Half-Yearly Financial Report

RNS Number : 1222W

Reach PLC

30 July 2018

 

Reach plc

 

                                                                     30 July 2018

Half-Yearly Financial Report

For the 26 weeks ended 1 July 2018

Results	Adjusted results (1)		Statutory results
	2018	2017	2018	2017
	£m	£m	£m	£m
Revenue	353.8	320.0	353.8	320.0
Operating profit/(loss)	66.5	62.6	(107.3)	47.3
Profit/(loss) before tax	64.7	61.3	(113.5)	38.2
Earnings/(loss) per share	18.2p	17.9p	(39.4)p	10.6p
Dividends per share	-	-	2.37p	2.25p

Key Highlights

·       Positive profit performance which benefited from the acquisition of Express & Star

Group revenue increased by 10.6% to £353.8 million reflecting the acquisition of Express & Star on 28 February 2018. On a like for like ⁽²⁾ basis revenue fell by 7.2%. Although like for like Publishing print revenue fell by 9.3% we delivered growth in like for like Publishing digital revenue of 6.0% with digital display and transactional revenue growing by 11.5% partially offset by a fall in digital classified revenue of 19.8%. Adjusted operating profit increased by 6.2% to £66.5 million.

·      Statutory performance impacted by non-cash impairment charge

Statutory operating loss of £107.3 million reflects the impact of a non-cash impairment charge of £150.0 million as a result of more challenging than expected outlook for our regional businesses.

·      Structural cost savings of £9 million and synergy cost savings remain on track

We delivered structural cost savings of £9 million in the period and expect to deliver £18 million for the full year, £3 million ahead of the target of £15 million. Following regulatory clearance we have commenced delivery of the synergy savings from the acquisition of Express & Star and anticipate £2 million of savings in 2018 with further savings being achieved in 2019 and are on track to deliver annualised savings of £20 million by 2020. 

·      Pension deficit fell by £80.6 million to £297.0 million

The IAS 19 pension deficit fell by £80.6 million to £297.0 million (£242.3 million net of deferred tax). This is net of an accounting surplus of £5.9 million for the Express & Star pension schemes at the period end.

·      Low leverage with net debt ⁽³⁾ of £81.0 million

After payments of £90.1 ⁽⁴⁾ million in the period in relation to the acquisition of Express & Star, net debt at the period end was £81.0 million, an increase of £72.0 million.

·      Historical legal issues

The provision for dealing with historical legal issues was increased by £7.5 million during the period as costs associated with the settlement of civil claims, in particular the claimants legal costs, have been higher than expected . After utilising £6.6 million, £11.6 million of the provision remains outstanding at the period end.

·      Interim dividend of 2.37 pence per share

An interim dividend of 2.37 pence per share for 2018 represents an increase of 5.3% from the 2017 interim dividend of 2.25 pence per share.

·      Strategy and outlook

We have a clear strategy and this will ensure we crystallise the benefits of scale whilst driving growth in digital audience and revenue. The Board has confidence in our strategy and anticipates trading for the year to be in line with market expectations ⁽⁵⁾.

Commenting on the interim results for 2018, Simon Fox, Chief Executive, Reach plc, said:

"We have delivered a positive financial performance in what remains a difficult trading environment for the industry, in particular the regional businesses. The benefit of improved performance from national print advertising coupled with further cost mitigation will support profits over the year despite a further increase in newsprint prices for the second half. We have started the process of integrating Express & Star in order to accelerate the benefits that our combined scale will deliver and have a clear strategy which fully reflects the changing shape of the Group."

Enquiries

Reach
Simon Fox, Chief Executive Vijay Vaghela, Group Finance Director		020 7293 3553
Brunswick
Nick Cosgrove, Partner		020 7404 5959
Will Medvei, Director

Notes

(1)      Set out in note 17 is the reconciliation between the statutory and adjusted results.

(2)      Set out in note 18 is the reconciliation between the statutory and like for like revenue. The like for like revenue trend for 2018 estimates the impact of owning Express & Star from the beginning of 2017 and they exclude from the 2017 comparatives the portfolio changes made in 2017.

(3)      Bank borrowings (£105.0 million) less cash and cash equivalents (£24.0 million).

(4)      The £90.1 million paid in the period in relation to the acquisition of Express & Star comprises an initial cash consideration of £42.7 million, transaction costs of £6.3 million and the initial pension contribution of £41.2 million less a net working capital adjustment of £0.1 million.

(5)      The market consensus range for adjusted PBT for the 52 weeks ended 30 December 2018 is £131.7 million to £133.9 million. This range only includes estimates from analysts that have updated forecasts since our annual results announcement on 5 March 2018.

Investor presentation

A presentation for analysts will be held at 9.30am on Monday 30 July 2018. The presentation will be live on our website: www.reachplc.com at 9.30am and a playback will be available from 2.00pm.

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 results and like for like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 17 and note 18 respectively sets out the reconciliation between the statutory and adjusted results and the reconciliation between the statutory and like for like revenue.

Forward looking statements

Statements contained in this Half-Yearly Financial Report are based on the knowledge and information available to the Company's directors at the date it was prepared and therefore the facts stated and views expressed may change after that date. By their nature, the statements concerning the risks and uncertainties facing the Company in this Half-Yearly Financial Report involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. To the extent that this Half-Yearly Financial Report contains any statement dealing with any time after the date of its preparation such statement is merely predictive and speculative as it relates to events and circumstances which are yet to occur. The Company undertakes no obligation to update these forward looking statements.

Management Report

Acquisition of the Publishing Assets of Northern & Shell

On 28 February 2018, the Group completed the acquisition of 100% of the equity in Northern & Shell Network Limited and its subsidiaries ("Express & Star") for £121.7 million. The share purchase payment comprises an initial cash consideration of £42.7 million and an equity consideration of £20.0 million (issue of 25,826,746 shares at 77.44 pence per share) both on completion and deferred consideration of £59.0 million (payable as £18.9 million, £16.0 million, £17.1 million and £7.0 million on the second, third, fourth and fifth anniversaries respectively of the acquisition). Post completion, a merger review was instigated by the Competition and Markets Authority (CMA) and the transaction was also reviewed by the Secretary of State for Digital, Culture, Media and Sport for public interest considerations. On 20 June 2018 the acquisition was cleared by the Secretary of State and the CMA.

The acquisition of the 50% equity interest in Independent Star Limited for £4.5 million and 100% of the equity in International Distribution 2018 Limited for £0.5 million is subject to clearance by the competition authorities in the Republic of Ireland. This review is ongoing and we anticipate this to be cleared during the second half of 2018.

Transaction costs (including costs relating to the competition and public interest reviews) amounted to £8.5 million (£2.2 million expensed in the second half of 2017 and £6.3 million expensed in the first half of 2018). Costs have been higher than the £7.0 million estimated at the time of the acquisition due to higher than expected costs in relation to the regulatory reviews by the CMA and the Secretary of State for the Department of Culture, Media and Sport.

In connection with the acquisition, the Group agreed to make an initial pension contribution of £41.2 million to the three defined benefit pension schemes of Express & Star and entered into a schedule of contributions amounting to £29.2 million over the period 2018 to 2027 (£1.9 million per annum from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027). The initial pension contribution was made on 2 March 2018. In the period, the Group finalised with the Trustees the most recent triennial valuations of the three schemes confirming the schedule of contributions.

Also in connection with the acquisition, the Group agreed to revise the schedule of contributions for the other three defined benefit pension schemes of the Group amounting to an increase of £67.0 million over the period 2018 to 2027 (£3.2 million per annum from 2018 to 2020 and £8.2 million per annum from 2021 to 2027). The revised schedule of contributions were finalised with the Trustees on 1 March 2018.

In addition, the Group agreed to increase from 50% to 75% the additional contributions that would be paid to the defined benefit pension schemes if dividends paid in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold increases in line with the increase in dividends capped at 10% per annum.

A new £75 million Acquisition Term Loan was procured and £70 million was drawn to partially fund the initial cash consideration to the seller and the initial pension contribution to the defined benefit pension schemes. The remaining £5m will only be drawn on the completion of the acquisition of the assets in the Republic of Ireland. The balance of funds was satisfied by drawing on the Revolving Credit Facility and cash balances.

Operational Performance

The Group delivered a positive performance in the period even though the trading environment remained challenging.

Group revenue increased by 10.6% or £33.8 million to £353.8 million reflecting the benefit of the acquisition of Express & Star which was completed on 28 February 2018. Since completion, Express & Star contributed revenue of £64.8 million. The fall in revenue of £31.0 million, excluding Express & Star, includes the £4.5 million impact of handing back two Metros to DMGT in December 2017 and other portfolio changes in 2017.

On a like for like basis, Group revenue fell by 7.2%, with Publishing revenue falling by 7.4%. Publishing print revenue fell by 9.3% and we continued to achieve growth in digital revenue which grew by 6.0%, with digital display and transactional revenue growing by 11.5% partially offset by digital classified revenue falling by 19.8%. Total Publishing digital revenue in the period was £48.4 million including revenue from Express & Star of £6.6 million. 

Tight management of the cost base and the completion of the acquisition of Express & Star enabled adjusted operating profit to increase by 6.2% to £66.5 million. We delivered structural cost savings of £9 million in the period and expect to deliver £18 million for the full year, £3 million ahead of the target of £15 million. Following regulatory clearance we have commenced delivery of the synergy savings from the acquisition of Express & Star and anticipate £2 million of savings in 2018 with further savings being achieved in 2019 and are on track to deliver annualised savings of £20 million by 2020. Adjusted financing costs were £1.8 million (2017: £1.3 million) and adjusted profit before tax increased by 5.5% to £64.7 million. Adjusted earnings per share increased by 1.7% to 18.2 pence per share.

Statutory operating loss for the period amounts to £107.3 million compared to statutory operating profit of £47.3 million in the prior period due to the impact of an impairment charge of £150.0 million reflecting a more challenging outlook for our regional businesses. The total impact of the items excluded from adjusted operating profit (note 5) was a charge of £173.8 million (2017: £15.3 million). Statutory financing costs were £6.2 million (2017: £9.1 million) and statutory loss before tax of £113.5 million compared to a statutory profit before tax of £38.2 million. Statutory loss per share for the period of 39.4 pence compares to a statutory profit per share of 10.6 pence in the prior period.

Low Leverage with continued Financial Flexibility

The Group continues to have a strong balance sheet with net debt of £81.0 million, an increase of £72.0 million during the period after expenditure in the period of £90.1 million (initial cash consideration £42.7 million, transaction costs £6.3 million and initial pension contribution £41.2 million less a net working capital adjustment of £0.1 million) in relation to the acquisition of Express & Star.

Net debt at the period end comprised £105.0 million of bank borrowings less cash balances of £24.0 million. Bank borrowings were £35.0 million drawn on the Revolving Credit Facility and £70.0 million drawn on the Acquisition Term Loan. The Revolving Credit Facility is committed until December 2021 and amortises over the term. The facility at the period end was £91.7 million and amortises by £8.3 million every six months from December 2018 to December 2020 down to £50.0 million for the last year of the term. On 27 July 2018, the Group prepaid the £10.0 million repayment due under the Acquisition Term Loan in December 2018. Assuming the remaining £5.0 million is drawn on the Acquisition Term Loan and having already paid £10.0 million, the remainder of the facility is now repayable in three instalments of £21.0 million, £21.0 million and £23.0 million in December 2019, 2020 and 2021 respectively.

Leverage is below one times full year adjusted EBITDA (adjusted operating profit plus depreciation) and the strong cash flows generated by the Group provide resilience and financial flexibility to invest in the business, meet pension funding obligations and pay dividends.

Historical Legal Issues

The costs associated with the settlement of civil claims in relation to phone hacking have been higher than expected, in particular the legal fees of the claimant's lawyers, which contributed to the provision for settling these historical claims being increased by £7.5 million during the period bringing the total amount provided to £70.5 million. At the period end, £11.6 million of the provision remains outstanding and this represents the Board's best estimate of the amount required to settle the expected claims. This estimate is based on historical trends and experience of claims and costs, and in some cases, proposed offers to settle claims.

