Reach plc - Interim Results - 26 weeks to 27 June 2021
27 July 2021
Customer Value Strategy driving stronger digital growth & enabling investment
· Ongoing momentum in Customer Value Strategy is transforming our prospects
· Strong growth in registrations and digital revenue enabling increased investment in journalism, data and technology
· Digital revenue now 23% of business, up from just 15% in 2019
· Trading ahead of market expectations with strong digital performance and recovery in circulation sales
Financial Summary |
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26 weeks to 27 Jun 2021 |
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Adjusted results(1) |
Statutory results |
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|
|
2021 |
2020 |
Change |
2021 |
2020 |
Change |
Revenue |
£m |
302.3 |
290.8 |
4.0% |
302.3 |
290.8 |
4.0% |
Operating profit |
£m |
68.9 |
54.9 |
25.5% |
28.6 |
28.9 |
(1.0)% |
Earnings/(loss) per share(2) |
Pence |
17.8p |
14.0p |
27.1% |
(11.2)p |
(0.8)p |
N/A |
Dividend per share |
Pence |
2.75p |
N/A |
N/A |
2.75p |
N/A |
N/A |
Financial Highlights
· Group Revenue LFL(3) up 2.6%, with digital up 42.7% and print down 5.2%
· Adjusted operating profit of £68.9m up by 25.5%
· Adjusted operating profit margin 22.8% (H1'20: 18.9%)
· Adjusted operating cash flow(4) of £82.6m (H1'20: £63.5m)
· Statutory profit and earnings impacted by property rationalisation and change in tax rate
· Interim dividend of 2.75p pence per share
Business and Strategic Highlights
· Sustained momentum of Customer Value Strategy supporting growth of digital revenues
· Ongoing investment in journalism and expansion of regional network to all counties of England and Wales
· Registrations now at 6.7m c150% greater than a year ago; confident of achieving 10m by the end of 2022
· Reach ID and investment in data capabilities supporting delivery of more targeted campaigns
· Strong start to commercialisation of 'plus' products; c50 campaigns run with significant uplift in consumer response
· Strong cash generation and balance sheet supports pensions, shareholder returns and investment optionality
· Increasing focus on wellbeing and culture; new diversity & inclusion plan across the organisation
Jim Mullen Chief Executive Officer
Reach is transforming its prospects and with strong momentum in the Customer Value Strategy we now have a clear pathway to sustainable growth. Our people continue to deliver on our core purpose as champions, campaigners and changemakers. Award-winning national and local journalism is delivering consistently higher audience engagement, supported by increased customer insight. As a result, we have been able to increase investment in journalism and the applied data technology that is key to us achieving our ambition of doubling digital growth over the medium term. The business remains strongly cash generative and is committed to delivering growth for the benefit of all stakeholders.
Results Overview
· Revenue of £302.3m grew by 2.6% LFL with digital growth of 42.7% and print declining by 5.2%
· Strong progress in delivery of Customer Value Strategy; increased investment underpins growth agenda
· Adjusted operating profit margin up 390 bps supported by efficiencies from prior year transformation programme
· Adjusted operating cash flow of £82.6m, an increase of £19.1m
· Net cash(5) of £54.7m up £12.7m on FY20 closing position (£42.0m)
Revenue
· Year on year revenue growth reflects strong digital performance and softer comparatives during Q2 as we annualised the first COVID lockdown which began towards the end of March 2020
· Digital revenue of £68.8m grew 42.7%, with growth on a two-year basis up by 41.4% (H2'20 equivalent 39.8%)
· Print revenue £232.4m down 5.2%; circulation £160.0m down by 5.1%, both grew during Q2
· On a two-year basis, print and circulation down 23.9% and 16.0% respectively, consistent with H2'20 two-year rate
Profit
· Adjusted operating profit of £68.9m up £14.0m or 25.5% (H1'20: £54.9m)
· Adjusted operating costs of £234.9m (H1'20 £236.2m) with savings from 2020 transformation programme, in-part offset by increased investment and the annualisation of one-offs
· Statutory numbers impacted by property rationalisation charge following decision to exit a number of properties and the future change in the UK rate of corporation tax which affects the value of deferred tax liabilities.
Cash & Balance Sheet
· Adjusted operating cash flow of £82.6m represents cash conversion of 105%, driven by positive working capital inflow which is expected to substantially reverse during H2
· Net cash increased by £12.7m to £54.7m from £42.0m at the prior year-end
Dividend
· Interim dividend 2.75p; 4.6% greater than value of non-cash bonus issue of shares issued in lieu of interim last year
· Board recognises importance of growing dividends for shareholders, while also investing to grow the business and meeting pension funding requirements; expect to continue to pay dividends in line with Group free cash position
Outlook and Current Trading
While macro uncertainty remains, the business is well placed to progress further against our strategic objectives and is trading ahead of full year expectations. Trading during H1, specifically Q2, benefited from relatively soft comparatives due to the impact of the first UK lockdown during spring last year. This benefit will unwind during H2 as we begin to annualise a more normal pattern of trading. Despite this, we expect underlying momentum will continue, in particular the improvement we're seeing in print circulation and growth in digital revenues, which has also been supported by the broader sector shift to online. Efficiencies, driven by last year's transformation programme, will continue to support increased digital investment, further expansion of our profit margin and a strong cash position.
Quarterly and Half Year LFL Year-on-Year and 2 Year Revenue Movements
2021 |
Q1 YOY % |
Q2 YOY % |
HY YOY % |
H1 2yr* % |
H220 2yr** % |
Digital Revenue |
25.2% |
65.0% |
42.7% |
41.4% |
39.8% |
Print Revenue |
(15.2)% |
7.3% |
(5.2)% |
(23.9)% |
(23.3)% |
- circulation revenue |
(11.3)% |
1.9% |
(5.1)% |
(16.0)% |
(16.7)% |
- advertising revenue |
(20.7)% |
20.8% |
(4.3)% |
(33.7)% |
(36.3)% |
Group Revenue |
(8.7)% |
16.8% |
2.6% |
(14.9)% |
(14.7)% |
* 2yr movement for H1 2021 is a like-for-like comparison versus the same period in 2019
** 2yr movement for H2 2020 is a like-for-like comparison versus the same period in 2018
Notes
(1) Set out in note 19 is the reconciliation between the statutory and adjusted results. The current period is for the 26 weeks ended 27 June 2021 ('2021') and the comparative period is for the 26 weeks ended 28 June 2020 ('2020').
(2) Earnings per share for 2020 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to a 2020 interim dividend of 2.63 pence per share.
(3) Set out in note 22 is the reconciliation between the statutory and like-for-like revenue. The like-for-like trends exclude the Independent Star acquisition and the impact of portfolio changes.
(4) An adjusted cash flow is presented in note 20 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 21 is the reconciliation between the statutory and adjusted cash flows.
(5) Net cash balance comprises cash and cash equivalents of £54.7m (note 15) less bank borrowings of nil (note 15) but excludes lease obligations.
Enquiries
Reach |
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Jim Mullen, Chief Executive Officer Simon Fuller, Chief Financial Officer Ciaran O'Brien, Director of Communications Matt Sharff, Investor Relations Director |
07341 470 722 |
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David Allchurch / Giles Kernick |
020 7353 4200 |
Jim Mullen, Chief Executive Officer, and Simon Fuller, Chief Financial Officer will present the results at 9:00am (BST) on 27 July 2021. It will be followed by a live question and answer session. The presentation slides, script and recording will be available on www.reachplc.com from 9.00am (BST).
You can join the webcast via https://edge.media-server.com/mmc/p/vwz7wphi . Please copy and paste the link into your browser.
Please either listen to the Q&A session via the webcast or to ask a question, please use the dial-in details below. Please dial-in at least 15 minutes prior to the start time to provide sufficient time to access the event. You will be asked to provide the conference ID number below.
Conference ID No: 1258311
United Kingdom: +44 (0) 20 7192 8338 or toll free: 0800 279 6619
Forward looking statements
This announcement has been prepared in relation to the financial results for the 26 weeks ended 27 June 2021. Certain information contained in this announcement may constitute 'forward-looking statements', which can be identified by the use of terms such as 'may', 'will', 'would', 'could', 'should', 'expect', 'seek, 'anticipate', 'project', 'estimate', 'intend', 'continue', 'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the negatives thereof) or words of similar meaning. Forward-looking statements can be made in writing but also may be made verbally by members of management of the Company (including, without limitation, during management presentations to financial analysts) in connection with this announcement. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in global or regional trade conditions, changes in tax rates, liquidity, prospects, growth and strategies. By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance or other financial condition or performance measures of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information or to reflect any change in circumstances or in the Company's expectations or otherwise.
Chief Executive's Review
Transforming prospects with clear pathway to sustainable growth
Our focus on the Customer Value Strategy has led to significant progress and a strong commercial performance in H1 2021. We are in a much stronger position as a business; more efficient, more data driven and with an editorial focus on insight driven content. We are now increasing our investment in our core purpose of journalism, as well as in data and technology to take advantage of the opportunities ahead of us. The Customer Value Strategy is ensuring we are well placed to benefit from the general recovery in the UK advertising market as well as the more general consumer shift to online. The result is that, for the first time in many years, Reach has a clear pathway to sustainable and profitable growth and its prospects are being transformed.
Strategic progress gathering momentum
Our focus on growing customer registrations has continued to be successful, with total registrations now at 6.7 million - over 150% greater than just a year ago. We are confident of achieving our target of 10 million by the end of 2022.
Registrations are key to providing the enriched first party data that underpins our 'plus' portfolio of targeted advertising products, enabling us to attract new advertisers at both a national and local level while also growing business from existing customers. This, in addition to a market-wide shift to digital advertising is seeing us achieve strong growth in our digital business.
We continue to invest in the data and insights that will allow us to create increasingly personalised content. Earlier this year we partnered with data specialist BlueVenn and are working with them to develop the data platform which will enable more targeted campaigns, enhanced business intelligence and advanced CRM, capabilities which will help us maximise customer engagement and loyalty.
This would not be possible without our exceptional portfolio of brands and the passion and commitment of our Reach colleagues, including an editorial team of over 2,500. We continue to foster a culture that is inclusive and supportive of our people's well-being as well as one that is results focused and embraces our core purpose as champions, campaigners and change-makers in the communities across England, Scotland, Ireland and Wales. I am pleased to report that after months of investment in our journalism we now employ more journalists than we did in 2019.
Customer Value Strategy delivering digital revenue growth
The business has strong growth momentum with a strong H1 performance meaning the business is trading ahead of full year expectations. Group revenue in H1 was up 2.6%, with digital revenue growing 42.7%, outpacing print revenue decline of 5.2%. Adjusted operating profit of £68.9m was up by 25.5%.
While we have undoubtedly benefited from softer comparatives against the peak COVID-19 impacts of Q2 2020, there is clear momentum in delivery of the strategy with strong growth in registrations, engagement and digital revenue. In addition, the UK digital advertising market continues to advance with increased growth forecasts giving us further confidence in our ability to double digital revenue over the medium-term. While advertising yields suffered, in particular, during the first lockdown in 2020 we did see historically high page view numbers during that period as audiences sought out news and information about the virus and its impacts. In page view terms the comparative period last year would be difficult to match but looking at a two-year basis our progress is clear with an increase in worldwide page views of 37%.
Digital advertising has continued to grow strongly, with notable first half campaigns in the energy, telecoms, media and sports betting sectors, and the return of sporting events like Royal Ascot and the Euros also contributing to growth during the period.
We have also seen a marked improvement in the local digital advertising market, with the hospitality sector in particular benefiting from the gradual lifting of pandemic restrictions. This has also benefited advertising revenues on our hyper-local app InYourArea.
Our new more targeted 'plus' range of advertising products continue to attract new advertisers and we are benefiting from increased business from existing clients on these more efficient, data-led campaigns. A number of local brands have also adopted our new 'plus' products for campaigns and the local digital advertising market in general began to pick up towards the end of the period as businesses began to open after lockdown restrictions eased.
We have now run c.50 campaigns using new 'plus' products with advertisers in a broad range of sectors including retail, travel and betting and gaming. Through our growing ability to refine the customer groups receiving this marketing we are already seeing a significant improvement in ad effectiveness with increases in click through rates of up to 300% greater than average.
The success of our commercial team in building on our Customer Value Strategy was recognised during H1 by the industry Campaign Publishing awards with Reach winning both the Commercial Team of the Year and Business of the Year awards.
