REG - Connect Group Plc - Unaudited Interim Results 6 mths ended 28 Feb 2017 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 2
25/04/2017 07:06
- Part 2: For the preceding part double click ID:nRSY1857Da
is diligently tracked and monitored and any changes reflected in policies and controls within required timeframes.
Changing Consumer Behaviour - The risk of new technologies and demographics drive change in customer behaviour and/or supply chain dynamics that result in structural market changes being deeper and quicker than predicted, including migration from print to digital, reducing demand for our services. Sales decline in newspapers and magazines are worse than expected (forecasted expectation of a -3% to -5% range) and there may be a 'tipping point' where some titles cease to publish rather than slowly decline.The Books market is impacted resulting in lower profit and negative market sentiment related to printed media. Historic price increases in newspapers and magazines have consistently offset a large part of the impact of falling volumes. Major publishers continue to commit to print
distribution, given the superior advertising revenue from print over digital (lack of intermediaries) and the slow take up of digital paid subscriptions. Management
continues to identify efficiencies to compensate for market declines. The Parcel Freight division is a significant financial contributor toward the Group's overall
results, mitigating market declines for newspapers, magazines and books. The Group's organic strategy, including Pass My Parcel, seeks to further protect the Group from
over exposure to individual market risks, and diversify the Group's service offerings.
Optimising Contract Renewals and Tendering - The risk of failing to retain major contracts at acceptable rates and /or win new contracts in competitive markets affected by aggressive pricing strategies impacts current and projected business performance. Impact on supply of product or route to market may erode margin and/or increase cost to serve. In News & Media, publishers typically award five year contracts supporting the market structure. The Books, Education & Care and Parcel Freight divisions operate in
fragmented markets with fewer key 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.
Increased Labour Costs - The risk of legislative changes or interpretation impact the engagement of employees and delivery contractors resulting in an increase in the number of employees and/or liabilities and cost. In the event of any legal claim as to worker status by consultants, sub-contractors or agency workers the Group could be liable for increased costs (national insurance contributions) and liabilities (such as employee rights). The inability to pass on such statutory increases to our customers could impact profitability, and affect the cost of future efficiency programmes. The Group puts appropriate contractual and operational arrangements in place. Self-employed delivery contractors have clearly articulated agreements defining tasks they
are contracted to provide to News & Media with annually set commercial terms. The introduction of the National Living Wage (and future anticipated increases) impacts
only a limited proportion of employees, when assessed across the Group as a whole. The Group continues to monitor legal developments to ensure that it maintains
compliance with legislation and best practice.
Network and IT Robustness - The risk of Network and IT disruptions in key infrastructure facilities leads to an inability to deliver according to customer expectations and contractual obligations. Any material failure resulting from systems outages, location access or employee/contractor disputes may lead to an adverse impact on operations, financial performance and reputational impact. Disaster recovery and Business Continuity plans exist and are reviewed periodically. Investment is made to provide disaster recovery capability across the Group for all
essential systems. Protections are in place to defend IT systems against attacks.
Failure to execute strategy - The risk of failing to deliver business plans and/or financial returns in line with the planned strategic evolution of the group, impacts external confidence and shareholder perception, bringing into question the future strategic direction of the Group and confidence in its delivery. Sales and/or profit expected from acquisitions / organic growth may not be met and/or the Group's reputation and support for future acquisitions are challenged. Cultural change required for diversification / restructuring 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 deal completion. Detailed integration process, governance and
support framework ensures effective and timely adoption of standards and process into acquisitions and restructuring activity.
Failure to execute restructuring or other change management programmes - The risk of failing to re-engineer the business to create a platform for future growth combined with excessive demands on new and existing staff results in loss of key people, lack of engagement and loss of in-depth knowledge and specialist skills impacting both current and future business prospects. The impact of the 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. Management's focus on current business operations and performance is distracted by organisational change and new initiatives. Management leave the Group taking valuable skills and knowledge with them. The annual business and strategic planning process ensures appropriate investment is budgeted to ensure growth targets are achieved. Organisational and cultural change is
a key imperative, leading to investment in resources and skills that are required to deliver the successful integration and development of new businesses and business
critical initiatives, including investment in expert skills in change management and project management.
Deterioration of the Macro Economic Environment - The risk of volatility and/or prolonged economic downturn causing a decline in demand for our services including the uncertainty associated with Brexit, impacts current and/or projected business performance above that included in the business planning and review process. Reductions in discretionary spending may impact sales of newspapers, magazines or books and/or see a reduction in parcel volumes. Uncertainty from Brexit may affect the Group in both the short and medium term on trade arrangements, future capital investment strategies and resourcing costs. Annual budgets and quarterly forecasts take into account potential macro market and competitive impacts when setting expectations internally and externally, allowing for
or changing objectives to meet short and medium term financial targets.
