REG - Connect Group Plc - Preliminary Results year ended 31 August 2015 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 2
14/10/2015 07:00
- Part 2: For the preceding part double click ID:nRSN1677Ca
targets. Management has a track record of delivering revenues and efficiencies to compensate for market impacts.
Major supplier or customer loss or consolidation impacts the trading relationship. Impact on supply of product or route to market may erode margin and/ or increase cost to serve. In Connect News & Media, publishers typically award 5 year contracts supporting the market structure. Connect Books, Connect Education & Care and Connect Parcel Freight
operate in very fragmented markets with fewer significant suppliers or customers. Strong relationships across the supply chain help the Group to understand and
demonstrate its strengths for the benefit of its suppliers and customers.
Competitive environment becomes more challenging. Challenges to sales growth and margin performance remain a key risk / focus. Current performance and strategic actions have placed the Group in a strong position to meet these challenges although impact remains the same. Market scale and expertise provides the ability to offer value and service to customers. Connect Books, Connect Education & Care and Connect Parcel Freight monitor and
track propositions to ensure competitive positioning, able to adjust pricing throughout the period if required.
Failure to prevent cyber-attacks that cause disruption or loss of systems and/ or commercially/ employee sensitive data. Customer service and/ or satisfaction could be adversely impacted leading to compensation, increased costs for rectification and/or increased future investment requirements. Continued risk of penalty through breach of regulation such as the Data Protection Act. External specialist advice supports a strong central governance framework including responsibilities for reviewing the Group's exposure, measuring effectiveness of
existing controls and recommending new controls if required. Controls further enhanced through implementing a robust Security Governance Framework, establishing a
Vulnerability Management solution and strengthening of the Security Architecture and process landscape.
Failure to deliver business plan and financial returns on recent acquisitions. Sales and profit expected from acquisitions may not be met and/ or reputation of the Group and support for future acquisitions are challenged. Cultural change for acquisitions results in reduced performance and financial returns. Financial and operational metrics are considered along with risk assessments and impact on management before decisions are made. Performance to plans are reviewed monthly
with post investment analysis producing a more thorough review of each acquisition within 12 months after completion. Detailed integration process, governance and support
framework ensures effective and timely adoption of standards and process into recent acquisitions.
Legislative changes or interpretation impacting the engagement of employees and delivery contractors resulting in an increase in the number of employees and costs. Increased number of employees or cost per employee increases the cost base and potentially creates greater redundancy costs from future efficiency programmes. Contractors have clearly articulated agreements defining tasks they are contracted to provide to News with annually set commercial terms. Minimum number of employees are
directly impacted by living wage, however knock-on impact across grades will be monitored. Regular checks are carried out by Internal Audit across the News network
ensures understanding and compliance.
Failure by DMD to prevent breach of airside security causes disruption or loss. Costs could increase through additional security requirements and/ or penalties with severe reputational damage potentially causing the loss of contracts for our media business. External security advice supports internal staff to review DMD's exposure, measure effectiveness of controls and recommend new controls if required. In addition,
insurance is taken out to cover the Group from major risks.
Increasing reliance on centralised system solutions, complex operations and networks are not supported by sufficiently robust Business Continuity Planning & Disaster Recovery solutions to prevent disruption outside of expected tolerances. Trading capability, customer experience and sales/ margin performance impacted through inability to operate due to systems outages or location access. Investment is made by the organisation to provide Disaster Recovery capability across the Group for all essential systems. External expertise is used to provide guidance
and a Disaster Recovery facility. In addition, a programme led centrally ensures Business Continuity Planning procedures and standards are embedded across the business
divisions.
Loss of key executives and subsequent loss of knowledge and skills in established and recently acquired businesses impacts current and future business performance. Loss of key skills and leadership impacts the capability of the Group to deliver its strategic goals. Performance and capability management processes in place, reviewed by the Remuneration Committee and Group Executive Committee. Succession planning for critical roles and
development plans for key individuals reviewed by the Nominations Committee. Integration plans in place to support key executives within Connect Parcel Freight.
