Half-year Report

RNS Number : 6846T

Reach PLC

26 July 2022

 

Reach plc - Interim Results - 26 weeks to 26 June 2022

26 July 2022

Customer Value Strategy delivering to plan; Management action addressing macro headwinds

Business Highlights

Investment driving stronger digital mix with higher yielding, data-led products continuing to outperform

•	Strong growth in revenue from data-led products(1) e.g. PLUS+; now over 30% of total digital (less than 20% H121)
•	Traffic and audience outperforming publishing sector - page views and UK audience up 8% and 2% respectively
•	Around 25% of total UK audience registered, with registered users now over 11m (from 5m in 2020)
•	Engagement and loyalty growing; page views per user +2%, loyal users(2) +17%, registered page views +103%

Print cover price increases help mitigate impact of lower yield on open market programmatic advertising

•	Digital revenue up 5.4%; Q2 affected by Ukraine impact on brand safety and sector slowdown in advertiser demand
•	Yield on open market programmatic advertising (affects c. 50% of total ad volume) in Q2 down 40% year-on-year
•	Cover price increases and resilient volume performance drive stronger circulation with print revenue down 3.9%
•	Overall revenue down 1.6%; expect stronger circulation revenue to counter impact of lower digital yields in H2

H1 profit impacted by newsprint cost; management actions strengthen outlook for H2

•	Energy prices fuelling all-time high newsprint cost; not forecasting any improvement during FY22
•	Savings from operating model changes and cost management mitigating H2 newsprint impact
•	Timing of increased cover prices, management of costs and normal event-driven seasonality, supporting stronger than recent H2 contribution to operating profit

Jim Mullen Chief Executive

"We are making steady and significant progress in delivering our Customer Value Strategy. While the macro-environment is naturally presenting challenges, we're committed to investing in the data and digital capabilities that are shaping the future of our business. Our ongoing strategic transformation strengthens us financially and operationally while we continue to deliver positive change through our editorial impact.

We have acted swiftly to address the headwinds facing the business and expect the further cost efficiencies and cover price increases to mitigate the impact of newsprint inflation and reduced advertiser demand which are affecting the whole sector.

Our strategic shift towards greater customer engagement and data-driven revenue is driving a more sustainable and profitable future. We are a stronger, more streamlined, and more efficient organisation, with the Group well placed to benefit once industry trends return to more normalised levels of activity. In addition, the strength of our balance sheet and cash generation underpin both a growing dividend and continued investment as we transition to an increasing mix of higher quality digital earnings." 

Financial Summary
26 weeks to 26 Jun 2022		Adjusted results(3)			Statutory results
		2022	2021	Change	2022	2021	Change
Revenue	£m	297.4	302.3	(1.6%)	297.4	302.3	(1.6%)
Operating profit	£m	47.2	68.9	(31.5%)	34.5	28.6	20.6%
Operating profit margin	%	15.9%	22.8%	(690bps)	11.6%	9.5%	210bps
Earnings/(loss) per share	Pence	12.0	17.8	(32.6%)	8.1	(11.2)	N/A
Net cash	£m	43.8	54.7	(19.9%)	43.8	54.7	(19.9%)
Dividend per share	Pence	2.88	2.75	4.7%	2.88	2.75	4.7%

Results overview

Group revenue marginally down - stronger circulation mitigating impact of lower digital yield

•	Print revenue £223.4m down 3.9% - circulation and advertising down 5.1% and 9.9% respectively, printing and other revenue up 19.0%
•	Additional cover price increases strengthen circulation revenue with minimal adverse impact on print volumes
•	Digital revenue £72.5m (H121: £68.8m) up 5.4% (Q2: 0.3%) against strong prior year comparatives
•	Lower digital growth in Q2 with less brand-safe advertising space, resulting from the war in Ukraine and a market driven reduction in advertiser demand, reflected in lower yields for open market programmatic revenues
•	Strategy delivering improvement in digital mix with significant growth in higher-yielding, data-driven revenues which were around one third of total digital in the period

H1 profit impacted by cost of newsprint; timing of cost actions and cover prices drives increased H2 weighting

•	A djusted operating profit £47.2m down 31.5% (£21.7m); reflecting unprecedented increase in newsprint cost which was up £14m or £17m (c.65%) on a like-for-like volume basis
•	Acceleration of operating model changes enabling further significant efficiencies in H2, in addition to savings from changes to print production and distribution
•	Statutory operating profit £34.5m (H121: £28.6m) up 20.6%, driven by significant year on year reduction in operating adjusted items £12.7m (H121: £40.3m)
•	Statutory EPS of 8.1p (H121: (11.2p)) significantly ahead driven by property rationalisation charges and reflection of future change to UK corporation tax rate, in last year's comparator

Cash & Capital Allocation

•	Adjusted operating cash flow(4) of £39.2m (H121: £82.6m) represents cash conversion of 69% with neutral working capital position versus positive inflow in comparator period due to non-repeating trading timing benefit
•	Retained cash(5) decreased by £21.9m to £43.8m, after payment of FY21 final dividend and penultimate payment for acquisition of The Express and Star
•	Further reduction in IAS19 pension accounting deficit to £69.1m (FY21: £117.2m); yet to achieve resolution of 2019 triennial review of pension commitments
•	Board recognises the importance of a growing dividend for shareholders - interim dividend of 2.88p up 4.7%

Building a culture fit for the future

•	New family friendly policies, including more support for carers and continued hybrid flexibility for staff giving us clear offering in a competitive talent market, alongside continued progress around Diversity and Inclusion
•	Work to formalise sustainability strategy and net zero target ongoing; plan to disclose as part of full year results

Outlook and current trading

Over the past three years, the evolution towards a more digitally focused operating model has made us a more agile and more efficient business, with our Customer Value Strategy driving a more sustainable, longer term growth trajectory. The phasing out of third-party cookies and evolving trend away from creative display in favour of more performance led advertising is creating opportunities for growth, with our continued investment in data-driven digital solutions, supporting higher and more predictable returns.

We expect PLUS+ and other data-driven revenues to continue to outperform during H2, though expect yield on open market programmatically driven revenues will remain depressed, reflecting broader macro pressures. We therefore expect total H2 digital growth to remain subdued. Circulation will benefit from a full half of increased cover prices during H2, strengthening print revenues.

We expect a year over year improvement in total operating costs during H2, with the benefit of further strategically driven changes to our operating model and additional cost management actions mitigating the impact of inflation and preserving our ongoing investment plans. We do not anticipate an improvement in the existing rate of newsprint during the second half.

In the context of an uncertain macro and political climate, we remain mindful of the risk of further deterioration in economic conditions. We currently expect management actions and the natural phasing of our business, to support a stronger than historical H2 profit contribution.

Quarterly and Half Year Year-on-Year Revenue Movements

2022	Q1 YOY %	Q2 YOY %	HY YOY %
Digital Revenue	10.4%	0.3%	5.4%
Print Revenue	(3.9%)	(3.9%)	(3.9%)
-  circulation revenue	(6.2%)	(4.0%)	(5.1%)
-  advertising revenue	(8.5%)	(11.4%)	(9.9%)
Group Revenue	(0.5%)	(2.8%)	(1.6%)

Notes

(1)  'Data-led' includes revenues from all campaigns/advertising activity which utilise data (e.g. PLUS+) generated either via registrations, audience behavioural data or Mantis contextual. It also includes other revenues resulting from our Customer Value Strategy.

(2)  Loyal users are defined as those who visit our websites on at least 8 days in every 16 or every other day.

(3)  Set out in note 18 is the reconciliation between the statutory and adjusted results. The current period is for the 26 weeks ended 26 June 2022 ('2022') and the comparative period is for the 26 weeks ended 27 June 2021 ('2021').

(4)  An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Note 20 provides a reconciliation between the statutory and adjusted cash flows.

(5)  Cash balance comprises cash and cash equivalents of £43.8m.

Enquiries

Reach
Jim Mullen, Chief Executive Officer Simon Fuller, Chief Financial Officer Matt Sharff, Investor Relations Director	07341 470 722
Tulchan Communications	[e-mail]
David Allchurch Giles Kernick	020 7353 4200

Jim Mullen, Chief Executive Officer, Simon Fuller, Chief Financial Officer and Lloyd Embley, Group Editor-in-Chief, will present the results at 9:00am (BST) on 26 July 2022. It will be followed by a live question and answer session. The presentation slides will be available on www.reachplc.com from 7.00am (BST).

You can join the webcast to see the presentation or listen to Q&A via the weblink below:

Please copy and paste into your browser   https://edge.media-server.com/mmc/p/q7mhs9y4  

To participate and ask a question during the Q&A session, please access the weblink below and register your details.

https://register.vevent.com/register/BI4d3b5af82deb48b6b44d1535640e9812

Please try to allow at least 10 minutes prior to the start time to provide sufficient time to access the event.

Forward looking statements

This announcement has been prepared in relation to the financial results for the 26 weeks ended 26 June 2022. 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

Customer Value Strategy delivering higher quality digital revenue and growing engagement

We're financially, operationally, and culturally a stronger business than we were when we launched our Customer Value Strategy three years ago. The action we've taken in response to the changing economy will ensure this progress continues, as we keep investing. Despite significant macro pressures, the strategy remains on track and we're seeing consistent and tangible results from our increased investment to develop higher yielding digital revenues through a focus on customer data.

Increasing proportion of higher yielding revenues

Investment is supporting an increase in the proportion of our revenues driven by data-led products, such as PLUS+, and by starting to develop other sources of digital income such as ecommerce, we are increasing the value of our digital revenue, driving a greater part of the mix from higher yielding products.

There is clear momentum in our PLUS+ portfolio, with revenue generated during H1 around 85% of PLUS+ revenue for the whole of last year. This reflects our drive to broaden the range and scale of data-led revenues, which enable stronger pricing; PLUS+ for example with a yield around ten times greater than that on the open market. Total 'data-driven' revenues (including PLUS+) grew by around 80% during the period, reaching 31% (H121: 18%) of digital revenues overall. This is particularly relevant within the context of advertisers' growing preference for performance-based marketing and the upcoming removal of third-party cookies.