Connect Group PLC
Condensed Consolidated Income Statement (Unaudited)
For the 6 months to 28 February 2017
6 months to Feb 2017 Restated 6 months to Feb 2016 Restated 12 months to Aug 2016
£m Note
Adjusted Adjustments Total Adjusted Adjustments Total Adjusted Adjustments Total
Continuing operations
Revenue 3 911.8 - 911.8 916.8 - 916.8 1,841.7 - 1,841.7
Operating profit 3 26.6 (5.7) 20.9 27.8 (6.7) 21.1 59.9 (17.7) 42.2
Finance costs (3.3) - (3.3) (3.3) - (3.3) (6.9) - (6.9)
Profit before tax 3 23.3 (5.7) 17.6 24.5 (6.7) 17.8 53.0 (17.7) 35.3
Income tax expense 6 (4.8) 1.2 (3.6) (5.1) 1.4 (3.7) (10.9) 3.7 (7.2)
Profit for the period from continuing operations 18.5 (4.5) 14.0 19.4 (5.3) 14.1 42.1 (14.0) 28.1
Discontinued operations
Profit for the period from discontinued operations 9 1.3 (1.0) 0.3 2.1 (0.9) 1.2 6.2 (0.9) 5.3
Profit attributable to equity shareholders continuing and discontinued operations 19.8 (5.5) 14.3 21.5 (6.2) 15.3 48.3 (14.9) 33.4
Earnings per share from continuing operations
Basic 8 7.6p 5.7p 8.0p 5.8p 17.3p 11.5p
Diluted 8 7.4p 5.6p 7.8p 5.7p 17.0p 11.4p
Earnings per share from continuing and discontinued operations
Basic 8 8.1p 5.9p 8.9p 6.3p 19.8p 13.7p
Diluted 8 8.0p 5.8p 8.6p 6.1p 19.5p 13.5p
Equity dividends per share 7 3.1p 3.0p 9.5p
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the 6 months to 28 February 2017
£m Note 6 months toFeb 2017 6 months toFeb 2016 12 months to Aug 2016
Items that will not be reclassified to the Group Income Statement:
Actuarial (losses) /gains on defined benefit pension scheme 5 (14.9) 0.8 (2.0)
Effect of asset limit on defined benefit pension scheme 5 13.0 0.4 (6.5)
Tax relating to components of other comprehensive income that will not be reclassified 0.1 - 1.7
(1.8) 1.2 (6.8)
Items that may be reclassified to the Group Income Statement:
Gain/ (loss) on cash flow hedges 0.4 (0.9) (1.2)
Currency translation differences - 0.3 0.6
Tax relating to components of other comprehensive income (0.2) (0.1) (0.3)
Other comprehensive income 0.2 (0.7) (0.9)
Other comprehensive income for the period (1.6) 0.5 (7.7)
Profit for the period 14.3 15.3 33.4
Total comprehensive income for the period 12.7 15.8 25.7
Total comprehensive income for the period attributable to shareholders:
Continuing 12.1 14.0 24.9
Discontinued 0.6 1.8 0.8
Total comprehensive income for the period was fully attributable to the equity holders of the parent company.
