REG - Connect Group Plc - Unaudited Preliminary Results year ended 31 Aug 17 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 2
26/10/2017 07:06
- Part 2: For the preceding part double click ID:nRSZ6489Ua
minimise mistakes. Applicable legislation 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. No Change 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. Tuffnells is a significant financial contributor toward the overall results, mitigating market
declines for newspapers, magazines and books. The strategy, including "Early" delivery propositions (including Pass My Parcel),
seeks to further protect the organisation from over exposure to individual market risks.
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. No Change Impact on supply of product or route to market may erode margin and/or increase cost to serve. In Smith News, publishers typically award five year contracts supporting the market structure. Tuffnells and Books operate in
fragmented markets with fewer key suppliers or customers. Strong relationships across the supply chain help the business 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. No Change In the event of any legal claim as to worker status by consultants, sub-contractors or agency workers the business 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 regularly reviews its legal terms of engagement with contractors and has appropriate contractual and operational
arrangements in place. Self-employed delivery contractors have clearly articulated agreements defining tasks they are contracted
to provide whether personally or by a substitute. Increasing employment cost associated with National Living Wage/Apprentices
Levy/ Auto Enrolment has been factored into latest budgets. Future impact of Brexit on employment risks are unknown at the date
of this report and therefore no change. Legal developments are monitored to ensure that the business 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. No change Any material failure resulting from systems outages, process failures, 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 for all essential systems. Protections are in place to defend IT systems against cyber 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 and confidence in its delivery. No change Sales and/or profit expected from acquisitions / organic growth may not be met and/or the Company's reputation and support for future acquisitions are challenged. Cultural change required for diversification / restructuring may result 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 is reviewed monthly with post investment analysis undertaken. Detailed integration process, governance
and support framework ensures effective and timely adoption of standards and process into acquisitions and restructuring
activity.
Constraints on capacity and/or failure to execute restructuring and 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 resources and capability results in loss of customers or key people impacting both current and future business prospects. No change The impact of the inability of warehousing / operational / IT and support systems to meet growth expectations 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 business 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 causes 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. No change 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 business 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.
DIRECTORS' RESPONSIBILITIES STATEMENT
The responsibility statement has been prepared in connection to the Company's full Annual Report for the year ended 31
August 2017. Certain parts of the Annual Report are not included in this announcement, as described in note 1.
Responsibility statement
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the relevant financial reporting framework, 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; and
· the Operating Review and Financial Review 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 that they face.
This responsibility statement was approved by the board of directors on 26 October 2017 and is signed on its behalf by:
Mark Cashmore David Bauernfeind
Chief Executive Officer Chief Financial Officer
Group Income Statement for the year ended 31 August 2017 - unaudited
£m 2017 2016 restated
Note Adjusted* Adjusted items Total Adjusted* Adjusted items Total
Revenue 2 1,594.3 - 1,594.3 1,645.8 - 1,645.8
Operating profit 2,3 54.7 (13.0) 41.7 57.4 (15.2) 42.2
Finance costs 6 (6.7) (0.8) (7.5) (7.0) - (7.0)
Profit before tax 48.0 (13.8) 34.2 50.4 (15.2) 35.2
Income tax expense 7 (9.9) 2.7 (7.2) (10.8) 3.0 (7.8)
Profit for the year from continuing operations 38.1 (11.1) 27.0 39.6 (12.2) 27.4
Discontinued operations
Profit for the year from discontinued operations 1.0 8.6 9.6 8.7 (2.7) 6.0
Profit attributable to equity shareholders continuing and discontinued operations 39.1 (2.5) 36.6 48.3 (14.9) 33.4
Earnings per share from continuing operations
Basic 9 15.5 11.0 16.2 11.3
Diluted 9 15.4 10.9 16.0 11.1
Equity dividends per share (paid and proposed) 8 9.8p 9.5p
Adjusted items are set out in note 4.
