TIDMJPR
RNS Number : 1039L
Johnston Press PLC
17 April 2018
Johnston Press: FINANCIAL RESULTS 2017
Tuesday 17 APRIL, 2018 - EMBARGOED TO 07.00
Exceptional i performance and growing audiences
Johnston Press plc, (LSE: JPR), one of the UK's foremost news
publishers, announces its results for the 52 week period ended 30
December 2017.
Financial Highlights
Adjusted results(1) below include the i for 52 weeks in 2017 and
38 weeks in 2016. The Group acquired the i newspaper in April
2016.
-- Adjusted Group EBITDA was GBP40.1m (2016: GBP43.9m) - in line with expectations
-- Adjusted EBITDA margin of 19.9% (2016: 20.8%)
-- Exceptional performance from the i newspaper - delivered adjusted EBITDA of GBP9.3m
-- Total adjusted revenue was GBP201.2m (2016: GBP210.8m) down
4.5%, (up 1.8% excluding classifieds)
-- Adjusted digital revenue was GBP25.9m, up 3%, (up 13.2% excluding classifieds)
-- Adjusted circulation revenue was GBP79.0m, up 2.7%
-- Contract printing revenue was GBP13.3m, up 4.2%
-- Adjusted net debt(4) was GBP195.9m, down 4.2% (2016: GBP204.5m)
Statutory results for the Group:
-- Statutory total revenue of GBP201.6m (2016: GBP222.7m) was
down 9.5%, GBP9.9m of which resulted from the sale of Midlands and
East Anglia titles in January 2017
-- Statutory loss before tax of GBP95.0m (2016: loss of
GBP300.7m) down 68.4% includes a non-cash impairment of GBP64.4m
(2016: GBP344.3m) and mark-to-market loss on the bond of GBP22.8m
(2016: gain of GBP43.6m), as a result of an increase in the market
value of the bond
-- Net debt(4) was GBP141.7m (2016: GBP127.5m) as a result of
the increase in the market value of the bond
Like for like revenue(2) for the Group including i for the
comparable 38 week period:
-- Total revenue was down 8.1%, (excluding classifieds down 2.7%)
-- Advertising revenue was down 13.5%, (excluding classifieds down 4.0%)
-- Circulation revenue was down 4.9%
Current Trading 2018
-- The Group has traded in line with the board's expectations in
the first quarter of 2018, with Q1 adjusted EBITDA higher than the
prior year
Continuing Operations - Statutory Continuing Operations - Adjusted
2017 2016 % change 2017 2016 % change
GBPm GBPm GBPm GBPm
Revenue 201.6 222.7 (9.5)% 201.2 210.8 (4.5)%
- Total advertising revenue
(combined print and digital) 100.2 122.6 (18.3)% 100.0 113.9 (12.2)%
- Print advertising (exc.
classifieds)(3) 49.0 61.3 (20.1)% 48.8 52.6 (7.2)%
- Digital advertising (exc.
classifieds)(3) 20.1 18.6 8.1% 20.0 17.7 13.2%
- Circulation revenue 79.1 79.9 (1.0)% 79.0 76.9 2.7%
- Contract printing revenue 13.3 12.8 4.2% 13.3 12.8 4.2%
Operating profit/(loss) (51.2) (323.5) 84.2% 33.1 37.0 (10.5)%
EBITDA - - - 40.1 43.9 (8.7)%
EBITDA margin - - - 19.9% 20.8% -
Profit/(loss) before tax (95.0) (300.7) 68.4% 14.2 17.4 (18.7)%
Basic earnings per share (74.6)p (234.9)p - 6.9p 12.7p -
Net debt(4) 141.7 127.5 11.1% 195.9 204.5 (4.2)%
1 The results are presented on a continuing adjusted basis which
exclude the following items: mark-to-market movement on the bond,
impairment of intangible and tangible assets, restructuring costs,
strategic review costs, items related to the defined benefit
pension plan, share based payment costs, trading and write downs
relating to the closure and disposal of titles and digital
operations, one-off legal and acquisition costs and disposal gains.
It includes the results from the acquisition of the i from April
2016 and excludes the results of the Isle of Man operations
disposed in August 2016 and the Midlands and East Anglia titles
disposed of in January 2017.
2 Like for like is an output measure of our key revenues lines,
namely print advertising, digital and newspaper sales and contract
print revenues on a 38 week basis in 2017 and 2016. This measure
removes the effect of part year ownership of the i in 2016.
3 Adjusted Classified advertising (print and digital) and other
advertising revenue for the period is GBP31.2m (2016: GBP43.6m) and
represented 16% of total adjusted revenue in 2017.
4 Net debt is a non-statutory term presented to show the Group's
borrowings net of cash equivalents and bond fair value movements
and includes finance leases. Adjusted net debt is stated excluding
fair value mark-to-market valuation adjustments on the bond.
Operational Highlights
Continue the success of the i newspaper
-- Significant profit improvement - Adjusted EBITDA for the i of GBP9.3m in first full year
-- More than doubled adjusted EBITDA over the comparable 38 week
period from GBP3.3m to GBP7.6m
-- Statutory newspaper circulation revenue up 20% and
advertising up 27% in H2 2017 (on a comparable basis versus H2
2016)
-- Market share has grown to some 20% of the quality weekday
market, with Saturday's 'Weekend' i performing up 6% year on year
in December 2017
-- inews.co.uk digital audience averaged over 1.4m unique users per month, up 45% year-on-year
-- Successful realisation of content sharing synergies with the
Group including centrally coordinated investigative features and
news alongside other National' titles, The Scotsman, Yorkshire
Post, and News Letter (Northern Ireland)
Digital audience and revenue growth
-- Adjusted digital revenue (excluding classified) was GBP20.0m,
up 13%; including classified up 3%
-- Average monthly unique users up 13% from 22.5m to 25.4m
-- 108m average page views per month, up 19% year on year
-- Our 'Big City' strategy resulted in a significant increase in
daily unique browsers, The Scotsman (JP's largest audience site)
+13%,Yorkshire Post +58%, Yorkshire Evening Post (Leeds) +45%,
Edinburgh Evening News +40% and Sheffield Star +29% (July - Dec
2017 ABC's)
Operational efficiency
-- Margin - adjusted EBITDA margin was 19.9%
-- Cost extraction - adjusted operating costs reduced by
GBP12.1m (excluding the investment in the i)
-- 68% of local display and features customers are now serviced
by tele-sales (Media Sales Centres)
Getting more of our business back to growth
-- Excluding classifieds, our total adjusted revenue was up 1.8%
year on year (including classifieds down 4.5%)
-- Like for like revenue for 38 weeks excluding classifieds was
down 2.7% (including classifieds down 8.1%)
-- Adjusted newspaper circulation revenue was up 2.7% year on
year benefiting from the i acquisition, and down 4.9% on a 38 week
like for like basis
-- Contract print revenue was up 4.2% to GBP13.3m, increasing
market share, with strong record of client retention and
competitive wins for Sheffield and Portsmouth print plants.
Strategic review of financing options for GBP220m bond which
becomes due on 1 June 2019 GBP220m
-- Commenced review of financing options; discussions with
stakeholders and their advisors (including with a bondholder
committee) are in progress; any [financing] proposal will be
subject to negotiation and consent of stakeholders; there can be no
certainty that a formal proposal will be forthcoming; if no
consensual agreement is reached, then alternative
refinancing/restructuring options will be explored.
Current trading and outlook
The Group has traded in line with the board's expectations in
the first quarter of 2018 with Q1 adjusted EBITDA higher than the
prior year. The i is continuing to deliver the exceptional growth
seen in FY2017, with revenue up 21% year on year in the first
quarter.
The trading environment remains challenging, notwithstanding
early signs of some improvement in the national print advertising
market. Comparatives do get harder, and we expect to see continued
pressure on revenues, and the requirement for cost savings. Against
this difficult backdrop we are focused on maintaining our strong
margins, driving additional growth from i and realising further
operational and financial synergies. During 2018 we will continue
to selectively invest in the business, with a focus on digital,
journalists, and content generation.
Ashley Highfield, Chief Executive Officer, commented,
Our vision remains constant - to be at the heart of our
communities, providing accurate, relevant and timely news and
information - free of proprietorial influence. And we continue to
deliver on this, despite 2017 proving to be another tough year for
the sector: We more than doubled profits at the i, with circulation
revenue up 20% and advertising revenue up 27% (H2 '17 v H2 '16). We
grew our digital traffic across the group by 19% and our digital
audiences reached an all time high of 25.4m. We posted total
adjusted revenue up 1.8% year on year, excluding classifieds, which
in combination with maintaining operational excellence and reducing
costs, achieved profits in line with expectations.
The first quarter of 2018 has seen us deliver increased adjusted
EBITDA year on year, driven by the i's continued strong performance
(especially the relaunched Saturday edition, up 4% year on year in
newspaper sales) and our strategy of focusing on our largest Cities
and titles. We are pleased with the acceleration in growth from the
i's website inews.co.uk which, having delivered sustained growth in
2017, has ramped up further in the first quarter of this year (with
unique users up 89% year on year).