Condensed Consolidated Balance Sheet (Unaudited)
As at 28 February 2017
£m Note As atFeb 2017 As atFeb 2016 As atAug 2016
Non-current assets
Intangible assets 12 133.0 168.8 164.8
Property, plant and equipment 44.7 45.1 50.3
Interest in joint venture and associate 4.4 4.5 4.1
Retirement benefit assets 5 - 0.4 0.3
Deferred tax assets 5.9 7.1 7.7
188.0 225.9 227.2
Current assets
Inventories 42.8 41.9 42.3
Trade and other receivables 153.7 135.3 139.2
Derivative financial instruments 14 - 0.1 0.1
Cash and cash equivalents 13 10.3 4.6 9.1
Assets classified as held for sale 9 55.4 - -
262.2 181.9 190.7
Total assets 450.2 407.8 417.9
Current liabilities
Trade and other payables (212.5) (183.9) (198.8)
Current tax liabilities (5.9) (7.2) (6.9)
Obligations under finance leases (1.8) (2.6) (3.0)
Bank overdrafts and other borrowings 13 (87.0) (66.6) (61.0)
Derivative financial instruments 14 (0.3) - -
Provisions 15 (6.3) (5.2) (4.1)
Retirement benefits obligation 5 (4.1) (4.1) (8.5)
Liabilities classified as held for sale 9 (17.1) - -
(335.0) (269.6) (282.3)
Non-current liabilities
Bank loans and other borrowings 13 (69.4) (88.7) (79.1)
Retirement benefit obligation 5 (8.8) (11.1) (17.4)
Deferred tax liabilities (9.3) (12.2) (10.9)
Non current provisions 15 (6.6) (6.0) (4.9)
Obligations under finance leases (7.7) (7.6) (7.7)
Derivative financial instruments 14 (0.8) (1.3) (1.5)
Other non-current liabilities (1.0) (0.9) (1.1)
(103.6) (127.8) (122.6)
Total liabilities (438.6) (397.4) (404.9)
Total net assets 11.6 10.4 13.0
Equity
Called up share capital 16 12.4 12.3 12.3
Share premium account 16 60.4 59.1 59.2
Other reserves (283.7) (285.1) (284.7)
Retained earnings 222.5 224.1 226.2
Total shareholders' equity 11.6 10.4 13.0
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the 6 months to 28 February 2017
£m Note Share Capital Share Premium Account Other Reserves Retained Earnings Total equity
Balance at 31 August 2015 12.2 55.2 (284.7) 226.5 9.2
Profit for the period - - - 15.3 15.3
Loss on cash flow hedges - - (0.9) - (0.9)
Currency translation differences - - 0.3 - 0.3
Actuarial gain on defined benefit pension scheme - - - 0.8 0.8
Impact of IFRIC 14 on defined benefit pension scheme - - - 0.4 0.4
Tax relating to components of other comprehensive income - - - (0.1) (0.1)
Total comprehensive income for the period - - (0.6) 16.4 15.8
Issue of share capital 16 0.1 3.9 - - 4.0
Dividends paid - - - (15.4) (15.4)
Purchase of own shares - - (1.3) - (1.3)
Employee share schemes - - 1.5 (1.5) -
Recognition of share based payments - - - (1.9) (1.9)
Balance at 28 February 2016 12.3 59.1 (285.1) 224.1 10.4
Profit for the period - - - 18.1 18.1
Loss on cash flow hedges - - (0.3) - (0.3)
Actuarial gain on defined benefit pension scheme - - - (2.8) (2.8)
Impact of IFRIC 14 on defined benefit pension scheme - - - (6.9) (6.9)
Currency translation differences - - 0.3 - 0.3
Tax relating to components of other comprehensive income - - - 1.5 1.5
Total comprehensive income for the period - - - 9.9 9.9
Issue of share capital - 0.1 - - 0.1
Purchase of own shares - - 0.2 - 0.2
Dividends paid - - - (7.3) (7.3)
Employee share schemes - - 0.2 (0.2) -
Recognition of share based payments net of tax - - - (0.3) (0.3)
Balance at 31 August 2016 12.3 59.2 (284.7) 226.2 13.0
Profit for the period - - - 14.3 14.3
Gain on cash flow hedges - - 0.4 - 0.4
Actuarial loss on defined benefit pension scheme - - - (14.9) (14.9)
Impact of IFRIC 14 on defined benefit pension scheme - - - 13.0 13.0
Tax relating to components of other comprehensive income - - - (0.1) (0.1)
Total comprehensive income for the period - - 0.4 12.3 12.7
Issue of share capital 16 0.1 1.2 - - 1.3
Dividends paid 7 - - (15.9) (15.9)
Employee share schemes - - 0.6 (0.6) -
Recognition of share based payments 0.5 0.5
Balance at 28 February 2017 12.4 60.4 (283.7) 222.5 11.6
222.5
11.6
Condensed Consolidated Group Cash Flow Statement (Unaudited)
For the 6 months to 28 February 2017
£m Note 6 months toFeb 2017 6 months toFeb 2016 12 months toAug 2016
Net cash from operating activities 10 19.8 19.7 58.2
Investing activities
Dividends from associates 0.1 - 0.7
Purchase of property, plant and equipment (7.0) (4.9) (9.1)
Purchase of intangible assets (2.4) (0.8) (4.8)
Net cash used in investing activities (9.3) (5.7) (13.2)
Financing activities
Interest paid (2.3) (2.5) (4.9)
Dividends paid 7 (15.9) (15.3) (22.7)
Repayments of obligations under finance leases (2.2) (1.7) (3.5)
Proceeds on issue of shares 0.6 0.3 0.4
Purchase of shares for Employee Benefit Trust - (1.3) (1.1)
Increase/ (decrease) in short term borrowings 16.0 - (15.5)
Net cash from financing activities (3.8) (20.5) (47.3)
Net decrease in cash and cash equivalents 6.7 (6.5) (2.3)
Effect of foreign exchange rate changes 0.2 0.2 0.5
6.9 (6.3) (1.8)
Opening net cash and cash equivalents 9.1 10.9 10.9
Closing net cash and cash equivalents 16.0 4.6 9.1
Analysis of net debt
As at As at As at
£m Note Feb 2017 Feb 2016 Aug 2016
Cash and cash equivalents 13 16.0 4.6 9.1
Current borrowings 13 (87.0) (66.6) (61.0)
Non-current borrowings 13 (69.4) (88.7) (79.1)
Finance lease liabilities (9.5) (10.2) (10.7)
Net debt (149.9) (160.9) (141.7)
The movement in net debt includes £0.3m loan fee amortisation. Loan fees incurred in respect of the Group's borrowing
facilities which expire in November 2018 are amortised over a 3.5 year period. The value of unamortised fees outstanding at
