REG - Connect Group Plc - Unaudited Preliminary Results year ended 31 Aug 17 <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 3
26/10/2017 07:06
- Part 3: For the preceding part double click ID:nRSZ6489Ub
0.4 0.4
4. Adjusted items
£m 2017 2016 restated
Continuing operations
Network and re-organisation costs (a) (8.0) (3.2)
Property (b) (0.6) -
Acquisition and disposal costs (c) 2.2 (3.2)
Amortisation of acquired intangibles (d) (7.3) (7.3)
Pension (e) 0.7 -
Legal provision (f) - (1.5)
Settlement of interest rate swap (g) (0.8) -
Total before tax (13.8) (15.2)
Taxation 2.7 3.0
Total after taxation (11.1) (12.2)
Discontinued operations
Profit on disposal of subsidiary (h) 19.0 -
Acquisition and disposal costs (deferred consideration) (i) - (0.7)
Re-organisation/ other costs (j) (0.3) (1.1)
Pension (k) - 1.1
Amortisation and impairment of acquired intangibles (d) (11.2) (2.9)
Total before tax 7.5 (3.6)
Taxation 1.1 0.9
Total after taxation 8.6 (2.7)
Continuing and discontinued operations
Total before tax (6.3) (18.8)
Taxation 3.8 3.9
Total after taxation (2.5) (14.9)
The Group incurred a total of £11.1m of adjusted items on a continuing basis after tax (2016: £12.2m).
This comprises:
(a) Network and re-organisation costs
£2.0m related to network rationalisation costs incurred in the Smiths News network to drive cost savings. £0.6m related to
the restructuring of the News joint venture FMD Limited (whose principal trading subsidiary is Worldwide Magazine
Distribution Limited) with part of the magazine operation being absorbed into the main News business. There are a further
£4m costs relating to redundancies announced in August arising from the decision to integrate the News & Media and Mixed
Freight divisions. £0.5m was incurred in rationalising overseas operations in Media and the remaining amount related to
redundancy costs within Smiths News and Tuffnells.
(b) Property
Provisions of £0.9m (FY2016: £nil) were charged on three onerous depot leases in FY2017 offsetting a release of £0.3m in
respect of reversionary leases. The onerous lease charges are considered to be part of the Group's strategic restructuring
initiative and are therefore treated as an adjusted item.
(c) Acquisition and disposal costs
Acquisition costs include the release of deferred consideration for Tuffnells of £2.7m comprising equity based amounts and
amounts provided for cash rewards which were offset by £0.5m fees relating to disposal activity in the year.
(d) Amortisation and impairment of acquired intangibles
Amortisation of acquired intangibles relates to acquisitions amortised over their expected economic lives for which there
is no ongoing cash impact. Discontinued operations includes impairments of £9.9m which result in a fair value less costs
to sell of £15.0m.
(e) Pension credit
The £0.7m pension credit relates to a trivial commutation of benefits to members in the WH Smith Pension Trust.
(f) Legal provision - potential health and safety offences
Potential fine and legal costs arising from the outcome of the HSE investigation into the fatality at Tuffnells' Brierley
Hill depot in January 2016. See note 15 for further details.
(g) Settlement of interest rate swap
The Group took a strategic decision to no longer hedge interest rates. The cost relates to the settlement of the swap
instruments. The settlement followed a change in Treasury policy. The cost is classified as an adjusted item because it
is of significant value and is not expected to be recurrent in nature.
(h) Profit on disposal of subsidiary
Profit on the sale of the Education & Care division on 30 June 2017 (see note 11 for details).
(i) Acquisition and disposal costs (deferred consideration)
Deferred consideration charged in relation to the Group's acquisition of the remaining 49% of Wordery in 2015.
(j) Re-organisation / other costs
Re-organisation/ other costs of £0.3m relates to legal and restructuring costs incurred in the Books division during the
year. In the prior year £1.2m related to the re-organisation of the Books international divisions and operations in the
Education & Care division.
(k) Pension
Impact of the Trustees decision to cease payment of discretionary increases on pre 97 pension rights within the Consortium
Care scheme which resulted in a past service credit.