There remains uncertainty as to how these matters will progress. Whilst the Board notes that the increase is predominantly due to increased legal fees for the claimants lawyers as the number of new claims has slowed, the Group has recorded an increase in the provision in each of the last three years which highlights the challenges in making a best estimate. Certain cases are subject to court proceedings and the outcome of these cases is likely to have an impact on how much is required to settle the remaining claims. Individual court rulings can affect multiple cases and therefore the Group's current ability to settle and so mitigate further legal costs. Although there remains uncertainty as to how these matters will progress, the Board remains confident that the exposures arising from these historical events are manageable and do not undermine the delivery of the Group's strategy.

Pension Schemes

The IAS 19 pension deficit fell by £80.6 million to £297.0 million (£242.3 million net of deferred tax). This is net of an accounting surplus of £5.9 million for the Express & Star pension schemes at the period end. The deficit in the Express & Star schemes at the date of acquisition was £38.3 million and this has moved to a surplus of £5.9 million. Excluding the Express & Star pension schemes, the IAS 19 pension deficit fell by £74.7 million to £302.9 million during the period. The movement in the deficits reflects Group contributions of £65.6 million (£23.5 million to existing schemes and £42.1 million, including an initial pension contribution of £41.2 million, paid to the Express & Star schemes), strong asset returns and the benefit of a favourable movement in assumptions (an increase in the discount rate and a reduction in future inflation). Contributions in the second half of the year are agreed at £24.5 million and have been agreed for 2019 and 2020 at £48.9 million per annum.

The fall in the accounting pension deficit does not have an immediate impact on the agreed funding commitments. The next valuation for funding of all six defined benefit pension schemes will be as at 31 December 2019 and this is required to be completed by 31 March 2021, although we anticipate this to be completed by 31 December 2020.

Dividends and Share Buyback

An interim dividend of 2.37 pence per share for 2018, an increase of 5.3% will be paid on 28 September 2018 to shareholders on the register on 7 September 2018.

The Board continues to adopt a progressive dividend policy which is aligned to the free cash generation of the Group. The free cash generation for the purposes of assessing the dividend 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 as a result of any substantial increase in dividends and/or capital returns to shareholders. When setting the level of dividends the Board will ensure that the Group maintains adequate headroom for investment and any unexpected cash flow requirements for historical events or to fund further restructuring. Based on the Board's expectation of future cash flows, the Board expects dividends to increase by at least 5% per annum. The Board will also continue to consider, if appropriate, the return of capital to shareholders through a share buyback if it has generated surplus cash and sees an opportunity to enhance earnings per share and therefore shareholder value. Prior to initiating a share buyback programme the Board will carefully consider the cash generation of the business, investment requirements and the Group's obligations to the Group's defined benefit pension schemes.

Impairment of Regionals Goodwill and Publishing Rights and Titles

During the period, a non-cash impairment charge of £150.0 million (£140.2 million net of deferred tax) has been made against the carrying value of the goodwill and publishing rights and titles in respect of the regional businesses. This reflects the more challenging than expected trading environment for local advertising and, as a result, greater uncertainty over the medium term outlook as well as the requirements of accounting standards to take into account the Group's latest forecasts and projections. However, we continue to believe there are significant benefits in the scale of our local digital audiences and there are opportunities to grow revenue and profit in the longer term.

Current Trading and Outlook

Revenue in July is expected to fall by 7% on a like for like basis. The Board anticipates trading for the year to be in line with market expectations with a further significant increase in newsprint prices in the second half of the year mitigated by further cost savings and synergies from the acquisition of Express & Star.

Strategic Update

Having completed the acquisition of the Express & Star business, we changed the name of the group to Reach to better reflect our audience scale across both print and digital. We have a clear strategy and have refreshed our areas of strategic focus to recognise the opportunity we have to optimise the quality and profitability of our print brands and to accelerate our digital audience and revenue performance.

Our strategic objective remains to deliver sustainable growth in revenue, profit and cash flow over the medium term.

This will be delivered through three key areas of strategic focus:

·    Optimise: Enhance our print brands and improve their longevity through quality journalism and content delivered as efficiently as possible;

·    Grow: Using technology, data and content from across all of our brands to grow our digital reach; and

·    Commercialise: Improve our revenue performance and seek new opportunities to commercialise our growing digital audience.

We will consider M&A opportunities which accelerate progress on all three pillars our strategy and where the financial and business case meets our requirements.

Growth from digital and new revenue streams will begin to outstrip print declines on an aggregate basis, leading to a stabilisation of Group revenue and then a return to top line growth. This, combined with our inbuilt and relentless focus on efficiencies, makes the Board confident that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future, for the benefit of all stakeholders.

Key highlights of progress on each area of strategic focus during the period are set out below:

Optimise

Although print circulation volumes and print advertising are in structural decline, we will seek to maximise the returns on our print brands so long as they remain viable by delivering quality journalism and content as efficiently as possible.

The quality of our titles is evident in the numerous journalism awards that our titles have won during the period. These included three awards at the National Press Awards 2018, MEN winning Daily Newspaper of the Year at the Regional Press Awards and Cornwall Live winning Gold in Regional Media Brand of the Year at the 2018 British Media Awards, amongst many others.

Whilst maintaining quality journalism we continue to drive efficiencies which have delivered structural cost savings of £9 million in the period and we expect savings for the full year of £18 million, £3 million ahead of the target of £15 million. These savings have been achieved by a series of initiatives across the business, including editorial, commercial, printing, senior management structures and all back office functions.

We have also been driving longer term infrastructure and operational benefits by reducing office space, moving one of our two data centres to the cloud and investing in new and improved finance systems.

In addition to delivery of the structural cost savings and of the annualised £20 million of synergies from the integration of Express & Star by 2020, we will drive further optimisation initiatives through:

•        Annual cover price increases, where appropriate; and

•        Constantly review the profitability of our titles and close titles where there is no path to profitability.

Grow

The growth in display and transactional revenue was impacted in the period by algorithm changes made by Facebook and Google which adversely impacted our audience. Average monthly page views in the period grew by 9.3% year on year to over 1 billion. Mobile page views grew by 16% while desktop pages views fell by 5%.

To deliver continued growth in audience we will:

•        Roll-out new and rebrand our existing regional websites with the "Live" format;

•        Develop and implement an appropriate digital editorial strategy for our national brands;

•        Improve our digital performance and user experience across all platforms and interfaces;

•        Search engine optimisation improvement programme across the network;

•        Build a personalised article experience using the entire Reach content network; and

•        Continue to invest in developing new products such as InYourArea and Football.London.

Commercialise

We also strive to be best in class at commercialising the audiences that we reach. We will continue to maximise print revenues and optimise our digital advertising yields, both nationally and regionally, using the best technology and people. In addition, we will seek other ways to monetise our audience and reach by:

•        Market launch of a new integrated digital sales proposition for our portfolio of digital sites underpinned by a unified advertising stack;

•        Local standalone commercial sales trials in new markets; and

•        Leveraging affiliate partnerships.

Key Performance Indicators

To track delivery of our strategy, the following KPIs are reported on and were reset for this period:

FINANCIAL MEASURE	GROUP KPIs	PERFORMANCE IN THE PERIOD
Publishing digital display and transactional  revenue growth	At least 20% pa	û
Circulation revenue	Single digit declines	ü
Print advertising revenue	At least in line with national market trends	ü
Operating margin	Grow operating margin to support profits	û
Dividend growth	At least 5% pa	ü

Publishing digital display and transactional revenue growth: like for like growth of 11.5% for the period is below the target due to our digital audience being negatively impacted by the changes in algorithms undertaken by Facebook and Google during the period.

Circulation revenue: like for like decline of 5.6% is in line with the target with cover price increases partially mitigating volume declines.

Print advertising revenue: we have seen national advertising trends at least in line with market trends with an increase in volume market share for our national titles during the period.

Operating margin: Adjusted operating profit fell by 0.8 percentage points from 19.6% in the first half of 2017 to 18.8% in the first half of 2018 due to the more challenging print trading environment for our regional businesses, the slowdown in digital revenue growth and significantly lower margins for the acquired Express & Star business.

Dividend growth: interim dividend for 2018 of 2.37 pence per share is an increase of 5.3% on the 2017 interim dividend.

People

We would like to welcome our new colleagues at Express & Star and to thank all our colleagues for their contribution to the half year performance.

At the Annual General Meeting on 3 May 2018, David Grigson stepped down from the Board of Directors and Nick Prettejohn having joined as a Non Executive Director on 6 March 2018, became Chairman.

On 18 June 2018, Vijay Vaghela, Group Finance Director and Company Secretary, informed the Board of his decision to pursue other career opportunities, having worked in the business for almost 24 years. On 23 July 2018, the Group announced that Simon Fuller, currently Chief Financial Officer of McColl's Retail Group plc has been appointed as Chief Financial Officer and a start date will be confirmed in due course. Vijay will step down from the Board when Simon joins the Board and the specific date for this change will be announced as soon as it has been agreed.

Group Review

Income statement	Statutory results		Adjusted results
	2018	2017	2018	2017
	£m	£m	£m	£m
Publishing	330.4	296.4	330.4	296.4
Print	282.0	255.0	282.0	255.0
Digital	48.4	41.4	48.4	41.4
Printing	17.5	16.9	17.5	16.9
Specialist Digital	4.7	4.8	4.7	4.8
Central	1.2	1.9	1.2	1.9
Revenue	353.8	320.0	353.8	320.0
Costs	(461.6)	(273.0)	(288.1)	(257.9)
Associates	0.5	0.3	0.8	0.5
Operating (loss)/profit	(107.3)	47.3	66.5	62.6
Financing	(6.2)	(9.1)	(1.8)	(1.3)
(Loss)/profit before tax	(113.5)	38.2	64.7	61.3
Tax	0.4	(9.1)	(12.4)	(12.0)
(Loss)/profit after tax	(113.1)	29.1	52.3	49.3
(Loss)/earnings per share	(39.4) p	10.6p	18.2p	17.9p

The results have been prepared for the 26 weeks ended 1 July 2018 (2018) and the comparative period is for the 26 weeks ended 2 July 2017 (2017). The results are presented on a statutory and adjusted basis and revenue trends are presented on a statutory and like for like basis. Note 17 sets out the reconciliation between the statutory and adjusted results and note 18 sets out the reconciliation between the statutory and like for like revenue.

Group revenue increased by 10.6% or £33.8 million to £353.8 million. The increase in revenue reflects the benefit of the acquisition of Express & Star on 28 February 2018. On a like for like basis, Group revenue fell by 7.2% or £29.6 million.

Further details on the revenue trends for each division are shown in the Divisional Review.

	Statutory results		Adjusted results
	2018	2017	2018	2017
	£m	£m	£m	£m
Labour	(120.4)	(111.4)	(120.4)	(111.4)
Newsprint	(37.8)	(30.8)	(37.8)	(30.8)
Depreciation	(11.1)	(10.3)	(11.1)	(10.3)
Other	(292.3)	(120.5)	(118.8)	(105.4)
Operating adjusted items	(173.5)	(15.1)	-	-
Other	(118.8)	(105.4)	(118.8)	(105.4)
Costs	(461.6)	(273.0)	(288.1)	(257.9)

Statutory operating costs increased by £188.6 million to £461.6 million due to the impact of an impairment charge of £150.0 million and the acquisition of Express & Star. The total impact of the items excluded from adjusted operating profit (note 5) was a charge of £173.5 million (2017: £15.1 million). Adjusted operating costs increased by £30.2 million to £288.1 million.