28 February 2017 was £0.6m.
Notes to the Condensed Unaudited Interim Financial Statements
For the 6 months to 28 February 2017
1 General Information
As in past years, these Interim Financial Statements are unaudited and not reviewed.
The information for the year ended 31 August 2016 does not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The
auditors' report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not
contain statements under section 498(2) or (3) of the Companies Act 2006.
Going Concern
The Group meets its day to day working capital requirements through its committed bank facility of £240m which runs until
November 2018.
The Group's forecasts, taking into account the Board's future expectations of the Group's performance, indicate that there
is substantial headroom within these bank facilities and the Group will continue to operate within the covenants attaching
to those facilities. Those bank facilities together with renewed long term contracts within News distribution with a number
of publishers mean that the Group is well placed to manage its business risks successfully.
As a result, the directors have a reasonable expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the condensed
consolidated interim financial information.
The Group's principal areas of estimation and judgement remain unchanged since the year end and are set out in note 1 (c)
on page 75 of the Annual Report for the year ended 31 August 2016.
2 Significant Accounting Policies
The unaudited condensed set of financial statements included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The
same accounting policies, presentation and methods of computation are followed in these unaudited condensed financial
statements as were applied in the preparation of the Group's financial statements for the year ended 31 August 2016.
3 Segmental Analysis of Results
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.
Connect News & Media: Media(referred to as DMD) A supplier of newspaper and magazines to airlines and an emerging player in inflight entertainment.
Connect Books(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 101 countries.
Connect Parcel Freight(referred to as Tuffnells) A leading provider of next day B2B delivery of mixed parcel freight consignments.
As explained in note 9 Connect Education & Care, a leading distributor of education and care consumable products is held
for sale with completion of the proposed transaction to be concluded following expected approval of the transaction from
the Competition & Markets Authority. The division is presented as a discontinued operation and has been included below
where necessary for the purpose of reconciliation.
The following is an analysis of the Group's revenue and results by reportable segment:
Revenue Operating profit
£m 6 months to Feb 2017 6 months to Feb 2016 12 months to Aug 2016 6 months to Feb 2017 6 months to Feb 2016 12 months to Aug 2016
Connect News & Media: News distribution 692.5 717.7 1,443.8 19.6 19.9 40.0
Connect News & Media: Media 14.2 13.2 27.6 1.1 1.0 2.4
Connect Books 118.5 103.5 195.9 1.6 1.9 2.5
Connect Parcel Freight 86.6 82.4 174.4 4.3 5.0 15.0
Continuing operations - adjusted 911.8 916.8 1,841.7 26.6 27.8 59.9
Revenue - Discontinued operations 28.7 31.6 64.8
Revenue - continuing and discontinued operations 940.5 948.4 1,906.5
Continuing operations -Exceptional items - (5.7) (6.7) (17.7)
Total continuing operations 20.9 21.1 42.2
Net finance expense (3.3) (3.3) (6.9)
Profit before taxation - continuing operations 17.6 17.8 35.3
Profit before taxation - discontinued operations 0.5 1.4 6.6
Profit before taxation - continuing operations and discontinued operations 18.1 19.2 41.9
Segment assets and liabilities
Assets Liabilities Net (liabilities) /assets