Whilst costs associated with network reorganisation recur across financial years, they are considered adjusted items given
they are part of a strategic programme and are significant in value to the results of the Group. Other reorganisation
costs are considered to be adjusted items as they are also related to strategic initiatives, are of significant value and
not considered to be a normal operating cost of the business. The Pension credits described above are not considered to be
part of normal operations and are therefore considered to be an adjusted item. Deferred consideration charges and credits
in respect of previous acquisitions and costs relating to disposal activity are considered to be adjusted items as they do
not form part of normal operating costs/ credits of the business.
5. Retirement benefit obligation
Defined benefit pension schemes
The Group operates two defined benefit schemes, the WH Smith Pension Trust (the 'Pension Trust) and the Tuffnells Parcels
Express Pension Scheme. The assets and liabilities of the 'Consortium CARE' and 'Platinum' defined benefit schemes were
disposed as part of the sale of the Education & Care division (see note 11).
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 Tuffnells Parcels Express 2017 WH Smith Pension Trust Consortium CARE Platinum Tuffnells Parcels Express 2016
Present value of defined benefit obligation (460.6) (13.0) (473.6) (490.2) (24.0) (1.6) (15.7) (531.5)
Fair value of assets 609.9 10.2 620.1 641.5 15.8 1.9 12.7 671.9
Net surplus/ (loss) 149.3 (2.8) 146.5 151.3 (8.2) 0.3 (3.0) 140.4
Amounts not recognised due to asset limit (149.3) - (149.3) (151.3) - - - (151.3)
- (2.8) (2.8) - (8.2) 0.3 (3.0) (10.9)
Additional liability recognised due to minimum funding requirements (8.7) - (8.7) (10.3) - - - (10.3)
Pension liability (8.7) (2.8) (11.5) (10.3) (8.2) - (3.0) (21.5)
Pension asset - - - - - 0.3 - 0.3
The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of
£149.3m at 31 August 2017 (2016: £151.3m 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 (2016:
£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 actuarial valuation of the Smiths News section of the WH Smith Pension Trust, at 31 March 2015 was a deficit of
£17.5m.
Future cash contributions by the Group to the pension trustees total £3.8m per annum through to March 2018. Thereafter
contributions of £3.8m per annum have been agreed until the period ended March 2020. The Group recognises the present
value of these agreed contributions as a pension liability of £8.7m (2016: £10.3m).
Other defined benefit schemes
The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2016 was an agreed liability of
£4.3m. Guaranteed Minimum Pension ("GMP") equalisation is expected to lead to an increase in scheme liabilities at some
future date on the Tuffnells Parcels Express scheme. Deficit recovery contributions to the scheme have been agreed at
£0.3m per annum.
The weighted average duration of the schemes is 17 years for the Pension Trust and 25 years for the Tuffnells Parcels
Express scheme.
The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:
% p.a. 2017 2016
Discount rate 2.3 2.0
Inflation assumptions - CPI 2.3 2.0
Inflation assumptions - RPI 3.3 3.0
Demographic assumptions for WH Smith pension trust: 2017 2016
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 21.5 23.3 21.5 23.5
Member currently aged 45 22.5 24.5 22.8 25.0
Demographic assumptions for Tuffnells Parcels Express scheme: 2017 2016
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 22.3 24.1 21.9 24.2
Member currently aged 45 23.3 25.3 23.2 25.7
A summary of the movements in the net balance sheet asset/(liability) and amounts recognised in the Group Income Statement
and Other Comprehensive Income are as follows:
£m Fair value of scheme assets Defined benefit obligation Impact of IFRIC 14 on defined benefit pension schemes Total
At 31 August 2015 563.3 (432.0) (149.4) (18.1)
Current service cost - (0.3) - (0.3)
Net interest cost 20.9 (15.8) (5.7) (0.6)
Administration expenses (0.1) - - (0.1)
Past service credits - 1.1 1.1
Total amount recognised in income statement 20.8 (15.0) (5.7) 0.1
Actual less expected return on scheme assets 115.4 - - 115.4
Actuarial gains arising from experience - 7.5 - 7.5
Actuarial loss arising from changes in financial assumptions - (128.3) - (128.3)
Actuarial gains arising from changes in demographic assumptions - 3.4 - 3.4