Operating adjusted items included in 2018 statutory operating costs related to an impairment of goodwill and other intangibles assets of £150.0 million (2017: nil), restructuring charges in respect of cost reduction measures of £7.9 million (2017: £6.4 million), a £7.5 million increase in the provision for dealing with and resolving civil claims arising from phone hacking (2017: £7.5 million), pension administrative expenses of £1.6 million (2017: £1.2 million), amortisation of intangible assets of £0.2 million (2017: £0.2 million) and transaction costs relating to the acquisition of Express & Star of £6.3 million (2017: nil). In 2017, charges were partially offset by a gain on the sale of a property in Teesside of £0.2 million.

	Statutory results		Adjusted results
	2018	2017	2018	2017
	£m	£m	£m	£m
Operating (loss)/profit pre associates	(107.8)	47.0	65.7	62.1
Associates	0.5	0.3	0.8	0.5
Operating (loss)/profit	(107.3)	47.3	66.5	62.6

Statutory operating loss for the period of £107.3 million compares to a statutory operating profit in the prior period of £47.3 million due to the impact of an impairment charge of £150.0 million while adjusted operating profit increased by £3.9 million or 6.2% to £66.5 million.

Adjusted operating margin fell by 0.8 percentage points from 19.6% in the first half of 2017 to 18.8% in the first half of 2018 due to the more challenging print trading environment for regional businesses, the slowdown in digital revenue growth and significantly lower margins for the acquired Express & Star business.

The Group has a 21.53% investment in PA Group Limited and a 50% investment in Brand Events TM Limited, accounted for as associates.

	Statutory results		Adjusted results
	2018	2017	2018	2017
	£m	£m	£m	£m
Result before operating adjusted items	0.8	0.5	0.8	0.5
Operating adjusted items	(0.3)	(0.2)	-	-
Share of results of associates	0.5	0.3	0.8	0.5

The statutory share of results of associates increased by £0.2 million with both PA Group and Brand Events increasing by £0.1 million. The adjusted share of results of associates increased by £0.3 million with £0.2 million relating to PA Group and £0.1 million to Brand Events.

Financing costs on a statutory and adjusted basis are:

	Statutory results		Adjusted results
	2018	2017	2018	2017
	£m	£m	£m	£m
Investment revenues	-	0.1	-	0.1
Pension finance charge	(4.4)	(5.9)	-	-
Finance costs	(1.8)	(3.3)	(1.8)	(1.4)
Interest on bank overdrafts and borrowings	(1.8)	(1.4)	(1.8)	(1.4)
Fair value loss on derivative financial instruments	-	(3.8)	-	-
Foreign exchange gain on retranslation of borrowings	-	1.9	-	-
Financing costs	(6.2)	(9.1)	(1.8)	(1.3)

Statutory financing costs fell by £2.9 million to £6.2 million reflecting the reduction in the pension finance charge on a lower opening pension deficit and no net cost in relation to derivative financial instruments and the foreign exchange changes on retranslation of foreign currency borrowings following the repayment in June 2017 of the £68.3 million of private placement loan notes and the maturing of the associated cross-currency interest rate swaps. Adjusted financing costs increased by £0.5 million to £1.8 million reflecting the interest on debt procured for the acquisition of Express & Star.

The statutory tax credit of £0.4 million (2017: charge of £9.1 million) comprises a current tax charge of £10.6 million (2017: £8.3 million) and a deferred tax credit of £11.0 million (2017: charge of £0.8 million).

The statutory effective tax rate is lower (2017: higher) than the standard rate of corporation tax for the reasons set out in the reconciliation below:

Reconciliation of tax credit/(charge)	2018 %	2017 %
Standard rate of corporation tax	19.0	(19.3)
Items not deductible in determining taxable profit (non qualifying depreciation/costs/impairment)	(18.7)	(4.7)
Tax effect of items that are not taxable in determining taxable profit (property disposal/utilised losses)	-	0.1
Tax effect of share of results of associates (brought in post tax)	0.1	0.1
Tax credit/(charge) rate	0.4	(23.8)

The adjusted tax charge of £12.4 million (2017: £12.0 million) represents 19.2% (2017: 19.6%) of adjusted profit before tax. The rate is higher than the statutory effective tax rate due to the impact of the impairment charge noted above (2017: less than the statutory effective tax rate as certain items are not deductible in determining taxable profit).

	Statutory results		Adjusted results
	2018	2017	2018	2017
	£m	£m	£m	£m
(Loss)/profit after tax	(113.1)	29.1	52.3	49.3
Weighted average number of shares (000's)	287,174	274,699	287,174	274,699
(Loss)/earnings per share	(39.4)p	10.6p	18.2p	17.9p

Statutory loss after tax amounts to £113.1 million compared to a profit after tax of £29.1 million in the prior period due to the impact of an impairment charge of £150.0 million while adjusted profit after tax increased by £3.0 million or 6.1% to £52.3 million.

The increase in the weighted average number of shares year on year reflects the shares issued as part of the purchase of Express & Star more the offsetting the full year impact of the share buyback started in August 2016 and completed in November 2017.

Statutory loss per share of 39.4 pence compared to earnings per share of 10.6 pence in the prior period due to the impact of the impairment charge while adjusted earnings per share increased by 0.3 pence or 1.7% to 18.2 pence.

Divisional Review

The Group has four operating segments, each of which is a division, that are regularly reviewed for the purposes of allocating resources and assessing performance. The divisional review that follows is presented on an adjusted basis and there is no difference between the operating profit by division and the segment result of each operating segment that is shown in note 3.

The operating segments are: Publishing which includes all of our newspapers and magazines together with associated digital publishing; Printing which provides printing services to the Publishing segment and to third parties; Specialist Digital which includes our acquired digital classified recruitment and digital marketing services businesses; and Central which includes revenue and costs not allocated to the operational divisions and our share of results of associates. Express & Star (note 20) has been included in the Publishing and Printing segments from 1 March 2018.

The revenue and adjusted operating profit by operating segment is presented below:

	2018	2017	Variance	Variance
	£m	£m	£m	%
Publishing	330.4	296.4	34.0	11.5%
Printing	17.5	16.9	0.6	3.6%
Specialist Digital	4.7	4.8	(0.1)	(2.1%)
Central	1.2	1.9	(0.7)	(36.8%)
Revenue	353.8	320.0	33.8	10.6%
Publishing	70.5	66.8	3.7	5.5%
Printing	-	-	-	-
Specialist Digital	1.0	1.3	(0.3)	(23.1%)
Central	(5.0)	(5.5)	0.5	9.1%
Adjusted operating profit	66.5	62.6	3.9	6.2%

The 2018 results are impacted by the acquisition of Express & Star and portfolio changes relating to the two Metros handed back to DMGT in December 2017 and other portfolio changes in 2017. Revenues in the first half of the prior year relating to the portfolio changes were £4.5 million while the impact on adjusted operating profit is minimal.

The results for the six months include revenue of £64.8 million (Publishing £63.6 million and Printing £1.2 million) and adjusted operating profit of £10.8 million (Publishing £10.8 million and Printing nil) from Express & Star since acquisition. The revenue and adjusted operating profit of the Group would have increased by £29.9 million (Publishing £29.4 million and Printing £0.5 million) and £2.2 million (Publishing £2.2 million and Printing nil) respectively if the acquisition had been made at the beginning of the year.

The like for like revenue trend for 2018 estimates the impact of owning Express & Star from the beginning of 2017 and they exclude from the 2017 comparatives the portfolio changes made in 2017. Note 18 sets out the reconciliation between the statutory and like for like revenue. In the divisional analysis revenue trends are presented on an actual and a like for like basis.

Publishing

The revenue and adjusted operating profit for the Publishing division is as follows:

	2018	2017	Variance	Variance
	£m	£m	£m	%
Print	282.0	255.0	27.0	10.6%
Circulation	175.7	145.7	30.0	20.6%
Advertising	88.5	93.1	(4.6)	(4.9%)
Other	17.8	16.2	1.6	9.9%
Digital	48.4	41.4	7.0	16.9%
Display and transactional	41.5	32.8	8.7	26.5%
Classified	6.9	8.6	(1.7)	(19.8%)
Revenue	330.4	296.4	34.0	11.5%
Costs	(259.9)	(229.6)	(30.3)	(13.2%)
Adjusted operating profit	70.5	66.8	3.7	5.5%
Adjusted operating margin	21.3%	22.5%	(1.2%)	(5.3%)

Revenue increased by 11.5% or £34.0 million to £330.4 million with print revenue increasing by 10.6% and digital revenue growing by 16.9%. On a like for like basis revenue fell by 7.4% with print revenue declining by 9.3% and digital revenue growing by 6.0%.

Costs increased by 13.2% or £30.3 million to £259.9 million. This includes the impact of the acquisition of Express & Star partially offset by the impact of handing back two Metros to DMGT in December 2017 and other portfolio changes in 2017 together with the benefit of structural cost savings and ongoing cost mitigation actions.

Operating profit increased by £3.7 million or 5.5% to £70.5 million with operating margin falling by 1.2 percentage points from 22.5% to 21.3%.

Print revenue

Print revenue increased by 10.6%. On a like for like basis print revenue fell by 9.3%.

Circulation revenue increased by 20.6%. On a like for like basis circulation revenues fell by 5.6% with volume declines partially mitigated by cover price increases. The circulation revenue decline has also been impacted by a change to how Spanish sales are made. In July 2017, these changed from a net sales basis to a royalty basis. This reduced circulation revenue in the period by £0.7 million with a greater reduction achieved in costs. The circulation volume trends in the market have been impacted by cover price differentials and cover price discounting.

Circulation volume performance in the first six months of the year excluding the impact of sampling on the Daily Mirror fell by 13.9%, the Daily Express fell by 9.3% and the Daily Star fell by 12.1% compared to a 9.3% fall for the UK national daily tabloid market; the Daily Record fell by 12.9% against an overall Scottish daily tabloid market decline of 10.1%; the Sunday Mirror fell by 14.8%, the Sunday People fell by 16.4%, the Sunday Express fell by 8.3% and the Sunday Star fell by 9.2% in a UK national Sunday tabloid market that fell by 10.4%; and the Sunday Mail declined by 14.7% against an overall Scottish Sunday tabloid market decline of 12.2%. Volume declines for our regional titles were 14.0% for paid for dailies, 15.5% for paid for weeklies and 14.4% for paid for Sundays. The market for paid for magazines was challenging in the period with volumes declines in all three magazines.

Print advertising revenue fell by 4.9% with display and other up by 6.1% and classified down by 17.2%. Like for like print advertising revenue fell by 16.6% with display and other down 15.5% and classified down 18.3%. Print advertising markets for our regional titles and magazines have been very challenging while our national titles have experienced a better performance. Classified advertising categories which impact the regional titles more than the national titles continued to be under significant pressure, in particular recruitment and property, which experienced like for like declines of 55.9% and 31.4% respectively.

Print advertising volume market shares in the first six months of the year on the Daily Mirror increased from 15.8% to 17.9%, while the Daily Express fell from 24.9% to 21.6% and the Daily Star fell from 16.9% to 15.9% in the UK national daily tabloid market; the Daily Record increased from 19.0% to 20.3% in the Scottish daily tabloid market; the Sunday Mirror increased from 14.7% to 16.3%, the Sunday People increased from 10.3% to 11.8%, the Sunday Express increased from 20.8% to 24.8% and the Sunday Star increased from 7.2% to 8.1% in the UK national Sunday tabloid market; and the Sunday Mail increased from 28.4% to 30.7% in the Scottish Sunday tabloid market. Our regional titles continue to experience difficult advertising markets, particularly display advertising in our metropolitan titles and classified across all titles.

Other print revenue increased by 9.9%. Like for like other revenue fell by 5.4% driven by business enterprise and leaflets.

Digital revenue

Digital revenue grew by 16.9% with display and transactional revenue growing by 26.5% and classified revenue declining by 19.8%. Like for like digital revenue grew by 6.0% with growth from display and transactional revenue of 11.5% partly offset by classified revenue, which is predominantly upsold from print, which declined by 19.8%.