Across our regional portfolio of titles national print
advertising tracked in line with prior year in the first quarter of
2018, with advertisers starting to increase spend in regional
print. This trend is driven by a somewhat stronger overall
advertising market, our ability to precisely target audiences using
'big data', and improving sentiment towards quality print
publishers in the wake of the Fake News and social media trust
concerns.
Classified advertising remains weak, but is now a significantly
smaller portion of the group accounting for just 13% of revenues in
the quarter, following our investment in digital and the i.
Whilst operationally the business is performing well in
challenging markets, addressing the Group's capital structure
remains a key priority. The Strategic Review of financing options
is ongoing and discussions with our various stakeholders are
progressing. We will update on this matter as we progress through
2018.
Notes
Statutory and adjusted basis
In the Management Report, performance is stated on an adjusted
basis. An adjusting item is one that is judged to require separate
presentation to enable a better understanding of the trading
performance of the business in the period. Items are adjusted if
they are significant in value and/or do not form part of ongoing
underlying trading. They will, in many cases, be 'one-off' and
include items that span more than one financial period. A
reconciliation between the statutory and the adjusted results is
provided under the Alternative Performance (non-GAAP) Measures
section within this financial information.
Forward-looking statements
The report contains forward looking statements. Although the
Group believes that the expectation reflected in these forward-
looking statements are reasonable, it can give no assurance that
the expectations will prove to have been correct. Due to the
inherent uncertainties, including both economic and business risk
factors underlying such forward looking information, actual results
may differ materially from those expressed or implied by these
forward looking statements. The Group undertakes no obligation to
update any forward-looking statements, whether as a result of new
information, future events, or otherwise.
Market abuse regulation
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
For more information, contact:
Johnston Press plc
Ashley Highfield, CEO
David King, CFO
020 7612 2600
Panmure Gordon
Charles Leigh-Pemberton
020 7886 2500
Liberum
Neil Patel
020 3100 2000
Powerscourt
Peter Ogden / John Elliott
020 7250 1446
Johnston Press will host a conference call for institutional
investors and analysts this morning at 9.30am (GMT). The
presentation will be available through our partner BRR Media
(http://webcasting.brrmedia.co.uk/broadcast/5acf2e3b5a296618f17926a0).
To dial in to the conference call, participants should dial +44
(0)330 336 9105, specify Johnston Press Full Year Results 2017 as
their event and provide the confirmation code 2355866.
About Johnston Press
Johnston Press is a leading multimedia business with a vibrant
mix of news brands that reach national, regional and local
audiences. We provide news and information services to local and
regional communities through our extensive portfolio of hundreds of
publications and websites.
Sharing information and opinion remains at the heart of what we
do and our titles, which include iconic i, The Scotsman, The
Yorkshire Post and News Letter in Northern Ireland are read via
traditional print, online platforms and mobile devices by 38.8
million people every month.
We are experts in combining national reach with local targeting
and are better equipped than ever to help advertisers tell their
stories, too, through our trusted platforms.
Chairman's Statement
Trading
In 2017, we worked hard to combat the continued downward
pressure on print publishing revenue, both in advertising and
circulation. A key component of our plan saw a wholesale
modernisation in the organisation and operation of our sales teams
for local markets, as we seek to build a class-leading centralised
tele-sales operation with deep local market knowledge. After an
initial bedding in period, these changes are starting to show
results.
Statutory revenue reduced from GBP222.7 million in 2016 to
GBP201.6 million in 2017, of which GBP9.9 million of the reduction
related to the sale of 13 titles in the East Midlands. The Group
reported a loss of GBP78.6 million in 2017, compared to GBP247.3
million in 2016. The loss resulted from non-cash asset impairment
charges of GBP64.4 million, mark-to-market on the bond, as a result
of increases in value, and exceptional costs. Adjusted operating
profit was GBP33.1 million, down from GBP36.9 million in 2016,
reflecting the challenging trading environment in which the Group
operates.
Strategy
As I reported last year, 2017 started with the sale of 13 titles
in the East Midlands and East Anglia to Iliffe Media Limited in
January 2017. This helped to strengthen our balance sheet, reducing
net debt and increasing liquidity and enabled the Group to cancel
its revolving credit facility.
We have progressed our strategic review of our financing options
in relation to the GBP220 million 8.625% senior secured notes (the
'Bonds') which become due on 1 June 2019 (which we announced on 29
March last year). We have updated stakeholders at relevant times
throughout the intervening period and on 2 November 2017 we
announced the formation of an ad hoc committee of Bondholders (the
"Bondholder Committee") to consider in greater detail certain
potential amendments to the Group's capital structure and to the
funding arrangements for its final salary pension scheme. This
review is ongoing and the Board is satisfied with the continued
support of the Group's major stakeholders during the review
process. Any proposal that results from these discussions will
remain subject to negotiation and the consent of relevant
stakeholders, and there can be no certainty that a formal proposal
will be forthcoming. In the event that consensual amendments to the
Group's capital structure cannot be agreed with relevant
stakeholders, alternative options for the restructuring or
refinancing of the Bonds prior to June 2019 will be explored as
part of the ongoing strategic review process.
Throughout this period our management team remain focused on our
key strategic aims: growing the Group's overall audience
(particularly in the biggest towns and cities that we serve),
continuing our successful growth of the i newspaper and
inews.co.uk, and seeking to maintain profitability, whilst
improving customer, reader, and staff satisfaction.
Industry issues
We believe strongly in both the protection of individuals and
bodies through an effective press complaints mechanism and the
rights of a free press which is not subject to the oversight of a
government, or government approved, regulator. Together with the
majority of our industry, we remain whole-heartedly committed to
IPSO - the Independent Press Standards Organisation (along with the
vast majority of our industry). The industry was forthright in its
concern over the potential introduction of s.40 of the Crime and
Courts Act 2013 which, if enabled, could have operated to make
newspaper publishers who are not members of a statutorily approved
body liable for the costs of dealing with complaints against them -
even where those complaints were dismissed or shown to have no
merit. We commended the Government when it confirmed that it would
repeal this measure. It is therefore of great concern that, through
an amendment to the Data Protection Bill, currently making its way
through Parliament, that the House of Lords has sought to
reintroduce the same penal measures. Our papers are seeking to draw
the impact that this will have on papers of all sizes to the
attention of our readers and asking them to engage with their
elected representatives to address this issue.
On a more positive note, recruitment is underway for 31 local
democracy reporters following an innovative deal between the News
Media Association (NMA) and the BBC which will see 150 journalists
employed across the industry to cover local democracy reporting. In
February 2018, the Department for Culture, Media and Sport
announced a review to preserve the future of high quality national
and local newspapers in the United Kingdom. At a time when more
people are recognising the value of trusted and verified news
sources, we welcome the review and will support the NMA in its
engagement with the panel of experts to be appointed to conduct the
review. On 12 March 2018, it was announced that Ashley Highfield
had been appointed to this advisory panel.
Dividend
Johnston Press plc, and Johnston Publishing Ltd, its largest
subsidiary, do not have distributable reserves. This restricts the
Company's ability to pay ordinary dividends. No ordinary or
preference dividend is proposed for the year.
Board
After serving for nine years, Ralph Marshall stepped down as a
Non-Executive Director at the Annual General Meeting in May. Under
the terms of the shareholder agreement with Usaha Tegas which owns
10.63% of the Company's ordinary share capital, Jamie Buchan was
appointed as a Non-Executive Director with effect from 1 June 2017.
Ralph's service over many years has been of enormous value to the
Board and I would reiterate both my thanks and those of my
colleagues. We are very pleased to have welcomed Jamie to the
Board.
I have continued in the role of Interim Chair since the start of
2017 and the Company will make an announcement at the appropriate
time when the position changes. I would like to record my thanks to
Mike Butterworth who has undertaken the role of Senior Independent
Director on an interim basis as well as chairing the Audit
Committee during this period.
In considering candidates to fill Board vacancies, the
Nomination Committee has regard to the benefits of, and the need to
encourage, diversity (including gender) within the Board's
membership and this is a specific consideration of the recruitment
process and is included in the Committee's Terms of Reference. The
Board has adopted a written diversity policy for this purpose.
The Board regularly reviews both the balance of its membership
and the issues it considers when it meets. The agenda for the
Board's meetings continue to be structured in such a way as to
scrutinise both strategic and operational matters and the meetings
are held in an atmosphere of constructive challenge and debate. I
am satisfied that the Board remains effective.
Employees
In recent years it has become the norm to report on the profound
changes experienced by the Group and, as will become clear, 2017
was no different. I have once again been struck by the hard work
and dedication of all employees, which has been key in our ability
to adapt to the changing environment in which we operate. On behalf
of the Board I would like to put on record our grateful thanks for
the professionalism and application of all our colleagues across
the Group, which is invaluable to the business.
On 28 March 2018, the Group reported on its Gender pay gap. In
common with many organisations we have more men than women in
senior positions and this factor has contributed significantly.
We will address the pay gap over the next 3-5 years and have
already committed to a series of actions in this respect. More
details of our action plan, together with the gap data, can be
found on our website: www.johnstonpress.co.uk
Outlook
Current trading remains very challenging and is expected to
remain so for the remainder of this year. The management team are
focused on delivering against the stated strategic objectives. We
continue to invest in digital growth, while also continuing to look
for ways to take cost out of the business, in mitigation of print
revenue declines.