Change in surplus not recognised - - (6.5) (6.5)
Amount recognised in other comprehensive income 115.4 (117.4) (6.5) (8.5)
Employer contributions 5.3 - - 5.3
Employee contributions 0.1 (0.1) - -
Benefit payments (33.0) 33.0 - -
Amounts included in cash flow statement (27.6) 32.9 - 5.3
At 31 August 2016 671.9 (531.5) (161.6) (21.2)
Current service cost - (0.3) - (0.3)
Net interest cost 13.2 (10.3) (3.2) (0.3)
Administration expenses (0.2) - - (0.2)
Past service credits (3.4) 4.1 - 0.7
Total amount recognised in income statement 9.6 (6.5) (3.2) (0.1)
Actual less expected return on scheme assets (21.8) - - (21.8)
Actuarial gains arising from experience - 4.5 - 4.5
Actuarial gains arising from changes in financial assumptions - 4.7 - 4.7
Actuarial gains arising from changes in demographic assumptions - 4.5 - 4.5
Change in surplus not recognised - - 6.8 6.8
Amount recognised in other comprehensive income (21.8) 13.7 6.8 (1.3)
Employer contributions 5.2 - - 5.2
Employee contributions - - - -
Benefit payments (27.2) 27.2 - -
Amounts included in cash flow statement (22.0) 27.2 - 5.2
Disposal (17.6) 23.5 - 5.9
At 31 August 2017 620.1 (473.6) (158.0) (11.5)
Included within Current liabilities (4.1)
Included within Non-current liabilities (7.4)
The charge for the current service cost is included within administrative expenses. 'Net interest costs' are calculated by
applying a discount rate to the net defined benefit asset or liability scheme assets and are included within finance income
and expense.
The actual return on scheme assets during 2017 was a loss of £12.2m (2016: a gain of £136.2m) due to a decrease in the
value of bonds held to match pension scheme liabilities.
The value of the assets held by the trust in Connect Group PLC issued financial instruments is £nil (2016: £nil).
Sensitivity of results to changes in the main assumptions:
Assumption Change in assumption Impact on IAS 19 liabilities
Discount rate +/- 0.5% -£37.5m/ +£40.5m
Rate of inflation +/- 0.5% +£38m/-£35m
Life expectancy +/- 1 year +£16.5m/-£16.5m
The sensitivity analysis for each significant actuarial assumption has been determined based on reasonably possible changes
to the assumptions at the end of the reporting period. It is based on a change in the key assumption while holding all
other assumptions constant. The effect of a change in more than one assumption will be different to the sum of the
individual changes. When calculating the sensitivities, the same methodology used to calculate the liability recognised in
the balance sheet has been applied. The methodology and types of assumptions used in preparing the sensitivity analysis is
consistent with the previous period.
The history of experience adjustments is as follows:
£m 2017 2016 2015 2014 2013
Present value of defined benefit obligation (473.6) (531.5) (432.0) (450.7) (419.2)
Fair value of assets 620.1 671.9 563.3 522.7 469.6
Impact of IFRIC 14 on defined benefit pension schemes (158.0) (161.6) (149.4) (93.0) (73.5)
Net deficit in the schemes (11.5) (21.2) (18.1) (21.0) (23.1)
Experience adjustments on scheme liabilities 13.7 (117.4) 25.1 0.8 (1.4)
Experience adjustments on scheme assets (21.8) 115.4 28.7 44.6 27.9
The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income since the adoption
of IFRS is a loss of £30.5m (2016: a loss of £29.2m).
The group's defined benefit pension plans have a number of areas of risk, the most significant of which are set out below:
· Life expectancy
The majority of the plans' obligations are to provide a pension for the life of the member, so increases in life expectancy
will result in an increase in the plans' liabilities.
· Inflation risk
The plans' benefit obligations are linked to inflation and higher inflation will lead to higher liabilities.
· Changes in bond yields
Falling bond yields tend to increase the funding and accounting liabilities. The schemes both hold investments in
corporate and government bonds which offer a degree of matching, i.e. the movement in assets arising from changes in bond
yields partially matches the movement in the funding or accounting liabilities. In this way, the exposure to movements in
bond yields is reduced.
Defined contribution schemes
The Group operates a number of defined contribution schemes. For the year ended 31 August 2017, contributions from the
respective employing company for continuing operations totalled £1.2m (2016: £2.0m) which is included in the Income
Statement.