Engagement and loyalty growing

We have continued to grow the number of customers registered on our websites to 11.5m, representing around 25% of our total UK digital audience. We are also seeing a consistent increase in the volume of those customers who most regularly engage with us, with close to 5m, over 4 in every 10, active in the last 28 days.

While traffic growth in 2021 was suppressed versus a COVID inflated comparator in the prior year, we have returned to growth, with page views ahead of the rest of the publishing sector, up by 8% for the period. Page views per user for the period was up by 2%.

With loyal users generating a significant proportion of our page views, a key objective for our newsroom and audience team has been to grow our loyal user base, while also converting anonymous users to registered. We saw 17% growth in loyal users during the period, with page views from registered users, a strong indicator of engagement, up over 100%. Page views generated by loyal customers who are also registered have almost trebled in the last 18 months.

Our continued page view growth has been significantly supported by the development of an Al based recommender tool which is part of our proprietary advertising and data platform 'Neptune'. The Neptune recommender, which is powered by Mantis, showcases relevant 'next best' content, using AI and contextual sentiment analysis to serve our readers more effectively with content they'll be interested in. Since it launched towards the end of last year, it has generated around 50m additional page views per month, equivalent to c.40% of our growth.

Mantis demonstrates our ability to develop our own tech solutions which will not only drive engagement and loyalty, strengthening our commercial resilience, but also offer us the opportunity to licence our IP to others in the sector.

Headline digital growth held back by market slowdown; print resilience supports investment

Increase in brand unsafe content and lower advertiser demand

Following the start of the war in Ukraine at the end of February, we have seen a broad doubling in the amount of content considered 'brand unsafe' by many advertisers. While this ad space continues to be sold, it has been at a lower than expected rate, contributing to a lower average yield per page.

During Q2 we have also started to see a sector-wide slowdown in advertiser spend, reflected in a 40% lower yield on advertising sold programmatically through the open market. We expect our higher yielding data-driven products to continue to perform better than the overall market during H2, though expect overall digital growth will remain subdued within the context of broader macro trends.

Stronger print supports group revenue

Print remains a large-scale, resilient business which provides the foundation for our investment in digital. Newspapers are an habitual purchase for many consumers with our titles reaching around 13 million people a month, around a quarter of all adults in the UK. Although we have made additional cover price increases this year in response to the increased cost of newsprint, cover prices are still relatively low, and we have a loyal readership, demonstrated by the strong recovery in circulation trends from the impacts of the pandemic.

We have a long history of actively managing volume decline within the print business, with our expertise in evolving production to ensure editorial integrity at lowest cost, generating sustainable and reliable cash flows.

In response to the significant inflationary pressures currently impacting the business, particularly in newsprint, we have made further process changes which will help mitigate inflationary headwinds. By reducing printed volumes or supply, without any significant impact on availability and by reducing pagination, both by around 5-6%, we expect to realise significant efficiencies during H2.

Circulation revenue (c.70% of print) improved through the period (Q1: (6.2%), Q2: (4.0%)) benefitting from price increases across national and some regional titles, which will continue to strengthen circulation in the second half of the year. Print advertising was 9.9% lower, broadly in line with the long-term trend. During the period we saw a decrease in public health related spending, which in the prior year was driven by COVID. This was in part offset by a recovery in both the travel and retail sectors, with a significant increase in the number of cover wraps in both regional and national titles.

Customer experience and format innovation

Platform improvements to enhance customer experience

Much of our investment last year supported increased content generation and the expansion of our digital editorial function. Great content is only part of the story though and we're now looking closely at improving customer experience, specifically at ensuring our existing platforms can showcase content in a fast, personalised, and engaging way. We began by addressing load speeds and have materially reduced the time it takes for customers to start engaging with our pages. We have also begun testing different ad configurations to ensure we're able to maximise both revenue and user loyalty. Looking further ahead, our product and data teams are focused on the agility of our infrastructure and the tools we can develop to truly differentiate our offer.

Exploring new formats and extending our audience

As well as enhancing the customer experience around our content, we're focused on ensuring that our portfolio reaches the broadest possible audience. For the 16-34s demographic, video content within social media, as opposed to search, direct or email, has become the primary route to accessing news. We're well positioned to take advantage of this with our brands reaching around 70% of the youth audience every month. We've had good early success, rapidly growing a new TikTok audience for the Daily Star and Mirror.

To further accelerate our ambitions in this space we have also made changes to our executive committee, creating a new role of Chief Digital Publisher, whose team will work alongside editorial and product to attract and build a home for the youth audience. To achieve these aims we will continue to invest in content as well as in formats and platforms which appeal to the digital native population.

The stories that matter

Our newsrooms have continued to set the agenda this year, starting with the Mirror's Partygate scoop which has served as another reminder of the importance of the work we do, which often has major real-world impact.

We also invested significantly in ensuring we had a presence in Ukraine at the outbreak of the Russian invasion. Our journalists at home reported on the outpouring of support here in the UK for Ukrainian refugees, with the Express setting up a "Ukrainians in the UK" site to help refugees adjust.

The cost of living crisis will undoubtedly be one of this year's biggest stories, on which our audiences have been seeking out trusted information. Some of our titles are tackling the crisis by devoting specialist journalists to the subject, with Lancs Live appointing a cost of living editor and the Manchester Evening News hiring three new Cost of Living editor roles.

Elsewhere across the portfolio, our journalists engaged millions of readers on topics ranging from Westminster to Wagatha Christie to the Champions League final. Not every story has to be serious to have an impact or bring some joy - our goal is always to engage our audience by understanding what they care about.

Continuing to reshape the business

While our journalists pursue the scoops and campaigns that form our core purpose, my team and I focus on delivering the strategy to ensure that their journalism continues to have an impact for generations to come. To this point, we were very proud to take home the 'Best Newsroom Transformation' prize at the 2022 INMA Global Media Awards, recognition on a world stage that our journey to create a customer-driven newsroom has been pioneering.

We continued to challenge ourselves this year to rethink the way we structure our newsrooms and deploy journalists across our areas. In May we launched the Network Newsroom, an evolution of Reach Wire which allows us to act swiftly to deploy greater resources to the big stories, wherever they're happening. By working more strategically we can maximise our scale and hyperlocal presence, with a ready-made newsroom operation ready to go wherever it's most needed to serve our audiences.

We made similar changes to the structure of our commercial teams, dissolving the old split between regional and national and bringing our teams together to serve advertisers more effectively. In a digital world, the distinction between regional and national has become increasingly blurred and we are now set up to make it easier for advertisers to get what they need.

Board changes

The Board welcomed two new appointments today: Priya Guha and Wais Shaifta. Priya brings leadership expertise in the tech and innovation space while Wais has a proven track record in e-commerce and customer engagement. Both will bring valuable insights to the Board as our strategy continues to progress.

Building a culture fit for the future

Recruiting talent continues to be challenging, and forward-thinking policies not only give us an edge but simply make Reach a better place to work. Through our hybrid working model we have been able to offer candidates a flexible work environment, which is increasingly a priority for top talent.

We also recognise the limitations of remote working and have provided tailored solutions to individual situations. In some areas, we have met the needs of regional editorial teams by forming partnerships with local universities, providing state of the art facilities and strengthening our newsroom's relationships with the next generation of journalists.

We recently extended our commitment to work/life balance with the introduction of a new set of policies around family life, including more support for carers - a growing demographic - and enhanced policies which now offer more time for both parents to manage difficult family moments such as pregnancy loss and IVF.

Changes such as these, as part of a powerful Diversity and Inclusion (D&I) movement across the business, have helped us to address the gender pay gap, which this year, has seen the biggest single decrease since we began reporting.

Further testament to our efforts across the D&I space this year was the listing as a Top Performer in the recent McKenzie Review, a clear testament to the progress we've made. We are also beginning to see the results of this work surface in our editorial content in exciting ways, for example in the launch of the Belonging Project which has spurred all of our regional newsrooms to more proactively engage with their local communities - the creation and success of the Brummie Muslims newsletter being only one standout result of this.

A proven track record in uncertain times

Our award-winning commercial team, this year's recipients of the Commercial Team of the Year (Consumer) and Best Use of Data prizes at the British Media Awards, are continuously taking the temperature of their advertising contacts to provide us with the fullest possible picture of the advertising market.

The whole sector is experiencing a slowdown in advertising demand, which the team are witnessing first-hand through a growing number of delayed or pulled briefs from brands and agencies at a national level. The regional business and the wider SME community is recovering from the effects of COVID and successive lockdowns and we continue to work hard as a trusted partner to support them in this difficult trading period.

The growing cost of living crisis, declining consumer confidence, while presenting a challenging outlook for all businesses, only reaffirms our strategy to drive a higher and more predictable level of returns through investment in data. Although we find ourselves once again in an uncertain environment, we take confidence from our track record in facing the COVID crisis two years ago, firm in the knowledge that the investments we've made to date are making us stronger for the future.

The strength of our balance sheet and significant cash generation not only ensures we can pay a growing dividend; it also underpins continued strategic investment. We are a stronger, more efficient, and digitally enabled business and delivery of the strategy is ensuring we're well placed to better serve a new generation of digital customers when conditions once again shift.

Jim Mullen

Chief Executive Officer

26 July 2022

 

Finance Review

A half year performance showing continued strategic progress and digital revenue growth, despite a more challenging macro environment, particularly during Q2 with the war in Ukraine and more subdued demand from advertisers reflected in a lower digital yield. Print revenue remains resilient with cover price increases supporting stronger circulation revenues. Adjusted operating profit has been impacted by increasing inflation, particularly within newsprint. Several mitigating actions have been put in place to help mitigate the full year impact of this.