Recovery in print circulation demonstrates resilience and provides sustainable cash flows
Having declined by 11.3% in the first quarter of this year, circulation revenue has recovered during Q2, ending the half down just 5.1%. The two-year movement in circulation has remained broadly stable throughout the period, down around 16%, which is also consistent with the equivalent two-year rate in the second half of 2020 (-16.7%). This relative resilience demonstrates the strength of our national and regional brands which continue to set the agenda as champions, campaigners and changemakers in their communities.
Print advertising decreased by 4.3% year-on-year, benefitting from the easing of lockdown in Q2 when it grew by 20.8%. Despite an ongoing structural shift away from print advertising towards digital, the two-year rate of decline has remained broadly stable over the past twelve months. On a two-year basis revenue is down 33.7%, similar to the H2 2020 two-year rate of decline of 36.3%. We continue to see lower spend from a number of key sectors, like travel which did not make a significant contribution during the period due to ongoing restrictions. The team have however continued to win some excellent campaigns from the likes of Barclays, BT and Tesco with an encouraging growth in print activity from digital platforms such as Google and eBay - demonstrating the ongoing power of print in awareness building campaigns. We have also continued to benefit from the industry-wide Government advertising spend around COVID.
Investment in agenda-setting journalism and engaging content
This spring we announced our plans to expand our regional digital network to cover England and Wales at a county by county level and we're on track to achieve this goal. This week alone we launch four regional newsbrands with the arrival of NorfolkLive, DarlingtonLive, DorsetLive and MyShropshire. In Herefordshire, Shropshire, Rutland and Darlington new channels are being built into existing sites to provide full coverage for these areas.
As well as new sites and channels we are continuing to expand existing services such as MyLondon which has seen strong audience growth and was one of the most visited sites for Mayoral election news. Having attracted around 15 million page views towards the end of 2020, MyLondon has now grown to around double that number. Starting the year with 20 journalists covering mainly lifestyle stories, the team is now 55 strong and is covering a much broader range of stories including transport, local democracy and court reporting, with coverage of every London borough.
While we continue to extend our geographic reach we are also strengthening the depth of our local reporting, for example the Northern Agenda newsletter, which brings together our best political reporting from the North along with exclusive insights from journalists including Jen Williams, Liam Thorp and Rob Parsons with a focus on the Red wall seats that are likely to determine the next election.
Reach remains the largest partner of the BBC's Local Democracy Reporter Scheme which aims to ensure key events like council and court proceedings receive ongoing coverage. 75 of the 165 reporters in the scheme are allocated to Reach and we invest in training and infrastructure for these roles to promote local news and to nurture some of the brightest journalistic talent in the UK. Our editorial teams now deliver over 300 newsletters which remain a key driver of our Customer Value Strategy and provide our readers with tailored content on everything from baking to football to stories of inspirational women. These newsletters not only support our Customer Value Strategy and drive traffic, but also cement that all-important daily relationship between reader and title which fuels everything we do. Any reporter can suggest a theme for a newsletter and we are launching a number of 'obsession' titles to capitalise on events such as popular TV series' or sporting and cultural events. Latest examples include newsletters on crypto-currencies, one themed on House of Dragons, (the sequel to Game of Thrones), as well as a cooking-themed newsletter and one on the Olympics.
Both our national and regional titles have continued to hold power to account, campaign for change, and set the national agenda. The Express made headlines with their first ever Green issue this year, sending a clear message that concern for the climate crisis has truly gone mainstream. Their two-year "End This Injustice" campaign has successfully campaigned for better safeguards for abuse victims, resulting in the Domestic Abuse Bill passed this April.
Meanwhile, the Mirror set the agenda for days this spring with their world exclusive from Jennifer Arcuri. Recently the title launched a focus on positive journalism with the 1,000 Acts of Kindness initiative across print and digital. The title secured five awards at the annual press awards and was highly commended in the Daily Newspaper of the Year category. The Manchester Evening News stood out for their relentless and thorough coverage of the Manchester bomb inquiry reflecting the concern of the local community about the tragedy.
On the sports desk, our national and regional sports teams worked together to swiftly "Stop the ESL" and to take a stand against racism in football when they boycotted social media for three days. Our leadership in Sport continued to strengthen during the year and we have invested in the team with the planned recruitment of over 70 sports journalists during July.
Amid our push to expand and deepen engagement, we remain the UK's largest national and regional commercial publisher, the only publisher with a digital reach of over 40 million unique visitors a month and the fifth largest digital property in the UK. We consistently attract the leading monthly audience for sport and continue to attract more 18-24s than any other commercial digital publisher. Put simply, despite the ongoing narrative of news being in decline, the fact is that our content has never been read by more people at a national and local level.
Key to our audience growth are the technology platforms and we continue to work with Google and Facebook on their respective news initiatives for which we now receive regular monthly fees. We continue to work with the wider industry on resolving the wider payment for content issues across all platforms, with the aim of establishing a sustainable eco-system for readers, publishers and platforms.
Building a culture geared for growth
Entrepreneurial, data-led approach
We are embedding an entrepreneurial culture at Reach with colleagues encouraged to suggest ideas for content to bring our strategy to life.
We continue to encourage a test and learn approach, underpinned by an investment programme with colleagues all having the opportunity to suggest content projects that support our audience goals and ultimately the wider Customer Value Strategy. Initiatives include Dragon's Den style pitches and a weekly editorial prize pool for the best ideas.
This entrepreneurial environment has enabled our contextual advertising tool Mantis to flourish. This is a Reach advertising tool developed in house with the assistance of IBM Watson. While initially conceived as an industry brand safety tool, we've realised its potential for sophisticated advertising targeting and have already rolled these trials out with big brands in the betting, fashion and gaming spaces. This spring, the Independent and Evening Standard signed on to license Mantis from us. We have made a name for ourselves as experts in the publishing ad tech space. While Google's planned changes to cookies has been delayed until 2023 we are well placed to navigate the advertising landscape when these changes do eventually happen.
Increased focus on ESG
As Reach rebuilds its value it is key we grow in a responsible and sustainable way and we have instigated an increased focus on Environment, Social and Governance actions to ensure this.
Environment
Reach is committed to minimising our environmental impact and we are already using 100% renewable electricity. We have also set a target for reducing our Greenhouse Gas emissions by 75% between now and 2025. Together with a number of industry peers we have committed to the Ad net zero commitment through Newsworks which will see us ensure we produce our advertising without impacting the environment through carbon emissions.
Social
Our core purpose is to serve our communities as champions, campaigners and changemakers. Every year we celebrate ordinary people achieving extraordinary things through our Pride awards and the Mirror is building on this positive approach to news through its 'Mirror hopeful' campaign that saw the paper run 1,000 positive stories from lockdown recently.
Our titles play key roles in championing social causes whether it be exposing and challenging the flawed plans for a European Super League to the successful Daily Express campaign to change the benefits system to ensure the terminally ill no longer have to wait weeks to receive help.
Colleague well-being has continued to be a focus with both Sanctus mental health coaching and free access to the meditation app Headspace proving popular. We initiated a mental health well-being champions programme last year and this continues to be valuable in creating an environment where our people can talk openly about the challenges of lockdown or personal mental health issues.
Online abuse towards journalists has become a concerning trend, so we surveyed our people to better understand the scale of the problem. As a result, last month we also took an industry-leading step to tackle online abuse - by appointing an Online Safety Editor, dedicated to supporting colleagues and working with social media platforms to find solutions.
We have also made big steps this year toward our goal to becoming a more inclusive company. We have established our Inclusion strategy and we're trying to better understand the make-up of our colleagues by asking colleagues about their experiences and origins. This insight will continue to feed our strategy moving forward. We continue to develop forums for sharing experiences and information about inclusion issues through the formation of six inclusion groups and a network of Inclusion champions. We also signed the Valuable 500 pledge and Race at Work charter, making ourselves more externally accountable to our promises. As this work continues we have already begun to see some hugely positive steps such as MyLondon hiring their first Race and Diversity Correspondent, and across the titles we're seeing more journalists feeling empowered to sit up and take part in shaping more inclusive editorial guidelines.
At a time when many companies are grappling with what the return to the office looks like, we are also leading the way with our hybrid "Home and Hub" working plan. This plan followed extensive consultation with colleagues about the future of work at Reach. Building on their input we will be able to offer colleagues more flexibility across 15 workspaces, as restrictions allow and when buildings are refurbished.
This has begun to bear fruit in our recruitment efforts as we are able to consider a more diverse pool of applicants, with far fewer needing to commute into regional hubs. Increasingly our local journalists can be based in their local community rather than commute into a regional centre. Importantly we have kept the link with regional offices however so that around a third of colleagues will be office based, a third will be mostly home based with regular office attendance and a third working from home.
Governance
Good governance ensures companies act responsibly, in a sustainable way, whilst also monitoring the impact of culture initiatives that are underway. A good example of such governance in action has been this year's focus on D&I where the Board established working groups on the issue and have ensured that commitments on D&I are embedded in executive remuneration. The Board also approved a specific Board Diversity Policy in May. Colleague wellbeing is closely monitored by the Board and the risk assurance programme has this year been expanded which has also involved overseeing a comprehensive review of our cybersecurity and data protection policies and procedures. The Board will also be formally constituting a Board Sustainability Committee to oversee the content and approach to Reach's sustainability strategy.
Investing in the opportunities ahead
With the Customer Value Strategy continuing to gather momentum we are increasing investment in our journalists, content and technology. We currently have fourteen investment projects live within the business and across 2020 and 2021 have committed an additional £20 million of investment in these areas. The additional data and insight we are gathering through our registered customer base is helping us build on what is already strong growth in digital advertising with the future prospects for the Group better than for many years.
Our digital revenue is now roughly 37% bigger than print advertising and continues to grow strongly, while print circulation continues to demonstrate resilience and post-lockdown recovery. The business is well-placed to deliver on its strategy with future benefits to customer engagement and loyalty from enhanced data and personalisation as well as the ongoing expansion in the geographic coverage of our local digital news sites.
We continue to build an inclusive and entrepreneurial culture at Reach and the passion and commitment of our people and the award-winning journalism that is core of our purpose provide us with strong foundations for long-term sustainable growth.
Jim Mullen
Chief Executive Officer
27 July 2021
Financial Review
A strong half year adjusted performance driven by revenue growth, mix change and the benefit of cost savings; with the statutory performance impacted by adjusted items and the future change in the tax rate. The Group has continued to maintain a strong balance sheet with adequate liquidity.
Income statement
|
Adjusted 2021 £m |
Adjusted 2020 £m |
Statutory 2021 £m |
Statutory 2020 £m |
Revenue |
302.3 |
290.8 |
302.3 |
290.8 |
Costs |
(234.9) |
(236.2) |
(274.5) |
(261.7) |
Associates |
1.5 |
0.3 |
0.8 |
(0.2) |
Operating profit |
68.9 |
54.9 |
28.6 |
28.9 |
Finance costs |
(1.1) |
(1.4) |
(2.9) |
(3.7) |
Profit before tax |
67.8 |
53.5 |
25.7 |
25.2 |
Tax charge |
(12.6) |
(10.3) |
(60.5) |
(27.6) |
Profit/(loss) after tax |
55.2 |
43.2 |
(34.8) |
(2.4) |
Earnings/(loss) per share - basic |
17.8 |
14.0 |
(11.2) |
(0.8) |
Group Revenue increased by £11.5m or 4.0% driven by digital revenue growth which fully mitigated the print revenue decline.
Adjusted costs decreased by £1.3m or 0.6% due to the cost savings from the transformation programme more than offsetting the costs associated with the higher revenue and the reversal of the one-offs in 2020 such as salary reductions, bonus suspension and furlough. Statutory costs increased by £12.8m or 4.9% due to adjusted items of £39.6m compared to £25.5m in 2020.
The higher revenue and lower adjusted costs drove a £14.0m or 25.5% increase in adjusted operating profit and an adjusted operating margin of 22.8% compared to 18.9% for the first half of 2020. Statutory operating profit decreased by £0.3m or 1.0%.
Adjusted earnings per share increased by 3.8p or 27.1% with lower adjusted finance costs and an adjusted tax rate broadly in line with the corporation tax rate of 19%. Statutory loss per share of 11.2p was due to the £53.9m deferred tax charge from the multi-year impact of the future change in the corporation tax rate.