A defined contribution plan is a pension plan under which the group pays contributions to an independently administered
fund - such contributions are based upon a fixed percentage of employees' pay. The group has no legal or constructive
obligations to pay further contributions to the fund once the contributions have been paid. Members' benefits are
determined by the amount of contributions paid by the Company and the member, together with investment returns earned on
the contributions arising from the performance of each individual's chosen investments and the type of pension the member
chooses to buy at retirement. As a result, actuarial risk (that benefits will be lower than expected) and investment risk
(that assets invested in will not perform in line with expectations) fall on the employee.
6. Finance costs
£m Note 2017 2016
Continuing operations
Interest on bank overdrafts and loans (5.4) (5.5)
Net interest expense on defined benefit obligation 5 (0.3) (0.6)
Interest payable on finance leases (1.0) (0.7)
Foreign exchange gains 0.2 -
Unwinding of discount on provisions - trading 15 (0.2) (0.2)
Adjusted items:
Settlement of interest rate swap 4 (0.8) -
Finance costs - continuing operations (7.5) (7.0)
Finance costs - continuing and discontinued operations (7.5) (7.0)
7. Income tax expense
£m 2017 2016
Continuing operations Adjusted Adjusted items Total Adjusted Adjusted items Total
Current tax 10.0 (0.6) 9.4 11.2 (0.8) 10.4
Adjustment in respect of prior year (0.8) 0.1 (0.7) (0.3) (0.1) (0.4)
Total current tax charge 9.2 (0.5) 8.7 10.9 (0.9) 10.0
Deferred tax - current year 0.1 (2.0) (1.9) (0.4) (1.5) (1.9)
Deferred tax - prior year 0.5 - 0.5 - - -
Deferred tax - impact of rate change 0.1 (0.2) (0.1) 0.3 (0.6) (0.3)
Total tax charge - continuing operations 9.9 (2.7) 7.2 10.8 (3.0) 7.8
Effective tax rate 20.8% 21.1% 21.5% 22.2%
Tax charge - discontinued operations 1.0 (1.1) (0.1) 1.6 (0.9) 0.7
Tax charge - continuing and discontinued operations 10.9 (3.8) 7.1 12.4 (3.9) 8.5
The effective adjusted income tax rate for continuing operations the year was 20.8% (2016: 21.5%). After the impact of
Adjusted items of £2.7m (2016: £3.0m), the effective statutory income tax rate for continuing operations was 21.1% (2016:
22.2%).
Corporation tax is calculated at the main rates of UK corporation tax, those being 19.6% (2016: 20.0%). Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
Of the charge to current tax, approximately £1.0m (2016: £1.1m) related to tax on profits arising in the Education & Care
division, which was disposed of during the year. No tax charge or credit arose on the disposal of the relevant subsidiary.
The tax charge for the year can be reconciled to the profit in the income statement as follows:
£m 2017 2016
Profit before tax - continuing operations 34.2 35.2
Tax on profit at the standard rate of UK corporation tax 19.6% (2016: 20.0%) 6.7 7.1
Expenses not deductible for tax purposes 0.8 1.3
Non taxable income (0.6) -
Share based payments 0.5 -
Adjustment in respect of prior years (0.2) (0.4)
Impact of change in UK tax rate (0.1) (0.3)
Impact of higher overseas tax rates 0.1 0.1
Tax charge - continuing operations 7.2 7.8
Tax charges to other comprehensive income and directly in equity
£mContinuing operations 2017 2016
Current tax relating to the defined benefit pension scheme (0.8) (0.8)
Current tax relating to share based payments - (0.1)
Deferred tax relating to derivative financial instruments 0.2 (0.2)
Deferred tax relating to share based payments 0.2 0.4
Deferred tax relating to retirement benefit obligations 0.3 0.4
Tax (credit) to other comprehensive income and directly in equity - continuing operations (0.1) (0.3)
Tax charge/ (credit) to other comprehensive income and directly in equity - discontinued operations 0.3 (1.1)
Tax charge/ (credit) to other comprehensive income and directly in equity - continuing and discontinued operations 0.2 (1.4)
8. Dividends
Amounts paid & proposed as distributions to equity shareholders in the years:
Paid & proposed dividends for the year 2017 2016 2017 2016
Per share Per share £m £m
Interim dividend - paid 3.1p 3.0p 7.6 7.3
Final dividend - proposed 6.7p 6.5p 16.4 15.9
9.8p 9.5p 24.0 23.2
Recognised dividends for the year
Final dividend - prior year 6.5p 6.3p 16.0 15.4
Interim dividend - current year 3.1p 3.0p 7.6 7.3
9.6p 9.3p 23.6 22.7
The proposed final dividend for the year ended 31 August 2017 of 6.7p is subject to approval by shareholders at the Annual
General Meeting on 23 January 2018 and in line with IAS10 - 'Events after the reporting period', this dividend has not been
included as a liability in these accounts. The proposed dividend, if approved, will be paid on 9 February 2018 to
shareholders on the register at close of business on 12 January 2018.