Our statutory performance reflects a continued year over year reduction in adjusted items, with the prior year comparative including charges relating to the rationalisation of our estate and the future change in the corporation tax rate. The Group has a strong balance sheet and liquidity with a net cash positive position of £43.8m, with no draw down during the period from the Group's revolving credit facility of £120.0m.

Summary income statement

	Adjusted 2022 £m	Adjusted 2021 £m	Statutory 2022 £m	Statutory 2021 £m
Revenue	297.4	302.3	297.4	302.3
Costs	(251.6)	(234.9)	(263.6)	(274.5)
Associates	1.4	1.5	0.7	0.8
Operating profit	47.2	68.9	34.5	28.6
Finance costs	(1.3)	(1.1)	(2.5)	(2.9)
Profit before tax	45.9	67.8	32.0	25.7
Tax charge	(8.5)	(12.6)	(6.8)	(60.5)
Profit/(loss) after tax	37.4	55.2	25.2	(34.8)
Earnings/(loss) per share - basic	12.0	17.8	8.1	(11.2)

Group revenue fell by £4.9m or 1.6% with print down 3.9% offset by digital revenue growth of 5.4%.

Adjusted costs increased by £16.7m or 7.1.%, reflecting the increase in the cost of newsprint. Statutory costs were lower by £10.9m or 4.0%, with the increase in newsprint offset by the reduction in adjusted items of £27.6m (H122: £12.0m versus H121: £39.6m).

The lower revenue and higher adjusted operating costs drove a £21.7m or 31.5% decrease in adjusted operating profit and an adjusted operating margin of 15.9% compared to 22.8% for the first half of 2021. Statutory operating profit increased by £5.9m or 20.6% due to the reduction in operating adjusted items.

Adjusted earnings per share decreased by 5.8p or 32.6%. Statutory earnings per share of 8.1p was higher than the prior period due to the £53.9m deferred tax charge from the multi-year impact of the future change in the corporation tax rate in 2021.

Revenue

			2022 Actual £m	2021  Actual £m
Print			223.4	232.4
Circulation			151.8	160.0
Advertising			45.3	50.3
Printing			11.5	9.6
Other			14.8	12.5
Digital			72.5	68.8
Other			1.5	1.1
Total revenue			297.4	302.3

Revenue fell by £4.9m or 1.6% on both an actual and like-for-like basis. In the prior year, like-for-like trends excluded the Independent Star acquisition and the impact of portfolio changes and impacted print revenue only. A reconciliation is set out in Note 21.

Digital increased by £3.7m or 5.4% while print declined by £9.0m or 3.9%. Other revenue is derived from our specialist digital recruitment websites.

Revenue bridge

			Actual £m	YOY %
2021HY revenue			302
Circulation			(8)	(5.1)
Advertising			(5)	(9.9)
Printing			2	19.8
Other			2	18.4
Print			(9)	(3.9)
Digital			4	5.4
Other			0.4	36.4
2022HY revenue			297	(1.6)

	Q1 2022 YOY %	Q2 2022 YOY %	HY 2022 YOY %	Like-for-like HY 2021 YOY %
Digital Revenue	10.4%	0.3%	5.4%	42.7%
Print Revenue	(3.9%)	(3.9%)	(3.9%)	(5.2%)
Circulation	(6.2%)	(4.0%)	(5.1%)	(5.1%)
Advertising	(8.5%)	(11.4%)	(9.9%)	(4.3%)
Group Revenue	(0.5%)	(2.8%)	(1.6%)	2.6%

Print revenue decreased by £9.0m or 3.9% (2021: down 5.2% on a like-for-like basis).

Circulation revenue was down 5.1% for the period, with a stronger performance during Q2 which benefitted from cover price increases, above recent historical levels, as part of the Group's efforts to minimise the impact of inflation.

Print advertising revenue declined 9.9% (2021: down 4.3% on a like-for-like basis), with the prior year comparative still benefitting from public health advertising relating to COVID. This was partly offset by a stronger performance in both the travel and retail sectors, with a significant increase in the number of cover wraps across regional and national titles.

Print revenue also includes external printing revenues and other print-related revenues. Printing revenue increased by 19.8% (2021: decreased 18.6% on a like-for-like basis) reflecting the increase in newsprint costs passed on to third parties. Other print revenue increased by 18.4% (2021: increased 2.5% on a like-for-like basis) reflecting an increase in event-driven and sports printing revenues versus a comparator period still affected by COVID.

Digital revenues increased by 5.4% to £72.5m (2021: 42.7%). Growth reflects an increase in page views for the period of 8% and continued strong delivery of our Customer Value Strategy, which is driving the outperformance of higher yielding products and a higher quality mix of digital revenues. We saw a marked slowdown during Q2, with growth of 0.3% reflecting stronger prior year comparatives, and a reduction in open-market yields following the war in Ukraine, which has impacted brand safety and a general softening of advertiser demand.

Costs

	2022 Adjusted £m	2021 Adjusted £m	2022 Statutory £m	2021 Statutory £m
Labour	(119.0)	(115.0)	(119.0)	(115.0)
Newsprint	(38.8)	(25.2)	(38.8)	(25.2)
Depreciation	(9.9)	(9.9)	(9.9)	(9.9)
Other	(83.9)	(84.8)	(95.9)	(124.4)
Total costs	(251.6)	(234.9)	(263.6)	(274.5)

Adjusted costs of £251.6m (2021: £234.9m) increased by £16.7m or 7.1%, impacted by the higher cost of newsprint during the period due to the growing demand for packaging materials, reduced availability of recycled fibre, increasing costs of shipping and rising energy prices.

Changes to print production, including a reduction in supply and lower pagination, are expected to help mitigate the impact of higher newsprint costs during the second half of the year.

Statutory costs decreased by £10.9m or 4.0% primarily due to lower operating adjusted items which were £27.6m lower (£12.0m compared to £39.6m in 2021).

Operating adjusted items included in statutory costs related to the following:

	Statutory 2022 £m	Statutory 2021 £m
Provision for historical legal issues	(5.9)	(13.0)
Restructuring charges in respect of cost reduction measures	(5.4)	(1.4)
Home and Hub project	-	(23.7)
Other	(0.7)	(1.5)
Operating adjusted items in statutory costs	(12.0)	(39.6)

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, has increased by £5.9m (2021: £13.0m).

Restructuring charges of £5.4m (2021: £1.4m) incurred in respect of cost reduction measures are principally severance costs that relate to cost management actions taken in the period.

Other adjusted items comprise pension administrative expenses (£2.2m), adviser costs in relation to the triennial funding valuations (£0.8m), less a reduction in National Insurance costs relating to share awards (£1.9m) and the profit on sale of impaired assets (£0.4m). In 2021 other adjusted items related to pension administrative expenses.

The Group announced a Home and Hub project in March 2021 which set out the vision for how the Group's offices would look and where job roles would be based and resulted in the closure of a number of offices. The project resulted in charges of £23.7m in 2021 (impairments of £2.3m relating to property, plant and equipment and £10.5m relating to right-of-use assets and a £10.9m property rationalisation charge relating to onerous costs of vacant properties).

Reconciliation of statutory to adjusted results

	Statutory results £m	Operating adjusted items £m	Pension finance charge £m	Tax £m	Adjusted results £m
Revenue	297.4	-	-	-	297.4
Operating profit	34.5	12.7	-	-	47.2
Profit before tax	32.0	12.7	1.2	-	45.9
Profit after tax	25.2	11.2	1.0	-	37.4
Basic earnings per share (p)	8.1	3.6	0.3	-	12.0

The Group excludes from the adjusted results: operating adjusted items and the pension finance charge. Adjusted items relate to costs or income 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 on the basis that they distort the underlying performance of the business where they relate to material items that can recur (including impairment, restructuring, tax rate changes) or relate to historic liabilities (including historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual). Other items may be included in adjusted items if they are not expected to recur in future years, such as the property rationalisation in the prior year and items such as transaction and restructuring costs incurred on acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings. Management excludes 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, provide users with additional useful information. Further details on the items excluded from the adjusted results are set out in note 18.

Balance Sheet and cash flows

Adjusted cash flow

			£m	£m
EBITDA				57
Tax			(4)
Restructuring			(4)
Capex			(7)
Lease payments			(3)
Operating cash flow				39
Historic legal issues			(6)
Pension payments			(23)
Dividends			(14)
Purchase for share awards			(1)
Net cash flow				(5)
Payment for Express & Star			(17)
Cash retained				(22)
Opening cash				66
Closing cash				44

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. Payments of £6.1m have been made during the year and the provision has been increased by £5.9m. At the half year a provision of £40.8m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. Further details relating to the nature of the liability, the calculation basis and the expected timing of payments are set out in note 15.

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 £48.1m from £117.2m at the year end to £69.1m at the half year. The decrease was driven by an increase in the discount rate and Group contributions which has been partially offset by asset return decreases. 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 have been completed by 31 March 2021. We have agreed the funding for three of the schemes, and the discussions with the remaining three schemes are ongoing, having been delayed by COVID-19 and more recently differences between the Group and the Trustees as to possible de-risking and the required pace of funding. We continue to be in active discussions with both the Trustees and the Pensions Regulator.

Group contributions in respect of the defined benefit pension schemes in the first half were £23.0m (2021: £37.1m), under the current schedule of contributions of the five schemes. Contributions in 2022 are expected to be £55.1m under the current schedule of contributions for the remaining five schemes. In 2021, the Trustees of the West Ferry scheme purchased a bulk annuity and the scheme now has all pension liabilities covered by annuity policies.

Deferred consideration

Deferred consideration is in respect of the acquisition of Express & Star. The third payment of £17.1m was made on 28 February 2022. The remaining amount of £7.0m is classified as current liabilities (payable on 28 February 2023).