3 year strategic business plan and scale of business change at risk from constraints on capacity of divisional premises and equipment/ systems to meet growth plans, leading to increased investment costs and reduced profitability. Inability of warehousing/ operational/ IT and support systems to meet growth expectations of the Group, creates poor customer experience, increased investment costs and reduced profitability. FY2015 Business Planning process has considered this risk and has ensured appropriate investment is budgeted to ensure growth targets are achieved, including a capital
expenditure budget of circa £20m.
Effort and/ or specialist skills required to complete organisational change are missing from new structures/teams, thus increasing demand on existing management skills and impacting current business performance. Management's focus on current business operations and performance is distracted by organisational change and new initiatives. Management become overstretched and demotivated by demands of the Group and exit, taking valuable skills and knowledge with them. Key imperatives identified for organisational and cultural change, leading to investment in resources and skills that are required to deliver the successful integration/
development of new businesses and business critical initiatives, including investment in expert skills in change management and project management.
RESPONSIBILITY STATEMENT
The responsibility statement below has been prepared in connection with the Group's full annual report for the year ending
31 August 2015. Certain parts thereof are not included within this announcement.
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the
consolidation taken as a whole;
- the strategic report includes a fair review of the development and performance of the business and the position of
the company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties they face; and
- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the company's performance, business model and strategy.
The responsibility statement was approved by the board of directors on 14 October 2015 and is signed on its behalf by:
Mark Cashmore Nick Gresham
Group Chief Executive Chief Financial Officer
Connect Group PLC
Group Income Statement for the year ended 31 August 2015
£m 2015 2014
Note Adjusted (1) Non-recurring and other items Total Adjusted (1) Non-recurring and other items Total
Continuing operations
Revenue 2 1,875.1 - 1,875.1 1,808.5 - 1,808.5
Operating profit 2,3 63.8 (27.5) 36.3 55.5 (6.9) 48.6
Investment revenue 6 - - - 0.4 - 0.4
Finance costs 6 (7.3) - (7.3) (5.9) - (5.9)
Profit before tax 56.5 (27.5) 29.0 50.0 (6.9) 43.1
Income tax expense 7 (11.1) 3.5 (7.6) (9.3) 1.0 (8.3)
Profit for the year 45.4 (24.0) 21.4 40.7 (5.9) 34.8
Profit attributable to equity shareholders 45.5 (24.0) 21.5 40.5 (5.9) 34.6
(Loss)/ Profit attributable to non-controlling interest (0.1) - (0.1) 0.2 - 0.2
45.4 (24.0) 21.4 40.7 (5.9) 34.8
Earnings per share
Basic 9 19.7p 9.3p 19.6p 16.8p
Diluted 9 19.0p 9.0p 19.0p 16.2p
Equity dividends per share (paid and proposed) 8 9.2p 8.8p
Group Statement of Comprehensive Income for the year ended 31 August 2015
£m Note 2015 2014
Items that will not be reclassified to the Group Income Statement
Actuarial gain on defined benefit pension scheme 5 53.5 14.8
Impact of IFRIC 14 on defined benefit pension scheme 5 (52.8) (16.2)
Tax relating to components of other comprehensive income that will not be reclassified 7 (0.1) 0.1
0.6 (1.3)
Items that may be reclassified to the Group Income Statement
(Loss)/ gain on cash flow hedges (0.6) 0.6
Currency translation differences (0.1) (0.2)