The growth in display and transactional revenue was impacted in the period by algorithm changes made by Facebook and Google which adversely impacted our audience. Digital average monthly page views in the period grew by 9.3% year on year to over 1 billion on a like for like basis. Mobile page views grew by 16% while desktop pages views fell by 5%.

Printing

The revenue and adjusted operating result of the Printing division is as follows:

	2018	2017	Variance	Variance
	£m	£m	£m	%
Contract printing	12.1	11.2	0.9	8.0%
Newsprint supply	4.0	4.2	(0.2)	(4.8%)
Other revenue	1.4	1.5	(0.1)	(6.7%)
Revenue	17.5	16.9	0.6	3.6%
External costs	(78.0)	(68.8)	(9.2)	(13.4%)
Publishing division recharge	60.5	51.9	8.6	16.6%
Adjusted operating result	-	-	-	-

Revenue increased by £0.6 million or 3.6% to £17.5 million. This includes £1.2 million from the Express & Star print plant. On a like for like basis revenue fell by 0.6% reflecting the impact of lower third party volumes and newsprint supply mostly offset by new contracts including the Guardian. External costs increased by £9.2 million or 13.4% to £78.0 million and the net cost recharged to the Publishing division was £60.5 million compared to £51.9 million in the prior year due to the inclusion of Express & Star costs.

Specialist Digital

The revenue and adjusted operating profit of the Specialist Digital division is as follows:

	2018	2017	Variance	Variance
	£m	£m	£m	%
Advertising	2.3	2.4	(0.1)	(4.2%)
Other	2.4	2.4	-	-
Revenue	4.7	4.8	(0.1)	(2.1%)
Costs	(3.7)	(3.5)	(0.2)	(5.7%)
Adjusted operating profit	1.0	1.3	(0.3)	(23.1%)

The Specialist Digital division includes Reach Work Limited (formerly Trinity Mirror Digital Recruitment Limited), our digital classified recruitment business and Communicator Corp, our digital marketing services business. A marginal fall in revenue and higher costs contributed to operating profit falling by £0.3 million.

Central

The revenue and adjusted operating loss of the Central division is as follows:

	2018	2017	Variance	Variance
	£m	£m	£m	%
Revenue	1.2	1.9	(0.7)	(36.8%)
Costs	(7.0)	(7.9)	0.9	11.4%
Associates	0.8	0.5	0.3	60.0%
Adjusted operating loss	(5.0)	(5.5)	0.5	9.1%

The Central division includes revenue and costs not allocated to the operational divisions and the share of results of associates. The result for the year was a loss of £5.0 million compared to a loss of £5.5 million in the prior year.

Rental income from surplus office space and revenue from other services to tenants reduced as leases and contracts ended. Costs fell by £0.9 million from £7.9 million to £7.0 million reflecting the ongoing tight management of costs. Share of results from associates increased by £0.3 million from £0.5 million to £0.8 million.

Other Items

Principal risks and uncertainties

There is an ongoing robust process for the identification, evaluation and management of the principal risks and uncertainties faced by the Group. Appropriate management actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process.

The principal risks and uncertainties which are unchanged from the year end are:

·          Strategy - The overall strategy or elements of the strategy are inappropriate and the delivery of the strategy is badly executed. This results in accelerated revenue loss for existing products (print advertising/newspaper sales) and a failure to attract new revenues (digital) quickly enough;

·          Pensions - pension deficits grow at such a rate so as to affect the viability of the Group itself or so that the annual funding costs consume a disproportionate level of cash flow; and

·          Historical legal issues - damage to our reputation arising from historical events, direct financial impact from legal claims and distraction of senior management time from delivering the strategy.

There continues to be macroeconomic uncertainty created by the process of Britain exiting the European Union. The Group's pension deficit continues to be impacted by the low gilt and bond yields and the lower value of sterling has increased newsprint costs. Considerations in relation to the uncertainty and these impacts are included in the principal risks above. Whilst the impact of the uncertainty is hard to assess there is a risk that our revenues could be lower than expectations.

These principal risks and uncertainties, the risk appetite in relation to these and the progress made during 2017 are set out in the Group's 2017 Annual Report.

Assessment of the Group's prospects

The directors have assessed the Group's prospects, both as a going concern and its longer term viability.

Going concern statement

The directors consider it appropriate to adopt the going concern basis of accounting in the preparation of the Group's half-yearly financial report.

In accordance with LR 9.8.6(3) of the Listing Rules, and in determining whether the Group's interim condensed consolidated financial statements can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the principal risks and uncertainties relating to its business activities.

Having considered all the factors impacting the Group's businesses, including downside sensitivities (relating to trading and cash flows), the directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

The directors have reasonable expectations that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's interim condensed consolidated financial statements.

Viability statement

The directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

The directors assessed the prospects of the Group over a three year period which reflects the budget and planning cycle adopted by the Group. A three year period is adopted as it enables the directors to consider the impact of declining print revenues, the investment required to drive growth in digital and to identify the extent to which costs need to be minimised to support profits and cash flows. The assessment takes into account the Group's current position and the principal risks and uncertainties facing the Group including those that would threaten the business model, future performance, solvency or liquidity.

Sensitivity analysis is applied to the projections to model the potential effects should principal risks and uncertainties actually occur, individually or in combination. The Board also assessed the likely effectiveness of any proposed mitigating actions.

It is understood that such future assessments are subject to a level of uncertainty that increases with time and, therefore, future outcomes cannot be guaranteed or predicted with certainty. Also, this assessment was made recognising the principal risks and uncertainties that could have an impact on the future performance of the Group and also the financial risks described in the notes to the Group's interim condensed consolidated financial statements.

Further information concerning the review of going concern and viability are set out in the Group's 2017 Annual Report.

Data protection

On 25 May 2018, the General Data Protection Regulation (GDPR) came into force in the EU and the Data Protection Act 2018 (DPA) came into force in the UK. During the period, the Group completed an extensive readiness project in preparation for the implementation of the GDPR and the DPA. The Group has implemented policies, controls and procedures across the business to manage personal data in accordance with the provisions of the GDPR and the DPA and these are being embedded through a programme of training and ongoing communication. Due to the timing of acquisition and the regulatory review period, Express & Star implemented and operated standalone policies and procedures relating to the implementation of the GDPR and the DPA. These policies and procedures will be standardised as appropriate over time.

The Group has seen minimal impact on revenues since the implementation of the GDPR and the DPA.

Related party transactions

There were no material non trading transactions during the period.

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)   the interim condensed consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole; and

b)   the Management Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

By order of the Board of directors

Simon Fox Chief Executive

Vijay Vaghela Group Finance Director

Consolidated income statement

for the 26 weeks ended 1 July 2018 (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017)

	notes	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Revenue	3,4	353.8	320.0	623.2
Cost of sales		(183.2)	(154.6)	(308.2)
Gross profit		170.6	165.4	315.0
Distribution costs		(33.8)	(32.2)	(63.7)
Administrative expenses:
Operating adjusted items	5	(173.5)	(15.1)	(26.4)
Other administrative expenses		(71.1)	(71.1)	(127.4)
Share of results of associates:
Results before operating adjusted items		0.8	0.5	0.8
Operating adjusted items	5	(0.3)	(0.2)	(0.4)
Operating (loss)/profit	3	(107.3)	47.3	97.9
Investment revenues	6	-	0.1	0.1
Pension finance charge	14	(4.4)	(5.9)	(11.9)
Finance costs	7	(1.8)	(3.3)	(4.2)
(Loss)/profit before tax		(113.5)	38.2	81.9
Tax credit/(charge)	8	0.4	(9.1)	(19.1)
(Loss)/profit for the period attributable to equity holders of the parent		(113.1)	29.1	62.8
Statutory (loss)/earnings per share		Pence	Pence	Pence
(Loss)/earnings per share - basic	10	(39.4)	10.6	23.0
(Loss)/earnings per share - diluted	10	(39.4)	10.5	22.9

Set out in note 10 is the calculation of adjusted earnings per share and set out in note 17 is the reconciliation between the statutory and adjusted results.

Consolidated statement of comprehensive income

for the 26 weeks ended 1 July 2018 (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017)

	notes	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
(Loss)/profit for the period		(113.1)	29.1	62.8
Items that will not be reclassified to profit and loss:
Actuarial gain on defined benefit pension schemes	14	59.3	45.7	62.6
Tax on actuarial gain on defined benefit pension schemes	8	(11.3)	(7.8)	(10.5)
Deferred tax credit including the future change in tax rate	8	-	-	0.4
Share of items recognised by associates		-	(5.4)	(5.4)
Other comprehensive income for the period		48.0	32.5	47.1
Total comprehensive (loss)/income for the period		(65.1)	61.6	109.9

Consolidated cash flow statement

for the 26 weeks ended 1 July 2018 (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017)

	notes	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Cash flows from operating activities
Cash generated from operations	11	60.7	55.4	106.8
Pension deficit funding payments	14	(65.6)	(20.6)	(38.7)
Income tax paid		(6.0)	(8.4)	(13.9)
Net cash (outflow)/inflow from operating activities		(10.9)	26.4	54.2
Investing activities
Interest received		-	0.1	0.1
Proceeds on disposal of property, plant and equipment		0.7	1.2	1.2
Purchases of property, plant and equipment		(7.0)	(4.4)	(8.9)
Acquisition of subsidiary undertaking	20	(42.6)	-	-
Net cash used in investing activities		(48.9)	(3.1)	(7.6)
Financing activities
Dividends paid		(10.5)	(9.2)	(15.3)
Interest paid on borrowings		(1.7)	(1.4)	(2.1)
Repayment of private placement loan notes		-	(68.3)	(68.3)
Draw down on Acquisition Term Loan		70.0	-	-
Draw down on Revolving Credit Facility		10.0	30.0	25.0
Purchase of own shares		-	(4.6)	(7.7)
Net cash received from/(used in) financing activities		67.8	(53.5)	(68.4)
Net increase/(decrease) in cash and cash equivalents		8.0	(30.2)	(21.8)
Cash and cash equivalents at the beginning of the period	13	16.0	37.8	37.8
Cash and cash equivalents at the end of the period	13	24.0	7.6	16.0

Consolidated statement of changes in equity

for the 26 weeks ended 1 July 2018 (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017)

	Share capital £m	Share premium account £m	Merger reserve £m	Capital redemption reserve £m	Retained earnings and other reserves £m	Total £m
At 31 December 2017 (audited)	(28.3)	(606.7)	(37.9)	(4.4)	10.5	(666.8)
Loss for the period	-	-	-	-	113.1	113.1
Other comprehensive income for the period	-	-	-	-	(48.0)	(48.0)
Total comprehensive loss for the period	-	-	-	-	65.1	65.1
Issue of shares	(2.6)	(17.4)	-	-	-	(20.0)
Merger reserve transfer	-	-	37.9	-	(37.9)	-
Credit to equity for equity-settled share-based payments	-	-	-	-	(0.4)	(0.4)
Dividends paid	-	-	-	-	10.5	10.5
At 1 July 2018 (unaudited)	(30.9)	(624.1)	-	(4.4)	47.8	(611.6)
At 1 January 2017 (audited)	(28.3)	(606.7)	(37.9)	(4.4)	97.9	(579.4)
Profit for the period	-	-	-	-	(29.1)	(29.1)
Other comprehensive income for the period	-	-	-	-	(32.5)	(32.5)
Total comprehensive income for the period	-	-	-	-	(61.6)	(61.6)
Credit to equity for equity-settled share-based payments	-	-	-	-	(0.4)	(0.4)
Purchase of own shares	-	-	-	-	4.6	4.6
Dividends paid	-	-	-	-	9.2	9.2
At 2 July 2017 (unaudited)	(28.3)	(606.7)	(37.9)	(4.4)	49.7	(627.6)
At 1 January 2017 (audited)	(28.3)	(606.7)	(37.9)	(4.4)	97.9	(579.4)
Profit for the period	-	-	-	-	(62.8)	(62.8)
Other comprehensive income for the period	-	-	-	-	(47.1)	(47.1)
Total comprehensive income for the period	-	-	-	-	(109.9)	(109.9)
Credit to equity for equity-settled share-based payments	-	-	-	-	(0.5)	(0.5)
Purchase of own shares	-	-	-	-	7.7	7.7
Dividends paid	-	-	-	-	15.3	15.3
At 31 December 2017 (audited)	(28.3)	(606.7)	(37.9)	(4.4)	10.5	(666.8)