Revenue
Revenue is presented on an actual and like-for-like basis which excludes the impact of the Irish Daily Star acquisition from 2021 and the impact of portfolio changes from 2020.
|
2021 Actual £m |
2020 Actual £m |
2021 like-for-like £m |
2020 like-for-like £m |
|
232.4 |
241.0 |
227.0 |
239.5 |
Circulation |
160.0 |
163.9 |
155.5 |
163.9 |
Advertising |
50.3 |
53.1 |
49.4 |
51.6 |
Printing |
9.6 |
11.8 |
9.6 |
11.8 |
Other |
12.5 |
12.2 |
12.5 |
12.2 |
Digital |
68.8 |
48.2 |
68.8 |
48.2 |
Other |
1.1 |
1.6 |
1.1 |
1.6 |
Total revenue |
302.3 |
290.8 |
296.9 |
289.3 |
Revenue increased by £11.5m or 4.0% on an actual basis and by £7.6m or 2.6% on a like-for-like basis. Digital which is the same on an actual and like-for-like basis increased by £20.6m or 42.7% while print declined by £8.6m or 3.6% on an actual basis and by £12.5m or 5.2% on a like-for-like basis. Other revenue is derived from our specialist digital recruitment websites.
Revenue trends began to be significantly impacted by the COVID-19 pandemic towards the end of March 2020 and although this gradually eased as we moved into the second half, it significantly affected performance, particularly during Q2. Because of this and in order to provide additional insight into our performance, we include revenue trends on a two-year like-for-like basis, in addition to year on year movements versus 2020.
|
Q1 2021 YOY % |
Q2 2021 YOY % |
HY 2021 YOY % |
HY 2yr* % |
Digital Revenue |
25.2% |
65.0% |
42.7% |
41.4% |
Print Revenue |
(15.2)% |
7.3% |
(5.2)% |
(23.9)% |
Group Revenue |
(8.7)% |
16.8% |
2.6% |
(14.9)% |
* 2yr movement is a like-for-like comparison versus the same period in 2019
Digital revenues increased by 42.7% to £68.8m on an actual and like-for-like basis (2020: down 1.0%).
The strong growth in digital revenues has been driven by improved yields, the Customer Value Strategy and a general sector shift towards digital advertising. Page views have decreased compared to those seen as the COVID-19 pandemic broke and the country entered into the first lockdown which drove significant one-off traffic.
Print revenue decreased by £8.6m or 3.6% on an actual basis and by £12.5m or 5.2% on a like-for-like basis (2020: down 20.1%).
Circulation revenue declined by 5.1% on a like-for-like basis (2020: down 11.5%).
Circulation volumes for the Group's national daily titles (excluding the impact of sampling) fell by 10.3%. The Group's national Sunday titles (excluding the impact of sampling) fell by 11.5%. Volume declines for our regional titles were 12.2% for paid-for dailies, 21.9% for paid-for weeklies and 12.8% for paid-for Sundays. The circulation volume trend is impacted by cover price differentials and our strategy to increase cover prices each year to protect revenue performance.
Print advertising revenue declined by 4.3% on a like-for-like basis (2020: down 31.9%).
Our nationally sourced advertising performed better than locally sourced advertising. Nationally, while volumes continue to be down in a number of sectors there were some sectors which have continued to be active throughout, such as Food Retail and Home Entertainment, and we have also benefited from additional Government spend. Although a number of sectors are recovering, non-food retail and travel are still a significant drag. The impact on locally sourced advertising was greater with the majority of smaller advertisers not advertising at all combined with much reduced classified activity.
Within print, printing revenue decreased by 18.6% on a like-for-like basis driven by continued pressure on contract print volumes and the closure of two print plants at the end of 2020. O ther revenue increased by 2.5% as enterprise revenues such as holidays, fewer events and reduction in other contract printing such as sports all continued to be impacted.
Costs
|
2021 Adjusted £m |
2020 Adjusted £m |
2021 Statutory £m |
2020 Statutory £m |
Labour |
115.0 |
109.0 |
115.0 |
109.0 |
Newsprint |
25.2 |
23.3 |
25.2 |
23.3 |
Depreciation |
9.9 |
13.5 |
9.9 |
13.5 |
Other |
84.8 |
90.4 |
124.4 |
115.9 |
Total costs |
234.9 |
236.2 |
274.5 |
261.7 |
Adjusted costs decreased by £1.3m or 0.6% due to the benefits of the costs actions taken more than offsetting the costs associated with the higher revenue and the reversal of the one-offs in 2020 such as salary reductions, bonus suspension and furlough.
In the second half of 2020 the Group implemented an end to end transformation programme which improved operational efficiency and reviewed our print capacity which resulted in the closure of two print plants, together delivering annualised savings of £46m.
In the first half of 2021 the Group implemented a Home and Hub project which set out the vision for how the future offices would look and where job roles would be based. As a consequence of the project a number of offices or floors will no longer be required. The project has resulted in charges of £23.7m (impairments of £2.3m relating to fixed assets and £10.5m to right-of-use assets and a £10.9m property rationalisation charge relating to future costs of vacant properties). Annual savings of £8m are expected to be delivered through the income statement.
Statutory costs increased by £12.8m or 4.9% due to adjusted items of £39.6m compared to £25.5m in the equivalent period in 2020.
Reconciliation of statutory to adjusted results
|
Statutory results £m |
Operating adjusted items £m |
Pension finance charge £m |
Tax £m |
Adjusted results £m |
Revenue |
302.3 |
- |
- |
- |
302.3 |
Operating profit |
28.6 |
40.3 |
- |
- |
68.9 |
Profit before tax |
25.7 |
40.3 |
1.8 |
- |
67.8 |
(Loss)/profit after tax |
(34.8) |
34.6 |
1.5 |
53.9 |
55.2 |
Basic (loss)/earnings per share (p) |
(11.2) |
11.1 |
0.5 |
17.4 |
17.8 |
The Group excludes from the adjusted results: operating adjusted items (note 5), pension finance charge (note 14) and tax changes arising from changes in the corporation tax rate (note 8). Adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group.
Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals, closures, tax rate changes) or relate to historic liabilities (historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual). These include items which have occurred for a number of years and may continue in future years. Management exclude these from the results that it uses to manage the business and on which bonuses are based to reflect the underlying performance of the business and believes that the adjusted results, presented alongside the statutory results, provides users with additional useful information.
Restructuring charges and closure costs incurred to deliver specific cost reduction measures. These costs are principally severance related, but may also include system integration costs and print plant closure costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.
Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire offices or printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.
The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses, the past service costs for GMP equalisation and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment.
The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament or when a decision is reversed. The impact of the change in rates are included in adjusted items, on the basis that when they occur they are material, distorting the underlying performance of the business.
Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contractual issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
Balance Sheet
Strong cash generation
Net cash increased by £12.7m from £42.0m at the prior year end to a net cash position of £54.7m at the half-year.
Historical legal issues
The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. There are three parts to the provision: known claims, potential onerous claims and common court costs with estimates based on historical trends and experience of claims and costs. Certain cases and other matters relating to the issue can be subject to court proceedings, the outcome of which can impact on how much is required to settle the remaining claims and on the number of claims. The Group has recorded an increase in the provision every year since 2014 which highlights the challenges in making a best estimate and the time taken to resolve this historical matter. Due to uncertainty relating to potential future claims, a contingent liability note has been highlighted in note 18. The provision has been increased by £13.0m in the period. At the period end, a provision of £32.4m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The provision is expected to be utilised over the next few years.
Decrease in accounting pension deficit
The IAS 19 pension deficit (net of deferred tax) in respect of the Group's six defined benefit pension schemes decreased by £136.8m from £255.5m to £118.7m. The decrease was driven by an increase in the discount rate and as a result of Group contributions . Changes in the accounting pension deficit do not have an immediate impact on the agreed funding commitments. The triennial valuation for funding of the defined benefit pension schemes as at 31 December 2019 would usually be completed by 31 March 2021. We have agreed the funding of the West Ferry Printers Pension Scheme (the 'WF Scheme') and the discussions with the remaining five schemes are ongoing, having been delayed by COVID-19.
Group contributions in respect of the defined benefit pension schemes in the first half were £37.1m (2020: £22.0m). This comprised £9.6m to the WF scheme and £27.5m under the current schedule of contributions of the remaining five schemes. The payment of £9.6m enabled the Trustees of the WF scheme to purchase a bulk annuity and the scheme now has all pension liabilities covered by annuity policies. No further funding to the WF scheme is expected. Contributions in the second half are expected to be £27.6m under the current schedule of contributions for the remaining five schemes.
Deferred consideration
Deferred consideration is in respect of the acquisition of Express & Star. Payment of the second payment of £16.0m was made on 28 February 2021. Of the remaining amount of £24.1m, £17.1m is classified as current liabilities (payable on 28 February 2022) and £7.0m is classified as non-current liabilities (payable on 28 February 2023).
Employee benefit trust
The Group intends to fund the Trustees of the Employee Benefit Trust in the second half to enable the Trustees to purchase shares up to a value of £3m. The shares will be held by the Trustees and used to satisfy in respect of awards granted under the Company's employee share plans that are expected to vest in future years.
Cash Flow
Continued good cash generation
Cash generated from operations on a statutory basis was £95.7m (2020: £78.2m). This includes a positive working capital movement of £42.8m (2020: £32.9m) due to the first half cut-off and seasonality which benefits the first half of the year and is expected to substantially reverse over the second half of the year.
The Group presents an adjusted cash flow which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 21 is the reconciliation between the statutory and the adjusted cash flow. The adjusted operating cash flow was £82.6m (2020: £63.5m).
Dividends
The Group paid a final dividend for 2020 of 4.26 pence per share in June 2021. An interim dividend for 2021 of 2.75 pence per share will be paid on 24 September 2021 to shareholders on the register on 13 August 2021 (an increase of 4.6% compared to non-cash bonus issue of shares to shareholders, in lieu of and with a value equivalent to an interim dividend for 2020 of 2.63 pence per share).
The Board recognises the importance of growing dividends for shareholders while also investing to grow the business and meeting our funding commitments to the defined benefit pension schemes. The Board expects to continue to adopt a policy of paying dividends which are aligned to the free cash generation of the Group. Free cash generation for this purpose is the net cash flow generated by the Group before the repayment of debt, dividend payments, other capital returns to shareholders and additional contributions made to the defined benefit pension schemes because of any substantial increase in dividends and/or capital returns to shareholders.
Principal risks and uncertainties
The Group recognises the importance of the effective understanding and management of risk in enabling us to identify factors, both externally and internally that may materially affect our ability to achieve our goals. There is an ongoing process for the identification, evaluation and management of the principal risks faced by the Group, including emerging risks. Appropriate mitigating actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process. All risks are considered in the context of our strategic objectives, the changing regulatory and compliance landscape and enabling the continuity of our operations.
These principal risks and uncertainties, the risk appetite in relation to these and the resulting actions are set out in the Reach plc 2020 Annual Report which is available on our website at www.reachplc.com .
The principal risks and uncertainties continue to be: Macro-economic deterioration; Print revenue decline acceleration; Insufficient digital revenue growth; Cyber security breach; Data protection; Supply chain failure; Health and safety issue; Lack of funding capability; Inability to recruit and retain talent and Brand reputation damage.
Going concern statement
The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2020 Annual Report. Further information is set out in the Reach plc 2020 Annual Report.
At the half year, the directors have reviewed the going concern assessment, specifically the ongoing impact of COVID-19 and the implementation of the Group's Customer Value Strategy. The Group undertakes regular forecasts and projections of trading identifying areas of focus for management to improve delivery of the Strategy and mitigate the impact of any deterioration in the economic outlook. The Group has a strong balance sheet and liquidity with a net cash positive position of £54.7m. This represents a cash balance of £54.7m with no draw down from the Group's revolving credit facility of £65.0m.
Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.