Tax relating to components of other comprehensive income that may be reclassified 7 - (0.1)
(0.7) 0.3
Other comprehensive income for the year (0.1) (1.0)
Profit for the year 21.4 34.8
Total comprehensive income for the year 21.3 33.8
Total comprehensive income attributable to equity shareholders 21.4 33.6
Total comprehensive income attributable to non-controlling interest (0.1) 0.2
Group Balance Sheet at 31 August 2015
£m Note 2015 2014
Non-current assets
Intangible assets 10 174.8 65.7
Property, plant and equipment 44.6 29.0
Interest in jointly controlled entities 4.5 4.3
Derivative financial instruments - 0.6
Retirement benefit assets 5 0.4 0.3
Deferred tax assets 7.5 7.2
231.8 107.1
Current assets
Inventories 42.0 45.3
Trade and other receivables 147.3 128.1
Cash and cash equivalents 13 10.9 20.4
200.2 193.8
Total assets 432.0 300.9
Current liabilities
Trade and other payables (203.5) (192.3)
Current tax liabilities (5.4) (6.1)
Bank loans and other borrowings 13 (56.5) (60.9)
Obligations under finance leases (2.9) (0.9)
Retirement benefit obligations 5 (3.3) (4.1)
Provisions 14 (10.4) (3.4)
(282.0) (267.7)
Non-current liabilities
Retirement benefit obligations 5 (15.2) (17.2)
Bank loans and other borrowings 13 (98.4) (48.4)
Obligations under finance leases (6.5) (3.2)
Derivative financial instruments (0.2) -
Other non-current liabilities (1.0) (1.4)
Deferred tax liabilities (13.5) (3.2)
Non-current provisions 14 (6.0) (1.9)
(140.8) (75.3)
Total liabilities (422.8) (343.0)
Total net assets/ (liabilities) 9.2 (42.1)
Group Balance Sheet at 31 August 2015 (continued)
£m Note 2015 2014
Equity
Called up share capital 17(a) 12.2 9.5
Share premium account 17(c) 55.2 5.3
Demerger reserve 18(a) (280.1) (280.1)
Own shares reserve 18(b) (4.1) (5.2)
Hedging & translation reserve 18(c) (0.5) (0.3)
Retained earnings 226.5 228.5
Total shareholders' equity 9.2 (42.3)
Non-controlling interests in equity - 0.2
Total equity 9.2 (42.1)
The accounts were approved by the Board of Directors and authorised for issue on 14 October 2015 and were signed on its
behalf by:
Registered number - 05195191
Mark Cashmore Nick Gresham
Group Chief Executive Chief Financial Officer
Group Statement of Changes in Equity for the year ended 31 August 2015
£m Share capital Share Premium account Demerger reserve Own shares reserve Hedging & translation reserve Retained earnings Non-controlling interests in equity Total
Balance at 31 August 2013 9.2 1.2 (280.1) (1.5) (0.6) 214.9 - (56.9)
Profit for the year - - - - - 34.6 0.2 34.8
Gain on cash flow hedges - - - - 0.6 - - 0.6
Actuarial gain on defined benefit pension scheme - - - - - 14.8 - 14.8
Impact of IFRIC 14 on defined benefit pension scheme - - - - - (16.2) - (16.2)
Currency translation differences - - - - (0.2) - - (0.2)
Tax relating to components of other comprehensive income - - - - (0.1) 0.1 - -
Total comprehensive income for the year - - - - 0.3 33.3 0.2 33.8
Issue of share capital 0.3 4.1 - - - - - 4.4
Purchase of own shares - - - (6.3) - - - (6.3)
Dividends paid - - - - - (17.7) - (17.7)
Employee share schemes - - - 2.6 - (2.6) - -
Recognition of share based payments - - - - - 0.6 - 0.6
Balance at 31 August 2014 9.5 5.3 (280.1) (5.2) (0.3) 228.5 0.2 (42.1)
Profit/ (loss) for the year - - - - - 21.5 (0.1) 21.4
Loss on cash flow hedges - - - - (0.6) - - (0.6)
Actuarial gain on defined benefit pension scheme - - - - - 53.5 - 53.5
Impact of IFRIC 14 on defined benefit pension scheme - - - - - (52.8) - (52.8)
Currency translation differences - - - - (0.1) - - (0.1)
Tax relating to components of other comprehensive income - - - - - (0.1) - (0.1)
Total comprehensive income for the year - - - - (0.7) 22.1 (0.1) 21.3