Consolidated balance sheet 

at 1 July 2018 (at 2 July 2017 and 31 December 2017)

	notes	1 July 2018 (unaudited) £m	2 July 2017 (unaudited) £m	31 December 2017 (audited) £m
Non-current assets
Goodwill	12	27.2	102.0	102.0
Other intangible assets	12	856.5	799.3	799.2
Property, plant and equipment		287.1	255.3	247.7
Investment in associates		17.3	16.7	16.8
Retirement benefit assets	14	12.3	-	-
Deferred tax assets		60.2	71.7	66.4
		1,260.6	1,245.0	1,232.1
Current assets
Inventories		5.8	4.5	4.9
Trade and other receivables		111.5	91.2	89.9
Cash and cash equivalents	13	24.0	7.6	16.0
		141.3	103.3	110.8
Total assets		1,401.9	1,348.3	1,342.9
Non-current liabilities
Trade and other payables	20	(59.0)	-	-
Borrowings	13	(60.0)	-	-
Retirement benefit obligations	14	(309.3)	(406.8)	(377.6)
Deferred tax liabilities		(172.2)	(165.2)	(165.4)
Provisions	15	(2.9)	(3.4)	(3.7)
		(603.4)	(575.4)	(546.7)
Current liabilities
Trade and other payables		(115.1)	(86.0)	(80.1)
Borrowings	13	(45.0)	(30.0)	(25.0)
Current tax liabilities	8	(7.3)	(7.4)	(7.7)
Provisions	15	(19.5)	(21.9)	(16.6)
		(186.9)	(145.3)	(129.4)
Total liabilities		(790.3)	(720.7)	(676.1)
Net assets		611.6	627.6	666.8
Equity
Share capital	16	(30.9)	(28.3)	(28.3)
Share premium account	16	(624.1)	(606.7)	(606.7)
Merger reserve	16	-	(37.9)	(37.9)
Capital redemption reserve	16	(4.4)	(4.4)	(4.4)
Retained earnings and other reserves	16	47.8	49.7	10.5
Total equity attributable to equity holders of the parent		(611.6)	(627.6)	(666.8)

Notes to the consolidated financial statements 

for the 26 weeks ended 1 July 2018 (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017)

1.         General information

The financial information in respect of the 52 weeks ended 31 December 2017 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 reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis 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 1 July 2018 and the 26 weeks ended 2 July 2017 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 have carried out a review of the condensed set of financial statements and their report is set out on page 33.

The half-yearly financial report was approved by the directors on 30 July 2018. 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 polices

Basis of preparation

The Group's annual consolidated financial statements are prepared in accordance with IFRS as adopted by the European Union. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

Going concern

These condensed consolidated financial statements have been prepared on a going concern basis as set out in the Management Report in this 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 adoption of IFRS 9 (Amended) 'Financial Instruments' and IFRS 15 (Issued) 'Revenue from Contracts with Customers' has had no material impact on the Group. The latest assessment of the impact of IFRS 16 (Issued) 'Leases' (effective for periods beginning on or after 1 January 2019) revealed that, when adopted based on the operating leases at the reporting date, fixed assets and lease obligations of around £40 million would be recognised on the consolidated balance sheet with no material impact on operating profit as operating lease costs would be replaced with an equivalent depreciation and interest charge in the consolidated income statement.

The Group has also adopted the following standards during the current financial period which have had no material impact on the Group:

·        IFRS 4 (Amended) 'Applying Insurance Contracts'

·        IFRS 2 (Amended) 'Share-based Payment'

·        IAS 40 (Amended) 'Investment Property'

·        IFRIC 22 (New) 'Foreign Currency Transaction and Advance Consideration'

·        Annual improvements 2014 - 2016 cycle

The following standards and interpretations (*denotes not yet endorsed for use in the EU), which have not been applied and when adopted are not expected to have a material impact on the Group, were in issue and will be effective for periods beginning on or after 1 January 2019 unless stated below:

·        IFRIC 23 (New) 'Uncertainty over Income Tax Treatments'*

·        IFRS 9 (Amended) 'Financial Instruments'

·        IAS 28 (Amended) 'Investments in Associates and Joint Ventures'*

·        IAS 19 (Amended) 'Employee Benefits'*

·        IFRS 17 'Insurance Contracts' - effective for periods beginning on or after 1 January 2021*

·        Annual improvements 2015 - 2017 cycle*

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Provisions (notes 8, 15 and 19)

There is uncertainty as to liabilities arising from the outcome or resolution of the ongoing historical legal issues and in addition there is uncertainty as to the amount of expenditure that may be tax deductible and additional tax liabilities may fall due in relation to earlier years. Provisions are measured at the best estimate of the expenditure required to settle the obligation based on the assessment of the related facts and circumstances at each reporting date.

Retirement benefits (note 14)

Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results 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 of goodwill and other intangible assets (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 goodwill and other intangible assets are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. It also requires assessment of the appropriateness of the cash-generating unit at each reporting date. 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 a long-term equity and debt mix based on the period end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times.

3.         Operating segments

Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board and chief operating decision maker (Executive directors) to allocate resources to the segments and to assess their performance. The accounting policies used in the preparation of each segment's revenue and results are the same as the Group's accounting policies. The Board and chief operating decision maker are not provided with an amount for total assets by segment. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.

The Group has four operating segments that are regularly reviewed by the Board and chief operating decision maker. The operating segments are: Publishing which includes all of our newspapers and magazines together with associated digital publishing; Printing which provides printing services to the Publishing segment and to third parties; Specialist Digital which includes our acquired digital classified recruitment and our digital marketing services businesses; and Central which includes revenue and costs not allocated to the operational divisions and our share of results of associates. Express & Star (note 20) has been included in the Publishing and Printing segments from 1 March 2018.

Segment revenue and results

26 weeks ended 1 July 2018 (unaudited)	Publishing 2018 £m	Printing 2018 £m	Specialist Digital 2018 £m	Central 2018 £m	Total 2018 £m
Revenue
Segment sales	330.4	78.0	4.9	1.2	414.5
Inter-segment sales	-	(60.5)	(0.2)	-	(60.7)
Total revenue	330.4	17.5	4.7	1.2	353.8
Segment result	70.5	-	1.0	(5.0)	66.5
Operating adjusted items					(173.8)
Operating loss					(107.3)
Pension finance charge					(4.4)
Finance costs					(1.8)
Loss before tax					(113.5)
Tax credit					0.4
Loss for the period					(113.1)

26 weeks ended 2 July 2017 (unaudited)	Publishing 2017 £m	Printing 2017 £m	Specialist Digital 2017 £m	Central 2017 £m	Total 2017 £m
Revenue
Segment sales	296.4	68.8	5.0	1.9	372.1
Inter-segment sales	-	(51.9)	(0.2)	-	(52.1)
Total revenue	296.4	16.9	4.8	1.9	320.0
Segment result	66.8	-	1.3	(5.5)	62.6
Operating adjusted items					(15.3)
Operating profit					47.3
Investment revenues					0.1
Pension finance charge					(5.9)
Finance costs					(3.3)
Profit before tax					38.2
Tax charge					(9.1)
Profit for the period					29.1

52 weeks ended 31 December 2017 (audited)	Publishing 2017 £m	Printing 2017 £m	Specialist Digital 2017 £m	Central 2017 £m	Total 2017 £m
Revenue
Segment sales	578.5	131.2	10.0	3.5	723.2
Inter-segment sales	-	(99.6)	(0.4)	-	(100.0)
Total revenue	578.5	31.6	9.6	3.5	623.2
Segment result	133.2	-	2.7	(11.2)	124.7
Operating adjusted items					(26.8)
Operating profit					97.9
Investment revenues					0.1
Pension finance charge					(11.9)
Finance costs					(4.2)
Profit before tax					81.9
Tax charge					(19.1)
Profit for the period					62.8

4.         Revenue

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Publishing Print	282.0	255.0	494.6
Circulation	175.7	145.7	284.7
Advertising	88.5	93.1	177.6
Other	17.8	16.2	32.3
Publishing Digital	48.4	41.4	83.9
Display and transactional	41.5	32.8	68.7
Classified	6.9	8.6	15.2
Printing	17.5	16.9	31.6
Specialist Digital	4.7	4.8	9.6
Central	1.2	1.9	3.5
Total revenue	353.8	320.0	623.2

 

The Group's operations are located primarily in the UK. The Group's revenue by location of customers is set out below:

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
UK and Republic of Ireland	353.0	318.8	621.5
Continental Europe	0.4	1.1	1.6
Rest of World	0.4	0.1	0.1
Total revenue	353.8	320.0	623.2

5.         Operating adjusted items

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Impairment of goodwill and other intangible assets (note 12)	(150.0)	-	-
Restructuring charges in respect of cost reduction measures (note 15)	(7.9)	(6.4)	(12.6)
Provision for historical legal issues (note 15)	(7.5)	(7.5)	(10.5)
Pension administrative expenses (note 14)	(1.6)	(1.2)	(1.0)
Amortisation of intangible assets (note 12)	(0.2)	(0.2)	(0.3)
Transaction costs (a)	(6.3)	-	(2.2)
Profit on disposal of land and buildings (b)	-	0.2	0.2
Operating adjusted items included in administrative expenses	(173.5)	(15.1)	(26.4)
Operating adjusted items included in share of results of associates (c)	(0.3)	(0.2)	(0.4)
Total operating adjusted items	(173.8)	(15.3)	(26.8)

(a)   Transaction costs incurred in the period relating to the acquisition of Express & Star (note 20).

(b)   In 2017, profit on disposal of Teesside property with net proceeds of £1.2 million less carrying value of £1.0 million.

(c)   Group's share of restructuring costs and amortisation incurred by PA Group.

6.         Investment revenues

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Interest income on bank deposits and other interest receipts	-	0.1	0.1

7.         Finance costs

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Interest on bank overdrafts and borrowings	(1.8)	(1.4)	(2.3)
Total interest expense	(1.8)	(1.4)	(2.3)
Fair value loss on derivative financial instruments	-	(3.8)	(3.8)
Foreign exchange gain on retranslation of borrowings	-	1.9	1.9
Finance costs	(1.8)	(3.3)	(4.2)

8.         Tax

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks ended 2 July 2017 (unaudited) £m	52 weeks ended  31 December 2017 (audited) £m
Corporation tax charge for the period	(10.6)	(8.3)	(17.4)
Prior period adjustment	-	-	(0.4)
Current tax charge	(10.6)	(8.3)	(17.8)
Deferred tax credit/(charge) for the period	11.0	(0.8)	(1.2)
Prior period adjustment	-	-	(0.1)
Deferred tax credit/(charge)	11.0	(0.8)	(1.3)
Tax credit/(charge)	0.4	(9.1)	(19.1)
Reconciliation of tax credit/(charge)	%	%	%
Standard rate of corporation tax	19.0	(19.3)	(19.3)
Tax effect of items that are not deductible in determining taxable profit	(18.7)	(4.7)	(3.6)
Tax effect of items that are not taxable in determining taxable profit	-	0.1	-
Prior period adjustment	-	-	(0.5)
Tax effect of share of results of associates	0.1	0.1	0.1
Tax credit/(charge) rate	0.4	(23.8)	(23.3)

The standard rate of corporation tax for the period is 19% (2017: blended rate of 19.25% being a mix of 20% up to 31 March 2017 and 19% from 1 April 2017). 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 liabilities amounted to £7.3 million (26 weeks ended 2 July 2017: £7.4 million and 52 weeks ended 31 December 2017: £7.7 million) at the reporting date and include net provisions of £3.8 million (26 weeks ended 2 July 2017: £2.8 million and 52 weeks ended 31 December 2017: £3.2 million). At the reporting date the maximum tax exposure relating to uncertain tax items is some £7 million.