Group Statement of Comprehensive Income for the year ended 31 August 2017 - unaudited
£mContinuing Note 2017 2016 restated
Items that will not be reclassified to the Group Income Statement
Actuarial (loss)/gain on defined benefit pension scheme 5 (8.1) 3.6
Impact of IFRIC 14 on defined benefit pension scheme 5 6.8 (6.5)
Tax relating to components of other comprehensive income that will not be reclassified 7 0.3 0.1
(1.0) (2.8)
Items that may be subsequently reclassified to the Group Income Statement
Gain/ (loss) on cash flow hedges 0.6 (1.2)
Termination of interest rate swap 0.8 -
Currency translation differences - 0.3
Tax relating to components of other comprehensive income that may be reclassified 7 (0.2) 0.2
1.2 (0.7)
Other comprehensive loss for the year - continuing 0.2 (3.5)
Profit for the year - continuing 27.0 27.4
Total comprehensive income for the year - continuing 27.2 23.9
Other comprehensive loss for the year - discontinued (0.1) (4.2)
Profit for the year - discontinued 9.6 6.0
Total comprehensive income for the year - discontinued 9.5 1.8
Total comprehensive income for the year 36.7 25.7
Group Balance Sheet at 31 August 2017 - unaudited
£m Note 2017 2016
Non-current assets
Intangible assets 12 106.5 164.8
Property, plant and equipment 41.3 50.3
Interest in jointly controlled entities 4.6 4.1
Retirement benefit assets 5 - 0.3
Deferred tax assets 5.4 7.7
157.8 227.2
Current assets
Inventories 13.8 42.3
Trade and other receivables 98.3 139.2
Derivative financial instruments - 0.1
Cash and cash equivalents 13 5.5 9.1
Assets classified as held for sale 10 64.5 -
182.1 190.7
Total assets 339.9 417.9
Current liabilities
Trade and other payables (136.2) (198.8)
Current tax liabilities (5.3) (6.9)
Bank loans and other borrowings 13 (20.0) (61.0)
Obligations under finance leases 14 (3.1) (3.0)
Retirement benefit obligations 5 (4.1) (4.1)
Provisions 15 (9.0) (8.5)
Liabilities classified as held for sale 10 (49.5) -
(227.2) (282.3)
Non-current liabilities
Retirement benefit obligations 5 (7.4) (17.4)
Bank loans and other borrowings 13 (60.0) (79.1)
Obligations under finance leases 14 (5.4) (7.7)
Derivative financial instruments - (1.5)
Other non-current liabilities (1.0) (1.1)
Deferred tax liabilities (7.2) (10.9)
Non-current provisions 15 (6.6) (4.9)
(87.6) (122.6)
Total liabilities (314.8) (404.9)
Total net assets 25.1 13.0
Group Balance Sheet at 31 August 2017 (continued) - unaudited
£m Note 2017 2016
Equity
Called up share capital 18(a) 12.4 12.3
Share premium account 18(c) 60.5 59.2
Demerger reserve 19(a) (280.1) (280.1)
Own shares reserve 19(b) (3.1) (3.5)
Hedging & translation reserve 19(c) 0.5 (1.1)
Retained earnings 20 234.9 226.2
Total shareholders' equity 25.1 13.0
The accounts were approved by the Board of Directors and authorised for issue on 26 October 2017 and were signed on its
behalf by:
Registered number - 05195191
Mark Cashmore David Bauernfeind
Chief Executive Officer Chief Financial Officer
Group Statement of Changes in Equity for the year ended 31 August 2017 - unaudited
£m Note Share capital Share premium account Demerger reserve Own shares reserve Hedging & translation reserve Retained earnings Total
Balance at 31 August 2015 12.2 55.2 (280.1) (4.1) (0.5) 226.5 9.2
Profit for the year - - - - - 33.4 33.4
Loss on cash flow hedges - - - - (1.2) - (1.2)
Actuarial loss on defined benefit pension scheme - - - - - (2.0) (2.0)
Impact of IFRIC 14 on defined benefit pension scheme - - - - - (6.5) (6.5)
Currency translation differences - - - - 0.6 - 0.6
Tax relating to components of other comprehensive income - - - - - 1.4 1.4