Camilla Rhodes
Interim Chairman
CEO Report and Operational Review
In what remains a very challenging trading environment, the
vision of the Company remains to be at the heart of communities,
providing accurate, relevant and timely news and information - free
of external proprietorial influence. The rise of awareness of fake
news, and lack of transparency in the digital advertising supply
chain has seen many larger advertisers reassessing where they
invest their advertising spend after years of what has arguably
been a race to the bottom in the blind programmatic digital
advertising market place. Instead, they are now looking for trusted
media organisations which can provide verified content in a safe
environment. This rebalancing of spend by national advertisers will
take time. At the local level, conditions remain difficult.
Following the move of classified advertising to the big online
portals (Autotrader, Indeed, ebay et al - the effects of which we
still feel, with classified revenue down 29% year on year), display
advertising has been shifting online predominantly to Facebook
(resulting in, print display revenues being down 17% year on
year).
The focus in 2017 remained on our longer-term objective of
returning the business back to top-line growth and profit growth,
through delivery of the stated strategic objectives. The aim is to
build a platform for sustainable growth and invest in the
acceleration of digital growth in 2018. The corporate objectives
for 2017 were:
1. Continuing the success of the i newspaper,
2. Digital audience and revenue growth,
3. Sales model transformation,
4. Publishing Model evolution (focusing on our biggest Cities
and towns, and finding operational efficiencies for our smallest
weeklies), and
5. Growing our contract printing business,
All have shown good momentum, as we continue to reset the
business:
1. The i newspaper delivered adjusted EBITDA of GBP9.3m for 2017
2. Adjusted digital revenue (ex classifieds) was up 13%,
audiences increased by 13% (and traffic was up by 19%), despite
headwinds
from Facebook algorithm changes,
3. Adjusted total revenue excluding classified was up 1.8% for the year,
4. Adjusted newspaper sales revenue grew by 2.7%, and we grew print audiences by 2.5%, and
5. Statutory print contract revenue increased by 4.2% to GBP13.3m.
At the same time we have been progressing the strategic review
process. Refer to the Strategic review of financing options section
for more details.
In 2017 we continued to maintain a complete focus on operational
efficiency, through a combination of on-going active portfolio
management, completion of the salesforce transformation, and tight
control of the cost base. Total costs (excluding exceptionals)
reduced by GBP12.1m in 2017, an 8% reduction on prior year
excluding the impact of full year costs of the i.
Revenue trends from the regional business remain challenging,
especially within classified advertising, which is still feeling
the impact of the continued structural change within the classified
marketplace, led by companies such as Autotrader, Rightmove and
Indeed (Jobs). However, our entire classified business represented
just 16% of total Group revenue and is set to become a considerably
smaller part of the business in 2018.
The regional advertising business has seen the growing impact of
small and medium-sized enterprises (SMEs) using Facebook as a route
to market to advertise local services. The threat posed to
advertising print revenue by Facebook has to some extent been
mitigated by the increasing exposure of our newsbrands within
Facebook newsfeeds, alongside our own website growth in key markets
which can now boast audience reach frequently in excess of 50% to
potential advertisers. This focus has helped the Group deliver
total audience growth to an average of 25.4m unique browsers per
month, a 13% growth on last year. Average page views are up 19% on
prior year, underpinning a 13% year-on-year growth in digital
advertising solutions (excluding the challenged digital classified
categories, up 3%).
Following a full-year of i ownership and a 2% improvement in
decline rates across the regional business, we saw total adjusted
revenue decline by 4.5%, from GBP210.8m to GBP201.2m. Total
adjusted revenue including the additional 14 weeks of i trading and
excluding classified was up 1.8%.
Adjusted newspaper sales revenue grew by 2.7%, from GBP76.9m to
GBP79.0m, benefiting from the full-year ownership of i newspaper.
For the like-for-like 38 weeks for which i was owned in both
periods, total newspaper sales revenue was down 4.9%. Contract
print revenue grew by 4.2%, from GBP12.8m to GBP13.3m.
Despite the positive momentum we have created in 2017, we have
taken a realistic view of the carrying value of our titles, and
have taken a non-cash impairment charge of GBP59.2m. The quoted
market value of our bond has increased by GBP22.8m in 2017,
resulting in a mark-to-market charge against profits. Taken
together, and including other exceptional costs this has resulted
in a statutory loss of GBP78.6m, compared to a loss of GBP247.3m in
2016, on statutory revenues of GBP201.6m in 2017, down from
GBP222.7m in 2016. GBP9.9m of this revenue decline related to the
sale of East Midlands titles in January 2017.
Net debt, excluding the bond mark-to-market adjustment, was
GBP195.9m at the end of 2017, a reduction of GBP8.6m on prior year.
A reconciliation of statutory net debt to net debt excluding the
mark-to-market adjustment is provided in the Financial Review.
1 Source: Circular to shareholders dated 2 March 2016. Both
stated excluding allocation of corporate central costs.
Highlights in 2017
1. Making a success of i
Strategic Rationale: On acquisition of the i newspaper in April
2016, we laid out the strategic rationale for acquiring the title,
which the company determined to be transformational for the Group.
The acquisition significantly helped to diversify the Group away
from a regionally based and local display advertising led business,
operating in markets experiencing significant negative structural
and consumer behavioural change.
Revenue derived from the i newspaper is marked by a greater
emphasis on more stable circulation income, operating in the more
predictable daily qualities market, at a price point we determined
to have reasonable elasticity when compared to other titles within
this market segment. It was additionally determined that the scale
of the Group would be beneficial to the title, affording the title
greater leverage on key contracts, resulting in cost savings and
investment capacity to improve overall editorial quality, both in
print and online.
In 2017, under the leadership of editor Oly Duff, the i
newspaper was short-listed for a number of awards from bodies such
as The British Press Awards, the Foreign Press Association and the
News Awards, reflecting in part the investment in journalism made
since acquisition.
Profit Growth: Prior to the acquisition in April 2016, the i
contributed operating profits of GBP5.2m to its former owner,
Independent Print Limited for the year ended 27 September 2015
(source: Circular to shareholders dated 2 March 2016). Through a
combination of revenue improvement actions resulting in both
circulation and advertising (print and digital) revenue increases
year on year, and targeted cost management, the i was able to
report an EBITDA run-rate averaging GBP1m per month in the last
quarter of 2017 and EBITDA for the 52 weeks of GBP9.3m (no central
corporate cost allocated), and operating profit of GBP8.7m.
Circulation Revenue Growth: In September 2017, the cover price
of the i increased from 50p to 60p on Monday to Friday and from 60p
to 80p on Saturday. The price increase was supported by both a
marketing campaign and the relaunch of the Saturday edition
(iWeekend), with the Saturday edition attracting 12,000 new readers
when compared to its average circulation pre relaunch. Daily
circulation overall remained at 265,000 (Jan - Dec 17), as verified
by the Audit Bureau of Circulation Data. Market share has to an
average of some 20% for the Monday to Friday editions. Circulation
revenue increased by 21.5% on the prior year, on a comparable 38
week period.
Advertising Revenue Growth: Under Johnston Press ownership, the
i newspaper's market share of main news advertisers has seen growth
of 2%; from 20% in the pre-acquisition period of January to
November 2015 to 22% in January to November 2017 (source: ad
dynamix). i print and digital advertising revenue grew 27% in the
second half of 2017, compared to the first half, providing a strong
advertising revenue platform going into 2018. This reflects our
efforts to establish the i newspaper brand as a politically
unbiased, independent, quality, trusted brand that delivers a
largely unique audience that all advertisers and their agencies
should have on their media buying schedule.
It has been particularly pleasing that the i shared a number of
our centrally coordinated investigation features, taking a national
perspective, alongside a more localised angle taken by our larger
regional and city brands.
The growth of inews.co.uk, launched in April 2016 following the
acquisition, continued through 2017. During 2017, the website
attracted an average of 1.4m unique browsers per month, up 45% year
on year. In 2018 an additional investment in digital journalists
will be made to further accelerate growth of the inews's digital
presence, mirroring the additional new investment being made to the
digital offering for Johnston Press' largest regional and city
brands. The continued growth of inews.co.uk through 2017 has
propelled the web-site into being one of the Group's leading sites
in terms of scale, all within 18 months of launch.
2. Digital audience and revenue growth
In-line with the announced publishing strategy that focuses on
markets with the greatest growth potential, the digital strategy
for the Group has also been aligned around the same core principles
and brands, helping to concentrate resources in markets with the
greatest digital audience potential. In 2017, unique browsers grew
to an average of 25.4m per month, a 13% increase on prior year.
Overall page view growth across the Johnston Press network has been
driven by a number of the biggest brands; the Belfast News Letter's
monthly page views were up 48% year-on-year, Yorkshire Evening Post
(Leeds) up 45%, Sheffield Star up 29% and the Edinburgh Evening
News up 40%.