£m HY2017 HY2016 FY2016 HY2017 HY2016 FY2016 HY2017 HY2016 FY2016
Connect News & Media: News distribution 122.0 79.3 89.4 (317.7) (265.6) (280.4) (195.7) (186.3) (191.0)
Connect News & Media: Media 20.6 22.4 20.5 (7.2) (9.8) (7.6) 13.4 12.6 12.9
Connect Books 78.6 82.8 74.7 (50.6) (65.7) (47.5) 28.0 17.1 27.2
Connect Parcel Freight 173.6 165.8 175.9 (46.0) (39.1) (49.0) 127.6 126.7 126.9
Discontinued operations 55.4 57.5 57.4 (17.1) (17.2) (20.4) 38.3 40.3 37.0
Consolidated assets/ (liabilities) 450.2 407.8 417.9 (438.6) (397.4) (404.9) 11.6 10.4 13.0
Segment depreciation, amortisation and non-current asset additions
Depreciation Amortisation Additions to non-current assets
£m HY2017 HY2016 FY2016 HY2017 HY2016 FY2016 HY2017 HY2016 FY2016
Connect News & Media: News distribution (2.1) (2.2) (4.5) (1.3) (1.1) (2.3) 3.6 1.8 5.2
Connect News & Media: Media (0.1) (0.1) (0.1) (0.2) (0.2) (0.4) 3.3 0.1 0.3
Connect Books (0.3) (0.3) (3.3) (1.1) (1.3) (7.1) 0.6 0.6 11.1
Connect Parcel Freight (1.9) (1.5) (0.6) (3.5) (3.5) (2.7) 2.1 2.0 1.2
Total - continuing operations (4.4) (4.1) (8.5) (6.1) (6.1) (12.5) 9.6 4.5 17.8
Discontinued operations (0.2) (0.3) (0.4) (1.0) (1.1) (2.2) - 0.3 1.5
Consolidated total (4.6) (4.4) (8.9) (7.1) (7.2) (14.7) 9.6 4.8 19.3
Geographical analysis
Revenue by destination Non-current assets bylocation of operation
£m 6 months to Feb 2017 6 months to Feb 2016 12 months to Aug 2016 6 months to Feb 2017 6 months to Feb 2016 12 months to Aug 2016
United Kingdom 857.5 874.4 1,759.8 181.8 184.3 185.3
Europe 32.3 26.6 47.4 0.3 0.4 0.3
Rest of World 22.0 15.8 34.5 - - -
Consolidated total - continuing operations 911.8 916.8 1,841.7 182.1 184.7 185.6
Discontinued operations 28.7 31.6 64.8 - 33.7 33.6
Total continuing and discontinued operations 940.5 948.4 1,906.5 182.1 218.4 219.2
4 Exceptional Items
£m 6 months to Feb 2017 6 months to Feb 2016 12 months to Aug 2016
Continuing operations
Network and re-organisation costs (1.4) (0.5) (3.7)
Acquisition and disposal costs (0.9) (1.8) (3.8)
Amortisation of acquired intangibles (4.1) (4.4) (8.7)
Pension 0.7 - -
Legal provision - - (1.5)
Total before tax (5.7) (6.7) (17.7)
Taxation 1.2 1.4 3.7
Total after taxation (4.5) (5.3) (14.0)
Discontinued operations
Acquisition and disposal costs (0.6) - -
Network and re-organisation costs - (0.6) (0.7)
Pension - - 1.1
Amortisation of acquired intangibles (0.6) (0.7) (1.5)
Total before tax (1.2) (1.3) (1.1)
Taxation 0.2 0.4 0.2
Total after taxation (1.0) (0.9) (0.9)
Continuing and discontinued operations
Total before tax (6.9) (8.0) (18.8)
Taxation 1.4 1.8 3.9
Total after taxation (5.5) (6.2) (14.9)
Exceptional items on a continuing basis for the period totalled £4.5m after tax for the period, compared to £5.3m in the
prior year.
Network and re-organisation costs
Continuing network and reorganisation costs of £1.4m includes £0.4m for the News distribution network rationalisation
programme, predominantly directed at the commissioning of a new depot in Hemel Hempstead which, when fully operational,
will serve 8,000 customers and become the regional 'hub' for London and the Thames Valley; corporate restructuring of £0.5m
relating of FMD Limited (one of the Group's joint ventures), and back-office re-organisation costs of £0.3m.
Acquisition and disposal costs
Continuing acquisition and disposal costs of £0.9m includes deferred consideration of £0.7m compared to £1.8m in the prior
year in relation to Parcel Freight and Wordery. Professional fees relating to corporate development activities £0.2m
compared to prior year of £nil.
Amortisation of acquired intangibles
Amortisation of continuing intangibles for acquisitions, for which there is no associated cash cost, was £4.1m.
Pension
An exceptional past service pension
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