Total comprehensive income for the year - - - - (0.6) 26.3 25.7
Issue of share capital 18 0.1 4.0 - - - - 4.1
Purchase of own shares - - - (1.1) - - (1.1)
Dividends paid 8 - - - - - (22.7) (22.7)
Employee share schemes - - - 1.7 - (1.7) -
Recognition of share based payments net of tax - - - - - (2.2) (2.2)
Balance at 31 August 2016 12.3 59.2 (280.1) (3.5) (1.1) 226.2 13.0
Profit for the year - - - - - 36.6 36.6
Termination of cash flow hedge - - - - 0.8 - 0.8
Gain on cash flow hedges - - - - 0.6 - 0.6
Actuarial loss on defined benefit pension scheme - - - - - (8.1) (8.1)
Impact of IFRIC 14 on defined benefit pension scheme - - - - - 6.8 6.8
Currency translation differences - - - - 0.2 - 0.2
Tax relating to components of other comprehensive income - - - - - (0.2) (0.2)
Total comprehensive income for the year - - - - 1.6 35.1 36.7
Issue of share capital 18 0.1 1.3 - - - - 1.4
Purchase of own shares - - - (0.5) - - (0.5)
Dividends paid 8 - - - - - (23.6) (23.6)
Employee share schemes - - - 0.9 - (0.9) -
Recognition of share based payments net of tax - - - - - (1.9) (1.9)
Balance at 31 August 2017 12.4 60.5 (280.1) (3.1) 0.5 234.9 25.1
Group Cash Flow Statement for the year ended 31 August 2017 - unaudited
£m Note 2017 2016
Net cash inflow from operating activities 17 51.2 58.2
Investing activities
Dividends received from associates 0.2 0.7
Purchase of property, plant and equipment (13.7) (9.1)
Purchase of intangible assets (5.1) (4.8)
Proceeds on sale of property, plant and equipment 1.3 -
Proceeds on sale of subsidiary (net of disposal costs) 56.8 -
Net cash used in investing activities 39.5 (13.2)
Financing activities
Interest paid (5.2) (4.9)
Dividend paid 20 (23.6) (22.7)
Repayments of obligations under finance leases (4.2) (3.5)
Proceeds on issue of shares 0.7 0.4
Net outflow on purchase of shares for Employee Benefit Trust (0.5) (1.1)
Decrease in borrowings (61.0) (15.5)
Net cash used in financing activities (93.8) (47.3)
Net decrease in cash and cash equivalents (3.1) (2.3)
Effect of foreign exchange rate changes 0.4 0.5
(2.7) (1.8)
Opening net cash and cash equivalents 9.1 10.9
Closing net cash and cash equivalents 13 6.4 9.1
During the year cash inflow from operating activities attributed to discontinued operations amounted to £3.8m (2016:
£13.1m) and paid £3.7m (2016: £3.2m) in respect of investing activities. There were no cashflows associated with financing
activities attributable to discontinued operations.
Analysis of net debt
£m Note 2017 2016
Cash and cash equivalents 13 6.4 9.1
Current borrowings 13 (20.0) (61.0)
Non-current borrowings 13 (60.0) (79.1)
Net borrowings (73.6) (131.0)
Finance lease liabilities (8.5) (10.7)
Net debt (82.1) (141.7)
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 section of the
Connect Group PLC Annual Report and Accounts 2017. The accounting policies have been applied consistently throughout the
years ended 31 August 2017 and 31 August 2016.
The Education & Care and Books divisions have been reclassified as discontinued operations in accordance with IFRS 5
"Non-current Assets Held for Sale and Discontinued Operations" and the consolidated financial statements and affected notes
for the year ended 31 August 2016 have been restated to reflect this.
The following Standards have been adopted without any significant impact on the amounts reported in these financial
statements:
· Investment Entities: - Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28 - effective
for accounting periods beginning on or after 1 January 2016.