Digital classified revenue, especially in the Jobs category,
remain a drag on overall digital revenue progression, impacting
publishers across both regional and national markets. The total
regional print classified advertising market (principally jobs,
property and autos) has declined from GBP1.9bn in 2007 to GBP320m
in 2017, with the corresponding increase in Digital classified
growing from GBP624m to GBP1.3bn over the same period. In addition,
only a relatively small percentage of the growing digital income
has flowed to publishers such as Johnston Press, with the majority
shifting to on-line platforms such as Autotrader, Indeed, Linkedin
and Rightmove.
Adjusted digital revenue, excluding classified grew by 13% in
2017 (total adjusted digital revenue grew 3%). We delivered 16%
growth in our national digital advertising, including the 1XL
network formed and in partnership with Newsquest and Mediaforce,
and through partnerships with companies like Taboola and
Facebook.
Growth in some new digital revenue areas did not build as fast
as we expected. Both Video and Facebook advertising required us to
improve recruitment and training, in order to fully exploit the
opportunity. We have also not completed the development and rollout
of our full range advertising product, which will be an important
part of maintaining profit margins (third party products typically
offering significantly lower margins).
3. Sales Model Transformation
Total advertising revenue, on a like-for-like basis and
excluding classified (like-for-like advertising revenue, excluding
classified has been calculated by comparing the 38 week period in
the current year from 9 April 2017 to 30 December 2017, to the
equivalent 38 weeks of the prior year from 10 April 2016 to 31
December 2016, allowing comparability year on year as a result of
the acquisition of the i on the 10 April 2016) was down 4.0% for
the year (including classified, down 13.5%). Classified advertising
represented some 16% of total revenue in 2017 and are expected to
represent around 12% of total revenue in 2018.
Our sales operation has been through a significant
transformation in 2017 to ensure there is the right mix of local
and central resource and to maintain a significant presence of
highly qualified and well trained experts in the field to serve
customers face to face, offering print advertising solutions and
increasingly digital advertising services. In 2017 we invested in
our Media Sales Centre (tele-sales facilities), moving over 300
sales staff into a new city centre location in Sheffield, alongside
the modern offices premises in Leeds and Edinburgh. The shift to a
centralised call centre environment follows the route taken by
other market leading companies within the wider advertising arena
such as Autotrader and Facebook. Our USP is that we have retained
highly local market knowledge and we lead on our local brands. A
centralised sales environment, supported by leading edge technology
from Saleforce and Miles33, allows for better training and control,
ensuring all telephone based sales staff are kept abreast of the
latest market and product information in a rapidly evolving SME
focused, digitally led media landscape. Alongside the salesforce
transformation, we have additionally enhanced sales routes to
market with improved self-serve solutions for SME customers who
want to interact and manage their needs online.
The large scale transfer of advertising customer accounts and
rebalancing of sales resource (from field to tele-sales) impacted
sales revenue during the transition period. However, we estimate
that the revenue loss was outweighed by the scale of cost savings
realised.
4. Publishing model evolution
Through 2017, the business aligned around distinct publishing
groups, helping to align operating plans in editorial, sales,
digital and the functional support areas. The publishing strategy
is a natural evolution from the disparate and locally managed
publishing operations, to a centrally operated and vertically
aligned business. However, local editorial decision making remains
in place, ensuring local character and insight is maintained.
The editorial strategy can be summarised as; "think nationally
and act locally", as evidenced by the centrally created content
produced by advanced content hubs, central lifestyle team and
central investigation team, all aligned to the publishing strategy.
All the content created from the central teams is flowed through
all the national, regional, city and larger weeklies titles,
helping to drive audience engagement in both print and digital. The
investment in central teams has driven greater efficiency in
content production and is carefully balanced with an imperative of
keeping local news reporters local and relevant. Johnston Press
employs 849 journalists, with the vast majority aligned to
individual news brands, focused on local news gathering. During the
latter part of 2017, and into 2018 we have commenced hiring more
journalists as a result of three significant initiatives: the BBC
Local Democracy Reporters initiative, our Digital 'Powerhouses'
project (that sees 31 new staff being hired in London, Leeds, and
Edinburgh), and a ramping up of our apprentice programme.
5. Growing our contract printing business
The contract printing business once again delivered annual
revenue growth year on year, posting a growth of 4% in 2017,
increasing revenue to GBP13.3m, which represents 7% of total Group
revenue. An encouraging performance, particularly in light of the
contraction in the overall market, and achieved through a
combination of maintaining existing contracts and winning new
contracts to print (amongst others) the Daily Mail and the Metro,
both at our modern Portsmouth plant.
Current trading and outlook
The Group has traded in line with the board's expectations in
the first quarter of 2018, with Q1 adjusted EBITDA higher than the
prior year. The i is continuing to deliver the exceptional growth
seen in FY2017, with revenue up 21% year on year in the first
quarter.
The first quarter of 2018 has seen us deliver increased adjusted
EBITDA year on year, driven by the i's continued strong performance
(especially the relaunched Saturday edition, up 4% year on year in
newspaper sales) and our strategy of focusing on our largest Cities
and titles. We are pleased with the acceleration in growth from the
i's website inews.co.uk which, having delivered sustained growth in
2017, has ramped up further in the first quarter of this year (with
unique users up 89% year on year).
Across our regional portfolio of titles national print
advertising tracked in line with prior year in the first quarter of
2018, with advertisers starting to increase spend in regional
print. This trend is driven by a somewhat stronger overall
advertising market, our ability to precisely target audiences using
'big data', and improving sentiment towards quality print
publishers in the wake of the Fake News and social media trust
concerns.
Classified advertising remains weak, but is now a significantly
smaller portion of the group accounting for just 13% of revenues in
the quarter, following our investment in digital and the i.
The trading environment remains challenging, notwithstanding
early signs of some improvement in the national print advertising
market. Comparatives do get harder, and we expect to see continued
pressure on revenues, and the requirement for cost savings. Against
this difficult backdrop we are focused on maintaining our strong
margins, driving additional growth from i and realising further
operational and financial synergies. During 2018 we will continue
to selectively invest in the business, with a focus on digital,
journalists, and content generation.
Whilst operationally the business is performing well in
challenging markets, addressing the Group's capital structure
remains a key priority. The Strategic Review of financing options
is ongoing and discussions with our various stakeholders are
progressing. We will update on this matter as we progress through
2018.
Net Debt and Liquidity
In January 2017, we reported the sale of 13 titles to Iliffe
Media for consideration of GBP17m, with the disposal informed by
the wider publishing strategy of focusing on big cities and digital
growth towns. The improved liquidity derived from the disposal has
assisted us in reducing net debt, though equally critically,
afforded us investment capacity in our largest brands to further
increase overall reach in targeted markets. Net debt at 30 December
2017 was GBP195.9m, a reduction of GBP8.6m on prior year (2016:
GBP204.5m).
Strategic review of financing options
Operationally the Group is performing well in difficult market
conditions. As an industry, we have seen the classified advertising
market suffer enormous structural change over the last decade, and
more recently the display advertising market has come under
pressure from new competitors, particularly Facebook and Google.
Despite the resulting revenue decline, we have maintained an
adjusted operating margin of just under 17%, whilst delivering
strong growth from the i newspaper.
We currently face the challenge of addressing issues with the
Group's capital structure. The major acquisition programme in 2005
and 2006 saw peak debt levels hit GBP751 million at the end of
2006. While net debt at 30 December 2017 (excluding mark-to-market)
stands at GBP195.9 million, this level of debt is now too high
given the current size of the business and represents a constraint
on its ability to return to growth.
Last year, the Group announced it had commenced a strategic
review to assess the financing options available to the Group in
relation to its Bonds which become due for repayment on 1 June
2019. As a key part of this strategic review process, the Board has
engaged with its major stakeholders, including shareholders,
holders of the Bonds, Pension Trustees and The Pensions
Regulator.
The Board subsequently announced that it was approaching its
largest bondholders regarding the formation of an ad hoc committee
of bondholders which was then formed in November 2017. Discussions
with advisers to the ad hoc committee and our other stakeholders
are in progress. Any proposal that results from these discussions
will remain subject to negotiation and consent of relevant
stakeholders, and there can be no certainty that a formal proposal
will be forthcoming. In the event that consensual amendments to the
Group's capital structure cannot be agreed with relevant
stakeholders, alternative options for the restructuring or
refinancing of the Bonds prior to June 2019 will be explored as
part of the ongoing strategic review process. Resolution of this
matter remains a key priority for the Board as it is currently
creating significant uncertainty for the business and its
stakeholders, and detracting from the good operational performance
of the business in 2017 and the strong recent progress we have made
against our strategic objectives.
Refer to the Viability Statement section for further
details.
Market Trends
The Group remains a news publisher, with the significant
majority of revenue derived directly from the selling of newspapers
or advertising across print and digital platforms, with the balance
of revenue stemming from services based income such as contract
printing.
The sector as a whole remains under pressure from continued and
prolonged structural change, as consumer habits continue to evolve
into digital formats, alongside those of regional SME advertisers
looking to promote their services to consumers. The twin pressures
of changing consumer behaviour and competition, from companies such
as Facebook, for a share of regional marketing spend, led the Group
to pursue a number of strategies to decelerate trading declines in
the regional newspaper sector and shift revenues to more stable
income streams within the national newspaper sector, to more stable
services based income from contract printing and growth of income
from the premium newsbrands within the Group that have the greatest
growth potential, specifically focusing on accelerating digital
traffic and revenue growth.