Statement of directors' responsibilities
The directors are responsible for preparing the half-yearly financial report in accordance with applicable laws and regulations. The directors confirm to the best of their knowledge:
a) that the interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely:
i. an indication of important events that have occurred during the first six months and their impact on the interim condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
ii. material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
By order of the Board of Directors
Simon Fuller
Chief Financial Officer
27 July 2021
for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)
|
notes |
Adjusted 26 weeks ended 27 June 2021 (unaudited) £m |
Adjusted Items 26 weeks ended 27 June 2021 (unaudited) £m |
Statutory 26 weeks ended 27 June 2021 (unaudited) £m |
Adjusted 26 weeks ended 28 June 2020 (unaudited) £m |
Adjusted Items 26 weeks ended 28 June 2020 (unaudited) £m |
Statutory 26 weeks ended 28 June 2020 (unaudited) £m |
Adjusted 52 weeks ended 27 December 2020 (audited) £m |
Adjusted Items 52 weeks ended 27 December 2020 (audited) £m |
Statutory 52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
4 |
302.3 |
- |
302.3 |
290.8 |
- |
290.8 |
600.2 |
- |
600.2 |
Cost of sales |
|
(160.0) |
- |
(160.0) |
(153.9) |
- |
(153.9) |
(303.2) |
- |
(303.2) |
Gross profit |
|
142.3 |
- |
142.3 |
136.9 |
- |
136.9 |
297.0 |
- |
297.0 |
Distribution costs |
|
(21.7) |
- |
(21.7) |
(23.5) |
- |
(23.5) |
(46.2) |
- |
(46.2) |
Administrative expenses |
|
(53.2) |
(39.6) |
(92.8) |
(58.8) |
(25.5) |
(84.3) |
(119.6) |
(125.0) |
(244.6) |
Share of results of associates |
|
1.5 |
(0.7) |
0.8 |
0.3 |
(0.5) |
(0.2) |
2.6 |
(1.2) |
1.4 |
Operating profit |
|
68.9 |
(40.3) |
28.6 |
54.9 |
(26.0) |
28.9 |
133.8 |
(126.2) |
7.6 |
Interest income |
6 |
- |
- |
- |
- |
- |
- |
0.1 |
- |
0.1 |
Pension finance charge |
14 |
- |
(1.8) |
(1.8) |
- |
(2.3) |
(2.3) |
- |
(4.7) |
(4.7) |
Finance costs |
7 |
(1.1) |
- |
(1.1) |
(1.4) |
- |
(1.4) |
(2.6) |
- |
(2.6) |
Profit before tax |
|
67.8 |
(42.1) |
25.7 |
53.5 |
(28.3) |
25.2 |
131.3 |
(130.9) |
0.4 |
Tax charge |
8 |
(12.6) |
(47.9) |
(60.5) |
(10.3) |
(17.3) |
(27.6) |
(24.9) |
(2.2) |
(27.1) |
Profit/(loss) for the period attributable to equity holders of the parent |
|
55.2 |
(90.0) |
(34.8) |
43.2 |
(45.6) |
(2.4) |
106.4 |
(133.1) |
(26.7) |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
notes |
2021 Pence |
|
2021 Pence |
Restated 2020 Pence |
|
Restated 2020 Pence |
2020 Pence |
|
2020 Pence |
Earnings/(loss) per share - basic |
10 |
17.8 |
|
(11.2) |
14.0 |
|
(0.8) |
34.4 |
|
(8.6) |
Earnings/(loss) per share - diluted |
10 |
17.3 |
|
(11.2) |
13.8 |
|
(0.8) |
33.6 |
|
(8.6) |
The above results were derived from continuing operations. Set out in note 19 is the reconciliation between the statutory and adjusted results.
Earnings per share for 26 weeks ended 28 June 2020 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an 2020 interim dividend of 2.63 pence per share.
for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)
|
notes |
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
|
Loss for the period |
|
(34.8) |
(2.4) |
(26.7) |
|
|
|
|
|
Items that will not be reclassified to profit and loss: |
|
|
|
|
Actuarial gain/(loss) on defined benefit pension schemes |
14 |
125.6 |
16.6 |
(61.6) |
Tax on actuarial gain/(loss) on defined benefit pension schemes |
8 |
(31.4) |
(3.1) |
11.7 |
Deferred tax credit resulting from change in tax rate |
8 |
13.9 |
5.9 |
5.9 |
Share of items recognised by associates |
|
- |
- |
(0.5) |
Other comprehensive income/(loss) for the period |
|
108.1 |
19.4 |
(44.5) |
|
|
|
|
|
Total comprehensive income/(loss) for the period |
|
73.3 |
17.0 |
(71.2) |
for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)
|
notes |
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
11 |
95.7 |
78.2 |
121.3 |
Pension deficit funding payments |
14 |
(37.1) |
(22.0) |
(53.9) |
Income tax paid |
|
(9.2) |
(8.3) |
(14.2) |
Net cash inflow from operating activities |
|
49.4 |
47.9 |
53.2 |
Investing activities |
|
|
|
|
Interest received |
|
- |
- |
0.1 |
Dividends received from associated undertakings |
|
- |
- |
0.5 |
Proceeds on disposal of property, plant and equipment |
|
- |
0.3 |
0.3 |
Purchases of property, plant and equipment |
|
(2.8) |
(1.8) |
(1.9) |
Deferred consideration payment |
|
(16.0) |
(18.9) |
(18.9) |
Acquisition of subsidiary undertaking |
|
- |
- |
(3.4) |
Acquisition of associate undertaking |
|
- |
(0.2) |
(0.2) |
Cash acquired on acquisition of subsidiary undertaking |
|
- |
- |
2.3 |
Net cash used in investing activities |
|
(18.8) |
(20.6) |
(21.2) |
Financing activities |
|
|
|
|
Dividends paid |
|
(13.2) |
- |
- |
Interest paid on bank borrowings |
|
(0.4) |
(0.6) |
(1.2) |
Drawdown of bank borrowings |
|
- |
25.0 |
25.0 |
Repayment of bank borrowings |
|
- |
- |
(25.0) |
Interest paid on leases |
|
(0.7) |
(0.8) |
(1.5) |
Repayments of obligations under leases |
|
(3.6) |
(4.4) |
(7.7) |
Net cash (used in)/received from financing activities |
|
(17.9) |
19.2 |
(10.4) |
|
|
|
|
|
Net increase in cash and cash equivalents |
|
12.7 |
46.5 |
21.6 |
Cash and cash equivalents at the beginning of the period |
15 |
42.0 |
20.4 |
20.4 |
Cash and cash equivalents at the end of the period |
15 |
54.7 |
66.9 |
42.0 |
for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)
|
Share capital £m |
Share premium account £m |
Merger reserve £m |
Capital redemption reserve £m |
Retained earnings and other reserves £m |
Total £m |
|
|
|
|
|
|
|
At 27 December 2020 (audited) |
(32.2) |
(605.4) |
(17.4) |
(4.4) |
92.7 |
(566.7) |
Loss for the period |
- |
- |
- |
- |
34.8 |
34.8 |
Other comprehensive income for the period |
- |
- |
- |
- |
(108.1) |
(108.1) |
Total comprehensive income for the period |
- |
- |
- |
- |
(73.3) |
(73.3) |
Credit to equity for equity-settled share-based payments |
- |
- |
- |
- |
(0.8) |
(0.8) |
Dividends paid |
- |
- |
- |
- |
13.2 |
13.2 |
At 27 June 2021 (unaudited) |
(32.2) |
(605.4) |
(17.4) |
(4.4) |
31.8 |
(627.6) |
|
|
|
|
|
|
|
At 29 December 2019 (audited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
24.2 |
(635.2) |
Loss for the period |
- |
- |
- |
- |
2.4 |
2.4 |
Other comprehensive income for the period |
- |
- |
- |
- |
(19.4) |
(19.4) |
Total comprehensive income for the period |
- |
- |
- |
- |
(17.0) |
(17.0) |
Credit to equity for equity-settled share-based payments |
- |
- |
- |
- |
(0.6) |
(0.6) |
At 28 June 2020 (unaudited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
6.6 |
(652.8) |
|
|
|
|
|
|
|
At 29 December 2019 (audited) |
(30.9) |
(606.7) |
(17.4) |
(4.4) |
24.2 |
(635.2) |
Loss for the period |
- |
- |
- |
- |
26.7 |
26.7 |
Other comprehensive loss for the period |
- |
- |
- |
- |
44.5 |
44.5 |
Total comprehensive loss for the period |
- |
- |
- |
- |
71.2 |
71.2 |
Bonus issue of shares |
(1.3) |
1.3 |
- |
- |
- |
- |
Credit to equity for equity-settled share-based payments |
- |
- |
- |
- |
(2.7) |
(2.7) |
At 27 December 2020 (audited) |
(32.2) |
(605.4) |
(17.4) |
(4.4) |
92.7 |
(566.7) |
for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)
|
notes |
27 June 2021 (unaudited) £m |
28 June 2020 (unaudited) £m |
27 December 2020 (audited) £m |
Non-current assets |
|
|
|
|
Goodwill |
|
35.9 |
42.0 |
35.9 |
Other intangible assets |
|
818.7 |
810.0 |
818.7 |
Property, plant and equipment |
12 |
161.2 |
216.4 |
168.4 |
Right-of-use assets |
13 |
12.9 |
42.6 |
25.3 |
Investment in associates |
|
18.9 |
21.9 |
18.1 |
Retirement benefit assets |
14 |
100.1 |
74.6 |
50.4 |
Deferred tax assets |
|
41.0 |
55.0 |
60.5 |
|
|
1,188.7 |
1,262.5 |
1,177.3 |
Current assets |
|
|
|
|
Inventories |
|
3.9 |
5.1 |
4.6 |
Trade and other receivables |
|
102.9 |
91.9 |
110.5 |
Cash and cash equivalents |
15 |
54.7 |
66.9 |
42.0 |
|
|
161.5 |
163.9 |
157.1 |
Total assets |
|
1,350.2 |
1,426.4 |
1,334.4 |
Non-current liabilities |
|
|
|
|
Deferred consideration |
15 |
(7.0) |
(24.1) |
(24.1) |
Lease liabilities |
15 |
(32.6) |
(38.4) |
(35.5) |
Retirement benefit obligations |
14 |
(255.1) |
(336.2) |
(364.8) |
Deferred tax liabilities |
|
(226.2) |
(178.9) |
(172.4) |
Provisions |
16 |
(41.7) |
(17.5) |
(25.2) |
|
|
(562.6) |
(595.1) |
(622.0) |
Current liabilities |
|
|
|
|
Trade and other payables |
|
(112.5) |
(91.8) |
(92.1) |
Deferred consideration |
15 |
(17.1) |
(16.0) |
(16.0) |
Borrowings |
15 |
- |
(25.0) |
- |
Lease liabilities |
15 |
(5.6) |
(6.4) |
(6.1) |
Current tax liabilities |
8 |
- |
(4.7) |
- |
Provisions |
16 |
(24.8) |
(34.6) |
(31.5) |
|
|
(160.0) |
(178.5) |
(145.7) |
Total liabilities |
|
(722.6) |
(773.6) |
(767.7) |
Net assets |
|
627.6 |
652.8 |
566.7 |
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
17 |
(32.2) |
(30.9) |
(32.2) |
Share premium account |
17 |
(605.4) |
(606.7) |
(605.4) |
Merger reserve |
17 |
(17.4) |
(17.4) |
(17.4) |
Capital redemption reserve |
17 |
(4.4) |
(4.4) |
(4.4) |
Retained earnings and other reserves |
17 |
31.8 |
6.6 |
92.7 |
Total equity attributable to equity holders of the parent |
|
(627.6) |
(652.8) |
(566.7) |
Notes to the consolidated financial statements
for the 26 weeks ended 27 June 2021 (26 weeks ended 28 June 2020 and 52 weeks ended 27 December 2020)
1 . General information
The financial information in respect of the 52 weeks ended 27 December 2020 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies and is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com. The auditors' report was unqualified, did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The financial information for the 26 weeks ended 27 June 2021 and the 26 weeks ended 28 June 2020 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been audited. No statutory accounts for these periods have been delivered to the Registrar of Companies.
This half-yearly financial report constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules.
The auditors, PricewaterhouseCoopers LLP, have carried out a review of the condensed set of financial statements and their report is set out at the end of this announcement.
The half-yearly financial report was approved by the directors on 27 July 2021. This announcement is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com.
2 . Accounting policies
Basis of preparation
The Group's annual consolidated financial statements are prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and IFRS as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual profit or loss.
Going concern
The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2020 Annual Report. Further information is set out in the Reach plc 2020 Annual Report.
At the half year, the directors have reviewed the going concern assessment, specifically the ongoing impact of COVID-19 and the implementation of the Group's Customer Value Strategy. The Group undertakes regular forecasts and projections of trading identifying areas of focus for management to improve delivery of the Strategy and mitigate the impact of any deterioration in the economic outlook. The Group has a strong balance sheet and liquidity with a net cash positive position of £54.7m. This represents a cash balance of £54.7m with no draw down from the Group's revolving credit facility of £65.0m.
Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.
Changes in accounting policy
The same accounting policies, presentation and methods of computation are followed in the interim condensed consolidated financial statements as applied in the Group's latest annual consolidated financial statements.
Alternative performance measures
The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis. The Company believes that the adjusted basis and like-for-like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 19 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 20 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 21 is the reconciliation between the statutory and adjusted cash flow. Note 22 shows the reconciliation between the statutory and like-for-like revenues.
Adjusted items
Adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Details of adjusted items are set out in notes 5 and 19.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
Provisions (notes 8 and 16)
There is uncertainty as to liabilities arising from the outcome or resolution of the ongoing historical legal issues and in addition there is uncertainty as to the amount of expenditure that may be tax deductible and additional tax liabilities may fall due in relation to earlier years. Provisions are measured at the best estimate of the expenditure required to settle the obligation based on the assessment of the related facts and circumstances at each reporting date. In particular, we note that there is uncertainty in relation to the size and length of the property related restructuring provisions.
Retirement benefits (note 14)
Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. These result in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.
Impairment review
There is uncertainty in the value-in-use calculation. The most significant area of uncertainty relates to expected future cash flows for each cash-generating unit. Determining whether the carrying values of assets in a cash-generating unit are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Projections are based on both internal and external market information and reflect past experience. The discount rate reflects the weighted average cost of capital of the Group. The Group tests the carrying value of assets at the cash-generating unit level for impairment annually or more frequently if there are indicators that assets might be impaired. For the 26 weeks to 27 June 2021, there have been no indicators of impairment and therefore no review has been undertaken.
Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies, described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:
Indefinite life assumption in respect of publishing rights and titles
There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. At each reporting date management review the suitability of this assumption.
Identification of cash-generating units
There is judgement required in determining the cash-generating unit relating to our Publishing brands. At each reporting date management review the interdependency of revenues across our portfolio of Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.
3. Segments
The performance of the Group is presented as a single reporting segment as this is the basis of internal reports regularly reviewed by the Board and chief operating decision maker (executive directors) to allocate resources and to assess performance. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.
4. Revenue
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
|
232.4 |
241.0 |
479.3 |
Circulation |
160.0 |
163.9 |
319.7 |
Advertising |
50.3 |
53.1 |
108.4 |
Printing |
9.6 |
11.8 |
25.2 |
Other |
12.5 |
12.2 |
26.0 |
Digital |
68.8 |
48.2 |
118.3 |
Other |
1.1 |
1.6 |
2.6 |
Total revenue |
302.3 |
290.8 |
600.2 |
5. Operating adjusted items
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Restructuring charges in respect of cost reduction measures (note 16) |
(1.4) |
(3.0) |
(36.4) |
Impairment of property, plant and equipment (note 12) |
(2.3) |
- |
(34.7) |
Impairment of right-of-use assets (note 13) |
(10.5) |
- |
(13.7) |
Impairment of goodwill |
- |
- |
(6.1) |
Pension administrative expenses and past service costs for GMP equalisation (note 14) |
(1.5) |
(2.0) |
(6.1) |
Provision for historical legal issues (note 16) |
(13.0) |
(5.0) |
(12.5) |
Provision for property rationalisation (note 16) |
(10.9) |
- |
- |
Provision for historical property development (note 16) |
- |
(15.5) |
(15.5) |
Operating adjusted items included in administrative expenses |
(39.6) |
(25.5) |
(125.0) |
Operating adjusted items included in share of results of associates |
(0.7) |
(0.5) |
(1.2) |
Total operating adjusted items |
(40.3) |
(26.0) |
(126.2) |
Operating adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Set out in note 19 is the reconciliation between the statutory and adjusted results which includes descriptions of the items included in adjusted items.
In the first half of 2021, the Group implemented a Home and Hub project which set out the vision for how the Group's offices would look and where job roles would be based. As a consequence of the project a number of offices or floors will no longer be used. The project has resulted in charges of £23.7m (impairments of £2.3m relating to fixed assets and £10.5m to right-of-use assets and a £10.9m property rationalisation charge relating to future costs of vacant properties).
The Group incurred £1.4m of restructuring costs relating to the acquisition on 24 November 2020 of the remaining 50% of issued share capital of Independent Star Limited not previously owned. Independent Star Limited owns the Irish Daily Star brand in Ireland.
The Group has recorded a £13.0m increase in the provision for historical legal issues relating to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering (note 16).
6. Interest income
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Interest income on bank deposits |
- |
- |
0.1 |
7. Finance costs
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Interest on bank overdrafts and borrowings |
(0.4) |
(0.6) |
(1.1) |
Interest on lease liabilities |
(0.7) |
(0.8) |
(1.5) |
Finance costs |
(1.1) |
(1.4) |
(2.6) |
8. Tax
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Corporation tax charge for the period |
(4.7) |
(4.3) |
(2.7) |
Current tax charge |
(4.7) |
(4.3) |
(2.7) |
Deferred tax charge for the period |
(1.9) |
(4.3) |
(5.7) |
Deferred tax charge for rate change |
(53.9) |
(19.0) |
(19.0) |
Prior period adjustments |
- |
- |
0.3 |
Deferred tax charge |
(55.8) |
(23.3) |
(24.4) |
Tax charge |
(60.5) |
(27.6) |
(27.1) |
|
|
|
|
Reconciliation of tax charge |
£m |
£m |
£m |
Profit before tax |
25.7 |
25.2 |
0.4 |
Standard rate of corporation tax |
(4.9) |
(4.8) |
(0.1) |
Tax effect of items that are not deductible in determining taxable profit |
(1.8) |
(3.8) |
(6.1) |
Change in rate of deferred tax |
(53.9) |
(19.0) |
(19.0) |
Release of deferred tax on losses no longer expected to be recoverable |
- |
- |
(2.5) |
Prior period adjustment |
- |
- |
0.3 |
Tax effect of share of results of associates |
0.1 |
- |
0.3 |
Tax charge |
(60.5) |
(27.6) |
(27.1) |
The standard rate of corporation tax for the period is 19% (2019: 19%). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax receivable amounted to £7.3m (26 weeks ended 28 June 2020: £4.7m payable and 52 weeks ended 27 December 2020: £2.8m receivable). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £7m (26 weeks ended 28 June 2020: £5m and 52 weeks ended 27 December 2020: £6m).
The Budget on 5 March 2021 increased the rate of corporation tax from 19% to 25% with effect from 1 April 2023. At 27 June 2021, this rate change had been substantively enacted by parliament meaning that the opening deferred tax position has been recalculated in the period resulting in a £53.9m debit in the consolidated income statement and a £13.9m credit in the consolidated statement of comprehensive income.
The tax on actuarial gains or losses on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a deferred tax charge of £31.4m (26 weeks ended 28 June 2020: charge of £3.1m and 52 weeks ended 27 December 2020: credit of £11.7m).
9. Dividends
|
26 weeks ended 27 June 2021 (unaudited) Pence Per share |
26 weeks ended 28 June 2020 (unaudited) Pence Per share |
52 weeks ended 27 December 2020 (audited) Pence Per share |
Dividends paid per share and recognised as distributions to equity holders in the period |
4.26 |
- |
- |
Dividend proposed per share but not paid nor included in the accounting records |
2.75 |
- |
4.26 |
The Board has approved an interim dividend for 2021 of 2.75 pence per share.
On 6 May 2021, the final dividend proposed for 2020 of 4.26 pence per share was approved by shareholders at the Annual General Meeting and was paid on 2 June 2021. The total dividend payment amounted to £13.2 million.
10. Earnings per share
Basic earnings per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period and diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.
|
26 weeks ended 27 June 2021 (unaudited) Thousand |
Restated 26 weeks ended 28 June 2020 (unaudited) Thousand |
52 weeks ended 27 December 2020 (audited) Thousand |
|
|
|
|
Weighted average number of ordinary shares for basic earnings per share |
310,128 |
309,176 |
309,430 |
Effect of potential dilutive ordinary shares in respect of share awards |
9,247 |
3,596 |
6,818 |
Weighted average number of ordinary shares for diluted earnings per share |
319,375 |
312,772 |
316,248 |
The weighted average number of potentially dilutive ordinary shares not currently dilutive was 846,947 (28 June 2020: 5,354,112 and 27 December 2020: 2,542,234).
Statutory earnings per share |
2021 Pence |
Restated 2020 Pence |
2020 Pence |
|
|
|
|
(Loss)/earnings per share - basic |
(11.2) |
(0.8) |
(8.6) |
(Loss)/earnings per share - diluted |
(11.2) |
(0.8) |
(8.6) |
Adjusted earnings per share |
2021 Pence |
Restated 2020 Pence |
2020 Pence |
|
|
|
|
Earnings per share - basic |
17.8 |
14.0 |
34.4 |
Earnings per share - diluted |
17.3 |
13.8 |
33.6 |
Earnings per share for 26 weeks ended 28 June 2020 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an 2020 interim dividend of 2.63 pence per share.
Set out in note 19 is the reconciliation between the statutory and adjusted results.
11. Cash flows from operating activities
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Operating profit |
28.6 |
28.9 |
7.6 |
Depreciation of property, plant and equipment (note 12) |
7.7 |
10.0 |
20.2 |
Depreciation of right-of-use assets (note 13) |
2.2 |
3.5 |
7.2 |
Impairment of goodwill |
- |
- |
6.1 |
Share of results of associates |
(0.8) |
0.2 |
(1.4) |
Charge for share-based payments |
0.9 |
0.7 |
3.6 |
Impairment of property, plant and equipment (note 12) |
2.3 |
- |
36.5 |
Impairment of right-of-use assets (note 13) |
10.5 |
- |
13.7 |
Write-off of property, plant and equipment |
- |
- |
1.4 |
Pension administrative expenses |
1.5 |
2.0 |
4.6 |
Pension past service costs |
- |
- |
1.5 |
Operating cash flows before movements in working capital |
52.9 |
45.3 |
101.0 |
Decrease in inventories |
0.7 |
0.8 |
1.3 |
Decrease in receivables |
12.0 |
23.7 |
8.9 |
Increase in payables |
30.1 |
8.4 |
10.1 |
Cash generated from operations |
95.7 |
78.2 |
121.3 |
12. Property, plant and equipment
|
Land and buildings |
Plant and equipment |
Assets under construction |
Total |
|
£m |
£m |
£m |
£m |
Cost |
|
|
|
|
At 28 December 2020 |
204.6 |
368.9 |
0.6 |
574.1 |
Additions |
- |
- |
2.8 |
2.8 |
At 27 June 2021 |
204.6 |
368.9 |
3.4 |
576.9 |
|
|
|
|
|
Accumulated depreciation and impairment |
|
|
|
|
At 28 December 2020 |
(96.7) |
(309.0) |
- |
(405.7) |
Charge for the period |
(1.3) |
(6.4) |
- |
(7.7) |
Impairment |
- |
(2.3) |
- |
(2.3) |
At 27 June 2021 |
(98.0) |
(317.7) |
- |
(415.7) |
|
|
|
|
|
Carrying amount |
|
|
|
|
At 27 December 2020 |
107.9 |
59.9 |
0.6 |
168.4 |
At 27 June 2021 |
106.6 |
51.2 |
3.4 |
161.2 |
Impairment of property, plant and equipment of £2.3m as a result of the Home and Hub project which means that a number of offices or floors will no longer be used.
13. Right-of-use assets
|
Properties £m |
Vehicles £m |
Total £m |
Cost |
|
|
|
At 28 December 2020 |
43.2 |
3.0 |
46.2 |
Additions |
0.3 |
- |
0.3 |
At 27 June 2021 |
43.5 |
3.0 |
46.5 |
|
|
|
|
Accumulated depreciation and impairment |
|
|
|
At 28 December 2020 |
(19.9) |
(1.0) |
(20.9) |
Charge for the period |
(1.7) |
(0.5) |
(2.2) |
Impairment |
(10.5) |
- |
(10.5) |
At 27 June 2021 |
(32.1) |
(1.5) |
(33.6) |
|
|
|
|
Carrying amount |
|
|
|
At 27 December 2020 |
23.3 |
2.0 |
25.3 |
At 27 June 2021 |
11.4 |
1.5 |
12.9 |
Impairment of right-of-use assets of £10.5m as a result of the Home and Hub project which means that a number of offices or floors will no longer be used.