The tax on actuarial gains on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a charge of £11.3 million comprising a deferred tax charge of £19.0 million and a current tax credit of £7.7 million (26 weeks ended 2 July 2017: charge of £7.8 million comprising a deferred tax charge of £10.1 million and a current tax credit of £2.3 million and 52 weeks ended 31 December 2017: charge of £10.5 million comprising a deferred tax charge of £15.5 million and a current tax credit of £5.0 million). In the 52 weeks end 31 December 2017 the deferred tax credit resulting from the future change in tax rate of £0.4 million comprised of a credit of £0.4 million from a change in the expected reversal of timing differences.

9.         Dividends

	26 weeks ended 1 July 2018 (unaudited) Pence Per share	26 weeks ended 2 July 2017 (unaudited) Pence Per share	52 weeks ended  31 December 2017 (audited) Pence Per share
Dividends paid per share and recognised as distributions to equity holders in the period	3.55	3.35	5.60
Dividend proposed per share but not paid nor included in the accounting records	2.37	2.25	3.55

The Board has approved an interim dividend for 2018 of 2.37 pence per share.

On 3 May 2018 the final dividend proposed for 2017 of 3.55 pence per share was approved by shareholders at the Annual General Meeting and was paid on 8 June 2018. The total dividend payment amounted to £10.5 million.

On 4 May 2017 the final dividend proposed for 2016 of 3.35 pence per share was approved by shareholders at the Annual General Meeting and was paid on 9 June 2017. An interim dividend for 2017 of 2.25 pence per share was paid on 29 September 2017. The total dividend payment in 2017 amounted to £15.3 million.

10.        Earnings per share

Basic earnings per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period and diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.

	26 weeks ended 1 July 2018 (unaudited) Thousand	26 weeks ended 2 July 2017 (unaudited) Thousand	52 weeks ended  31 December 2017 (audited) Thousand
Weighted average number of ordinary shares for basic earnings per share	287,174	274,699	272,730
Effect of potential dilutive ordinary shares in respect of share awards	1,327	1,396	1,481
Weighted average number of ordinary shares for diluted earnings per share	288,501	276,095	274,211

 On 28 February 2018, the Company issued 25,826,746 ordinary shares in connection with the acquisition of Express & Star (note 20). The weighted average number of potentially dilutive ordinary shares not currently dilutive was 4,521,046 (2017: 3,201,611).

Statutory (loss)/earnings per share	Pence	Pence	Pence
(Loss)/earnings per share - basic	(39.4)	10.6	23.0
(Loss)/earnings per share - diluted	(39.4)	10.5	22.9

Adjusted* earnings per share	Pence	Pence	Pence
Earnings per share - basic	18.2	17.9	36.1
Earnings per share - diluted	18.1	17.8	35.9

* Set out in note 17 is the reconciliation between the statutory and adjusted results.

11.        Notes to the consolidated cash flow statement

	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Operating (loss)/profit	(107.3)	47.3	97.9
Depreciation of property, plant and equipment	11.1	10.3	20.4
Impairment of goodwill and other intangible assets	150.0	-	-
Amortisation of intangible assets	0.2	0.2	0.3
Share of results of associates	(0.5)	(0.3)	(0.4)
Charge for share-based payments	0.4	0.4	0.5
Profit on disposal of land and buildings	-	(0.2)	(0.2)
Research and development tax credit	-	-	(1.0)
Write-off of fixed assets	-	-	1.9
Pension administrative expenses	1.6	1.2	1.0
Operating cash flows before movements in working capital	55.5	58.9	120.4
Decrease in inventories	0.6	1.3	0.9
Increase in receivables	(6.2)	(1.3)	-
Increase/(decrease) in payables	10.8	(3.5)	(14.5)
Cash generated from operations	60.7	55.4	106.8

12.        Goodwill and other intangible assets

The Group had four cash-generating units (Nationals and Regionals in Publishing and Digital Classified Recruitment and Digital Marketing Services in Specialist Digital) at the beginning of the period. This increased to five cash-generating units after completion of the acquisition of Express & Star which is included in Publishing.

The movement in the period in the carrying value of goodwill and other intangible assets is:

	Goodwill £m	Publishing rights and titles £m	Customer relationships and domain names £m	Total  intangible assets £m
Opening carrying value	102.0	798.9	0.3	901.2
Acquisition of subsidiary undertaking	17.7	115.0	-	132.7
Amortisation	-	-	(0.2)	(0.2)
Impairment	(92.5)	(57.5)	-	(150.0)
Closing carrying value	27.2	856.4	0.1	883.7

Goodwill of £27.2 million comprises Express & Star £17.7 million,  Digital Classified Recruitment £6.1 million and Digital Marketing Services £3.4 million. Publishing rights and titles comprises Nationals £544.3 million, Regionals £197.1 million and Express & Star £115.0 million. Customer relationships and domain names comprises Digital Marketing Services £0.1 million. The Express & Star balances are provisional (note 20).

The directors consider publishing rights and titles have indefinite economic lives due to the longevity of the brands and the ability to evolve the brands in an ever changing media landscape. It is not practicable to review individual publishing rights and titles due to the interdependencies of revenues and cash inflow within the cash-generating units. The customer relationships and domain names have estimated useful lives of between four and ten years.

The Group tests the carrying value of assets at the cash-generating unit level for impairment at each reporting date or more frequently if there are indications 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 Group prepared cash flow projections for a cash-generating unit using the latest forecast for 2018 and projections for 2019 to 2021. The growth rates for the three-year period are internal projections based on both internal and external market information and reflect past experience of and the risk associated with each asset. Cash flow projections beyond 2021 are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates for the relevant markets.

The growth rates are based on the Board's view of the cash-generating unit's market position and maturity of the relevant market. The growth rates for Publishing are Nationals 0% (2017: 0%), Regionals -2% (2017: -1%) and Express & Star 0%, and for Specialist Digital are  Digital Classified Recruitment 0% (2017: 0%) and Digital Marketing Services 0% (2017: 0%).

During the period, the future growth rate for the Regionals cash-generating unit was reduced to -2% from -1% to reflect a more challenging than expected trading environment, in particular local print advertising and by a lower digital growth caused in part by a change in the algorithms by both Facebook and Google which impacted digital audience growth and therefore revenue. We continue to believe there are significant longer term benefits of our scale local digital audiences and there are opportunities to grow revenue and profit in the longer term. Whilst new diversified revenue streams are being explored for the regional businesses, these cannot be included in the projections for the Regionals cash-generating unit for assessing value in use.

The post-tax discount rate used at the reporting date in respect of all cash-generating units was 10.5% (2017: 10.5%) reflecting a long-term equity and debt mix based on the period end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times. The equivalent pre-tax discount rate is 12.8% (2017: 12.8%).

The Group's 2017 Annual Report highlighted that the impairment review is highly sensitive to reasonably possible changes in key assumptions used in the value in use calculations.

At the reporting date, the impairment review of the carrying value of assets resulted in a £150.0 million (£140.2 million net of deferred tax) impairment in the carrying value of assets for the Regionals cash-generating unit and no material change in the headroom on the carrying value of the other cash-generating units.

Reasonably possible changes in key assumptions used in the value in use calculations would have the following impact:

·        In the short-term, assuming that revenue declines are materially in line with our projections, the key assumption driving the value in use calculated is the ability to deliver cost savings targets to protect profitability. The Group has a strong track record in delivering these savings. Notwithstanding this, if EBITDA in 2021 (being the final year before the perpetuity factor) was £9 million lower in the Nationals cash-generating unit, this would eliminate the headroom and every £10 million reduction in the Regionals cash-generating unit would increase the impairment by £60 million.

·        In the medium to long-term, the key assumption that drives value in use is the ability to generate digital revenue growth as the structural change in the industry continues. If digital revenue in 2021 (being the final year before the perpetuity factor) was £9 million or 25% below forecast in the Nationals cash-generating unit, this would eliminate the headroom and every £10 million or 14% reduction in the Regionals cash-generating unit digital revenue below forecast in 2021 would increase the impairment by £60 million.

·        The structural challenges faced are currently more acute in the regional than the national businesses. The regional businesses are more reliant on classified revenue which continues to decline at significant rates across both print and on digital revenue upsold from print which is impacted by declining print revenues. With the uncertainty in the pace of decline of print advertising and of growth in digital revenue, the long-term decline in the Regionals cash-generating unit has been increased from 1% to 2% per annum. A further 1% increase in the long-term decline to 3% would increase the impairment in the Regionals cash-generating unit by £16 million. In the Nationals cash-generating unit, we have continued to apply a long-term rate of 0% per annum. A change in this long-term rate to a decline of -1.2% would eliminate the headroom of value in use over the carrying value of assets.

·        An increase of 0.5 percentage points in the discount rate would increase the impairment in the Regionals cash-generating unit by £6 million and an increase of 1.1 percentage points in the discount rate would remove the headroom in the Nationals cash-generating unit.

A combination of reasonably possible changes in key assumptions relating to the Nationals and Regionals cash-generating units, such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected, or the scale of cost saving initiatives being delivered in the short-term being lower than forecast, would lead to a further future impairment in the Regionals cash-generating unit and could lead to a future impairment in the Nationals cash-generating unit.

For the other cash-generating units, the change in the discount rate or in the growth rate to remove the headroom in  Digital Classified Recruitment is an increase of 4 percentage points, in Digital Marketing Services is an increase of 30 percentage points and in Express & Star is an increase of 15 percentage points.

The revenue of the Nationals and Regionals cash-generating units is now largely interdependent such that they could be combined into a single cash-generating unit. The increase in the interdependency has been accelerated due to the increased scale of regional and national advertising packages coupled with higher rates of decline in local advertising revenue.

13.        Net debt

The net debt for the Group is as follows:

	31 December 2017 (audited) £m	Cash flow £m	Loans drawn £m	1 July   2018 (unaudited) £m
Non-current liabilities
Acquisition Term Loan	-	-	(60.0)	(60.0)
	-	-	(60.0)	(60.0)
Current liabilities
Acquisition Term Loan	-	-	(10.0)	(10.0)
Revolving Credit Facility	(25.0)	-	(10.0)	(35.0)
	(25.0)	-	(20.0)	(45.0)
Current assets
Cash and cash equivalents	16.0	(72.0)	80.0	24.0
	16.0	(72.0)	80.0	24.0
Net debt	(9.0)	(72.0)	-	(81.0)

Net debt at the period end comprised £105.0 million of bank borrowings less cash balances of £24.0 million. Bank borrowings were £35.0 million drawn on the Revolving Credit Facility and £70.0 million drawn on the Acquisition Term Loan. The Revolving Credit Facility is committed until December 2021 and amortises over the term. The facility at the period end was £91.7 million and amortises by £8.3 million every six months from December 2018 to December 2020 down to £50.0 million for the last year of the term. On 27 July 2018, the Group prepaid the £10.0 million repayment due under the Acquisition Term Loan in December 2018. Assuming the remaining £5.0 million is drawn on the Acquisition Term Loan and having already paid £10.0 million, the remainder of the facility is now repayable in three instalments of £21.0 million, £21.0 million and £23.0 million in December 2019, 2020 and 2021.

14.        Retirement benefit schemes

Defined contribution pension schemes

The Group operates defined contribution pension schemes for qualifying employees: The Reach Pension Plan (the "RPP") for employees other than Express & Star and two Group Personal Pension Plans (the GPP") for Express & Star employees. The assets of the RPP scheme where employees have an individual account at Fidelity are held separately from those of the Group in funds under the control of Trustees. The assets of the GPP where employees held a personal pension policy with Legal and General are held separately from those of the Group in funds under the control of Legal and General.

The current service cost charged to the consolidated income statement for the period of £8.2 million (26 weeks ended 2 July 2017: £6.4 million and 52 weeks ended 31 December 2017: £13.6 million) 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').

