per
cent.
The inputs to the Black-Scholes model are as follows:
Sharesave ESOS LTIP DBP
2014 options/awards:
Share price at grant date - pence 197.5 210.3 210.3 210.3
Exercise price - pence 158.0 210.3 - -
Expected volatility - per cent 32.0 31.0 - -
Expected life - years 3.0 3.0 - -
Risk free rate - per cent 1.96 1.61 - -
Expected dividend yield - per cent 6.2 6.2 - -
Weighted average fair value - pence 42.5 28.6 185.0 185.0
2013 options/awards:
Share price at grant date - pence 175.0 152.9 152.9 152.9
Exercise price - pence 140.0 152.9 - -
Expected volatility - per cent 33.0 29.0 - -
Expected life - years 3.0 3.0 - -
Risk free rate - per cent 1.25 1.25 - -
Expected dividend yield - per cent 5.5 5.5 5.5 5.5
Weighted average fair value - pence 38.6 19.5 136.7 136.7
32. Related party transactions
Transactions between businesses within this Group, which are related parties, have been eliminated on consolidation and are
not disclosed in this note.
Transactions with the Group's pension schemes are disclosed in Note 6.
Trading transactions
Sales to related parties Amounts owed by related parties
£m 2014 2013 2014 2013
Jointly controlled entities 3.2 0.1 0.6 0.3
Sales to related parties are for management fees, payment is due on the last day of the month following the date of
invoice.
Non-trading transactions
Loans to related parties
£m 2014 2013
Jointly controlled entities 0.4 0.6
The loans to related parties have no set date for repayment and accrue interest at LIBOR + 2%.
Aggregate remuneration of key management personnel
The remuneration of the Directors and the executive management team, who are the key management personnel of the Group, is
set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures.'
£m 2014 2013
Short-term employee benefits 3.0 3.0
Post-employment benefits - -
Share based payments 0.8 1.1
3.8 4.1
Directors' transactions
There are no other transactions with Directors, other than those set out in Note 6.
33. Principal subsidiary undertakings and associated undertakings
Name Country of incorporation / registration Proportion of ownership interest
Bertram Trading Limited England 100%
Bluebox Avionics Limited* England 50%
Dawson Books Limited England 100%
Dawson Espana Agienciede Ediciones SL Spain 100%
Dawson France SAS France 100%
Dawson Holdings Ltd England 100%
Dawson Media Direct Limited England 100%
DMD China Limited Hong Kong 100%
DMD G.m.b.H. Germany 100%
DMD Inc. USA 100%
DMD NV Belgium 99%
DMD SAS France 100%
Phantom Media Limited England 100%
Rascal Solutions Limited* England 50%
Smiths News Holdings Limited England 100%
Smiths News Trading Limited England 100%
The Consortium for Purchasing and Distribution Ltd England 100%
Hedgelane Limited England 100%
Erasmus Antiquariaat en Boekhandel B.V. Holland 100%
Houtschild Internationale Boekhandel B.V. Holland 100%
Martin Lavell Ltd England 100%
Magpie Investments Limited 1 England 51%
FMD Limited * England 50%
Except as marked all of the above are subsidiaries of Connect Group PLC. Those marked with an asterisk are joint controlled
entities, for details of which see Note 15 to the Group accounts.
A full list of subsidiary companies is available from the Company's registered office.
1Magpie Investments Limited is treated as a subsidiary within the Group financial statements based upon the Group's
majority shareholding and the controlling interest on the Board.
34. Restatement following the adoption of IAS 19 revised and disposal of MMC
IAS 19 (as revised in June 2011) 'Employee Benefits' has been adopted by the Group for the financial year commencing 1
September 2013. The interest cost and expected return on defined-benefit pension scheme assets used in the previous version
of IAS 19 are replaced with a 'net interest' amount, which is calculated by applying a discount rate to the net defined
benefit liability or asset. Furthermore, IAS 19 (revised) also introduces more extensive disclosures in the presentation of
the defined benefit cost, including the separate disclosure of the schemes' administrative expenses.
The comparative period has also been restated to show the results of the MMC business, disposed of in April 2013, within
non-recurring and other items, reducing underlying revenue by £3.9m and underlying operating profit by £0.1m for the year
ended 31 August 2013.
The adoption of IAS 19 (revised) and the MMC restatement has had no impact on the balance sheet position of the Group as at
31 August 2013 and 31 August 2012 and no impact on the cash flows of the Group.
The impact on the comparative Group Income Statement and Statement of Change in Equity is set out below:
Group Income Statement 12 months to Aug 2013
£m
Reported Adjustment Restated
Disposal of MMC
Underlying revenue 1,810.8 (3.9) 1,806.9
Operating profit -
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