The Group now comprises four key revenue areas: Print
advertising (37% of the Group's total revenue)(1) , Digital
advertising (13%)(1) , Newspaper Sales (39%)(1) and Contract
Printing (7%)(1) .
Regional newsbrands, excluding i newspaper and contract
printing, represented c.78% of total Group revenue1 (down from
85%(1) in 2016), operating in a total regional print advertising
market estimated to have declined by -14%(2) in 2017, off-set by a
3.6%(2) increase in the market forecast of digital advertising. The
market forecast for 2018 shows an improved decline rate of -9%(2)
from print advertising, though marginally softer trading from
digital at 3%(2) growth.
National newsbrands, represented within the Group by i
newspaper, delivered a more robust performance, with total print
declining by 7%(2) in 2017, coupled with a strong digital
performance of 16.2% market forecast growth. Looking forward into
2018, the market for print advertising is forecast to decline by
6.2%(2) , with digital growth slowing to a 7.5%(2) growth. Actual
performance from the i national print advertising beat market
forecasts in 2017.
Total digital advertising in the UK grew by 12.3%(5) in 2017,
dominated by Google and Facebook sharing over 60% of the total
market. Within the display component of the market, Google and
Facebook market share grew to over 65% of total display spend
across all devices, with the significant majority of growth within
2017 captured by the same two companies. Display advertising spend
is now dominated by mobile display formats at 56% of total display
income, up from parity between desktop and mobile in 2016.
In general terms, the national newspaper market segment across
print advertising, digital display advertising and circulation
revenues within the quality national daily market has been more
robust than the regional segment in which the Group also operates
and has helped improve the overall revenue decline profile of the
Group(3) and in line with Group's strategy of moving towards more
stable and diversified revenues(4) .
Historically circulation revenue performance remained relatively
stable, with volume declines partially compensated by the cover
price rises across both regional and national titles. In overall
terms circulation volumes will remain challenged in 2018, with
price elasticity amongst regional publishers becoming more limited,
especially on regional daily titles, and moving to the point where
price rises may not compensate overall volume declines as consumers
continue to access content free across digital formats. The rise of
digital subscriptions within the national quality market, where
content has a digital premium, has not yet delivered material
income streams where publishers have launched services.
The market for contract printing remains challenging as volume
continues to come out of the market as circulation volumes across
the sector continue to decline, which will be further accelerated
by a further hike in newsprint price rises from January 2018.
Johnston Press, is one of three major printers in the United
Kingdom, (alongside Trinity Mirror and News UK). In 2017 capacity
in the market has shrunk, and some smaller printers have ceased
production, while we have been able to flex our capacity to take on
new business.
Sources
1 2017 Financial Review
2 AA/WARC expenditure report, January 2018
3 As defined by the Company, comprising of The Times, Guardian,
The Daily Telegraph and i Newspaper
4 Shareholder circular covering the acquisition of the i
newspaper, March 2016
5 Enders Analysis UK online ad forecast 2017-2019, December
2017
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which
have been identified by the Company that could have a material
impact on the Group's long-term performance.
Risk rating Change Mitigating Risk rating
Risk Description (inherent) in 2017 activities (residual)
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
1. Refinancing The Group's debt High Increased The Group is exploring High
June 2019 comprises a GBP220m options for the
Failure to repay, high yield bond restructuring or
refinance, satisfy maturing on 1 June refinancing of
or otherwise retire 2019. It is not the Bonds prior
the bonds at their subject to any to their maturity
maturity would maintenance covenants. in June 2019 (refer
give rise to a to the Viability
default under the Statement).
indenture and could
have a material
impact on the Group's
operations and
its ability to
continue as a going
concern.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
2. Print-based There are continued High Increased The Group continues High
revenues threats to print-based to develop its
Print advertising revenues, including digital advertising
and circulation from competition offering through
revenues continue threats in many partnerships, mobile
to decline at current markets and from apps and new, digital-based
levels, or accelerate changing technology products and new
further. and consumer habits, websites. It has
business change, invested in and
reducing customer reorganised its
numbers, circulations sales function
and paginations. to ensure a more
Increased uncertainty proactive and effective
for businesses approach and that
continues following the sales offering
the referendum is fully understood
result in 2016 by sales staff
to leave the European and appropriate
Union. for customer needs.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
3. New revenue The impact of dominant High Increased Search engine marketing High
streams market players (SEM) solutions
Digital revenues (particularly Facebook which include a
decline, or do and Google) have Facebook element
not grow at the contributed to are being developed.
rate needed to a slowdown in the Mobile first sales
offset print decline growth of digital teams are in place
over the short advertising. Increased and all local digital
to medium term. mobile usage has sales seek to include
eroded margins. a mobile element.
There is a need The Group is also
to respond quickly building out its
to evolving consumer sponsored content
demands. offering. The Group
has made considerable
investment in its
customer database
and improving customer
relationship management.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
4. Pension scheme The Company is High Increased Expert advice is High
engaged in negotiations being taken. Constructive
with the trustees engagement with
of its final salary trustees is ongoing
pension scheme to explain the
as part of the Company's position.
scheme's triennial Ongoing dialogue
review. The company with The Pensions
agreed with Trustees Regulator to ensure
to put its triennial they are fully
negotiations on informed. A revised
hold, while it pension contributions
carried out its plan is expected
strategic review. to be required
An affordable revised as part of the
schedule of contributions Strategic Review.
dealing effectively
with the scheme's
deficit requires
agreement.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
5. Liquidity The Group has interest High Unchanged The sale of East High
The Group is not costs of GBP19.0m Anglia and East
able to generate and pension contributions Midlands titles
sufficient cash of GBP10.6m. Further for GBP15.6m net
from trading. downward pressure of disposal costs,
on revenues could provided additional
reduce operating liquidity to the
cashflow below Group in 2017.
the level required Including proceeds
to service interest from this disposal,
and pension commitments. cash at bank was
GBP25.0 million
The Group obtains as at 30 December
credit from suppliers. 2017.
A reduction in
credit terms offered
by suppliers could
negatively impact
the Group's liquidity.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
6. Cost reduction The need to invest High Increased This is an area Medium
The Group is required in cost reduction of ongoing management
to invest in cost limits the Group's attention. The
reduction and is ability to invest Group has continued
constrained in in the business to find operational
its ability to and requires that efficiencies as
invest in development. the Company streamline total revenue has
its management declined. Clear
and reporting structure. organisational
and reporting
responsibilities
are in place.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
7. Data security The Company's systems High Increased The Group has inbuilt Medium
and data integrity 'strength in depth'
could be vulnerable for data systems
to disruption and/or and collaborates
loss of, or loss with third party
of access to, data. suppliers to protect
Poor quality data systems and data.
or data which the Data quality and
Company cannot compliance with
lawfully process regulatory change
could limit the is the subject
realisation of of ongoing management
marketing and business focus, monitoring
opportunities. and reporting with
training for staff
The Group is required concerned.
to comply with
the new General
Data Protection
Regulation (GDPR)
requirements by
May 2018.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
8. Economy The Company is Medium Increased The Company seeks Medium
The impact of changes subject to prevailing to forecast forthcoming
in the economy economic conditions economic conditions
and United Kingdom and the impact through its budgeting
economic performance, of emergent and process and monitoring
including from unexpected events. of prevailing conditions.
Brexit, may have Changes in paper
an impact on the mill capacity and
Group's operations. demand from overseas
has impacted short
term paper purchase
prices. It is also
subject to conditions
in particular sectors,
e.g. property and
employment.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
9. Investment in The Company's ability Medium Unchanged The Company seeks Medium
growth to invest in new to limit the impact
digital product of these constraints
development and through a focus
technology is limited. on the areas of
This hinders its highest impact
ability to stay to support and
competitive and promote growth
invest in the digital of its local display,
products necessary features and entertainments
in a rapidly changing products.
environment.
----------------------- -------------------------- ----------- --------- ---------------------------- -----------
Financial Review
Introduction
This Financial Review provides commentary on the Group's
Statutory and Adjusted (Alternative Performance Measures or APM's)
results during the 52-week period ended 30 December 2017 (FY 2016:
52 weeks).
Statutory loss
A statutory loss before tax of GBP95.0 million (FY 2016:
GBP300.7 million loss), is reported after an impairment charge in
the period of GBP59.2 million on publishing titles (FY 2016:
GBP336.9 million), a GBP1.3 million impairment on digital
intangible assets, a GBP0.8 million impairment charge on press
equipment in Ireland (FY 2016: GBPnil), a GBP3.1 million impairment
on other property, plant and equipment, and a fair value loss (as
market price rose in the period) recorded on the Group's Bond of
GBP22.8 million (FY 2016: GBP43.6 million gain), and other
exceptional costs of GBP18.0 million (FY 2016: GBP18.8 million)
(see Alternative Performance Measures for more details).
Basis of presentation of results
The statutory results are presented for the continuing Group and
the prior period comparative excludes the Isle of Man business
disposed of in August 2016. The East Anglia and East Midlands
titles, disposed of in January 2017, are included in the statutory
results but removed for comparability in the adjusted figures.