Issue of share capital 2.7 49.9 - - - - - 52.6
Reclassification between reserves - - - - 0.5 (0.5) - -
Purchase of own shares - - - (4.2) - - - (4.2)
Dividends paid - - - - - (21.4) - (21.4)
Employee share schemes - - - 5.3 - (5.3) - -
Adjustment arising from change in NCI - - - - - (5.1) (0.1) (5.2)
Recognition of share based payments net of tax - - - - - 8.2 - 8.2
Balance at 31 August 2015 12.2 55.2 (280.1) (4.1) (0.5) 226.5 - 9.2
Group Cash Flow Statement for the year ended 31 August 2015
£m Note 2015 2014
Net cash inflow from operating activities 16 46.5 47.4
Investing activities
Dividends received from associates 0.2 0.2
Acquisitions 11 (105.7) (0.3)
Purchase of property, plant and equipment (4.7) (6.8)
Purchase of intangible assets (4.5) (3.5)
Net cash used in investing activities (114.7) (10.4)
Financing activities
Interest paid (5.8) (6.1)
Dividend paid (21.4) (17.7)
Purchase of equity in subsidiary 12 (5.1) -
Repayments of obligations under finance leases (2.9) (1.3)
Proceeds on issue of shares 52.6 0.7
Purchase of shares for Employee Benefit Trust (4.2) (6.3)
Repayments of borrowings - (34.0)
New bank loans raised 50.0 50.0
Decrease in borrowings (4.4) (11.9)
Net cash from/(used in) financing activities 58.8 (26.6)
Net (decrease)/ increase in cash and cash equivalents (9.4) 10.4
Effect of foreign exchange rate changes (0.1) (0.1)
(9.5) 10.3
Opening net cash and cash equivalents 20.4 10.1
Closing net cash and cash equivalents 13 10.9 20.4
Analysis of net debt
£m Note 2015 2014
Cash and cash equivalents 13 10.9 20.4
Current borrowings 13 (56.5) (60.9)
Non-current borrowings 13 (98.4) (48.4)
Net borrowings (144.0) (88.9)
Finance lease liabilities (9.4) (4.1)
Net debt (153.4) (93.0)
Notes to the accounts
1. Basis of preparation
The Results are based on the Company's financial statements which are prepared in accordance with International Financial
Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU IAS
legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS.
There have been no significant changes in accounting policies from those set out in the accounting policies set out in the
accounting policies section of the Connect Group PLC Annual Report and Accounts 2014. The accounting policies have been
applied consistently throughout the years ended 31 August 2014 and 31 August 2015.
The following Standards with an effective date of 1 January 2014 have been adopted without any significant impact on the
amounts reported in these financial statements:
IFRS 10 'Consolidated Financial Statements'
IFRS 10, IFRS 12 and IAS 27 (amended) 'Investment Entities'
IFRS 11 'Joint Arrangements'
IAS 12 (amended) 'Deferred Tax: Recovery of Underlying Assets'
IAS 27 (revised) 'Separate Financial Statements'
IAS 28 (revised) 'Investments in Associates and Joint Ventures'
IAS 32 (amended) 'Offsetting Financial Assets and Financial Liabilities'
IAS 39 (amended) 'Novation of Derivatives and Continuation of Hedge Accounting'.
The financial information set out in these results does not constitute the Group's statutory accounts for the years ended
31 August 2015 and 31 August 2014 but is derived from those accounts. Statutory accounts for Connect Group PLC for the year
ended 31 August 2014 have been delivered to the Registrar of Companies and those for the year ended 31 August 2015 will be
delivered following the Company's Annual General Meeting. The auditor's reports on the 2014 and the 2015 accounts were
unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
The Company intends to publish the Annual Report and Accounts that comply with IFRSs. The Annual Report and Accounts will
be available for shareholders in December 2015 at www.connectgroupplc.com.