9. Earnings per share
2017 2016
£m Pence £m Pence
Earnings Weighted average number of shares million per share Earnings Weighted average number of shares million per share
Weighted average number of shares in issue 247.5 245.9
Shares held by the ESOP (weighted) (2.1) (2.5)
Basic earnings per share (EPS)
Continuing operations
Adjusted earnings attributable to ordinary shareholders 38.1 245.4 15.5p 39.6 243.4 16.2p
Adjusted items (11.1) (12.2)
Earnings attributable to ordinary shareholders 27.0 245.4 11.0p 27.4 243.4 11.3p
Total - Continuing and discontinued operations
Adjusted earnings attributable to ordinary shareholders 39.1 245.4 15.9p 48.3 243.4 19.8p
Adjusted items (2.5) (14.9)
Earnings attributable to ordinary shareholders 36.6 245.4 14.9p 33.4 243.4 13.7p
Diluted earnings per share (EPS)
Effect of dilutive share options 1.6 3.8
Continuing operations
Diluted adjusted EPS 38.1 247.0 15.4p 39.6 247.2 16.0p
Diluted EPS 27.0 247.0 10.9p 27.4 247.2 11.1p
Total - Continuing and discontinued operations
Diluted adjusted EPS 39.1 247.0 15.8p 48.3 247.2 19.5p
Diluted EPS 36.6 247.0 14.8p 33.4 247.2 13.5p
Dilutive shares increase the basic number of shares at 31 August 2017 by 1.6m to 247.0m (31 August 2016: 247.2m).
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 1.6m dilutive shares
(31 August 2016: 2.3m). In 2016 there was a dilutive impact of a weighted 1.5m shares being the time apportioned share
capital relating to the deferred consideration for the acquisition of The Big Green Parcel Holding Company Limited (whose
principal trading subsidiary is Tuffnells Parcels Express Limited).
10 Discontinued Operations
On 30 June 2017 the Education & Care division was sold (refer to note 11 for detail). The results of this division are
therefore disclosed as discontinued. The Books division was classified as held for sale on 31 August 2017 as the Group is
actively marketing the division for sale and disposal is expected to be completed within a year. As such the results of
the Books division are also classified as discontinued.
The results of discontinued operations, which have been included within the consolidated income statement are as follows:
12 months to Aug 2017 12 months to Aug 2016
£m
Adjusted Adjusted items Total Adjusted Adjusted items Total
Revenue 270.3 - 270.3 260.7 - 260.7
Expenses (268.3) 7.5 (260.8) (250.4) (3.6) (254.0)
Operating profit 2.0 7.5 9.5 10.3 (3.6) 6.7
Finance costs - - - - - -
Profit before tax 2.0 7.5 9.5 10.3 (3.6) 6.7
Income tax expense (1.0) 1.1 0.1 (1.6) 0.9 (0.7)
Profit from discontinued operations 1.0 8.6 9.6 8.7 (2.7) 6.0
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
£m 2017
Goodwill 9.7
Intangible assets 3.0
Property, plant and equipment 4.0
Inventories 20.3
Trade and other receivables 26.1
Current tax asset 0.5
Cash and bank balances 0.9
Total assets classified as held for sale 64.5
Trade and other payables (48.5)
Deferred tax liabilities (0.4)
Provisions (0.6)
Total liabilities classified as held for sale (49.5)
Net assets of disposal group 15.0
Impairment of £7.9m was charged in respect of goodwill bringing the carrying value of the division to fair value less cost
to sell.
During the year cash inflow from operating activities attributed to discontinued operations amounted to £3.8m (2016:
£13.1m), paid £3.7m (2016: £3.2m) in respect of investing activities. There were no cashflows associated with financing
activities attributable to discontinued operations.