Continuing statutory results include the i from acquisition date in
April 2016, closed titles and businesses, exceptional items,
impairment of asset carrying values and mark-to-market
gains/(losses) on the Group's Bond.
The Group has initiated a series of restructuring programs to
remove cost from the business with the objective of designing a
sustainable print publishing business model, while at the same time
investing in building a digital income stream.
The resulting restructuring project has seen a substantial
redesign of each area of the business, including management layers
and structures, products and services, content creation and our
sales routes to market. In streamlining the organisation, a
significant investment in redundancy has seen more than 2,047 posts
closed over the last 4 years. The Group has also sought to reflect
its change in shape and scale in support areas including making
substantial reductions in its property portfolio, technology
licences and fleet. The speed of its action, both in anticipating
and responding to recent changes in the sector has meant that some
existing contracts no longer reflect the current needs of the
business.
In 2017, the Group initiated new changes to its business model,
including how it allocated resources to different brands, its mix
of field and call centre based sales staff, while also adopting a
clear policy of downsizing its property portfolio, taking advantage
of natural lease breaks, typically moving to smaller short term
serviced offices in local towns and cities, while maintaining
larger hubs in Preston, Leeds, Edinburgh, Peterborough, Sheffield
and Portsmouth.
To provide investors and other users of the group's financial
statements with additional clarity and understanding of both the
cost of this business change program, and the resulting impact on
the Group's underlying trading, the directors believe that it is
appropriate to additionally present the Alternative Performance
Measures used by management in running the business and in
determining management and executive remuneration.
Adjusted results include the i for 52 weeks in 2017 and 38 weeks
in 2016.
In preparing commentary on performance, the financial impact of
a number of significant accounting and operational items has been
adjusted to determine the adjusted results included in this
Financial Review. The adjusted results provide supplementary
analysis of the 'underlying' trading of the Group.
The Directors assess the performance of the Group using
statutory accounting measures and a variety of alternative
performance measures ("APMs").
A reconciliation of statutory to adjusted figures is provided in
the Alternative Performance Measures section.
Statutory Adjusted
=================================== =================================
2017 2016(3) Change Change 2017 2016(3) Change Change
GBPm GBPm GBPm % GBPm GBPm GBPm %
================================= ======= ======== ======= ======= ======= ======= ====== =======
Newspaper sales 79.1 79.9 (0.8) (1.0)% 79.0 76.9 2.1 2.7%
Contract printing 13.3 12.8 0.5 4.2% 13.3 12.8 0.5 4.2%
Print advertising excluding
classified 49.0 61.3 (12.3) (20.1)% 48.8 52.6 (3.8) (7.2)%
Digital advertising excluding
classified 20.1 18.6 1.5 8.1% 20.0 17.7 2.3 13.2%
================================= ======= ======== ======= ======= ======= ======= ====== =======
Print and Digital advertising
excluding classified 69.1 79.9 (10.8) (13.5)% 68.8 70.3 (1.5) (2.1)%
Classified and other advertising 31.2 42.7 (11.5) (26.9)% 31.2 43.6 (12.4) (28.5)%
================================= ======= ======== ======= ======= ======= ======= ====== =======
Total advertising revenue 100.3 122.6 (22.3) (18.3)% 100.0 113.9 (13.9) (12.2)%
Leaflet, syndication and
other revenue 8.9 7.4 1.5 20.3% 8.9 7.2 1.7 23.6%
================================= ======= ======== ======= ======= ======= ======= ====== =======
Total continuing revenue 201.6 222.7 (21.1) (9.5)% 201.2 210.8 (9.6) (4.5)%
================================= ======= ======== ======= ======= ======= ======= ====== =======
Total costs (1) (244.9) (538.8) (293.9) (54.5%) (161.1) (166.9) (5.8) (3.5%)
================================= ======= ======== ======= ======= ======= ======= ====== =======
EBITDA(2) n/a n/a - - 40.1 43.9 (3.8) (8.7%)
================================= ======= ======== ======= ======= ======= ======= ====== =======
EBITDA margin - - - - 19.9% 20.8% - -
================================= ======= ======== ======= ======= ======= ======= ====== =======
Depreciation and amortisation (7.9) (7.4) (0.5) 6.8% (7.0) (6.9) (0.1) 1.4%
================================= ======= ======== ======= ======= ======= ======= ====== =======
Operating (loss)/profit (51.2) (323.5) 272.3 84.2% 33.1 37.0 (3.9) (10.5%)
================================= ======= ======== ======= ======= ======= ======= ====== =======
Operating (loss)/profit
margin (25.4%) (145.3%) - - 16.4% 17.5% - -
================================= ======= ======== ======= ======= ======= ======= ====== =======
1 Total costs include cost of sales and are stated before depreciation and amortisation.
2 EBITDA is earnings before interest, tax, depreciation and amortisation.
3 The i newspaper is included in the statutory and adjusted
results from the date of acquisition, in April 2016.
Revenue
Total statutory revenue was down GBP21.1 million (9.5%), of
which GBP9.9 million related to the sale of East Midlands titles
and down 16.6% excluding the i. Total adjusted revenue was down
4.5% for the year, and down 11.3% excluding the i. Revenue declines
reflect the continued downward pressure on print advertising and
newspaper circulation, partially offset by digital growth and the
benefit of a full 52 weeks i trading.
Newspaper sales revenue
The full year impact of the acquisition of the i, cover price
increases, continuing rationalisation and content improvement
initiatives across the portfolio, and has contributed to adjusted
newspaper sales revenues of GBP79.0 million in the year (including
the i for 52 weeks of 2017). This compares to newspaper sales
revenue of GBP76.9 million in 2016 (including i for 38 weeks),
giving year-on-year growth of 2.7%.
Adjusted newspaper sales revenue excluding the i was GBP55.6
million for 2017 (FY 2016: GBP62.1 million), a decline of 10.5%,
reflecting the continued downward pressure on circulation volumes,
which are no longer fully offset by price rises.
Contract printing
Contract printing revenue of GBP13.3 million was up 4.2% year on
year with the benefits of winning new printing contracts (including
the Daily Mail and Metro) outweighing circulation decline in some
existing external print contracts.
Printing revenue grew year-on-year 10.4% to GBP11.2 million
while revenue from paper supply fell by 19.8% to GBP2.1 million as
a result of circulation volume reduction of customer titles.
Advertising revenue
Total adjusted advertising revenue was down 12.2% year-on-year
(down 15.2% excluding the i), reflecting the continuing shift of
advertising spend away from print products, to digital and social
media services.
Print and Digital publishing advertising adjusted revenue
analysis
The full year benefit of the i, has partially offset the decline
in the rest of the Group, with total adjusted revenue down 12.2%,
whereas the Group excluding the i was down 15.2%.
Adjusted digital advertising excluding classifieds was up 13.2%,
while total adjusted digital advertising including classified was
up 2.8%.
The first 14 weeks of 2017 benefited from the i, with no
comparative revenue in 2016 and had the effect of offsetting
decline in existing titles in H1 2017. Excluding the i, in H1 2017,
total adjusted advertising revenues were down 15.7%.
Full year First half Second half
====================================================== ============= ==============================
Adjusted revenue including 2017 2016 % 2017 2016 % 2017 2016 %
the i GBPm GBPm change GBPm GBPm change GBPm GBPm change
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Display - local and
national 44.2 46.6 (5.1%) 22.3 23.0 (3.0%) 21.9 23.6 (7.2%)
Transaction revenue 19.6 19.8 (1.1%) 10.3 10.2 1.0% 9.3 9.6 (3.1%)
Digital marketing services
(1) and Enterprise 5.0 3.9 29.4% 2.5 1.9 31.6% 2.5 2.0 25.0%
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Print and Digital publishing
advertising 68.8 70.3 (2.1%) 35.1 35.1 (0.0%) 33.7 35.2 (4.3%)
Classified and other
advertising 31.2 43.6 (28.5%) 17.3 24.3 (28.8%) 13.9 19.3 (28.0%)
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Total advertising revenue 100.0 113.9 (12.2%) 52.4 59.4 (11.8%) 47.6 54.5 (12.7%)
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Print publishing advertising 48.8 52.6 (7.2%) 25.1 26.4 (4.9%) 23.7 26.2 (9.5%)
Digital publishing advertising 20.0 17.7 13.2% 10.0 8.7 14.9% 10.0 9.0 11.1%
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Print and Digital publishing
advertising 68.8 70.3 (2.1%) 35.1 35.1 (0.0%) 33.7 35.2 (4.3%)
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
1 Digital marketing services, formerly Digital Kitbag (DKB).
Full year First half Second half
===================== ====================== =====================
Adjusted revenue excluding 2017 2016 % 2017 2016 % 2017 2016 %
the i GBPm GBPm change GBPm GBPm change GBPm GBPm change
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Display - local and
national 38.8 43.9 (11.5%) 19.7 22.5 (12.4%) 19.1 21.3 (10.3%)
Transaction revenue 19.6 19.8 (1.1%) 10.3 10.2 1.0% 9.3 9.6 (3.1%)
Digital marketing services
(1) and Enterprise 4.9 3.9 27.0% 2.5 1.9 31.6% 2.4 2.1 14.3%
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Print and Digital publishing
advertising 63.3 67.6 (6.3%) 32.5 34.6 (6.1%) 30.8 33.0 (6.7%)
Classified and other
advertising 30.5 43.1 (29.1%) 17.0 24.1 (29.5%) 13.5 19.0 (28.9%)
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Total adjusted advertising
revenue 93.8 110.7 (15.2%) 49.5 58.7 (15.7%) 44.3 52.0 (14.8%)
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Print publishing advertising 43.6 50.0 (12.8%) 22.6 25.9 (12.7%) 21.0 24.1 (12.9%)
Digital publishing advertising 19.7 17.6 11.9% 9.9 8.7 13.8% 9.8 8.9 10.1%
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
Adjusted Print and Digital
publishing advertising 63.3 67.6 (6.3%) 32.5 34.6 (6.1%) 30.8 33.0 (6.7%)
================================ ===== ===== ======= ====== ===== ======= ===== ===== =======
1 Digital marketing services, formerly Digital Kitbag (DKB).
The sharpest fall in advertising, continued to be in classified,
down 29.2% or GBP12.6m of the GBP16.9m total fall in adjusted
advertising revenue in 2017 (before the benefit of the i).