These results were approved by the Board of Directors on 14 October 2015.
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 (also referred to as Smiths News) The UK market leading distributor of newspapers and magazines to 30,000 retailers across England and Wales from 42 distribution centres.
Connect News & Media: Media(also referred to as DMD) A supplier of newspaper and magazines to airlines and a provider of inflight services.
Connect Books(also referred to as Bertrams, 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(also referred to as The Consortium) A leading distributor of education and care consumable products servicing 30,000 customers across the UK.
Connect Parcel Freight(also referred to as Tuffnells) A leading provider of next day B2B delivery of mixed parcel freight consignments.
The following is an analysis of the Group's revenue and results by reportable segment:
Revenue
£m 2015 2014
Connect News & Media: News Distribution 1,479.3 1,524.8
Connect News & Media: Media 25.4 25.1
Connect Books 190.1 193.7
Connect Education and Care 65.9 64.9
Connect Parcel Freight 114.4 -
Total Group 1,875.1 1,808.5
The accounting policies of the reportable segments are the same as the Group's accounting policies.
2015 2014
£m Adjusted operating profit Non-recurring and other items Operating profit Adjusted operating profit Non-recurring and other items Statutory operating profit
Connect News & Media: News Distribution 41.4 (18.2) 23.2 42.9 (2.1) 40.8
Connect News & Media: Media 2.3 (0.4) 1.9 2.3 (0.3) 2.0
Connect Books 2.6 (2.2) 0.4 2.5 (2.5) -
Connect Education and Care 7.8 (2.1) 5.7 7.8 (2.0) 5.8
Connect Parcel Freight 9.7 (4.6) 5.1 - - -
Total group 63.8 (27.5) 36.3 55.5 (6.9) 48.6
Net finance expense (7.3) (5.5)
Profit before taxation 29.0 43.1
Information about major customers
Included in revenues arising from newspaper and magazine wholesaling are revenues of approximately £155.1m (2014: £162.1m)
which arose from sales to the Group's largest customer. No other single customer contributed 8% or more of the Group's
revenue in either 2015 or 2014.
Segment assets and liabilities
Assets Liabilities Net assets/(liabilities)
£m 2015 2014 2015 2014 2015 2014
Connect News & Media: News 93.1 144.5 (293.0) (261.1) (199.9) (116.6)
Connect News & Media: Media 18.9 18.8 (7.2) (7.2) 11.7 11.6
Connect Books 79.9 79.8 (63.2) (56.9) 16.7 22.9
Connect Education and Care 63.6 57.8 (18.9) (17.8) 44.7 40.0
Connect Parcel Freight 176.5 - (40.5) - 136.0 -
Consolidated assets/ (liabilities) 432.0 300.9 (422.8) (343.0) 9.2 (42.1)
Segment depreciation, amortisation and non-current asset additions
Depreciation Amortisation Additions to non-current assets
£m 2015 2014 2015 2014 2015 2014
Connect News & Media: News (4.2) (4.0) (1.8) (1.4) 8.0 7.7
Connect News & Media: Media (0.1) (0.1) (0.4) (0.3) 0.2 -
Connect Books (0.7) (0.6) (2.5) (2.4) 1.9 2.5
Connect Education and Care (0.5) (0.5) (2.0) (1.7) 1.8 1.2
Connect Parcel Freight (1.8) - (4.7) - 131.8 -
Consolidated total (7.3) (5.2) (11.4) (5.8) 143.7 11.4
Additions to non-current assets include intangible assets and property, plant and equipment. The intangible assets
(£110.2m) and fair value of the property, plant and equipment (£18.6m) acquired on the acquisition of Tuffnells are
included within Connect Parcel Freight.