· IAS 16 and IAS 38 (amended) 'Clarification of Acceptable Methods of Depreciation and Amortisation' - effective for
accounting.
· periods beginning on or after 1 January 2016.
· Annual Improvements 2012-2014 Cycle - effective 1 January 2016.
· Amendments to IAS 1 - effective for accounting periods beginning on or after 1 January 2016.
· Amendments to IAS 27 'Equity Method in Separate Financial Statements' - applicable for accounting periods beginning
on or after 1 January 2016.
· Amendments to IFRS 11 'Accounting for Acquisitions of Interests in Joint Operations' - applicable for accounting
periods beginning on or after 1 January 2016.
The financial information for the year ended 31 August 2017 does not constitute statutory accounts for the purposes of
section 435 of the Companies Act 2006. A copy of the accounts for the year ended 31 August 2016 has been delivered to the
Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under
section 498(2) or 498(3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 August 2017
is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors
in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general
meeting.
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 2017 at www.connectgroupplc.com.
These results were approved by the Board of Directors on 26 October 2017.
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.
The continuing operating segments are:
News & Media: News Distribution (also referred to as Smiths News or Early Distribution) The UK market leading distributor of newspapers and magazines to 27,000 retailers across England and Wales from 39 distribution centres.
News & Media: Media(also referred to as DMD) A supplier of newspaper and magazines to airlines and a provider of inflight services.
Mixed Freight(also referred to as Tuffnells and formerly Parcel Freight) A leading provider of next day B2B delivery of Mixed Freight consignments.
As explained in note 10, Connect Books, a leading UK distributor of physical and digital books is held for sale. The
division has been presented as a discontinued operation and has been included below where necessary for the purpose of
reconciliation. As detailed in note 11, the Connect Education & Care division was sold on 30 June 2017 and the results for
the period to this date is also presented within Discontinued operations.
The following is an analysis of the Group's revenue and results by reportable segment:
Revenue
£m 2017 2016
News & Media: News Distribution 1,383.4 1,443.8
News & Media: Media 28.8 27.6
Mixed Freight 183.2 174.4
Intra group revenue (1.1) -
Continuing operations 1,594.3 1,645.8
Discontinued operations 270.3 260.7
Total continuing and discontinued operations 1,864.6 1,906.5
Intra group revenue relates to services provided by the Mixed Freight division to News Distribution in respect of "Pass My
Parcel".
2017 2016
£m Adjusted operating profit Adjusted items Statutoryoperating profit Adjusted operating profit Adjusted items Statutory operating profit
News & Media: News Distribution 40.4 (4.3) 36.1 40.0 (5.9) 34.1
News & Media: Media 2.3 (1.0) 1.3 2.4 (0.4) 2.0
Mixed Freight 12.0 (7.7) 4.3 15.0 (8.9) 6.1
Continuing operations 54.7 (13.0) 41.7 57.4 (15.2) 42.2
Discontinued operations* 2.0 7.5 9.5 10.3 (3.6) 6.7
Total continuing and discontinued operations 56.7 (5.5) 51.2 67.7 (18.8) 48.9
Net finance expense (6.7) (0.8) (7.5) (7.0) - (7.0)
Profit before taxation 50.0 (6.3) 43.7 60.7 (18.8) 41.9
*Discontinued operations in the table above are pre-tax measures. Presentation in the Group income statement for
discontinued operations are post tax measures.