On 30 December 2016, the Mirror Group Pension Scheme and the MGN Past Service Pension Scheme were merged into the MGN Pension Scheme (collectively referred to as the Mirror Schemes). On 30 March 2017 the bulk annuity policy held by the Mirror Group Pension Scheme was shattered with individual policies issued to members, which led to an equal reduction to the assets and liabilities of £173.3 million. Both the Mirror Group Pension Scheme and the MGN Past Service Pension Scheme were wound up in 2017.

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 liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners (excluding insured pensioners). The average term from the period end to payment of the remaining uninsured benefits is expected to be around 19 years. Uninsured pension payments in 2018, excluding lump sums and transfer value payments, are estimated to be £73 million and these are projected to rise to an annual peak in 2033 of £109 million and reducing thereafter. The TM Schemes between them have an accounting deficit and the E&S Schemes excluding the impact of IFRIC 14 have an accounting surplus at the reporting date.

Across the TM Schemes, at the previous year end the invested assets are expected to be sufficient to pay the uninsured benefits due up to 2048, based on the reporting date assumptions. The remaining uninsured benefit payments, payable from 2049, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid by 2027.

Funding arrangements

The funding of the Group's schemes is subject to UK pension legislation as well as the guidance and codes of practice issued by the Pensions Regulator. Funding targets are agreed between the Trustees and the Group and are reviewed and revised usually every three years. The funding targets must include a margin for prudence above the expected cost of paying the benefits and so are different to the liability value for IAS 19 purposes. The funding deficits revealed by these triennial valuations are removed over time in accordance with an agreed recovery plan and schedule of contributions for each scheme.

The funding valuations of the schemes have all been agreed in the last twelve months. The valuations at 31 December 2016 showed deficits of £476.0 million for the MGN Scheme, £78.0 million for the Trinity Scheme and £68.2 million for the MIN Scheme. The valuations at 5 April 2017 showed deficits of £69.8 million for the EN88 Scheme and £3.2 million for the ENSM Scheme. The valuation at 31 December 2017 showed a deficit of £6.5 million for the WF Scheme.

The deficits in all schemes are expected to be removed before or in 2027 by a combination of the contributions and asset returns. The Group paid £65.6 million into the defined benefit pension schemes in the period (including an initial pension contribution of £41.2 million paid into the E&S Schemes in connection with the acquisition of Express & Star). Contributions in the second half of the year are agreed at £24.5 million. Contributions have been agreed for 2019 and 2020 at £48.9 million per annum. Thereafter contributions per the current schedule of contributions are for £56.1 million per annum in 2021 to 2023, £55.3 million per annum in 2024 to 2026 and £53.3 million in 2027. Payments to the TM schemes in 2017 were £38.7 million comprising £36.2 million of deficit funding and £2.5 million in connection with the share buyback.

The Group has agreed that in respect of dividend payments in 2018, 2019 and 2020 that additional contributions would be paid at 75% of the excess if dividends paid in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold increases in line with the increase in dividends capped at 10% per annum.

The future deficit funding commitments are linked to the three-yearly actuarial valuations. There is no link to the IAS 19 valuations which use different actuarial assumptions and are updated at each reporting date. The next funding valuation of all six defined benefit pension schemes are due to be as at 31 December 2019 with completion required by 31 March 2021 and expected to be by 31 December 2020.

Although the funding commitments do not generally impact the IAS 19 position, IFRIC 14 guides companies to consider for IAS 19 disclosures whether any surplus can be recognised as a balance sheet asset and whether any future funding commitments in excess of the IAS 19 liability should be provisioned for. Based on the interpretation of the rules for each of the defined benefit pension schemes, the Group considers that it has an unconditional right to any potential surplus on the ultimate wind-up after all benefits to members have been paid of all of the schemes except the WF Scheme. Under IFRIC 14 it is therefore appropriate to recognise any IAS 19 surpluses which may emerge in future and not to recognise any potential additional liabilities in respect of future funding commitments of all of the schemes except for the WF Scheme. For the WF Scheme at the reporting date the assets are surplus to the IAS 19 benefit liabilities, however, to allow for IFRIC 14 the Group recognises a deficit of the value of its future contribution commitment to the scheme in line with the schedule of contributions in force at the reporting date.

Risks

Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results 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.

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 reporting date the insured annuity policies covered 13% of total liabilities;

·          Investing a proportion of assets in other classes such as government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the reporting date non equity assets amounted to 68% 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 reporting date this amounted to 32% of assets excluding the insured annuity policies; and

·          The gradual sale of equities over time to purchase additional annuity policies or liability matching investments: to further reduce risk as the schemes, which are closed to future accrual, mature.

Pension scheme accounting deficits are snapshots at moments in time and are not used by either the Group or Trustees to frame funding policy. The Group and Trustees are aligned in focusing on the long-term sustainability of the funding policy which aims to balance the interests of the Group's shareholders and members of the schemes. The Group and Trustees are also aligned in reducing pensions risk over the long term and at a pace which is affordable to the Group.

Actuarial projections at the prior year end reporting date show removal of the TM Schemes combined accounting deficit by the end of 2024 due to scheduled contributions and asset returns at the current target rate based on the schemes' current expected asset allocations. The E&S Schemes excluding the impact of IFRIC 14 have an accounting surplus at the reporting date.

The Group is not exposed to any unusual, entity specific or scheme specific risks. There were no plan amendments, settlements or curtailments in 2018 or 2017 which 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 1 July 2018.

The assets and liabilities of the schemes as at the reporting date are:

		TM Schemes £m	E&S Schemes £m	Total £m
Present value of uninsured scheme liabilities		( 1,657.9)	( 511.0)	( 2,168.9)
Present value of insured scheme liabilities		( 173.7)	( 146.0)	( 319.7)
Total present value of scheme liabilities		( 1,831.6)	( 657.0)	( 2,488.6)
Invested and cash assets at fair value		1,355.0	551.6	1,906.6
Value of liability matching insurance contracts		173.7	146.0	319.7
Total fair value of scheme assets		1,528.7	697.6	2,226.3
Funded (deficit)/surplus		( 302.9)	40.6	( 262.3)
Impact of IFRIC 14		-	( 34.7)	( 34.7)
Net scheme (deficit)/surplus		( 302.9)	5.9	( 297.0)

Based on actuarial advice, the assumptions used in calculating the scheme liabilities and the actuarial value of those liabilities are:

	1 July 2018 £m	2 July 2017 £m	31 December 2017 £m
Financial assumptions (nominal % pa)
Discount rate	2.60	2.60	2.50
Retail price inflation rate	3.05	3.20	3.15
Consumer price inflation rate	1.85	2.00	1.95
Rate of pension increase in deferment	1.85	2.00	1.95
Rate of pension increases in payment (weighted average across the scheme's)	3.30	3.75	3.70
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65	21.6	21.7	21.7
Female currently aged 65	23.5	23.6	23.6
Male currently aged 55	22.2	22.4	22.4
Female currently aged 55	24.3	24.3	24.4

The estimated impact on the IAS 19 liabilities and on the IAS 19 deficit at the reporting date, due to a reasonably possible change in key assumptions over the next year, are set out in the table below:

	Effect on liabilities £m	Effect on deficit £m
Discount rate +/- 0.5% pa	-202/+221	-183/+202
Retail price inflation rate +/- 0.5% pa	+43/-41	+31/-27
Consumer price inflation rate +/- 0.5% pa	+47/-45	+47/-45
Life expectancy at age 65 +/- 1 year	+135/-132	+115/-113

The RPI sensitivity impacts the rate of increases in deferment for some of the pensions in the EN88 and ENSM schemes 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 make no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.

The amount included in the consolidated income statement, consolidated statement of comprehensive income and consolidated balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes is as follows:

Consolidated income statement	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Pension administrative expenses	(1.6)	(1.2)	(1.0)
Pension finance charge	(4.4)	(5.9)	(11.9)
Defined benefit cost recognised in income statement	(6.0)	(7.1)	(12.9)

Consolidated statement of comprehensive income	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Actuarial gain/(loss) due to liability experience	12.4	-	(6.0)
Actuarial gain/(loss) due to liability assumption changes	76.1	11.0	(12.6)
Total liability actuarial gain/(loss)	88.5	11.0	(18.6)
Returns on scheme assets (less)/greater than discount rate	(23.9)	34.7	81.2
Change in impact of IFRIC 14	(5.3)	-	-
Total gain recognised in statement of comprehensive income	59.3	45.7	62.6

Consolidated balance sheet	1 July 2018 (unaudited) £m	2 July 2017 (unaudited) £m	31 December 2017 (audited) £m
Present value of uninsured scheme liabilities	(2,168.9)	(1,739.1)	(1,747.1)
Present value of insured scheme liabilities	(319.7)	(184.8)	(182.1)
Total present value of scheme liabilities	(2,488.6)	(1,923.9)	(1,929.2)
Invested and cash assets at fair value	1,906.6	1,332.3	1,369.5
Value of liability matching insurance contracts	319.7	184.8	182.1
Total fair value of scheme assets	2,226.3	1,517.1	1,551.6
Funded deficit	( 262.3)	(406.8)	(377.6)
Impact of IFRIC 14	( 34.7)	-	-
Net scheme deficit	( 297.0)	(406.8)	(377.6)
Non-current assets - retirement benefit assets	12.3	-	-
Non-current liabilities - retirement benefit obligations	(309.3)	(406.8)	(377.6)
Net scheme deficit	(297.0)	(406.8)	(377.6)
Net scheme deficit included in consolidated balance sheet	(297.0)	(406.8)	(377.6)
Deferred tax included in consolidated balance sheet	54.7	70.7	66.2
Net scheme deficit after deferred tax	(242.3)	(336.1)	(311.4)

Movement in net scheme deficit	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Opening net scheme deficit	(377.6)	(466.0)	(466.0)
Acquisition of subsidiary undertakings pension schemes	(38.3)	-	-
Contributions	65.6	20.6	38.7
Consolidated income statement	(6.0)	(7.1)	(12.9)
Consolidated statement of comprehensive income	59.3	45.7	62.6
Closing net scheme deficit	(297.0)	(406.8)	(377.6)

Changes in the present value of scheme liabilities	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Opening present value of scheme liabilities	(1,929.2)	(2,127.6)	(2,127.6)
Acquisition of subsidiary undertakings pension schemes	(682.7)	-	-
Interest cost	(29.2)	(26.4)	(51.8)
Actuarial gain/(loss) - experience	12.4	-	(6.0)
Actuarial gain - change to demographic assumptions	16.5	26.8	26.7
Actuarial gain/(loss) - change to financial assumptions	59.6	(15.8)	(39.3)
Benefits paid	64.0	45.8	95.5
Bulk transfer due to buyout	-	173.3	173.3
Closing present value of scheme liabilities	(2,488.6)	(1,923.9)	(1,929.2)

 

Changes in the fair value of scheme assets	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Opening fair value of scheme assets	1,551.6	1,661.6	1,661.6
Acquisition of subsidiary undertakings pension schemes	673.8	-	-
Interest income	24.8	20.5	39.9
Actual return on assets (less)/greater than discount rate	(23.9)	34.7	81.2
Contributions by employer	65.6	20.6	38.7
Benefits paid	(64.0)	(45.8)	(95.5)
Administrative expenses	(1.6)	(1.2)	(1.0)
Bulk transfer due to buyout	-	(173.3)	(173.3)
Closing fair value of scheme assets	2,226.3	1,517.1	1,551.6

Changes in impact of IFRIC 14	26 weeks ended 1 July 2018 (unaudited) £m	26 weeks  ended 2 July 2017 (unaudited) £m	52 weeks  ended  31 December 2017 (audited) £m
Opening impact of IFRIC 14	-	-	-
Acquisition of subsidiary undertakings pension schemes	(29.4)	-	-
Increase in impact of IFRIC 14	(5.3)	-	-
Closing impact of IFRIC 14	(34.7)	-	-

Fair value of scheme assets	1 July 2018 (unaudited) £m	2 July 2017 (unaudited) £m	31 December 2017 (audited) £m
UK equities	115.5	165.0	66.1
US equities	198.4	226.2	218.3
Other overseas equities	300.4	262.8	279.1
Property	36.6	25.6	24.6
Corporate bonds	255.1	227.3	240.5
Fixed interest gilts	97.2	64.8	60.0
Index linked gilts	38.3	28.3	24.8
Liability driven investment	353.5	104.3	148.9
Cash and other	511.6	228.0	307.2
Invested and cash assets at fair value	1,906.6	1,332.3	1,369.5
Value of insurance contracts	319.7	184.8	182.1
Fair value of scheme assets	2,226.3	1,517.1	1,551.6

The majority of the scheme assets have quoted prices in active markets. Scheme assets include neither direct investments in the Company's ordinary shares nor any property assets occupied nor other assets used by the Group.