Cash Balances

Cash decreased by £21.9m from £65.7m at the year end to a cash position of £43.8m at the half year. This decrease is impacted by the deferred consideration payment of £17.1m made in the first half of the year.

The Group has a revolving credit facility of £120.0m which expires in November 2025 and is undrawn.

Cash generated from operations on a statutory basis was £47.5m (2021: £95.7m). The Group presents an adjusted cash flow which reconciles the adjusted operating profit to the net change in cash and cash equivalents, which is set out in note 19. A reconciliation between the statutory and the adjusted cash flow is set out in note 20. The adjusted operating cash flow was £39.2m (2021: £82.6m).

Dividends

The Group paid a final dividend for 2021 of 4.46 pence per share in June 2022. An interim dividend for 2022 of 2.88 pence per share will be paid on 23 September 2022 to shareholders on the register on 12 August 2022 (an increase of 4.7% compared to the interim dividend for 2021 of 2.75 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 2021 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 failure; 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 2021 Annual Report. Further information is set out in the Reach plc 2021 Annual Report.

At the half year, the directors have prepared a going concern assessment, specifically considering the potential impact of the downturn in digital advertiser demand seen in Q2. The Group undertakes regular forecasts and projections of trading identifying areas of focus for management to improve delivery of the Strategy and to mitigate the current impact of macroeconomic headwinds. The Group has a strong balance sheet and liquidity with a net cash positive position of £43.8m. This represents a cash balance of £43.8m with no draw down from the Group's revolving credit facility of £120.0m.

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 UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' 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

26 July 2022

Condensed interim consolidated financial statements

Consolidated income statement

for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks ended 26 December 2021)

	notes	Adjusted 26 weeks ended 26 June 2022 (unaudited) £m	Adjusted Items 26 weeks ended 26 June 2022 (unaudited) £m	Statutory 26 weeks ended 26 June 2022 (unaudited) £m	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 52 weeks ended  26 December 2021 (audited) £m	Adjusted Items 52 weeks ended  26 December 2021 (audited) £m	Statutory 52 weeks ended  26 December 2021 (audited) £m
Revenue	4	297.4	-	297.4	302.3	-	302.3	615.8	-	615.8
Cost of sales		(187.3)	-	(187.3)	(160.0)	-	(160.0)	(329.4)	-	(329.4)
Gross profit		110.1	-	110.1	142.3	-	142.3	286.4	-	286.4
Distribution costs		(19.9)	-	(19.9)	(21.7)	-	(21.7)	(41.1)	-	(41.1)
Administrative expenses		(44.4)	(12.0)	(56.4)	(53.2)	(39.6)	(92.8)	(102.4)	(65.2)	(167.6)
Share of results of associates		1.4	(0.7)	0.7	1.5	(0.7)	0.8	3.2	(1.6)	1.6
Operating profit		47.2	(12.7)	34.5	68.9	(40.3)	28.6	146.1	(66.8)	79.3
Interest income	6	-	-	-	-	-	-	0.1	-	0.1
Pension finance charge	13	-	(1.2)	(1.2)	-	(1.8)	(1.8)	-	(3.4)	(3.4)
Finance costs	7	(1.3)	-	(1.3)	(1.1)	-	(1.1)	(2.7)	-	(2.7)
Profit before tax		45.9	(13.9)	32.0	67.8	(42.1)	25.7	143.5	(70.2)	73.3
Tax (charge)/credit	8	(8.5)	1.7	(6.8)	(12.6)	(47.9)	(60.5)	(26.9)	(43.5)	(70.4)
Profit/(loss) for the period attributable to equity holders of the parent		37.4	(12.2)	25.2	55.2	(90.0)	(34.8)	116.6	(113.7)	2.9
Earnings per share	Notes	2022 Pence		2022 Pence	2021 Pence		2021 Pence	2021 Pence		2021 Pence
Earnings/(loss) per share - basic	10	12.0		8.1	17.8		(11.2)	37.6		0.9
Earnings/(loss) per share - diluted	10	11.7		7.9	17.3		(11.2)	36.5		0.9

The above results were derived from continuing operations. Set out in note 18 is the reconciliation between the statutory and adjusted results.

Consolidated statement of comprehensive income

for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks ended 26 December 2021)

	notes	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Profit/(loss) for the period		25.2	(34.8)	2.9
Items that will not be reclassified to profit and loss:
Actuarial gain on defined benefit pension schemes	13	42.9	125.6	102.9
Tax on actuarial gain on defined benefit pension schemes	8	(10.7)	(31.4)	(26.0)
Deferred tax credit resulting from change in tax rate		-	13.9	13.9
Share of items recognised by associates after tax		-	-	(0.6)
Other comprehensive income for the period		32.2	108.1	90.2
Total comprehensive income for the period		57.4	73.3	93.1

Consolidated cash flow statement

for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks ended 26 December 2021)

	notes	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Cash flows from operating activities
Cash generated from operations	11	47.5	95.7	163.7
Pension deficit funding payments	13	(23.0)	(37.1)	(64.7)
Income tax paid		(4.0)	(9.2)	(14.6)
Net cash inflow from operating activities		20.5	49.4	84.4
Investing activities
Interest received		-	-	0.1
Dividends received from associated undertakings		-	-	2.5
Proceeds on disposal of property, plant and equipment		0.4	-	0.7
Purchases of property, plant and equipment		(3.1)	(2.8)	(6.5)
Expenditure on internally generated development	12	(4.0)	-	(6.0)
Deferred consideration payment	14	(17.1)	(16.0)	(16.0)
Acquisition of associate undertaking		-	-	(0.8)
Net cash used in investing activities		(23.8)	(18.8)	(26.0)
Financing activities
Dividends paid	9	(13.9)	(13.2)	(21.8)
Interest and charges paid on bank borrowings		(0.9)	(0.4)	(1.4)
Purchase of own shares	16	(1.0)	-	(3.3)
Interest paid on leases		(0.5)	(0.7)	(1.3)
Repayments of obligations under leases		(2.3)	(3.6)	(6.9)
Net cash used in financing activities		(18.6)	(17.9)	(34.7)
Net (decrease)/increase in cash and cash equivalents		(21.9)	12.7	23.7
Cash and cash equivalents at the beginning of the period	14	65.7	42.0	42.0
Cash and cash equivalents at the end of the period	14	43.8	54.7	65.7

 

Consolidated statement of changes in equity

for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks ended 26 December 2021)

	Share capital £m	Share premium account £m	Merger reserve £m	Capital redemption reserve £m	Retained earnings / (accumulated loss) and other reserves £m	Total £m
At 26 December 2021 (audited)	32.2	605.4	17.4	4.4	(20.6)	638.8
Profit for the period	-	-	-	-	25.2	25.2
Other comprehensive income for the period	-	-	-	-	32.2	32.2
Total comprehensive income for the period	-	-	-	-	57.4	57.4
Purchase of own shares	-	-	-	-	(1.0)	(1.0)
Credit to equity for equity-settled share-based payments	-	-	-	-	1.1	1.1
Dividends paid (note 9)	-	-	-	-	(13.9)	(13.9)
At 26 June 2022 (unaudited)	32.2	605.4	17.4	4.4	23.0	682.4
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 27 December 2020 (audited)	32.2	605.4	17.4	4.4	(92.7)	566.7
Profit for the period	-	-	-	-	2.9	2.9
Other comprehensive income for the period	-	-	-	-	90.2	90.2
Total comprehensive income for the period	-	-	-	-	93.1	93.1
Purchase of own shares	-	-	-	-	(3.3)	(3.3)
Credit to equity for equity-settled share-based payments	-	-	-	-	1.7	1.7
Deferred tax credit for equity-settled share-based payments	-	-	-	-	2.4	2.4
Dividends paid	-	-	-	-	(21.8)	(21.8)
At 26 December 2021 (audited)	32.2	605.4	17.4	4.4	(20.6)	638.8

Consolidated balance sheet

at 26 June 2022 (at 27 June 2021 and 26 December 2021)

	notes	26 June 2022 (unaudited) £m	Restated 27 June 2021 (unaudited) £m	26 December 2021 (audited) £m
Non-current assets
Goodwill	12	35.9	35.9	35.9
Other intangible assets	12	827.6	818.7	824.3
Property, plant and equipment		153.1	161.2	157.3
Right-of-use assets		11.1	12.9	12.7
Investment in associates		18.1	18.9	17.4
Retirement benefit assets	13	94.4	100.1	107.9
		1,140.2	1,147.7	1,155.5
Current assets
Inventories		7.5	3.9	5.5
Trade and other receivables		91.2	95.6	102.3
Current tax receivable	8	13.1	7.3	13.5
Cash and cash equivalents	14	43.8	54.7	65.7
		155.6	161.5	187.0
Total assets		1,295.8	1,309.2	1,342.5
Non-current liabilities
Trade and other payables		(6.2)	(7.8)	(6.4)
Deferred consideration	14	-	(7.0)	(7.0)
Lease liabilities	14	(27.8)	(32.6)	(30.7)
Retirement benefit obligations	13	(185.8)	(255.1)	(261.8)
Provisions	15	(40.6)	(41.7)	(43.6)
Deferred tax liabilities		(201.2)	(185.2)	(188.1)
		(461.6)	(529.4)	(537.6)
Current liabilities
Trade and other payables		(110.5)	(104.7)	(114.7)
Deferred consideration	14	(7.0)	(17.1)	(17.1)
Lease liabilities	14	(5.9)	(5.6)	(5.5)
Provisions	15	(28.4)	(24.8)	(28.8)
		(151.8)	(152.2)	(166.1)
Total liabilities		(613.4)	(681.6)	(703.7)
Net assets		682.4	627.6	638.8
Equity
Share capital	16	32.2	32.2	32.2
Share premium account	16	605.4	605.4	605.4
Merger reserve	16	17.4	17.4	17.4
Capital redemption reserve	16	4.4	4.4	4.4
Retained earnings/(accumulated loss) and other reserves	16	23.0	(31.8)	(20.6)
Total equity attributable to equity holders of the parent		682.4	627.6	638.8

The consolidated balance sheet at 27 June 2021 has been restated to show the net amount of deferred tax assets and deferred tax liabilities, to show current tax receivable and to show non-current trade and other payables separately on the face of the balance sheet.