14. Retirement benefit schemes
Defined contribution pension schemes
The Group operates a defined contribution pension scheme for qualifying employees: The Reach Pension Plan (the 'RPP'). The assets of the RPP scheme where employees have an individual account at Fidelity are held separately from those of the Group in funds under the control of Trustees.
The current service cost charged to the consolidated income statement for the period of £8.2m ( 26 weeks ended 28 June 2020: £8.7m and 52 weeks ended 27 December 2020: £17.4m) represents contributions paid by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.
Defined benefit pension schemes
Background
The defined benefit pension schemes operated by the Group are all closed to future accrual. The Group has six defined benefit pension schemes:
· Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN Scheme'); and
· Express & Star schemes (the 'E&S Schemes'): the Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the Express Newspapers Senior Management Pension Fund (the 'ENSM Scheme') and the West Ferry Printers Pension Scheme (the 'WF Scheme').
Characteristics
The defined benefit pension schemes provide pensions to members, which are based on the final salary pension payable, normally from age 65 (although some schemes have some pensions normally payable from an earlier age) plus surviving spouses or dependants' benefits following a member's death. Benefits increase both before and after retirement either in line with statutory minimum requirements or in accordance with the scheme rules if greater. Such increases are either at fixed rates or in line with retail or consumer prices but subject to upper and lower limits. All of the schemes are independent of the Group with assets held independently of the Group. They are governed by Trustees who administer benefits in accordance with the scheme rules and appropriate UK legislation. The schemes each have a professional or experienced independent Trustee as their Chairman with generally half of the remaining Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across all of the schemes, the uninsured liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners. The average term from the period end to payment of the remaining uninsured benefits is expected to be around 16 years. Uninsured pension payments in 2020, excluding lump sums and transfer value payments, were £71m and these are projected to rise to an annual peak in 2033 of £103m and reducing thereafter.
Funding arrangements
The funding of the Group's schemes is subject to UK pension legislation as well as the guidance and codes of practice issued by the Pensions Regulator. Funding targets are agreed between the Trustees and the Group and are reviewed and revised usually every three years. The funding targets must include a margin for prudence above the expected cost of paying the benefits and so are different to the liability value for IAS 19 purposes. The funding deficits revealed by these triennial valuations are removed over time in accordance with an agreed recovery plan and schedule of contributions for each scheme. The funding valuations of the schemes: at 31 December 2016 for the MGN Scheme showed a deficit of £476.0m, for the Trinity Scheme showed a deficit of £78.0m and for the MIN Scheme showed a deficit of £68.2m; at 5 April 2017 for the EN88 Scheme showed a deficit of £69.8m and for the ENSM Scheme showed a deficit of £3.2m; and at 31 December 2017 for the WF Scheme showed a deficit of £6.5m. The triennial valuation for funding of the defined benefit pension schemes as at 31 December 2019 would usually be completed by 31 March 2021. We have agreed the funding of the WF Scheme (see below) and the discussions with the remaining five schemes are ongoing. There is no direct link to the IAS 19 valuations which use different actuarial assumption derivation methodologies (although a number of assumptions are consistent) and are updated at each reporting date.
Group contributions in respect of the defined benefit pension schemes in the first half were £37.1m (2020: £22.0m). This comprised £9.6m to the WF Scheme and £27.5m under the current schedule of contributions of the remaining five schemes. The payment of £9.6m enabled the Trustees of the WF scheme to purchase a bulk annuity and the scheme now has all pension liabilities covered by annuity policies. No further funding to the WF scheme is expected. Contributions in the second half are expected to be £27.6m under the current schedule of contributions of the remaining five schemes.
At the prior year end, the deficits in the remaining five schemes were expected to be removed before or in 2027 by a combination of the contributions and asset returns. Contributions (which include funding for pensions administrative expenses) are payable monthly. Contributions per the current schedule of contributions (excluding the WF Scheme) are for £55.1m pa in 2022 and 2023, £54.9m pa in 2024 to 2026 and £52.9m in 2027.
The Group agreed that in respect of dividend payments in 2018, 2019 and 2020 that additional contributions would be paid at 75% of the excess if dividends paid in 2018 were above 6.16 pence per share. For 2019 and 2020 the threshold increased in line with the increase in dividends capped at 10% pa. No payments were made in respect of this agreement.
The future deficit funding commitments are linked to the three-yearly actuarial valuations. Although the funding commitments do not generally impact the IAS 19 position, IFRIC 14 guides companies to consider for IAS 19 disclosures whether any surplus can be recognised as a balance sheet asset and whether any future funding commitments in excess of the IAS 19 liability should be provisioned for. Based on the interpretation of the rules for each of the defined benefit pension schemes, the Group considers that it has an unconditional right to any potential surplus on the ultimate wind-up after all benefits to members have been paid of all of the schemes except the WF Scheme. Under IFRIC 14 it is therefore appropriate to recognise any IAS 19 surpluses which may emerge in future and not to recognise any potential additional liabilities in respect of future funding commitments of all of the schemes except for the WF Scheme. For the WF Scheme at the reporting date, the assets are surplus to the IAS 19 benefit liabilities and the impact of IFRIC 14 removes this surplus. As no further contributions are expected to the WF Scheme, the Group no longer recognises a deficit of the value of its future deficit contribution commitment to the scheme.
The calculation of Guaranteed Minimum Pension ('GMP') is set out in legislation and members of pension schemes that were contracted out of the State Earnings-Related Pension Scheme ('SERPS') between 6 April 1978 and 5 April 1997 will have built up an entitlement to a GMP. GMPs were intended to broadly replicate the SERPS pension benefits but due to their design they give rise to inequalities between men and women, in particular, the GMP for a male comes into payment at age 65 whereas for a female it comes into payment at the age of 60 and GMPs typically receive different levels of increase to non GMP benefits. On 26 October 2018, the High Court handed down its judgement in the Lloyds Trustees vs Lloyds Bank plc and Others case relating to the equalisation of member benefits for the gender effects of GMP equalisation. This judgement creates a precedent for other UK defined benefit schemes with GMPs. The judgement confirmed that GMP equalisation was required for the period 17 May 1990 to 5 April 1997 and provided some clarification on legally acceptable methods for achieving equalisation. An allowance for GMP equalisation was first included within liabilities at 30 December 2018 and was recognised as a charge for past service costs in the income statement. In 2020 further clarification was issued relating to GMP equalisation in respect of transfers out of schemes and a further allowance for GMP equalisation was included within liabilities at 27 December 2020 and was recognised as a charge for past service costs in the income statement. The estimate is subject to change as we undertake more detailed member calculations, as guidance is issued and/or as a result of future legal judgements.
Risks
Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in the risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value.
The main sources of risk are:
· Investment risk: a reduction in asset returns (or assumed future asset returns);
· Inflation risk: an increase in benefit increases (or assumed future increases); and
· Longevity risk: an increase in average life spans (or assumed life expectancy).
These risks are managed by:
· Investing in insured annuity policies: the income from these policies exactly matches the benefit payments for the members covered, removing all of the above risks. At the prior reporting date the insured annuity policies covered 11% of total liabilities;
· Investing a proportion of assets in other classes such as government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the prior reporting date non-equity assets amounted to 81% of assets excluding the insured annuity policies;
· Investing a proportion of assets in equities: with the aim of achieving outperformance and so reducing the deficits over the long term. At the prior reporting date this amounted to 19% of assets excluding the insured annuity policies; and
· The gradual sale of equities over time to purchase additional annuity policies or liability matching investments: to further reduce risk as the schemes, which are closed to future accrual, mature.
Pension scheme accounting deficits are snapshots at moments in time and are not used by either the Group or Trustees to frame funding policy. The Group and Trustees are aligned in focusing on the long-term sustainability of the funding policy which aims to balance the interests of the Group's shareholders and members of the schemes. The Group and Trustees are also aligned in reducing pensions risk over the long term and at a pace which is affordable to the Group. The E&S Schemes and the Trinity Scheme have an accounting surplus at the reporting date, before allowing for the IFRIC 14 asset ceiling. Across the MGN Scheme and the MIN Scheme, the invested assets are expected to be sufficient to pay the uninsured benefits due up to 2044, based on the prior reporting date assumptions. The remaining uninsured benefit payments, payable from 2045, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid up to 2027. Actuarial projections at the prior reporting date show removal of the combined accounting deficit by the end of 2027 due to scheduled contributions and asset returns at the current target rate. From this point, the assets are projected to be sufficient to fully fund the liabilities on the accounting basis. The Group is not exposed to any unusual, entity specific or scheme specific risks. Other than the impact of GMP equalisation, there were no plan amendments, settlements or curtailments which in the current and prior period resulted in a pension cost.
Results
For the purposes of the Group's consolidated financial statements, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at 27 June 2021.
Based on actuarial advice, the assumptions used in calculating the scheme liabilities and the actuarial value of those liabilities are:
|
27 June 2021 £m |
28 June 2020 £m |
27 December 2020 £m |
Financial assumptions (nominal % pa) |
|
|
|
Discount rate |
1.98 |
1.66 |
1.49 |
Retail price inflation rate |
3.19 |
2.82 |
2.86 |
Consumer price inflation rate |
2.59 |
1.97 |
2.26 |
Rate of pension increase in deferment |
2.69 |
2.11 |
2.36 |
Rate of pension increases in payment (weighted average across the scheme's) |
3.34 |
3.23 |
3.25 |
Mortality assumptions - future life expectancies from age 65 (years) |
|
|
|
Male currently aged 65 |
21.8 |
21.8 |
21.9 |
Female currently aged 65 |
24.2 |
24.1 |
24.2 |
Male currently aged 55 |
21.6 |
21.6 |
21.6 |
Female currently aged 55 |
24.2 |
24.1 |
24.2 |
The discount rate should be chosen to be equal to the yield available on 'high quality' corporate bonds of appropriate term and currency. The Group took actuarial advice in 2020 and updated the approach to determining the bond constituents for the calculation of the discount rate. The bond constituents used for the 2020 and 2021 disclosures have been taken from the new Bloomberg classification system called BCLASS, which provides classification information on each individual security and which Bloomberg describes as the "fixed income standard". BCLASS also enables the inclusion of bonds issued by corporate special purpose vehicles, thereby increasing the size of the universe used to determine the discount rate. Our actuaries have determined an appropriate market bond yield based on a BCLASS extract from Bloomberg which excludes bonds which have a 'corporate' BCLASS assignment but which have actual or implied government backing, such as bonds issued by universities or public transportations systems.
The inflation assumptions are based on market expectations over the period of the liabilities. The RPI assumption is set based on a margin deducted from a single equivalent of the break-even RPI inflation curve. This margin, called an inflation risk premium reflects the fact that the RPI market implied inflation curve can be affected by market distortions and as a result it is thought to overstate the underlying market expectations for future RPI inflation.
The CPI assumption is set based on a margin deducted from the RPI assumption, due to lack of market data on CPI expectations. The Group took actuarial advice for the 2020 and updated the approach to determining the RPI and CPI assumptions and have applied the same approach to the 2021 disclosures. Allowing for the extent of RPI linkage on the schemes benefits pre and post 2030, the average inflation risk premium has been set at 0.3% (to broadly reflect 0.2% to 2030 and 0.4% thereafter). Based on an analysis of the CPI-linkage of the cashflow profile of the schemes this is estimated to be equivalent to a single margin of 0.6% (an assumed RPI/CPI margin of 1.0% up to 2030 and 0.00% beyond 2030).
The estimated impact on the IAS 19 liabilities and on the IAS 19 deficit at the reporting date, due to a reasonably possible change in key assumptions over the next year, are set out in the table below:
|
Effect on
liabilities |
Effect on
deficit |
Discount rate +/- 0.5% pa |
-190/+210 |
-165/+185 |
Retail price inflation rate +/- 0.5% pa |
+40/-39 |
+26/-25 |
Consumer price inflation rate +/- 0.5% pa |
+50/-47 |
+47/-45 |
Life expectancy at age 65 +/- 1 year |
+155/-150 |
+130/-130 |
The RPI sensitivity impacts the rate of increases in deferment for some of the pensions in the EN88 Scheme and the ENSM Scheme and some of the pensions in payment for all schemes except the MGN Scheme. The CPI sensitivity impacts the rate of increases in deferment for some of the pensions in most schemes and the rate of increases in payment for some of the pensions in payment for all schemes.