15.        Provisions

	Share-based payments £m	Property £m	Restructuring £m	Other £m	Total £m
At 31 December 2017 (audited)	(0.2)	(6.2)	(2.4)	(11.5)	(20.3)
Acquisition of subsidiary undertakings	-	(2.4)	-	(0.5)	(2.9)
Charged to income statement	(0.1)	-	(7.9)	(7.9)	(15.9)
Utilisation of provision	0.1	1.7	7.9	7.0	16.7
At 1 July 2018 (unaudited)	(0.2)	(6.9)	(2.4)	(12.9)	(22.4)

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

	1 July 2018 (unaudited) £m	2 July 2017 (unaudited) £m	31 December 2017 (audited) £m
Current	(19.5)	(21.9)	(16.6)
Non-current	(2.9)	(3.4)	(3.7)
	(22.4)	(25.3)	(20.3)

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 onerous property leases and future committed costs related to occupied, let and vacant properties. This 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. This provision is expected to be utilised within the next year.

The other provision relates to legal and other costs relating to historical litigation and is expected to be utilised within the next year. The costs associated with the settlement of civil claims in relation to phone hacking have been higher than expected, in particular the legal fees of the claimant's lawyers, which contributed to the provision for settling these historical claims being increased by £7.5 million during the period bringing the total amount provided to £70.5 million. At the period end, £11.6 million of the provision remains outstanding and this represents the Board's best estimate of the amount required to settle the expected claims. This estimate is based on historical trends and experience of claims and costs, and in some cases, proposed offers to settle claims.

There remains uncertainty as to how these matters will progress. Whilst the Board notes that the increase is predominantly due to increased legal fees for the claimants lawyers as the number of new claims has slowed, the Group has recorded an increase in the provision in each of the last three years which highlights the challenges in making a best estimate. Certain cases are subject to court proceedings and the outcome of these cases is likely to have an impact on how much is required to settle the remaining claims. Individual court rulings can affect multiple cases and therefore the Group's current ability to settle and so mitigate further legal costs. Due to this uncertainty, a contingent liability has been highlighted in note 19.

16.        Share capital and reserves

During the period, the Company issued 25,826,746 shares (at 77.4 pence) relating to the acquisition of Express & Star (note 20). The total share capital increased to 309,286,317 allotted, called-up and fully paid ordinary shares of 10p each. The share premium account increased by £17.4 million and reflects the premium on issued ordinary shares. The merger reserve has been transferred to retained earnings and other reserves as a result of the impairment to the Regionals cash-generating unit. The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buy-back programmes.

The Board approved a share buyback programme of up to £10 million which commenced in August 2016. The share buyback was completed in November 2017. The Company holds 10,017,620 shares as Treasury shares. Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9 million (2017: £25.9 million). On transition to IFRS, the revalued amounts of freehold properties were deemed to be the cost of the asset and the revaluation reserve has been transferred to retained earnings and other reserves.

Shares purchased by the Trinity Mirror Employee Benefit Trust (the 'Trust') are included in retained earnings and other reserves at £4.4 million (2 July 2017 and 31 December 2017: £4.9 million). During the period, 421,066 were released relating to grants made in prior years (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017: 447,096).

During the period, 1,529,406 awards were granted to Executive Directors on a discretionary basis under the Long Term Incentive Plan (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017: 1,219,327). The exercise price of the granted awards 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 prior period, 111,792 awards were granted to Executive Directors under the Restricted Share Plan. The awards vest after three years.

During the period, 1,709,293 awards were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (26 weeks ended 2 July 2017 and 52 weeks ended 31 December 2017: 1,242,316). The exercise price of the granted awards 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.

17.        Reconciliation of statutory to adjusted results

26 weeks ended 1 July 2018 (unaudited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Finance costs (c) £m	Tax items (d) £m	Adjusted results £m
Revenue	353.8	-	-	-	-	353.8
Operating (loss)/profit	(107.3)	173.8	-	-	-	66.5
(Loss)/profit before tax	(113.5)	173.8	4.4	-	-	64.7
(Loss)/profit after tax	(113.1)	161.8	3.6	-	-	52.3
Basic (loss)/earnings per share (p)	(39.4)	56.3	1.3	-	-	18.2

26 weeks ended 2 July 2017 (unaudited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Finance costs (c) £m	Tax items (d) £m	Adjusted results £m
Revenue	320.0	-	-	-	-	320.0
Operating profit	47.3	15.3	-	-	-	62.6
Profit before tax	38.2	15.3	5.9	1.9	-	61.3
Profit after tax	29.1	13.9	4.8	1.5	-	49.3
Basic earnings per share (p)	10.6	5.1	1.7	0.5	-	17.9

52 weeks ended 31 December 2017 (audited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Finance costs (c) £m	Tax items (d) £m	Adjusted results £m
Revenue	623.2	-	-	-	-	623.2
Operating profit	97.9	26.8	-	-	-	124.7
Profit before tax	81.9	26.8	11.9	1.9	-	122.5
Profit after tax	62.8	24.1	9.6	1.5	0.5	98.5
Basic earnings per share (p)	23.0	8.9	3.5	0.5	0.2	36.1

(a)       Operating adjusted items relate to the items charged or credited to operating profit as set out in note 5.

(b)       Pension finance charge relating to the defined benefit pension schemes as set out in note 14.

(c)       Impact of the translation of foreign currency borrowings and fair value changes on derivative financial instruments as set out in note 7. The private placement loans notes were fully repaid and the associated cross-currency interest rate swaps matured in June 2017.

(d)       Tax items relate to prior year tax adjustments included in the taxation credit or charge as set out in note 8.

18.        Reconciliation of statutory to like for like revenue

	26 weeks ended 1 July 2018 (unaudited) £m	(a) £m	26 weeks ended 1 July 2018  (like for like) £m	26 weeks ended 2 July 2017 (unaudited)  £m	(a) £m	(b) £m	26 weeks ended 2 July 2017  (like for like) £m
Publishing Print	282.0	26.2	308.2	255.0	89.3	(4.5)	339.8
Circulation	175.7	17.5	193.2	145.7	59.0	(0.1)	204.6
Advertising	88.5	7.3	95.8	93.1	26.1	(4.3)	114.9
Other	17.8	1.4	19.2	16.2	4.2	(0.1)	20.3
Publishing Digital	48.4	3.2	51.6	41.4	7.3	-	48.7
Display and transactional	41.5	3.2	44.7	32.8	7.3	-	40.1
Classified	6.9	-	6.9	8.6	-	-	8.6
Printing	17.5	0.5	18.0	16.9	1.2	-	18.1
Specialist Digital	4.7	-	4.7	4.8	-	-	4.8
Central	1.2	-	1.2	1.9	-	-	1.9
Total revenue	353.8	29.9	383.7	320.0	97.8	(4.5)	413.3

(a)        Inclusion of Express & Star assuming owned by the Group from the beginning of 2017.

(b)        Metros handed back to DMGT in December 2017 and other portfolio changes in 2017.

19.        Contingent liabilities

There is potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues. At this stage, due to the uncertainty in respect of the nature, timing or measurement of any such liabilities we are unable to reliably estimate how these matters will proceed and their financial impact.

20.        Acquisition of subsidiary undertaking

The Group announced the proposed acquisition of Northern & Shell's publishing assets on 9 February 2018 which was subsequently approved at the General Meeting held on 27 February 2018. The publishing assets comprise national newspapers and magazines together with associated websites and a print plant in Luton. The acquisition is consistent with the Group's area of strategic focus: "Consolidate - seek out strategic opportunities that drive value". As well as driving value for shareholders the increased scale of the enlarged Group is anticipated to provide increased financial flexibility in the medium term for investment and meeting the enlarged Group's pension obligations.

On 28 February 2018, the Group completed the acquisition of 100% of the equity in Northern & Shell Network Limited and its subsidiaries for £121.7 million with an initial cash consideration of £42.7 million and an equity consideration of £20.0 million (issue of 25,826,746 shares at 77.44 pence per share) both on completion and deferred consideration of £59.0 million (payable as £18.9 million, £16.0 million, £17.1 million and £7.0 million on the second, third, fourth and fifth anniversaries respectively of the acquisition). There are no conditions attached to the payment of the deferred consideration and the transaction was structured such that no interest accrued 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. The net cash acquired on acquisition was £1.4 million and in June 2018 a working capital payment of £1.3 million was made. The acquisition is included in the Publishing and Printing segment in continuing operations.

The acquisition of the 50% equity interest in Independent Star Limited for £4.5 million and 100% of the equity in International Distribution 2018 Limited for £0.5 million is subject to clearance by the competition authorities in the Republic of Ireland. This review is ongoing and we anticipate this to be cleared during the second half of 2018.

The provisional fair value of the consideration is as follows:

			£m
Initial cash consideration			42.7
Equity issued to seller			20.0
Deferred consideration			59.0
Share purchase payment			121.7
Working capital payment			1.3
Fair value of consideration			123.0

The provisional fair value of net assets acquired and the goodwill arising is as follows:

			£m
Other intangible assets			115.0
Fixed assets			44.2
Retirement benefit obligations			(38.3)
Deferred tax assets			7.2
Deferred tax liabilities			(12.2)
Corporation tax creditor			(2.7)
Provisions			(2.9)
Working Capital			(6.4)
Net cash			1.4
Fair value of net assets			105.3
Goodwill			17.7
Fair value of consideration			123.0

Other intangible assets relates to publishing rights and titles. Working capital includes gross receivables of £10.1 million less provision for doubtful debts of £0.1 million. Provisions relate to property and other (note 15). Goodwill arising on the acquisition is attributed to the anticipated profitability and synergies and is not expected to be deductible for tax purposes.

The acquisition contributed £64.8 million of revenue (Publishing £63.6 million and Printing £1.2 million) and £8.2 million of operating profit (Publishing £8.2 million and Printing nil) post acquisition. The revenue and operating profit of the Group would have increased by £29.9 million (Publishing £29.4 million and Printing £0.5 million) and £1.9 million (Publishing £1.9 million and Printing nil) respectively if the acquisition had been made at the beginning of the year.

The fair value of consideration will be satisfied as follows:

				£m
Cash consideration paid in 2018				44.0
Cash deferred consideration payable in 2020 and beyond				59.0
Total cash consideration paid/payable				103.0
Equity issued as part consideration in 2018				20.0
Fair value of consideration				123.0

The cash flow impact of the acquisition in the first half of 2018 is as follows:

				£m
Initial cash consideration				42.7
Working capital payment				1.3
Net cash acquired on acquisition				(1.4)
Acquisition of subsidiary undertaking				42.6
Initial pension contribution to defined benefit pension schemes				41.2
Transaction costs charged to operating profit				6.3
Acquisition related cash outflow				90.1

Transaction costs of £2.2 million were charged to operating profit in 2017.

INDEPENDENT REVIEW REPORT TO REACH PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 1 July 2018 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement, the consolidated balance sheet and related notes 1 to 20. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, 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 Ireland) 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 1 July 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, United Kingdom

30 July 2018

 

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