Notes to the consolidated financial statements

for the 26 weeks ended 26 June 2022 (26 weeks ended 27 June 2021 and 52 weeks ended 26 December 2021)

1 .   General information

The financial information in respect of the 52 weeks ended 26 December 2021 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 26 June 2022 and the 26 weeks ended 27 June 2021 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 26 July 2022. 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

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 27 December 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

The Group's annual consolidated financial statements are prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual profit or loss. There are no material changes to the nature and type of related party transactions since the 2021 Annual Report.

Consolidated balance sheet restatement of deferred tax at 27 June 2021

The Group has restated the consolidated balance sheet at 27 June 2021 to reclassify deferred tax assets of £41.0m in non-current assets and £226.2m deferred tax liabilities in non-current liabilities to show a net amount of deferred tax of £185.2m in non-current liabilities, in accordance with the offsetting requirements of IAS 12. This restatement has not impacted the net financial performance or position of the Group at 27 June 2021. The consolidated balance sheet at 27 December 2020 has deferred tax assets of £60.5m and deferred tax liabilities of £172.4m which shows a net amount of deferred tax liabilities of £111.9m. This restatement has also not impacted the net financial performance or position of the Group at 27 December 2020.

Consolidated balance sheet restatement of current tax receivable at 27 June 2021

The Group has restated the consolidated balance sheet at 27 June 2021 to show current tax receivable of £7.3m separately on the face of the consolidated balance sheet. This was previously included within current trade and other receivables. The balance sheet at 27 December 2020 had current tax receivable of £2.8m. This restatement has not impacted the net financial performance or position of the Group at 27 June 2021 and 27 December 2020.

Consolidated balance sheet restatement of non-current trade and other payables at 27 June 2021

The Group has restated the consolidated balance sheet at 27 June 2021 to show non-current trade and other payables of £7.8m separately on the face of the consolidated balance sheet. This was previously included within current trade and other payables. There were no non-current trade and other payables at 27 December 2020. This restatement has not impacted the net financial performance or position of the Group at 27 June 2021 and 27 December 2020.

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 2021 Annual Report. Further information is set out in the Reach plc 2021 Annual Report.

At the half year, the directors have prepared a going concern assessment, specifically considering the potential impact of the downturn in digital advertiser demand seen in Q2. The Group undertakes regular forecasts and projections of trading identifying areas of focus for management to improve delivery of the Strategy and to mitigate the current impact of macroeconomic headwinds. The Group has a strong balance sheet and liquidity with a net cash positive position of £43.8m. This represents a cash balance of £43.8m with no draw down from the Group's revolving credit facility of £120.0m.

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. The basis of preparation section shows the impact of the Company transitioning to UK-adopted International Accounting Standards.

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. Revenue trends on an actual and like-for-like basis are the same for the 26 weeks ended 26 June 2022 . 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 18 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flow. Note 21 shows the reconciliation between statutory and like-for-like revenues for the 26 weeks ended 27 June 2021.

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 18.

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:

Historical Legal Issues (note 15)

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 future claims and common court costs. The key uncertainties in relation to this matter relate to how many claims will be received, how each claim progresses, the amount of any settlement and the associated legal costs. Our assumptions have been based on historical trends, our experience and the expected evolution of claims and costs.

During the first half of the year, the progression of claims and the settlement amount have been ahead of historical trends and experience. This has resulted in a change to the provision estimate and a further charge of £5.9m in the year. At the period end, a provision of £40.8m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The majority of the provision is expected to be utilised within the next three years.

Our view on the range of outcomes at the reporting date for the provision, applying more and less favourable outcomes to all aspects of the provision is £32m to £53m. However, it is unknown how long it will take to fully resolve this matter and despite making a best estimate of the provision, the timing of utilisation and possible range, the total universe of claims is unknown and there are both ongoing legal matters and the potential for new legal matters which could mean that the final outcome is outside of the range of outcomes. Due to these unquantifiable uncertainties, a contingent liability has been highlighted in note 17.

Taxation (note 8)

There is uncertainty as to the tax deductibility of expenditure relating to historical legal issues in the current year and additional tax liabilities that may fall due in relation to earlier years. At the reporting date, the maximum amount of the additional unprovided tax exposure relating to this uncertain tax item is £7.7m ( 27 June 2021: £7.0m and 26 December 2021: £7.4m ). There is uncertainty as to the final outcome and timing of this item, with a possible range of outcomes for the potential tax exposure being nil to £26.2m.

Retirement benefits (note 13)

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 (note 12)

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.

Restructuring and property provisions (note 15)

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. There is uncertainty in relation to the size and length of property related provisions.

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 (note 12)

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. The brands are central to the delivery of the Customer Value Strategy which is delivering digital revenue growth. A t each reporting date management review the suitability of this assumption.

Identification of cash-generating units (note 12)

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 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Print	223.4	232.4	465.1
Circulation	151.8	160.0	312.9
Advertising	45.3	50.3	103.3
Printing	11.5	9.6	20.4
Other	14.8	12.5	28.5
Digital	72.5	68.8	148.3
Other	1.5	1.1	2.4
Total revenue	297.4	302.3	615.8

The Group's operations are located primarily in the UK.

5.  Operating adjusted items

	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Provision for historical legal issues (note 15)	(5.9)	(13.0)	(29.0)
Restructuring charges in respect of cost reduction measures (note 15)	(5.4)	(1.4)	(2.8)
Pension administrative expenses and past service costs (note 13)	(2.2)	(1.5)	(3.7)
Other items (note 18)	1.5	-	(6.0)
Impairment of property, plant and equipment	-	(2.3)	(2.3)
Impairment of right-of-use assets	-	(10.5)	(10.5)
Provision for property rationalisation	-	(10.9)	(10.9)
Operating adjusted items included in administrative expenses	(12.0)	(39.6)	(65.2)
Operating adjusted items included in share of results of associates	(0.7)	(0.7)	(1.6)
Total operating adjusted items	(12.7)	(40.3)	(66.8)

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 18 is the reconciliation between the statutory and adjusted results which includes descriptions of the items included in adjusted items.

The Group has recorded a £5.9m 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 15).

Restructuring charges of £5.4m (2021: £1.4m) incurred in respect of cost reduction measures are principally severance costs that relate to cost management actions taken in the period.

Other adjusted items comprise a National Insurance Cost credit relating to share awards (£1.9m) and the profit on sale of impaired assets (£0.4m) less adviser costs in relation to the triennial funding valuations (£0.8m).

The Group announced a Home and Hub project in March 2021 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 were closed. The project resulted in charges of £23.7m in the 26 weeks ended 27 June 2021 (impairments of £2.3m relating to property, plant and equipment and £10.5m relating to right-of-use assets and a £10.9m property rationalisation charge relating to onerous costs of vacant properties).

6.  Interest income

	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Interest income on bank deposits	-	-	0.1

7.  Finance costs

	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Interest and charges on bank borrowings	(0.8)	(0.4)	(1.4)
Interest on lease liabilities	(0.5)	(0.7)	(1.3)
Finance costs	(1.3)	(1.1)	(2.7)

8.  Tax (charge)/credit

	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks ended 27 June 2021 (unaudited) £m	52 weeks ended  26 December 2021 (audited) £m
Corporation tax charge for the period	(4.4)	(4.7)	(4.8)
Prior period adjustment	-	-	0.9
Current tax charge	(4.4)	(4.7)	(3.9)
Deferred tax charge for the period	(2.4)	(1.9)	(12.8)
Prior period adjustment	-	-	0.2
Deferred tax charge for rate change	-	(53.9)	(53.9)
Deferred tax charge	(2.4)	(55.8)	(66.5)
Tax charge	(6.8)	(60.5)	(70.4)
Reconciliation of tax charge		£m	£m
Profit before tax	32.0	25.7	73.3
Standard rate of corporation tax of 19% (2021: 19%)	(6.1)	(4.9)	(13.9)
Tax effect of items that are not deductible in determining taxable profit	(0.8)	(1.8)	(4.0)
Change in rate of deferred tax	-	(53.9)	(53.9)
Prior period adjustment	-	-	1.1
Tax effect of share of results of associates	0.1	0.1	0.3
Tax charge	(6.8)	(60.5)	(70.4)

The standard rate of corporation tax for the period is 19% (2021: 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 £13.1m (27 June 2021: £7.3m receivable and 26 December 2021: £13.5m receivable). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £7.7m (27 June 2021: £7.0m and 26 December 2021: £7.4m). There is uncertainty as to the final outcome and timing of this item, with a possible range of outcomes for the potential tax exposure being nil to £26.2m.

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 £10.7m (26 weeks ended 27 June 2021: charge of £31.4m and 52 weeks ended 26 December 2021: charge of £26.0m).

9.  Dividends

	26 weeks ended 26 June 2022 (unaudited) Pence Per share	26 weeks ended 27 June 2021 (unaudited) Pence Per share	52 weeks ended  26 December 2021  (audited) Pence Per share
Amounts recognised as distributions to equity holders in the period
Dividends paid per share - prior year final dividend	4.46	4.26	4.26
Dividends paid per share - interim dividend	-	-	2.75
Total dividend paid per share	4.46	4.26	7.01
Dividend proposed per share but not paid nor included in the accounting records	2.88	2.75	4.46

The Board has approved an interim dividend for 2022 of 2.88 pence per share.

On 5 May 2022, the final dividend proposed for 2021 of 4.46 pence per share was approved by shareholders at the Annual General Meeting and was paid on 10 June 2022. The total dividend payment amounted to £13.9m.