The effect on the deficit is usually lower than the effect on the liabilities due to the matching impact on the value of the insurance contracts held in respect of some of the liabilities. Each assumption variation represents a reasonably possible change in the assumption over the next year but might not represent the actual effect because assumption changes are unlikely to happen in isolation. The estimated impact of the assumption variations makes no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.
The amount included in the consolidated income statement, consolidated statement of comprehensive income and consolidated balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes is as follows:
Consolidated income statement
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Pension administrative expenses |
(1.5) |
(2.0) |
(4.6) |
Past service costs |
- |
- |
(1.5) |
Pension finance charge |
(1.8) |
(2.3) |
(4.7) |
Defined benefit cost recognised in income statement |
(3.3) |
(4.3) |
(10.8) |
Consolidated statement of comprehensive income |
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Actuarial (loss)/gain due to liability experience |
(0.3) |
34.1 |
48.2 |
Actuarial gain/(loss) due to liability assumption changes |
153.2 |
(163.6) |
(304.6) |
Total liability actuarial gain/(loss) |
152.9 |
(129.5) |
(256.4) |
Returns on scheme assets (less)/greater than discount rate |
(72.4) |
149.5 |
209.6 |
Change in impact of IFRIC 14 |
45.1 |
(3.4) |
(14.8) |
Total gain/(loss) recognised in statement of comprehensive income |
125.6 |
16.6 |
(61.6) |
Included in the returns on scheme assets less than discount rate debit of £69.4m is a £44.1m debit from the purchase of a bulk annuity policy by the Trustees of the WF Scheme. This is matched by a £44.1m credit included in the change in impact of IFRIC 14 credit of £45.1m.
Consolidated balance sheet |
27 June 2021 (unaudited) £m |
28 June 2020 (unaudited) £m |
27 December 2020 (audited) £m |
|
|
|
|
Present value of uninsured scheme liabilities |
(2,299.1) |
(2,447.8) |
(2,545.5) |
Present value of insured scheme liabilities |
(376.4) |
(318.9) |
(318.6) |
Total present value of scheme liabilities |
(2,675.5) |
(2,766.7) |
(2,864.1) |
Invested and cash assets at fair value |
2,146.6 |
2,222.4 |
2,278.7 |
Value of liability matching insurance contracts |
376.4 |
318.9 |
318.6 |
Total fair value of scheme assets |
2,523.0 |
2,541.3 |
2,597.3 |
Funded deficit |
(152.5) |
(225.4) |
(266.8) |
Impact of IFRIC 14 |
(2.5) |
(36.2) |
(47.6) |
Net scheme deficit |
(155.0) |
(261.6) |
(314.4) |
|
|
|
|
Non- current assets - retirement benefit assets |
100.1 |
74.6 |
50.4 |
Non- current liabilities - retirement benefit obligations |
(255.1) |
(336.2) |
(364.8) |
Net scheme deficit |
(155.0) |
(261.6) |
(314.4) |
|
|
|
|
Net scheme deficit included in consolidated balance sheet |
(155.0) |
(261.6) |
(314.4) |
Deferred tax included in consolidated balance sheet |
36.3 |
51.7 |
58.9 |
Net scheme deficit after deferred tax |
(118.7) |
(209.9) |
(255.5) |
Movement in net scheme deficit |
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Opening net scheme deficit |
(314.4) |
(295.9) |
(295.9) |
Contributions |
37.1 |
22.0 |
53.9 |
Consolidated income statement |
(3.3) |
(4.3) |
(10.8) |
Consolidated statement of comprehensive income |
125.6 |
16.6 |
(61.6) |
Closing net scheme deficit |
(155.0) |
(261.6) |
(314.4) |
Changes in the present value of scheme liabilities |
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Opening present value of scheme liabilities |
(2,864.1) |
(2,663.9) |
(2,663.9) |
Past service costs |
- |
- |
(1.5) |
Interest cost |
(20.9) |
(25.3) |
(50.5) |
Actuarial (loss)/gain- experience |
(0.3) |
34.1 |
48.2 |
Actuarial gain/(loss) - change to demographic assumptions |
2.7 |
(64.3) |
(93.5) |
Actuarial gain/(loss) - change to financial assumptions |
150.5 |
(99.3) |
(211.1) |
Benefits paid |
56.6 |
52.0 |
108.2 |
Closing present value of scheme liabilities |
(2,675.5) |
(2,766.7) |
(2,864.1) |
Changes in impact of IFRIC 14
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Opening impact of IFRIC 14 |
(47.6) |
(32.8) |
(32.8) |
Decrease/(increase) in impact of IFRIC 14 |
45.1 |
(3.4) |
(14.8) |
Closing impact of IFRIC 14 |
(2.5) |
(36.2) |
(47.6) |
Changes in the fair value of scheme assets
|
26 weeks ended 27 June 2021 (unaudited) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
52 weeks ended 27 December 2020 (audited) £m |
|
|
|
|
Opening fair value of scheme assets |
2,597.3 |
2,400.8 |
2,400.8 |
Interest income |
19.1 |
23.0 |
45.8 |
Actual return on assets (less)/greater than discount rate |
(72.4) |
149.5 |
209.6 |
Contributions by employer |
37.1 |
22.0 |
53.9 |
Benefits paid |
(56.6) |
(52.0) |
(108.2) |
Administrative expenses |
(1.5) |
(2.0) |
(4.6) |
Closing fair value of scheme assets |
2,523.0 |
2,541.3 |
2,597.3 |
Fair value of scheme assets |
27 June 2021 (unaudited) £m |
28 June 2020 (unaudited) £m |
27 December 2020 (audited) £m |
|
|
|
|
UK equities |
72.0 |
43.5 |
70.6 |
US equities |
178.9 |
134.6 |
180.4 |
Other overseas equities |
181.0 |
184.4 |
182.6 |
Property |
42.1 |
21.9 |
40.2 |
Corporate bonds |
277.8 |
282.8 |
320.6 |
Fixed interest gilts |
85.7 |
132.5 |
99.0 |
Index linked gilts |
93.0 |
84.7 |
72.7 |
Liability driven investment |
888.1 |
1,080.3 |
819.8 |
Cash and other |
328.0 |
257.7 |
492.8 |
Invested and cash assets at fair value |
2,146.6 |
2,222.4 |
2,278.7 |
Value of insurance contracts |
376.4 |
318.9 |
318.6 |
Fair value of scheme assets |
2,523.0 |
2,541.3 |
2,597.3 |
The assets of the schemes are primarily held in pooled investment vehicles which are unquoted. The pooled investment vehicles hold both quoted and unquoted investments. Scheme assets include neither direct investments in the Company's ordinary shares nor any property assets occupied nor other assets used by the Group.
15. Net cash
The net cash for the Group is as follows:
|
27 December 2020 (audited) £m |
Cash flow £m |
Lease liabilities movement £m |
27 June 2021 (unaudited) £m |
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
42.0 |
12.7 |
- |
54.7 |
|
|
|
|
|
|
|
Net cash |
42.0 |
12.7 |
- |
54.7 |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Lease liabilities |
(35.5) |
- |
2.9 |
(32.6) |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Lease liabilities |
(6.1) |
- |
0.5 |
(5.6) |
|
|
|
|
|
|
|
Net cash less lease liabilities |
0.4 |
12.7 |
3.4 |
16.5 |
The Group has a revolving credit facility of £65m until December 2023 reducing to £55m until December 2024. The Group had no drawings at the reporting date and the facility is subject to four covenants: Net Worth, Interest Cover, Net Debt to EBITDA and Cash Flow all of which were met at the reporting date.
Deferred consideration is in respect of the acquisition of Express & Star.
Payment of the first instalment of £18.9m was made on 28 February 2020 and second instalment of £16.0m was made on 28 February 2021. Of the remaining amount of £24.1m, £17.1m is classified as current liabilities (payable on 28 February 2022) and £7.0m is classified as non-current liabilities (payable on 28 February 2023). There are no conditions attached to the payment of the deferred consideration and the transaction was structured such that no interest accrues on these payments. However, under the sale and purchase agreement the Group has the right to offset agreed claims arising from a breach of warranties and indemnities and can also offset any shortfalls on the contracted advertising from the Health Lottery. The deferred consideration has not been discounted as we do not believe that the impact of such discounting is material.
16. Provisions
|
Share-based payments£m |
Property £m |
Restructuring £m |
Historical legal issues £m |
Other £m |
Total £m |
|
|
|
|
|
|
|
At 27 December 2020 (audited) |
(1.6) |
(5.1) |
(19.8) |
(23.0) |
(7.2) |
(56.7) |
Charged to income statement |
(0.8) |
(11.5) |
(1.4) |
(13.0) |
(0.4) |
(27.1) |
Utilisation of provision |
0.3 |
1.8 |
10.3 |
3.6 |
1.3 |
17.3 |
At 27 June 2021 (unaudited) |
(2.1) |
(14.8) |
(10.9) |
(32.4) |
(6.3) |
(66.5) |
The provisions have been analysed between current and non-current as follows:
|
27 June 2021 (unaudited) £m |
28 June 2020 (unaudited) £m |
27 December 2020 (audited) £m |
|
|
|
|
Current |
(24.8) |
(34.6) |
(31.5) |
Non-current |
(41.7) |
(17.5) |
(25.2) |
|
(66.5) |
(52.1) |
(56.7) |
The share-based payments provision relates to National Insurance obligations attached to the future crystallisation of awards. This provision will be utilised over the next three years.
The property provision relates to property related onerous contracts and onerous committed costs related to occupied, let and vacant properties. The provision will be utilised over the remaining term of the leases or expected period of vacancy. The charge has increased by £11.5m in the period which is primarily due to £10.9m of onerous property costs relating to the Home and Hub project, which has meant that a number of offices or floors will no longer be used.
The restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. The balance at the period end comprises severance costs of £0.8m and closure costs relating to the closure of two print plants of £9.5m. The severance costs provision is expected to be utilised within the next year. The closure costs provision includes £2.5m expected to be utilised within the next year and £7.0m expected to be utilised over the remaining term of the long term lease relating to one of the print plants that were closed.
The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. There are three parts to the provision: known claims, potential onerous claims and common court costs with estimates based on historical trends and experience of claims and costs. Certain cases and other matters relating to the issue can be subject to court proceedings, the outcome of which can impact on how much is required to settle the remaining claims and on the number of claims. The Group has recorded an increase in the provision every year since 2014 which highlights the challenges in making a best estimate and the time taken to resolve this historical matter. Due to uncertainty relating to potential future claims, a contingent liability note has been highlighted in note 18. As a result of additional claims being received the provision has been increased by £13.0m in the period. At the period end, a provision of £32.4m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The provision is expected to be utilised over the next few years.
The other provision balance of £6.3m at the period end relates to libel and other matters and is expected to be utilised over the next two years.
17. Share capital and reserves
The share capital comprises 322,085,269 allotted, called-up and fully paid ordinary shares of 10p each. On 28 September 2020, the Board recommended a bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share, which was subsequently approved by shareholders. On 23 October 2020, 12,798,952 ordinary shares were issued in respect of the bonus issue of shares with the issue being made out of the share premium account in accordance with the Companies Act 2006.
The share premium reflects the premium on issued ordinary shares. The merger reserve comprises the premium on the shares allotted in relation to the acquisition of Express & Star. The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buy-back programmes.
The Company holds 9,342,239 shares (28 June 2020 and 27 December 2020: 10,017,620 shares) as Treasury shares. During the period 675,381 shares were transferred to the Reach Employees Benefit Trust. Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9m (2019: £25.9m). On transition to IFRS, the revalued amounts of freehold properties were deemed to be the cost of the asset and the revaluation reserve has been transferred to retained earnings and other reserves.
Shares purchased by the Reach Employee Benefit Trust are included in retained earnings and other reserves at £1.5m (2019: 28 June 2020: £2.8m and 27 December 2020: £2.7m). During the period, 960,974 were released relating to grants made in prior years (28 June 2020: 629,178 and 27 December 2020: 778,658). During the period 675,381 shares were transferred to the Reach Employees Benefit Trust from the Treasury shares.
During the period, awards relating to 608,136 shares were granted to executive directors on a discretionary basis under the Long Term Incentive Plan (28 June 2020: 1,218,530 and 27 December 2020: 1,218,530). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions, and are required to be held for a further two years.
During the period, awards relating to 935,431 shares were granted to senior managers on a discretionary basis under the Long Term Incentive Plan (28 June 2020: 2,593,910 and 27 December 2020: 2,358,715 both under the Senior Management Incentive Plan). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.