The table below presents the total print and digital advertising
revenues, for the purpose of reconciling to the Group's statutory
breakdowns in the note to the financial statements.
Full year (including Full year (excluding
the i) the i)
----------------------------------- ======================== ========================
2017 2016 2017 2016
GBPm GBPm % change GBPm GBPm % change
=================================== ====== ====== ======== ====== ====== ========
Adjusted Advertising revenue
Print 74.0 88.7 (16.6)% 68.3 85.6 (20.2)%
Digital 26.0 25.2 3.2% 25.5 25.1 1.6%
=================================== ====== ====== ======== ====== ====== ========
Total adjusted advertising revenue 100.0 113.9 (12.2)% 93.8 110.7 (15.2)%
=================================== ====== ====== ======== ====== ====== ========
Leaflets, syndication and other revenue
Leaflets, syndication and other revenues (which include
Transitional Services Agreement (TSA) income, events, reader offers
and waste sales) improved by GBP1.5 million year-on-year. The
improvement includes TSA income from Iliffe Media Limited which
commenced following the disposal of the East Anglia and East
Midlands titles on 17 January 2017.
i Performance
Following the acquisition of the i on 10 April 2016, the Group
has seen improving revenue trends and increased profitability as a
result of management actions to reduce cost and grow revenue
(including the benefit of a 10 pence cover price rise on Monday to
Friday, and a 20 pence rise on Saturdays effective from September
2017).
The table below explains the benefit of 52 weeks trading in
2017, against 38 weeks in 2016 to enable a better understanding of
run rates, and to aid understanding of this impact on Group
results, a 38 week like for like period is presented. The 38 weeks
reflects the comparable period for which the i was owned in both
periods.
i performance i performance
like-for-like
================================== ==================================
52 weeks 38 weeks 38 weeks 38 weeks
to to to to
30 Dec 31 Dec 30 Dec 31 Dec
2017 2016 Change Change 2017 2016 Change Change
GBPm GBPm GBPm % GBPm GBPm GBPm %
=========================== ======== ======== ====== ====== ======== ======== ====== ======
Statutory revenue 30.6 18.5 12.1 65.4% 22.9 18.5 4.4 23.8%
Statutory total costs (21.9) (15.3) (6.6) 43.1% (15.4) (15.3) (0.1) -%
Statutory Operating profit 8.7 3.2 5.5 171.8% 7.5 3.2 4.3 146.9%
Adjusted EBITDA(1) 9.3 3.3 6.0 181.8% 7.6 3.3 4.3 130.3%
=========================== ======== ======== ====== ====== ======== ======== ====== ======
(1) The adjusted EBITDA contributed by the i has no central
corporate costs allocated
Gross margin and operating costs
In 2017, the Group's adjusted operating profit was GBP33.1
million, a 10.3% decline on the prior year. Total costs were
reduced by GBP5.6 million net of the full year effect of the i.
Excluding the i, the Group reduced costs by GBP12.1 million (7.6%).
The statutory operating loss was GBP51.2m, representing an 84.2%
improvement on prior year.
The adjusted depreciation charge rose by GBP0.1 million to
GBP7.0 million in 2017 as a result of the continued digital
investment.
Finance income and costs
Adjusted total net finance costs were GBP18.9 million, a
decrease of GBP0.7 million year-on-year. The fair value charge
resulting from the increase in the market price on the Bond for the
period to 30 December 2017 amounted to GBP22.8m million (31
December 2016: GBP43.6 million gain). Refer to Note 16 Borrowings
for further information.
Net financing (expense)/income
Statutory Adjusted (1)
======================= =======================
2017 2016 GBPm 2017 2016 GBPm
GBPm GBPm change GBPm GBPm change
================================================== ====== ====== ======= ====== ====== =======
Interest on bond (18.8) (19.0) 0.2 (18.8) (19.0) 0.2
Interest on bank overdrafts and loans - (0.4) 0.4 - (0.4) 0.4
Amortisation of term debt issue costs - (0.2) 0.2 - (0.2) 0.2
Financing fees (0.1) - (0.1) (0.1) - (0.1)
================================================== ====== ====== ======= ====== ====== =======
Total operating finance expense (18.9) (19.6) 0.7 (18.9) (19.6) 0.7
Interest receivable - 0.1 (0.1) - 0.1 (0.1)
Net finance expense on pension liabilities/assets (1.7) (0.8) (0.9) - - -
Change in fair value of borrowings (22.8) 43.6 (66.4) - - -
Exceptional financing costs (0.4) (0.5) 0.1 - - -
================================================== ====== ====== ======= ====== ====== =======
Total net financing (expense)/income (43.8) 22.8 (66.6) (18.9) (19.5) (0.6)
================================================== ====== ====== ======= ====== ====== =======
1 Adjusted net financing costs excludes the mark-to-market fair
value loss on the bond of GBP22.8 million (FY 2016: GBP43.6 million
gain), pension finance expense and exceptional financing costs.
Statutory Segment revenues and results
The Group operates a publishing business including its long
standing national, regional and local brands, and the i newspaper.
It also runs a printing business, serving its own titles, and a
number of external customers.
The following is an analysis of the Group's revenue and results
by reportable segment:
52-week period ended 30 December 52-week period ended 31
2017 December 2016
============================================== ====================================== ---------
Restated
Contract Restated Contract Restated
Publishing printing Eliminations Group Publishing printing Eliminations Group
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============== ========== ========= ============ ========= ============= ========= ============ =========
Revenue
Print
advertising 74,265 - - 74,265 95,674 - - 95,674
Digital
advertising 25,976 - - 25,976 26,950 - - 26,950
Newspaper sales 79,102 - - 79,102 79,849 - - 79,849
Contract
printing - 13,321 - 13,321 - 12,788 - 12,788
Other 8,002 950 - 8,952 6,735 703 - 7,438
=============== ========== ========= ============ ========= ============= ========= ============ =========
Total external
sales 187,345 14,271 201,616 209,208 13,491 - 222,699
Inter-segment
sales - 20,486 (20,486) - - 23,597 (23,597) -
=============== ========== ========= ============ ========= ============= ========= ============ =========
Total revenue 187,345 34,757 (20,486) 201,616 209,208 37,088 (23,597) 222,699
=============== ========== ========= ============ ========= ============= ========= ============ =========
Impairment and
write
downs (63,668) (758) - (64,426) (341,246) (3,080) - (344,326)
Adjustments
(excluding
impairment and
write
downs) (18,760) (295) - (19,055) (20,202) (14) - (20,216)
--------------- --------- ------------ ------------- --------- ------------ ---------
Operating costs (138,161) (31,187) - (169,348) (147,026) (34,617) - (181,643)
=============== ========== ========= ============ ========= ============= ========= ============ =========
Net segment
result
(restated) (33,244) 2,517 (20,486) (51,213) (299,266) (623) (23,597) (323,486)
=============== ========== ========= ============ ========= ============= ========= ============ =========
Asset impairment
The carrying value of assets is reviewed for impairment at least
annually or more frequently if there are indications that they
might be impaired. In light of the severe trading conditions
impacting the sector, an impairment review was undertaken which
resulted in a write-down of GBP64.4 million (FY 2016: GBP344.3
million). The impairment is largely a function of taking a more
prudent view of the short and long-term growth rate, increasing the
perpetuity decline rates from a range of -1% to -2% in 2016 to -4%
in 2017. The write-down reduces the asset carrying value of
publishing units to GBP84.4 million and the carrying value of print
presses to GBP18.7 million at period-end. Refer to Note 13 and
14.
(Loss)/Profit before tax
The Group's adjusted profit before tax was GBP14.2 million (FY
2016: GBP17.4 million). The year-on-year decline of GBP3.2 million
was due to the reduction in revenue being only partly mitigated by
operating cost savings. The Group's statutory loss before tax was
GBP95.0 million (FY 2016: GBP300.7 million loss).