Information about major customers
Included in revenues arising from News & Media are revenues of approximately £147.5m (2016: £156.8m) which arose from sales
to the Group's largest customer. No other single customer contributed 5% or more of the Group's revenue in either 2017
(2016: 8%)
Segment assets and liabilities
Assets Liabilities Net assets/(liabilities)
£m 2017 2016 2017 2016 2017 2016
News & Media: News 85.4 89.4 (220.8) (280.4) (135.4) (191.0)
News & Media: Media 23.0 20.5 (8.2) (7.6) 14.8 12.9
Mixed Freight 167.0 175.9 (36.3) (49.0) 130.7 126.9
Discontinued operations 64.5 132.1 (49.5) (67.9) 15.0 64.2
Consolidated assets/(liabilities) 339.9 417.9 (314.8) (404.9) 25.1 13.0
Segment depreciation, amortisation and non-current asset additions
Depreciation Amortisation and impairment Additions to non-current assets
£m 2017 2016 2017 2016 2017 2016
News & Media: News (4.2) (4.5) (3.0) (2.3) 6.8 5.2
News & Media: Media (0.2) (0.1) (0.3) (0.4) 0.2 0.3
Mixed Freight (4.1) (3.3) (7.1) (7.1) 6.7 11.1
Continuing operations (8.5) (7.9) (10.4) (9.8) 13.7 16.6
Discontinued operations (0.8) (1.0) (12.7) (4.9) 3.4 2.7
Consolidated total (9.3) (8.9) (23.1) (14.7) 17.1 19.3
Additions to non-current assets includes intangible assets and property, plant and equipment.
Geographical analysis
£m Revenue by destination Non-current assets by location of operation
2017 2016 2017 2016
United Kingdom 1,579.6 1,630.9 152.4 218.9
Europe 9.6 10.1 - -
Rest of World 5.1 4.8 - -
Continuing operations 1,594.3 1,645.8 152.4 218.9
Discontinued operations 270.3 260.7 - 0.3
Total Continuing and discontinued operations 1,864.6 1,906.5 152.4 219.2
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 2017 2016 restated
Continuing operations Note Adjusted Adjusted items Total Adjusted Adjusted items Total
Revenue 1,594.3 - 1,594.3 1,645.8 - 1,645.8
Cost of inventories recognised as an expense (1,283.8) - (1,283.8) (1,335.7) - (1,335.7)
Other cost of sales (124.8) - (124.8) (118.2) - (118.2)
Cost of sales (1,408.6) - (1,408.6) (1,453.9) - (1,453.9)
Gross profit 185.7 - 185.7 191.9 - 191.9
Distribution costs (76.9) - (76.9) (82.8) - (82.8)
Administrative expenses (50.5) (8.2) (58.7) (47.9) (7.9) (55.8)
Share-based payment expense (0.9) 2.5 1.6 (1.7) - (1.7)
Amortisation of intangibles 12 (3.1) (7.3) (10.4) (2.4) (7.3) (9.7)
Administrative expenses (54.5) (13.0) (67.5) (52.0) (15.2) (67.2)
Share of profits from jointly controlled entities 0.4 - 0.4 0.3 - 0.3
Operating profit 54.7 (13.0) 41.7 57.4 (15.2) 42.2
The operating profit is stated after charging/ (crediting):
£m Note 2017 2016 restated
Continuing Discontinued Total Continuing Discontinued Total
Depreciation on property, plant & equipment 8.5 0.8 9.3 7.9 1.0 8.9
Amortisation of intangible assets 12 10.4 12.7 23.1 9.7 5.0 14.7
Operating lease charges
· occupied land and buildings 9.6 1.4 11.0 9.7 1.3 11.0
· equipment and vehicles 16.9 0.6 17.5 18.6 0.8 19.4
Operating lease rental income - land and buildings (0.1) (0.2) (0.3) (0.2) (0.2) (0.4)
Write down of inventories recognised as an expense - (1.6) (1.6) - - -
Gain/ (loss) on disposal of non current assets 0.4 (0.8) (0.4) - - -
Staff costs 128.4 23.7 152.1 129.4 24.3 153.7
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 2017 2016
Fees payable to the Company's auditor for the audit of the Company's annual accounts 0.2 0.2
Fees payable to the Company's auditor for the audit of the Company's subsidiaries 0.2 0.2
Total audit fees 0.4 0.4
Other services - -
Total non-audit fees - -
Total fees (continuing and discontinued)
- More to follow, for following part double click ID:nRSZ6489UcRecent 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