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 26 June 2022 (unaudited) Thousand	26 weeks ended 27 June 2021 (unaudited) Thousand	52 weeks ended  26 December 2021 (audited) Thousand
Weighted average number of ordinary shares for basic earnings per share	311,636	310,128	310,282
Effect of potential dilutive ordinary shares in respect of share awards	6,848	9,247	8,971
Weighted average number of ordinary shares for diluted earnings per share	318,484	319,375	319,253

The weighted average number of potentially dilutive ordinary shares not currently dilutive was 4,414,629 (27 June 2021: 846,947 and 26 December 2021: 1,704,886).

Statutory earnings per share	26 weeks ended 26 June 2022 (unaudited) Pence	26 weeks ended 27 June 2021 (unaudited) Pence	52 weeks ended  26 December 2021 (audited) Pence
Earnings/(loss) per share - basic	8.1	(11.2)	0.9
Earnings/(loss) per share - diluted	7.9	(11.2)	0.9

Adjusted earnings per share	26 weeks ended 26 June 2022 (unaudited) Pence	26 weeks ended 27 June 2021 (unaudited) Pence	52 weeks ended  26 December 2021 (audited) Pence
Earnings per share - basic	12.0	17.8	37.6
Earnings per share - diluted	11.7	17.3	36.5

Set out in note 18 is the reconciliation between the statutory and adjusted results.

11.   Cash flows from operating activities

	26 weeks  ended 26 June 2022 (unaudited) £m	26 weeks  ended 27 June 2021  (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Operating profit	34.5	28.6	79.3
Depreciation of property, plant and equipment	7.7	7.7	15.3
Depreciation of right-of-use assets	1.5	2.2	3.6
Amortisation of other intangible assets	0.7	-	0.4
Share of results of associates	(0.7)	(0.8)	(1.6)
Share-based payments charge	0.9	0.9	1.7
Impairment of property, plant and equipment	-	2.3	2.3
Impairment of right-of-use assets	-	10.5	10.5
Profit on disposal of property, plant and equipment	(0.4)	-	(0.7)
Pension administrative expenses	2.2	1.5	3.7
Operating cash flows before movements in working capital	46.4	52.9	114.5
(Increase)/decrease in inventories	(2.0)	0.7	(0.9)
Decrease in receivables	11.0	12.0	5.6
(Decrease)/increase in payables	(7.9)	30.1	44.5
Cash generated from operations	47.5	95.7	163.7

12.   Goodwill and other intangible assets

		Other intangible assets
	Goodwill	Publishing rights  and titles	Internally generated assets	Total
	£m	£m	£m	£m
Cost
At 26 December 2021 (audited)	189.9	2,100.3	6.0	2,296.2
Additions	-	-	4.0	4.0
At 26 June 2022 (unaudited)	189.9	2,100.3	10.0	2,300.2
Accumulated depreciation and impairment
At 26 December 2021 (audited)	(154.0)	(1,281.6)	(0.4)	(1,436.0)
Charge for the period	-	-	(0.7)	(0.7)
At 26 June 2022 (unaudited)	(154.0)	(1,281.6)	(1.1)	(1,436.7)
Carrying amount
At 26 December 2021 (audited)	35.9	818.7	5.6	860.2
At 26 June 2022 (unaudited)	35.9	818.7	8.9	863.5

The Group has two cash-generating units (Publishing and Digital Classified Recruitment). All intangible assets at the reporting date relate to Publishing.

During the period, the Group has capitalised internally generated assets relating to software and website development costs of £4.0m (2021: nil). These assets are amortised using the straight-line method over their estimated useful lives (3-5 years).

Publishing rights and titles are not amortised. 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. The brands are central to the delivery of the Customer Value Strategy which is delivering digital revenue growth. This, combined with our inbuilt and relentless focus on maximising efficiency, gives confidence that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future.

There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our 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.

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. The review is undertaken by assessing whether the carrying value of assets is supported by their value-in-use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount.

The reduction in the Group's share price and downturn in digital advertiser demand seen in Q2 required that an impairment review was performed at the half-year. The impairment review concluded that no impairment charge was required.

For the impairment review, cash flows have been prepared using the approved forecast for 2022 and projections for a further nine years as this is the period over which the transformation to digital can be assessed. The projections for 2023 to 2031 are internal projections based on continued decline in print revenues and growth in digital revenues and the associated change in the cost base as a result of the changing revenue mix. The Group's medium-term internal projections are that growth in digital revenue will be sufficient to offset the decline in print revenue and that overall revenue will stabilise. The long-term growth rates beyond the 10-year period have been assessed at 0% based on the Board's view of the market position and maturity of the relevant market. We continue to believe that there are significant longer-term benefits of our scale national and local digital audiences and there are opportunities to grow revenue and profit in the longer term.

The discount rate reflects the weighted average cost of capital of the Group. The current post-tax and equivalent pre-tax discount rate used is 10.8% (26 December 2021: 10.8%) and 14.2% (26 December 2021: 14.2%) respectively.

The impairment review is highly sensitive to reasonably possible changes in key assumptions used in the value-in-use calculations and there is uncertainty relating to the current challenging macroeconomic environment, which has been seen in Q2 with the war in Ukraine and more subdued demand from advertisers. The headroom in the impairment review is £401m. EBITDA in the 10 year projections is forecast to grow at a CAGR of 1.1%. A combination of reasonably possible changes in key assumptions such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected or the associated change in the cost base being different than projected, could lead to an impairment if these resulted in the EBITDA in the 10-year projections declining at a CAGR of 5.1%. Alternatively an increase in the discount rate by 5.5 percentage points would lead to the removal of the headroom.

13.  Retirement benefit schemes

Defined contribution pension schemes

The Group operates a defined contribution pension schemes for qualifying employees, where the assets of the schemes 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 £9.0m ( 26 weeks ended 27 June 2021: £8.2m and 52 weeks ended 26 December 2021: £17.1m) 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% to deferred pensioners. The average term from the period end to payment of the remaining uninsured benefits is expected to be around 14 years. Uninsured pension payments in 2021, excluding lump sums and transfer value payments, were £71m and these are projected on the prior reporting date assumptions to rise to an annual peak in 2034 of £104m 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 latest valuation date for all six of the Group's schemes was 31 December 2019. Discussions in relation to the funding valuations of the TM Schemes at 31 December 2019 are ongoing. 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. The Group paid contributions of £21.7m to the TM Schemes in the first half of 2022 and contributions in the second half are expected to be £30.3m under the current schedule of contributions. The current schedule of contributions includes payments of £52.0m pa from 2023 to 2027.

The funding valuations of the E&S Schemes at 31 December 2019 have been agreed. For the EN88 Scheme this showed a deficit of £25.1m and for the ENSM Scheme this showed a deficit of £0.9m. Group contributions in respect of these defined benefit pension schemes in the first half were £1.3m and contributions in the second half are expected to be £1.8m under the current schedule of contributions. The agreed schedule of contributions includes payments of £3.1m in 2023, £2.9m pa in 2024, 2025 and 2026 and £0.9m in 2027. The Group paid £9.6m to the WF Scheme in 2021 which together with the payment of £ 5.0m made in 2020 enabled the Trustees to purchase a bulk annuity and the scheme now has all pension liabilities covered by annuity policies and no further funding is expected.

Group contributions in respect of the defined benefit pension schemes in the period were £23.0m (2021: £37.1m). £32.1m of Group contributions relating to these schemes will be paid in the second half of the year.

At the prior year end, the funding deficits in all schemes were expected to be removed before or around 2027 by a combination of the contributions and asset returns. Contributions (which include funding for pension administrative expenses) are payable monthly. Contributions per the current schedule of contributions are for £55.1m in 2023, £54.9m pa in 2024 to 2026 and £52.9m in 2027.

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 in respect 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 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 14% 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 those of the liabilities and so the values may still move differently. At the prior reporting date non-equity assets amounted to 82% 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 18% 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 seek to be 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 also seek to be 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 2047, based on the prior reporting date assumptions. The remaining uninsured benefit payments, payable from 2048, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid up to 2027. For the MGN Scheme and MIN Scheme, actuarial projections at the prior reporting date show removal of the combined accounting deficit by the end of 2025 due to scheduled contributions and asset returns at the target rate assumed at the last reporting date. 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 26 June 2022.

Based on actuarial advice, the assumptions used in calculating the scheme liabilities are:

	26 June 2022 £m	27 June 2021 £m	26 December 2021 £m
Financial assumptions (nominal % pa)
Discount rate	3.72	1.98	1.83
Retail price inflation rate	3.40	3.19	3.46
Consumer price inflation rate	1.0% pa lower than RPI to 2030 and equal to RPI thereafter	2.59	1.0% pa lower than RPI to 2030 and equal to RPI thereafter
Rate of pension increase in deferment (non-GMP)	3.08	2.69	3.24
Rate of pension increases in payment (weighted average across the scheme's)	3.38	3.34	3.40
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65	21.8	21.8	21.8
Female currently aged 65	24.1	24.2	24.1
Male currently aged 55	21.5	21.6	21.5
Female currently aged 55	24.6	24.2	24.6

The defined benefit pension liabilities are valued using actuarial assumptions about future benefit increases and scheme member demographics, and the resulting projected benefits are discounted to the reporting date at appropriate corporate bond yields. For the 2021 year-end and 2022 half year, the financial assumptions have been derived as a yield curve with different rates per year, with the figures in the tables above representing a weighted average of these rates. This is considered to be a more robust and accurate approach to setting assumptions as it allows for each scheme's individual circumstances rather than considering the schemes in aggregate as has been done in the past, and is estimated to have increased the net deficit by £20m at the prior reporting date. Note that the assumptions provided in the table above for the current and prior reporting date are the average assumptions across all of the schemes.