Geographical analysis
£m Revenue by destination Non-current assets by location of operation
2015 2014 2015 2014
United Kingdom 1,791.9 1,729.9 223.7 98.6
Europe 48.8 51.2 0.2 0.2
Rest of World 34.4 27.4 - -
Consolidated total 1,875.1 1,808.5 223.9 98.8
Non-current assets in the table above exclude retirement benefit assets, deferred tax assets and derivative financial
instruments
3. Operating profit
The Group's results are analysed as follows:
£m 2015 2014
Note Adjusted Non-recurring and other items Total Adjusted Non-recurring and other items Total
Revenue 1,875.1 - 1,875.1 1,808.5 - 1,808.5
Cost of inventories recognised as an expense (1,562.1) - (1,562.1) (1,607.7) - (1,607.7)
Write down of inventories recognised as an expense (0.1) - (0.1) (0.6) - (0.6)
Other cost of sales (76.0) - (76.0) (1.2) - (1.2)
Cost of sales (1,638.2) - (1,638.2) (1,609.5) - (1,609.5)
Gross profit 236.9 - 236.9 199.0 - 199.0
Distribution costs (92.3) - (92.3) (73.9) - (73.9)
Administrative expenses (76.3) (12.9) (89.2) (65.6) (3.4) (69.0)
Share-based payment expense (1.3) (6.7) (8.0) (1.5) - (1.5)
Amortisation of intangibles 10 (3.5) (7.9) (11.4) (2.8) (3.0) (5.8)
Impairment 10 - - - - (0.5) (0.5)
Administrative expenses (81.1) (27.5) (108.6) (69.9) (6.9) (76.8)
Share of profits from jointly controlled entities 0.3 - 0.3 0.3 - 0.3
Operating profit 63.8 (27.5) 36.3 55.5 (6.9) 48.6
The operating profit is stated after charging/ (crediting):
£m Note 2015 2014
Depreciation on property, plant & equipment 7.3 5.2
Amortisation of intangible assets 10 11.4 5.8
Operating lease charges
· occupied land and buildings 9.3 8.5
· equipment and vehicles 12.1 0.8
Operating lease rental income - land and buildings (0.1) (0.1)
Loss on disposal of fixed assets 0.2 -
Staff costs 136.5 93.4
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 2015 2014
Fees payable to the Company's auditor for the audit of the Company's annual accounts 0.2 0.1
Fees payable to the Company's auditor for the audit of the Company's subsidiaries 0.2 0.2
Total audit fees 0.4 0.3
Other services 0.2 0.1
Total non-audit fees 0.2 0.1
Total fees 0.6 0.4
In the current year the Group incurred £0.2m of non-audit fees with Deloitte relating to acquisition/ transaction support,
remuneration advice and other advisory services. In the prior year the Group incurred £0.1m of non-audit fees with Deloitte
relating to remuneration advice and other advisory services.
4. Non-recurring and other items
£m 2015 2014
Network re-organisation costs (a) (4.4) (3.0)
Acquisition and disposal costs (b) (15.1) (0.9)
(Charge)/release of property provisions (c) (0.1) 0.5
Impairment (d) - (0.5)
Amortisation of acquired intangibles (e) (7.9) (3.0)
Total before taxation (27.5) (6.9)
Income tax expense 3.5 1.0
Total after taxation (24.0) (5.9)
The Group incurred a total of £24.0m (2014: £5.9m) in non-recurring and other items, after tax.
This comprises:
(a) Network re-organisation costs
Network and reorganisation costs of £4.4m are predominantly rationalisation costs to drive efficiency savings in Smiths
News. They also include costs to support the strategic review and reorganisation of the Books division and one off costs
for the implementation of the warehouse management system in Education & Care.
(b) Acquisition and disposal costs
Acquisition related costs for the Tuffnells acquisition include £3.5m for deal expenses and cost of integration plus £11.6m
of deferred contingent consideration which is payable conditional on the financial performance and on continued employment
of former owners. A further £3.1m of equity raise expenses were charged direct to reserves. Details of the acquisition are
included in note 11. In the prior year 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.