11 Disposal of subsidiary
The Group disposed of the Connect Education & Care division on 30 June 2017.
The net assets of the division at the date of disposal were:
£m
Goodwill 20.9
Intangible assets 6.3
Property, plant and equipment 6.0
Pension asset 0.2
Inventories 8.6
Trade and other receivables 11.0
Cash and bank balances 0.5
Deferred tax asset 1.1
Trade and other payables (9.6)
Deferred tax liabilities (0.7)
Pension liability (6.1)
38.2
Disposal costs 1.8
Gain on disposal 19.0
Total consideration 59.0
Satisfied by:
Cash 58.7
Cash received after 31 August 2017 0.3
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents 58.7
Less: cash and cash equivalents disposed (0.5)
58.2
The gain on disposal is included in the profit for the year from discontinued operations.
There were no disposals during the year ended 31 August 2016.
12. Intangible assets
Acquired Intangibles Internally generated development costs Computer software costs
£m Goodwill Customer relationships Trade name Software Total
Cost:
At 1 September 2016 96.3 48.8 33.5 1.5 11.2 16.2 207.5
Additions - - - - 2.1 3.0 5.1
Disposals - - - - (2.8) (0.6) (3.4)
Disposal of business (20.9) (9.3) (0.9) (0.2) (0.9) (4.3) (36.5)
Classified as held for sale (17.6) (10.2) (1.9) (0.5) (3.2) (2.8) (36.2)
At 31 August 2017 57.8 29.3 30.7 0.8 6.4 11.5 136.5
Accumulated amortisation:
At 1 September 2016 - (20.0) (7.5) (1.1) (7.2) (6.9) (42.7)
Amortisation charge - (5.1) (3.2) (0.3) (1.4) (3.2) (13.2)
Disposal - - - 2.6 0.4 3.0
Disposal of business 5.6 0.5 0.2 0.4 2.6 9.3
Impairment (7.9) (2.0) - - - - (9.9)
Classified as held for sale 7.9 10.2 1.9 0.5 1.7 1.3 23.5
At 31 August 2017 - (11.3) (8.3) (0.7) (3.9) (5.8) (30.0)
Net book value at 31 August 2017 57.8 18.0 22.4 0.1 2.5 5.7 106.5
Cost:
At 1 September 2015 96.3 48.8 33.5 1.5 9.1 13.8 203.0
Additions - - - - 2.1 2.6 4.7
Disposals - - - - - (0.2) (0.2)
At 31 August 2016 96.3 48.8 33.5 1.5 11.2 16.2 207.5
Accumulated amortisation:
At 1 September 2015 - (13.6) (4.0) (0.8) (5.4) (4.4) (28.2)
Amortisation charge - (6.4) (3.5) (0.3) (1.8) (2.7) (14.7)
Disposal - - - - - 0.2 0.2
At 31 August 2016 - (20.0) (7.5) (1.1) (7.2) (6.9) (42.7)
Net book value at 31 August 2016 96.3 28.8 26.0 0.4 4.0 9.3 164.8
0.4
4.0
9.3
164.8
The Group leases software under various finance lease arrangements. The net book value of finance leases contained within
the software balance above is £0.6m (2016: £0.4m).
Goodwill and Intangibles by CGU
As detailed in note 11, goodwill and intangibles attributable to the Education & Care CGU were disposed during the year.
An impairment against goodwill and intangibles attributable to the Books division was charged during the year bringing the
carrying value to the fair value less costs to sell. The resulting goodwill and intangibles values were transferred to
assets held for sale.
Goodwill is not amortised, but tested annually for impairment or more frequently if there are indications that goodwill
might be impaired with the recoverable amount being determined from value in use calculations. The recoverable amounts of
the combined cash generating units are determined from the value in use calculations. The Group prepares cash flow
forecasts derived from the most recent budgets and forecasts for the following 5 years as approved by the Board and
extrapolates these cash flows on an estimated growth rate of 1% into perpetuity. The rate used to discount the forecast
cash flows range from 12% to 15%, being the Group's risk adjusted pre-tax WACC, specific for each cash generating unit.
Pre-tax discount rates are derived from the Group's post-tax WACC of 8% risk adjusted by 2%. The calculation of value in
use is sensitive to the discount rate and growth rates used.