The discount rate should be chosen to be equal to the yield available on 'high quality' corporate bonds of appropriate term and currency. Previously the same discount rate assumption was adopted for all six schemes, having regard to the duration of the schemes' combined uninsured liabilities. At the prior year end, the discount rate has been set to reflect the full corporate bond yield curve with a different average assumption for each scheme, based on the scheme-specific cash flows and set separately for uninsured and insured liabilities within each scheme, reflecting their respective durations.

The inflation assumptions are based on market expectations over the period of the liabilities. Previously the same inflation assumption was adopted for all six schemes, having regard to the duration of the schemes' combined inflation linkage. For the 2021 year-end and 2022 half year, the inflation assumptions have been set using the full inflation curve. The RPI assumption is set based on a margin deducted from 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. Allowing for the extent of RPI linkage on the schemes' benefits pre and post 2030, the average inflation risk premium has been set at 0.2% per annum to 2030 and 0.4% per annum thereafter. The CPI assumption is set based on a margin deducted from the RPI assumption, due to lack of market data on CPI expectations. Following the UK Statistics Authority's announcement of the intention to align RPI with CPIH from 2030 the assumed gap between RPI and CPI inflation is 1.0% per annum up to 2030 and 0.0% per annum beyond 2030.

The estimated impacts 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 £m	Effect on deficit £m
Discount rate +/- 0.5% pa	-130/+145	-115/+125
Retail price inflation rate +/- 0.5% pa	+29/-29	+20/-19
Consumer price inflation rate +/- 0.5% pa	+33/-30	+31/-28
Life expectancy at age 65 +/- 1 year	+100/-100	+80/-80

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 amounts 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 are as follows:

Consolidated income statement	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks  ended 27 June 2021 (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Pension administrative expenses	(2.2)	(1.5)	(3.7)
Pension finance charge	(1.2)	(1.8)	(3.4)
Defined benefit cost recognised in income statement	(3.4)	(3.3)	(7.1)

Consolidated statement of comprehensive income	26 weeks ended 26 June 2022 (unaudited) £m	26 weeks  ended 27 June 2021 (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Actuarial loss due to liability experience	(34.3)	(0.3)	(22.0)
Actuarial gain due to liability assumption changes	645.7	153.2	30.5
Total liability actuarial gain	611.4	152.9	8.5
Returns on scheme assets (less)/greater than discount rate	(568.8)	(72.4)	48.6
Change in impact of IFRIC 14	0.3	45.1	45.8
Total gain recognised in statement of comprehensive income	42.9	125.6	102.9

Consolidated balance sheet	26 June 2022 (unaudited) £m	27 June 2021 (unaudited) £m	26 December 2021 (audited) £m
Present value of uninsured scheme liabilities	(1,836.7)	(2,299.1)	(2,395.0)
Present value of insured scheme liabilities	(312.2)	(376.4)	(393.4)
Total present value of scheme liabilities	(2,148.9)	(2,675.5)	(2,788.4)
Invested and cash assets at fair value	1,746.8	2,146.6	2,242.9
Value of liability matching insurance contracts	312.2	376.4	393.4
Total fair value of scheme assets	2,059.0	2,523.0	2,636.3
Funded deficit	(89.9)	(152.5)	(152.1)
Impact of IFRIC 14	(1.5)	(2.5)	(1.8)
Net scheme deficit	(91.4)	(155.0)	(153.9)
Non- current assets - retirement benefit assets	94.4	100.1	107.9
Non- current liabilities - retirement benefit obligations	(185.8)	(255.1)	(261.8)
Net scheme deficit	(91.4)	(155.0)	(153.9)
Net scheme deficit included in consolidated balance sheet	(91.4)	(155.0)	(153.9)
Deferred tax included in consolidated balance sheet	22.3	36.3	36.7
Net scheme deficit after deferred tax	(69.1)	(118.7)	(117.2)

Movement in net scheme deficit	26 weeks  ended 26 June 2022  (unaudited) £m	26 weeks  ended 27 June 2021 (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Opening net scheme deficit	(153.9)	(314.4)	(314.4)
Contributions	23.0	37.1	64.7
Consolidated income statement	(3.4)	(3.3)	(7.1)
Consolidated statement of comprehensive income	42.9	125.6	102.9
Closing net scheme deficit	(91.4)	(155.0)	(153.9)

Changes in the present value of scheme liabilities	26 weeks  ended 26 June 2022  (unaudited) £m	26 weeks  ended 27 June 2021 (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Opening present value of scheme liabilities	(2,788.4)	(2,864.1)	(2,864.1)
Interest cost	(25.0)	(20.9)	(41.8)
Actuarial loss - experience	(34.3)	(0.3)	(22.0)
Actuarial (loss)/gain - change to demographic assumptions	(3.4)	2.7	1.6
Actuarial gain - change to financial assumptions	649.1	150.5	28.9
Benefits paid	53.1	56.6	109.0
Closing present value of scheme liabilities	(2,148.9)	(2,675.5)	(2,788.4)

 

Changes in impact of IFRIC 14	26 weeks  ended 26 June 2022  (unaudited) £m	26 weeks  ended 27 June 2021 (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Opening impact of IFRIC 14	(1.8)	(47.6)	(47.6)
Decrease in impact of IFRIC 14	0.3	45.1	45.8
Closing impact of IFRIC 14	(1.5)	(2.5)	(1.8)

Changes in the fair value of scheme assets	26 weeks  ended 26 June 2022  (unaudited) £m	26 weeks  ended 27 June 2021 (unaudited) £m	52 weeks  ended  26 December 2021 (audited) £m
Opening fair value of scheme assets	2,636.3	2,597.3	2,597.3
Interest income at discount rate	23.8	19.1	38.4
Actual return on assets (less)/greater than discount rate	(568.8)	(72.4)	48.6
Contributions by employer	23.0	37.1	64.7
Benefits paid	(53.1)	(56.6)	(109.0)
Administrative expenses	(2.2)	(1.5)	(3.7)
Closing fair value of scheme assets	2,059.0	2,523.0	2,636.3

Fair value of scheme assets	26 June 2022 (unaudited) £m	27 June 2021 (unaudited) £m	26 December 2021 (audited) £m
UK equities	53.5	72.0	58.7
US equities	159.7	178.9	157.1
Other overseas equities	102.1	181.0	181.1
Property	39.5	42.1	40.5
Corporate bonds	291.3	277.8	260.9
Fixed interest gilts	37.7	85.7	34.9
Index linked gilts	13.9	93.0	18.3
Liability driven investment	564.6	888.1	903.4
Cash and other	484.5	328.0	588.0
Invested and cash assets at fair value	1,746.8	2,146.6	2,242.9
Value of insurance contracts	312.2	376.4	393.4
Fair value of scheme assets	2,059.0	2,523.0	2,636.3

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.

14.  Net cash

The net cash for the Group is as follows:

	26 December 2021 (audited) £m	Cash flow £m	IFRS 16 lease liabilities movement £m
			Interest £m	New leases £m	Other movements (a) £m	26 June 2022 (unaudited) £m
Current assets
Cash and cash equivalents	65.7	(21.9)				43.8
Net cash	65.7	(21.9)				43.8
Lease liabilities	(36.2)	2.8	(0.5)	(1.2)	1.4	(33.7)
Net cash less lease liabilities	29.5					10.1

(a)  Other movements include lease modifications in the period.

The Group has a revolving credit facility of £120.0m which expires on 18 November 2025. The Group had no drawings at the reporting date and the facility is subject to two covenants: Interest Cover and Net Debt to EBITDA, both 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. The second instalment of £16.0m was made on 28 February 2021 and the third instalment of £17.1m was made on 28 February 2022. The remaining amount of £7.0m is classified as 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.

15.   Provisions

	Share-based payments £m	Property £m	Restructuring £m	Historical legal issues £m	Other £m	Total £m
At 26 December 2021 (audited)	(4.0)	(12.3)	(10.3)	(41.0)	(4.8)	(72.4)
Charged to income statement	(0.2)	-	(5.6)	(5.9)	(0.6)	(12.3)
Released to income statement	1.9	-	-	-	0.8	2.7
Utilisation of provision	0.6	1.0	4.0	6.1	1.3	13.0
At 26 June 2022 (unaudited)	(1.7)	(11.3)	(11.9)	(40.8)	(3.3)	(69.0)

The provisions have been analysed between current and non-current as follows:

	26 June 2022 (unaudited) £m	27 June 2021 (unaudited) £m	26 December 2021 (audited) £m
Current	(28.4)	(24.8)	(28.8)
Non-current	(40.6)	(41.7)	(43.6)
	(69.0)	(66.5)	(72.4)

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 restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. The balance at the period end comprises severance costs of £2.7m and closure costs relating to print plants of £9.2m. The severance costs provision is expected to be utilised within the next year. The closure costs provision includes £1.9m expected to be utilised within the next year and £7.3m expected to be utilised over the remaining term of a long-term print plant lease related to the print restructure in 2020.

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 future claims and common court costs. The key uncertainties in relation to this matter relate to how many claims will be received, how each claim progresses, the amount of any settlement and the associated legal costs. Our assumptions have been based on historical trends, our experience and the expected evolution of claims and costs. The known and common costs part of the provision is calculated using the most likely outcome method, with the expected value method used for the potential claims provision.

During the first half of the year, the progression of claims and the settlement amount have been ahead of historical trends and experience. This has resulted in a change to the provision estimate and a further charge of £5.9m in the year. At the period end, a provision of £40.8m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The majority of the provision is expected to be utilised within the next three years.

Our view on the range of outcomes at the reporting date for the provision, applying more and less favourable outcomes to all aspects of the provision is £32m to £53m. However, it is unknown how long it will take to fully resolve this matter and despite making a best estimate of the provision, the timing of utilisation and possible range, the total universe of claims is unknown and there are both ongoing legal matters and the potential for new legal matters which could mean that the final outcome is outside of the range of outcomes. Due to these unquantifiable uncertainties, a contingent liability note has been highlighted in note 17.

The other provision balance of £3.3m at the period end relates to libel and other matters and is expected to be utilised over the next two years.