(c) (Charge)/ release of property provisions
A charge of £0.1m was made in relation to vacant property arising from network reorganisation. In the prior year the Group
released £0.5m relating to the historical property reversionary lease provisions following the settlement of two historical
claims.
(d) Impairment
No impairment was recognised during the year. During the year to 31 August 2014 the carrying value of acquired intangibles
from the acquisition of Blackwell customer relationships in the Books division was reviewed and as a result of lower than
anticipated sales conversion an amount of £0.5m was written off.
(e) Amortisation of acquired intangibles
Amortisation of acquired intangibles of £7.9m (FY2014: £3.0m) has been incurred relating to acquisitions amortised over
their expected economic lives for which there is no ongoing cash impact. The amortisation charge has increased compared to
the prior year due to the acquisition of Tuffnells. The net book value of acquired intangibles of £65.4m will be amortised
over future years.
5. Retirement benefit obligation
Defined benefit pension schemes
The Group now operates four defined benefit schemes, of which the WH Smith Pension Trust (the 'Pension Trust') represents
93% of the total obligation at 31 August 2015. 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
acquired the assets and liabilities of Tuffnells Parcels Express Pension Scheme on its acquisition of The Big Green Parcel
Holding Company Limited on 19 December 2014.
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 Tuffnells Parcels Express 2015 WH Smith Pension Trust Consortium CARE Platinum 2014
Present value of defined benefit obligation (401.2) (18.7) (0.8) (11.3) (432.0) (431.6) (18.4) (0.6) (450.6)
Fair value of assets 536.8 14.7 1.2 10.6 563.3 507.3 14.4 0.9 522.6
Net surplus/ (loss) 135.6 (4.0) 0.4 (0.7) 131.3 75.7 (4.0) 0.3 72.0
Amounts not recognised due to asset limit (135.6) - - - (135.6) (75.7) - - (75.7)
- (4.0) 0.4 (0.7) (4.3) - (4.0) 0.3 (3.7)
Additional liability recognised due to minimum funding requirements (13.8) - - - (13.8) (17.3) - - (17.3)
Pension liability (13.8) (4.0) (0.7) (18.5) (17.3) (4.0) - (21.3)
Pension asset - - 0.4 - 0.4 - - 0.3 0.3
The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS19 surplus of
£135.6m at 31 August 2015 (2014:£75.7m 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 (2014: £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.
WH Smith Pension Trust
The process to complete the triennial valuation as at 31 March 2015 is underway and is scheduled to be reported during
2016. The actuarial valuation of the Smiths News section of the WH Smith Pension Trust, at June 2013 was a deficit of
£23.0m. A cash contribution of £4.1m was made during the year to reduce the funding shortfall.
Future cash contributions by the Group to the pension trustees and investment manager total £4.1m per annum through to
March 2019. The Group recognises the present value of these agreed contributions as a pension liability of £13.8m (2014:
£17.3m).
Other defined benefit schemes
For the Consortium CARE and Platinum schemes, the Group contributed £0.6m in 2015. The funding valuation of the Consortium
CARE scheme as at 31 December 2013 was a deficit of £1.5m. The Platinum scheme's 31 December 2013 funding valuation showed
no deficit. The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2013 was an agreed
liability of £2.5m (1 April 2010: £0.15m). Guaranteed Minimum Pension ("GMP") equalisation is expected to lead to an
increase in scheme liabilities at some future date on the Consortium Care and the Tuffnells Parcels Express
- More to follow, for following part double click ID:nRSN1677CcRecent news on Smiths News
See all newsREG - Smiths News PLC - Block listing Interim Review
AnnouncementREG - Smiths News PLC - Statement re Tuffnells Parcels Express Pension
AnnouncementREG - Smiths News PLC - Director/PDMR Shareholding
AnnouncementREG - Smiths News PLC - Result of Annual General Meeting
AnnouncementREG - Smiths News PLC - Trading Statement
Announcement