During the period, no awards relating to shares were granted to executive directors under the Restricted Share Plan (28 June 2020: 50,618 and 27 December 2020: 50,618). The awards vest after three years.
18. Contingent liabilities
There is the potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues (note 16).
19. Reconciliation of statutory to adjusted results
26 weeks ended 27 June 2021 (unaudited)
|
Statutory results £m |
Operating adjusted items (a) £m |
Pension finance charge (b) £m |
Tax (c) £m |
Adjusted results £m |
Revenue |
302.3 |
- |
- |
- |
302.3 |
Operating profit |
28.6 |
40.3 |
- |
- |
68.9 |
Profit before tax |
25.7 |
40.3 |
1.8 |
- |
67.8 |
(Loss)/profit after tax |
(34.8) |
34.6 |
1.5 |
53.9 |
55.2 |
Basic (loss)/earnings per share (p) |
(11.2) |
11.1 |
0.5 |
17.4 |
17.8 |
26 weeks ended 28 June 2020 (unaudited)
|
Statutory results £m |
Operating adjusted items (a) £m |
Pension finance charge (b) £m |
Tax (c) £m |
Adjusted results £m |
Revenue |
290.8 |
- |
- |
- |
290.8 |
Operating profit |
28.9 |
26.0 |
- |
- |
54.9 |
Profit before tax |
25.2 |
26.0 |
2.3 |
- |
53.5 |
(Loss)/profit after tax |
(2.4) |
24.7 |
1.9 |
19.0 |
43.2 |
Basic (loss)/earnings per share (p) restated (d) |
(0.8) |
8.1 |
0.6 |
6.1 |
14.0 |
52 weeks ended 27 December 2020 (audited)
|
Statutory results £m |
Operating adjusted items (a) £m |
Pension finance charge (b) £m |
Tax (c) £m |
Adjusted results £m |
Revenue |
600.2 |
- |
- |
- |
600.2 |
Operating profit |
7.6 |
126.2 |
- |
- |
133.8 |
Profit before tax |
0.4 |
126.2 |
4.7 |
- |
131.3 |
(Loss)/profit after tax |
(26.7) |
110.3 |
3.8 |
19.0 |
106.4 |
Basic (loss)/earnings per share (p) |
(8.6) |
35.7 |
1.2 |
6.1 |
34.4 |
(a) Operating adjusted items relate to the items charged or credited to operating profit as set out in note 5.
(b) Pension finance charge relating to the defined benefit pension schemes as set out in note 14.
(c) Tax items relate to the impact of tax legislation changes due to the change in the future corporation tax rate on the opening deferred tax position as set out in note 8.
(d) Basic earnings per share for 26 weeks ended 28 June 2020 has been restated as set out in note 10.
Set out in note 2 is the rationale for the alternative performance measures adopted by the Group. The reconciliations in this note highlight the impact on the respective components of the income statement. Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals) or relate to historic liabilities (historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual).
Restructuring charges and closure costs incurred to deliver cost reduction measures relate to the transformation of the business from print to digital, together with costs to deliver synergies. These costs are principally severance related, but may also include system integration costs and print plant closure costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.
Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.
The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses, the past service costs for GMP equalisation and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment.
The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament or when a decision is reversed. The impact of the change in rates are included in adjusted items, on the basis that when they occur they are material, distorting the underlying performance of the business.
Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contractual issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.
20. Adjusted cash flow
|
27 June 2021 (unaudited) £m |
28 June 2020 (unaudited) £m |
27 December 2020 (audited) £m |
Adjusted operating profit |
68.9 |
54.9 |
133.8 |
Depreciation |
9.9 |
13.5 |
27.4 |
Adjusted EBITDA |
78.8 |
68.4 |
161.2 |
Net interest paid on bank borrowings |
(0.4) |
(0.6) |
(1.1) |
Income tax paid |
(9.2) |
(8.3) |
(14.2) |
Restructuring payments |
(10.3) |
(3.9) |
(18.0) |
Net capital expenditure |
(2.8) |
(1.5) |
(1.6) |
Interest paid on leases |
(0.7) |
(0.8) |
(1.5) |
Repayment of obligation under leases |
(3.6) |
(4.4) |
(7.7) |
Working capital and other |
30.8 |
14.6 |
4.7 |
Adjusted operating cash flow |
82.6 |
63.5 |
121.8 |
Historical legal issues payments |
(3.6) |
(0.9) |
(10.6) |
Historical contract issues payments |
- |
- |
(15.5) |
Dividends paid |
(13.2) |
- |
- |
Pension funding payments |
(37.1) |
(22.0) |
(53.9) |
Adjusted net cash flow |
28.7 |
40.6 |
41.8 |
Bank facility drawdown |
- |
25.0 |
25.0 |
Bank facility repayment |
- |
- |
(25.0) |
Acquisition related cash flow |
(16.0) |
(19.1) |
(20.2) |
Net increase in cash and cash equivalents |
12.7 |
46.5 |
21.6 |
21. Reconciliation of statutory to adjusted cash flow
26 weeks ended 27 June 2021 |
2021 |
|
|
2021 |
|
|
Stat |
(a) |
(b) |
Adjusted |
|
|
£m |
£m |
£m |
£m |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
95.7 |
(16.7) |
3.6 |
82.6 |
Adjusted operating cash flow |
Pension deficit funding payments |
(37.1) |
- |
- |
(37.1) |
Pension funding payments |
|
- |
- |
(3.6) |
(3.6) |
Historical legal issues payments |
Income tax paid |
(9.2) |
9.2 |
- |
- |
|
Net cash inflow from operating activities |
49.4 |
|
|
|
|
Investing activities |
|
|
|
|
|
Purchases of property, plant and equipment |
(2.8) |
2.8 |
- |
- |
|
Deferred consideration payment |
(16.0) |
- |
- |
(16.0) |
Acquisition related cash flow |
Net cash used in investing activities |
(18.8) |
|
|
|
|
Financing activities |
|
|
|
|
|
Dividends paid |
(13.2) |
- |
- |
(13.2) |
Dividends paid |
Interest paid on bank borrowings |
(0.4) |
0.4 |
- |
- |
|
Interest paid on leases |
(0.7) |
0.7 |
- |
- |
|
Repayments of obligations under leases |
(3.6) |
3.6 |
- |
- |
|
Net cash used in financing activities |
(17.9) |
|
|
|
|
Net increase in cash and cash equivalents |
12.7 |
- |
- |
12.7 |
|
26 weeks ended 28 June 2020 |
2020 |
|
|
2020 |
|
|
Stat |
(a) |
(b) |
Adjusted |
|
|
£m |
£m |
£m |
£m |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
78.2 |
(15.6) |
0.9 |
63.5 |
Adjusted operating cash flow |
Pension deficit funding payments |
(22.0) |
- |
- |
(22.0) |
Pension funding payments |
|
- |
- |
(0.9) |
(0.9) |
Historical legal issues payments |
Income tax paid |
(8.3) |
8.3 |
- |
- |
|
Net cash inflow from operating activities |
47.9 |
|
|
|
|
Proceeds on disposal of property, plant and equipment |
0.3 |
(0.3) |
- |
- |
|
Purchases of property, plant and equipment |
(1.8) |
1.8 |
- |
- |
|
Deferred consideration payment |
(18.9) |
- |
- |
(18.9) |
Acquisition related cash flow |
Acquisition of associate undertaking |
(0.2) |
- |
- |
(0.2) |
Acquisition related cash flow |
Net cash used in investing activities |
(20.6) |
|
|
|
|
Financing activities |
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
|
Interest paid on bank borrowings |
(0.6) |
0.6 |
- |
- |
|
Drawdown of borrowings |
25.0 |
- |
- |
25.0 |
Bank facility drawdown |
Interest paid on leases |
(0.8) |
0.8 |
- |
- |
|
Repayments of obligations under leases |
(4.4) |
4.4 |
- |
- |
|
Net cash received from financing activities |
19.2 |
|
|
|
|
Net increase in cash and cash equivalents |
46.5 |
- |
- |
46.5 |
|
52 weeks ended 27 December 2020 |
2020 |
|
|
2020 |
|
|
Stat |
(a) |
(b) |
Adjusted |
|
|
£m |
£m |
£m |
£m |
|
Cash flows from operating activities |
121.3 |
(25.6) |
26.1 |
121.8 |
Adjusted operating cash flow |
Cash generated from operations |
(53.9) |
- |
- |
(53.9) |
Pension funding payments |
Pension deficit funding payments |
- |
- |
(15.5) |
(15.5) |
Historical contract issues payments |
|
- |
- |
(10.6) |
(10.6) |
Historical legal issues payments |
Income tax paid |
(14.2) |
14.2 |
- |
- |
|
Net cash inflow from operating activities |
53.2 |
|
|
|
|
Investing activities |
|
|
|
|
|
Interest received |
0.1 |
(0.1) |
- |
- |
|
Dividends received from associated undertakings |
0.5 |
(0.5) |
- |
- |
|
Proceeds on disposal of property, plant and equipment |
0.3 |
(0.3) |
- |
- |
|
Purchases of property, plant and equipment |
(1.9) |
1.9 |
- |
- |
|
Deferred consideration payment |
(18.9) |
- |
- |
(18.9) |
Acquisition related cash flow |
Acquisition of associate undertaking |
(0.2) |
- |
- |
(0.2) |
Acquisition related cash flow |
Acquisition of subsidiary undertaking |
(3.4) |
- |
- |
(3.4) |
Acquisition related cash flow |
Cash acquired on acquisition of subsidiary undertaking |
2.3 |
- |
- |
2.3 |
Acquisition related cash flow |
Net cash used in investing activities |
(21.2) |
|
|
|
|
Financing activities |
|
|
|
|
|
Interest paid on bank borrowings |
(1.2) |
1.2 |
- |
- |
|
Drawdown of borrowings |
25.0 |
- |
- |
25.0 |
Bank facility drawdown |
Repayment of borrowings |
(25.0) |
- |
- |
(25.0) |
Bank facility repayment |
Interest paid on leases |
(1.5) |
1.5 |
- |
- |
|
Repayment of obligations under leases |
(7.7) |
7.7 |
- |
- |
|
Net cash used in financing activities |
(10.4) |
|
|
|
|
Net increase in cash and cash equivalents |
21.6 |
- |
- |
21.6 |
|
(a) Items included in the statutory cash flow on separate lines which for the adjusted cash flow are included in adjusted operating cash flow.
(b) Payments in respect of historical legal issues and historical contract issues are shown separately in the adjusted cash flow.
22. Reconciliation of statutory to like-for-like revenue
|
26 weeks ended 27 June 2021 (unaudited) £m |
(a) £m |
26 weeks ended 27 June 2021 (like-for-like) £m |
26 weeks ended 28 June 2020 (unaudited) £m |
(b) £m |
26 weeks ended 28 June 2020 (like-for-like) £m |
|
232.4 |
(5.4) |
227.0 |
241.0 |
(1.5) |
239.5 |
Circulation |
160.0 |
(4.5) |
155.5 |
163.9 |
- |
163.9 |
Advertising |
50.3 |
(0.9) |
49.4 |
53.1 |
(1.5) |
51.6 |
Printing |
9.6 |
- |
9.6 |
11.8 |
- |
11.8 |
Other |
12.5 |
- |
12.5 |
12.2 |
- |
12.2 |
Digital |
68.8 |
- |
68.8 |
48.2 |
- |
48.2 |
Other |
1.1 |
- |
1.1 |
1.6 |
- |
1.6 |
Total revenue |
302.3 |
(5.4) |
296.9 |
290.8 |
(1.5) |
289.3 |
(a) Exclusion of Irish Star (purchased on 24 November 2020).
(b) Exclusion of Manchester Metro following ending of franchise agreement in June 2020 and other portfolio changes in 2020.
Report on the Condensed interim consolidated financial statements
Our conclusion
We have reviewed Reach plc's Condensed interim consolidated financial statements (the "interim financial statements") in the Half-Yearly Financial Report of Reach plc for the 26 week period ended 27 June 2021 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the Consolidated balance sheet as at 27 June 2021;
· the Consolidated income statement and Consolidated statement of comprehensive income for the period then ended;
· the Consolidated cash flow statement for the period then ended;
· the Consolidated statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Yearly Financial Report of Reach plc have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual consolidated financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half-Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Half-Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 July 2021