16.   Share capital and reserves

The share capital comprises 322,085,269 allotted, called-up and fully paid ordinary shares of 10p each.

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 7,020,988 shares (27 June 2021: 9,342,239 shares and 26 December 2021: 8,128,176 shares) as Treasury shares. On 4 March 2022, 1,106,273 shares were withdrawn from Treasury and transferred to the Reach Employee Benefit Trust to satisfy the vesting of awards granted in 2019 under the Reach Long Term Incentive Plan. In the first half of 2022, 915 shares were withdrawn from Treasury to satisfy the vesting of the share award to colleagues granted in December 2020 under the Reach All-Employee Share Plan.

Cumulative goodwill written off to retained earnings/(accumulated loss) and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9m (27 June 2021: £25.9m and 26 December 2021: £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/(accumulated loss) and other reserves.

Shares purchased by the Reach Employee Benefit Trust are included in retained earnings/(accumulated loss) and other reserves at £5.0m (27 June 2021: £1.5m and 26 December 2021: £5.2m).

During the year the Trust purchased 521,314 (27 June 2021: nil and 26 December 2021: 883,315) for a cash consideration of £1.0m (27 June 2021: nil and 26 December 2021: £3.3m). The Trust received a payment of £1.0m (27 June 2021: nil and 26 December 2021: £3.3m) from the Company to purchase these shares. During the period, 1,118,050 were released relating to grants made in prior years (27 June 2021: 960,974 and 26 December 2021: 1,241,171).

During the period, awards relating to 667,448 shares were granted to executive directors on a discretionary basis under the Long Term Incentive Plan (27 June 2021: 608,136 and 26 December 2021: 608,136). The exercise price of each award is £1 for each block of awards granted. 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 1,138,083 shares were granted to senior managers on a discretionary basis under the Long Term Incentive Plan under the Senior Management Incentive Plan (27 June 2021: 935,431 and 26 December 2021: 1,010,227). The exercise price of each award is £1 for each block of awards granted. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.

During the period, awards relating to 121,575 shares were granted to executive directors under the Restricted Share Plan (27 June 2021 and 26 December 2021: nil). The awards vest after three years.

17.   Contingent liabilities

It is unknown how long it will take to fully resolve historical legal issues set out in note 15 and despite making a best estimate of the provision, the timing of utilisation and possible range, the total universe of claims is unknown and there are both ongoing legal matters and the potential for new legal matters which could mean that the final outcome is outside our view on the range of outcomes of £32m to £53m.

18.  Reconciliation of statutory to adjusted results

26 weeks ended 26 June 2022 (unaudited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Tax (c) £m	Adjusted results £m
Revenue	297.4	-	-	-	297.4
Operating profit	34.5	12.7	-	-	47.2
Profit before tax	32.0	12.7	1.2	-	45.9
Profit after tax	25.2	11.2	1.0	-	37.4
Basic earnings per share (p)	8.1	3.6	0.3	-	12.0

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

52 weeks ended 26 December 2021 (audited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Tax (c) £m	Adjusted results £m
Revenue	615.8	-	-	-	615.8
Operating profit	79.3	66.8	-	-	146.1
Profit before tax	73.3	66.8	3.4	-	143.5
Profit after tax	2.9	57.0	2.8	53.9	116.6
Basic earnings per share (p)	0.9	18.4	0.9	17.4	37.6

(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 13.

(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 in the prior year.

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 on the basis that they distort the underlying performance of the business where they relate to material items that can recur (including impairment, restructuring, tax rate changes) or relate to historic liabilities (including historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual). Other items may be included in adjusted items if they are not expected to recur in future years, such as the property rationalisation in the prior year and items such as transaction and restructuring costs incurred on acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings.

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 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.

Included in adjusted items in 2022 are restructuring charges of £5.4m, principally severance costs that relate to cost management actions taken in the period. Other items relate to a National Insurance Cost credit relating to share awards (£1.9m) and the profit on sale of impaired assets (£0.4m) less adviser costs in relation to the triennial funding valuations (£0.8m) .

Included in adjusted items in 2021 are costs relating to 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 were closed. The project resulted in charges of £23.7m (impairments of £2.3m relating to property, plant and equipment and £10.5m relating to right-of-use assets and a £10.9m property rationalisation charge relating to onerous costs of vacant properties). Restructuring charges include £1.4m of costs relating to the integration of the Irish Daily Star which was acquired in 2020.

19.  Adjusted cash flow

	26 June 2022 (unaudited) £m	27 June 2021 (unaudited) £m	26 December 2021 (audited) £m
Adjusted operating profit	47.2	68.9	146.1
Depreciation and amortisation	9.9	9.9	19.3
Adjusted EBITDA	57.1	78.8	165.4
Net interest and charges paid on bank borrowings	(0.9)	(0.4)	(1.3)
Income tax paid	(4.0)	(9.2)	(14.6)
Restructuring payments	(4.0)	(10.3)	(15.1)
Net capital expenditure	(6.7)	(2.8)	(11.8)
Interest paid on leases	(0.5)	(0.7)	(1.3)
Repayment of obligation under leases	(2.3)	(3.6)	(6.9)
Working capital and other	0.5	30.8	26.9
Adjusted operating cash flow	39.2	82.6	141.3
Historical legal issues payments	(6.1)	(3.6)	(11.0)
Dividends paid	(13.9)	(13.2)	(21.8)
Purchase of own shares	(1.0)	-	(3.3)
Pension funding payments	(23.0)	(37.1)	(64.7)
Adjusted net cash flow	(4.8)	28.7	40.5
Acquisition-related cash flows	(17.1)	(16.0)	(16.8)
Net (decrease)/increase in cash and cash equivalents	(21.9)	12.7	23.7

20.  Reconciliation of statutory to adjusted cash flow

26 weeks ended 26 June 2022	2022			2022
	Statutory	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	47.5	(14.4)	6.1	39.2	Adjusted operating cash flow
Pension deficit funding payments	(23.0)	-	-	(23.0)	Pension funding payments
		-	(6.1)	(6.1)	Historical legal issues payments
Income tax paid	(4.0)	4.0	-	-
Net cash inflow from operating activities	20.5
Investing activities
Proceeds on disposal of property, plant and equipment	0.4	(0.4)	-	-	Net capital expenditure
Purchases of property, plant and equipment	(3.1)	3.1	-	-	Net capital expenditure
Expenditure on internally generated development	(4.0)	4.0	-	-	Net capital expenditure
Deferred consideration payment	(17.1)	-	-	(17.1)	Acquisition related cash flow
Net cash used in investing activities	(23.8)
Financing activities
Dividends paid	(13.9)	-	-	(13.9)	Dividends paid
Interest and charges paid on bank borrowings	(0.9)	0.9	-	-
Purchase of own shares	(1.0)	-	-	(1.0)	Purchase of own shares
Interest paid on leases	(0.5)	0.5	-	-
Repayments of obligations under leases	(2.3)	2.3	-	-
Net cash used in financing activities	(18.6)
Net decrease in cash and cash equivalents	(21.9)	-	-	(21.9)

(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 are shown separately in the adjusted cash flow.

26 weeks ended 27 June 2021	2021			2021
	Statutory	(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
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)
Dividends paid	(13.2)	-	-	(13.2)	Dividends paid
Interest and charges 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 received from financing activities	(17.9)
Net increase in cash and cash equivalents	12.7	-	-	12.7

(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 are shown separately in the adjusted cash flow.

52 weeks ended 26 December 2021	2021			2021
	Statutory	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	163.7	(33.4)	11.0	141.3	Adjusted operating cash flow
Pension deficit funding payments	(64.7)	-	-	(64.7)	Pension funding payments
	-	-	(11.0)	(11.0)	Historical legal issues payments
Income tax paid	(14.6)	14.6	-	-
Net cash inflow from operating activities	84.4
Interest received	0.1	(0.1)	-	-
Dividends received from associated undertakings	2.5	(2.5)	-	-
Proceeds on disposal of property, plant and equipment	0.7	(0.7)	-	-	Net capital expenditure
Purchases of property, plant and equipment	(6.5)	6.5	-	-	Net capital expenditure
Expenditure on internally generated development	(6.0)	6.0	-	-	Net capital expenditure
Deferred consideration payment	(16.0)	-	-	(16.0)	Acquisition related cash flow
Acquisition of associate undertaking	(0.8)	-	-	(0.8)	Acquisition related cash flow
Net cash used in investing activities	(26.0)
Financing activities
Dividends paid	(21.8)	-	-	(21.8)	Dividends paid
Interest and charges paid on bank borrowings	(1.4)	1.4	-	-
Purchase of own shares	(3.3)	-	-	(3.3)	Purchase of own shares
Interest paid on leases	(1.3)	1.3	-	-
Repayments of obligations under leases	(6.9)	6.9	-	-
Net cash used in financing activities	(34.7)
Net increase in cash and cash equivalents	23.7	-	-	23.7

(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 are shown separately in the adjusted cash flow.

21.  Reconciliation of statutory to like-for-like revenue

Revenue trends on an actual and like-for-like basis are the same in 2022.

For 2021 versus 2020 revenue, the like-for-like trends excluded the Independent Star acquisition and the impact of portfolio changes and impacted print revenue only.

	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
Print	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.

Independent review report to Reach plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Reach plc's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results of Reach plc for the 26 week period ended 26 June 2022 (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 UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim financial statements comprise:

· the consolidated balance sheet as at 26 June 2022;

· the consolidated income statement and the 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 Interim Results of Reach plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council 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 Interim Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with this ISRE. However, future events or conditions may cause the group to cease to continue as a going concern.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Interim Results, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Results based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. 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.

PricewaterhouseCoopers LLP

Chartered Accountants

London

26 July 2022

LEI: 213800GNI5XF3XOATR61
Classification: 1.2  Half yearly financial reports and audit reports/limited reviews

 

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