The Group has conducted sensitivity analysis on the impairment test of each of the CGU's classified within continuing
operations. There is significant headroom on the carrying value of each CGU except for the Parcels CGU. The Parcels CGU
has headroom on its carrying value of £12.6m prior to any sensitivities. A reasonably possible increase in the risk
adjusted post tax WACC by 0.7% or a reduction in operating profits by 5.5% would cause the carrying value to equal the
recoverable amount.
Goodwill Acquired Intangibles Total
£m 2017 2016 On acquisition 2017 2016 On acquisition 2017 2016 On acquisition
Media 5.7 5.7 5.7 0.5 0.8 2.6 6.2 6.5 8.3
News - - - 0.1 0.1 0.3 0.1 0.1 0.3
Mixed Freight 52.1 52.1 52.1 39.9 46.7 58.1 92.0 98.8 110.2
57.8 57.8 57.8 40.5 47.6 61.0 98.3 105.4 118.8
The individual material intangible assets relate to the customer relationships and brand acquired on the acquisition of
Tuffnells. The carrying value of these assets at 31 August 2017 is £17.3m and £22.4m respectively with a remaining
amortisation period of 5 and 7.5 years respectively.
13. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
£m Sterling Euro US Dollar Other Total 2017 2016
Cash and cash equivalents - continuing 2.7 2.2 0.4 0.2 5.5
Cash and cash equivalents - classified as held for sale (2.0) 2.4 0.4 0.1 0.9
Cash and cash equivalents - total 0.7 4.6 0.8 0.3 6.4 9.1
Term loan - disclosed within current liabilities (20.0) (20.0) (20.0)
Term loan - disclosed within non-current liabilities (60.0) (60.0) (79.1)
Revolving credit facility - (41.0)
Total borrowings (80.0) (80.0) (140.1)
Net borrowings (79.3) 4.6 0.8 0.3 (73.6) (131.0)
Total borrowings
Amount due for settlement within 12 months (20.0) (20.0) (61.0)
Amount due for settlement after 12 months (60.0) (60.0) (79.1)
(80.0) (80.0) (140.1)
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.
At 31 August 2017, the Group had £150.0m (2016: £109.0m) of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met. Interest payable under the facility in place at 31 August 2017 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. In October 2017, the Group agreed a new bank facility of £175m.
14. Obligations under finance leases
£m 2017 2016
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 3.8 3.1 3.8 3.0
In the second to fifth years inclusive 6.0 5.4 8.8 7.7
Total 9.8 8.5 12.6 10.7
Less: future finance charges (1.3) (1.9) -
Present value of lease obligations 8.5 8.5 10.7 10.7
Less: amount due for settlement within 12 months (shown under current liabilities) (3.1) (3.0)
Amount due for settlement after 12 months 5.4 7.7
Group policy is to acquire certain items of its fixtures, equipment and software under finance leases. The average lease
term is 4 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.
15. Provisions
£m Reorganisation provisions Insurance and legal provision Deferred contingent consideration Property provisions Total
At 1 September 2016 (0.6) (4.3) (2.0) (6.5) (13.4)
Additions (4.7) (2.3) - (1.9) (8.9)
Release - 1.7 0.1 0.4 2.2
Utilised in period 0.7 1.3 1.1 1.0 4.1
Unwinding of discount utilisation - - - (0.2) (0.2)
Transferred as held for sale 0.1 - - 0.5 0.6
At 31 August 2017 (4.5) (3.6) (0.8) (6.7) (15.6)
£m 2017 2016
Included within current liabilities (9.0) (8.5)
Included within non-current liabilities (6.6) (4.9)
Total (15.6) (13.4)
Reorganisation provisions include amounts for programmes which consist 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 & legal provisions represent the expected future costs of employer's liability, public liability, motor accident
claims and legal claims. In January 2016, an employee in the Tuffnells business was fatally injured in an accident at our
Brierley Hill depot. Since the accident we have been assisting the Health & Safety Executive ("HSE") in its investigation
and gave evidence at a Coroner's inquest held in September 2016. The HSE recently notified the Group's legal advisers that
it intends to charge Tuffnells Parcels Express Limited with an offence under section 2(1) of the Health and Safety at Work
etc Act 1974 and the business now awaits the letter of summons. A provision of
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