Tax
The Income Statement includes a tax credit of GBP16.4 million
(FY 2016: GBP53.4 million tax credit) which comprises a current tax
credit of GBP0.1 million (FY 2016: GBP0.7m tax charge) and a
deferred tax credit of GBP16.3 million (FY 2016: GBP54.1 million
tax credit). The Statement of Other Comprehensive Income includes a
GBP2.0 million deferred tax credit (FY 2016: GBP6.3 million
deferred tax loss) in relation to the current tax benefit of
pension contributions in excess of net pension financing
charges.
The deferred tax credit GBP16.3 million recognised in the income
statement has largely arisen from GBP59.2 million of impairment
charges on the Group's publishing title intangible assets (GBP10.1
million deferred tax credit) and the disposal of East Anglia and
East Midlands publishing titles in January 2017 resulting in a
deferred tax credit of GBP3.2 million. GBP3.9 million of the
current year deferred tax credit has arisen on the Group's Bond,
due to different accounting treatment applied on the Bond at the
Group level in contrast with that applied at the subsidiary entity
level due to statutory reporting requirements. This was offset by a
deferred tax charge of GBP2.1 million recognised in the income
statement as a result of certain deferred tax assets being deemed
unrecoverable.
The Group's effective tax rate was 17.3% for the 2017 financial
year (2016: 17.8%). In the period, the effective tax rate was lower
than the prevailing UK corporation tax rate of 19.25%, largely due
to the disallowance of corporate interest restriction amounts, the
difference between current and deferred tax rates and the impact of
deferred tax not recognised overall reducing the effective tax rate
by 6.3%. This has been partly offset by the deferred tax impact of
the disposal of the East Anglia and East Midlands publishing titles
disposed in January 2017 increasing the effective tax rate by
3.1%.
The Group expects that, subject to the uncertain outcome of the
strategic review, the effective tax rate will remain relatively
consistent with the current and prior year and reflect the
reduction of UK corporate tax rates over the next few years.
Refer to Note 9 for further detail.
The Group published its tax strategy on the Group's website on
14 December 2017, and is available at
http://www.johnstonpress.co.uk/tax-strategy.
(Loss)/earnings per share and dividends
====== =====
Statutory Adjusted
Basic EPS Basic EPS
=============== ============
(Loss)/earnings per share for continuing operations 2017 2016 2017 2016
==================================================== ====== ======= ===== =====
(Loss)/earnings less preference dividend (GBPm) (78.6) (247.3) 7.3 13.5
==================================================== ====== ======= ===== =====
Number of ordinary shares (m) 105.3 105.3 105.3 105.3
==================================================== ====== ======= ===== =====
EPS (pence) (74.6) (234.9) 6.9 12.7
==================================================== ====== ======= ===== =====
A reconciliation of statutory to adjusted earnings per share is
detailed within the detailed reconciliation of the statutory to
adjusted results shown in the Alternative Performance Measures
section.
No ordinary or preference share dividends were declared or paid
in the period, due to restrictions in the Bond terms and
insufficient distributable reserves. The provisions of the Group's
Bond restrict the Company's ability to pay dividends on the
Company's ordinary shares until certain conditions, including that
net leverage is below 2.25x adjusted EBITDA, are met.
Disposal
On 17 January 2017, the Group completed the disposal of the
entire issued capital of Johnston Publishing East Anglia Limited,
which owned 13 publishing titles and associated websites in East
Anglia and East Midlands (Midlands titles), to Iliffe Media Limited
for cash consideration of GBP17.0 million and disposal cost of
GBP1.4 million.
Cashflow and net debt
The Group's net debt decreased to GBP195.9 million at 30
December 2017, excluding Bond mark-to-market and Bond discounts
totalling GBP54.2 million. In the period, a GBP22.8 million fair
value movement loss has been recognised (as a result of an increase
in the market value of the bond) (FY 2016 GBP43.6 million gain)
(Note 8b of the financial statements). The net debt after
mark-to-market adjustments was GBP141.7 million.
Cash generated from operations of GBP12.2 million is after
payment of GBP1.4 million in professional fees in relation to the
disposal of the East Anglia and East Midlands titles (Note 15) and
pension contributions of GBP10.3 million. Cash held at 30 December
2017 was GBP25.0 million, with the increase from the prior period
end including disposal proceeds of GBP17.0 million before fee's
received from Iliffe Media Limited (Note 15) and GBP5.2 million in
proceeds from the sale of properties.
The Group continues to maintain tight control of working capital
and capital expenditure with GBP4.6 million having been spent on
asset purchases (FY 2016: GBP6.1 million), including GBP1.7 million
outlay on digital platforms and other equipment.
Cash interest paid for the full year was GBP19.0 million on the
bond (FY 2016: GBP19.4 million). The GBP0.4 million decrease from
the prior period is attributable to the interest that was paid on
overdrafts and loans in the prior year.
We have continued to review our property portfolio to identify
markets and centres that have accommodation which no longer meets
the requirements of the business. Overall we reduced the total
number of operating properties within the portfolio to 89 at the
end of 2017, a reduction of 18 properties in the year. Three UK
freehold properties were sold during 2017, and there was a net
reduction of 15 leases, including eight leases that were reassigned
or sublet as part of the East Midlands and East Anglia title
disposal to Iliffe Media Ltd. The Group expects to take advantage
of emerging opportunities to rationalise the property portfolio
further during 2018.
The Group received cash proceeds of GBP5.2 million on the
properties sold during the period, which included the Sheffield
property and car park disposal and deferred consideration received
on the former Peterborough web press site. In the current year
there was a change in the estimate for the anticipated total future
cost payable for onerous leases and dilapidations, arising from a
change in the Group's property strategy. This resulted in an
additional provision of GBP4.4 million being charged.
Reconciliation of net debt to net debt excluding mark-to-market
2017 2016
GBPm GBPm
================================================================ ====== ======
Gross bond debt (at inception) 225.0 225.0
Bond repurchase (5.0) (5.0)
Finance leases 0.9 0.6
Cash and cash equivalents (25.0) (16.1)
================================================================ ====== ======
Net debt excluding mark-to-market 195.9 204.5
Mark-to-market on bond (from inception) (49.8) (72.6)
Bond discount (net) (4.4) (4.4)
================================================================ ====== ======
Net debt 141.7 127.5
================================================================ ====== ======
Capital expenditure
The Group spent GBP4.7 million of costs in the period (FY 2016:
GBP6.1 million). Of this, GBP4.0 million was spent on developing
the digital platforms (2016: GBP4.6 million) and GBP0.7 million
spent on other infrastructure (FY 2016: GBP1.6 million).
Strategic Review
The Group's net debt (excluding mark-to-market) at period end
was GBP195.9 million. The major acquisition programme in 2005 and
2006 saw peak debt levels hit GBP751 million at the end of 2006.
The Group also operates a defined benefits pension scheme, which
was closed to future accrual on 30 June 2010. At 30 December 2017
it had a net deficit of GBP47.2 million. Today only 276 of the
4,959 scheme members are current employees of the Group.
Operationally, the Group continues to generate cash and perform
well in a very challenging trading environment. In 2017, from the
cash generated by the operations, the Group paid annual interest of
GBP18.8 million on its Bonds and made pension contributions of
GBP10.3 million to the defined benefit pension scheme.
The current size of the business cannot support this level of
debt and pension commitments over the longer term.
On 29 March 2017, the Group announced it had commenced a
strategic review, working with its advisers, Rothschild and Ashurst
LLP, to assess the financing options available to the Group in
relation to the Bonds which become due for repayment on 1 June
2019. As a key part of the strategic review process, the Board has
engaged with its major stakeholders, including shareholders,
holders of the Bonds, Pension Trustees and the Pensions
Regulator.
The Board subsequently announced that it was approaching its
largest bondholders regarding the formation of an ad hoc committee
of bondholders, which was formed in November 2017. Discussions with
advisers to the ad hoc committee and our other stakeholders are in
progress. Any proposal that results from these discussions will
remain subject to negotiation and the consent of relevant
stakeholders, and there can be no certainty that a formal proposal
will be forthcoming. In the event that consensual amendments to the
Group's capital structure cannot be agreed with relevant
stakeholders, alternative arrangement for the restructuring or
refinancing of the Bonds prior to June 2019 will be explored as
part of the strategic review process.
The impact of this matter on the directors determination of the
appropriateness of preparing the 2017 financial statements on a
going concern basis, and their review of the Group's viability over
the medium term is discussed in the 'Liquidity and going concern'
section and the 'Viability Statement' section.
Net liabilities position
At the period end, the Group had a net deficit of GBP93.5
million, a reduction in net assets of GBP67.4 million on the prior
year. The movement in the net asset position from the prior year
includes: an impairment write-down of GBP64.4 million, a GBP23.1
million increase in borrowings (which is largely due to the fair
value loss of GBP22.8 million recorded in the period), a reduction
in assets held for sale of GBP16.2 million, partially offset by a
GBP20.5 million decrease in the pension deficit and a GBP9.0
million increase in cash.
Pensions
As at 30 December 2017, the net pension deficit has decreased to
GBP47.2 million from GBP67.7 million at 31 December 2016. The
decrease in the deficit is largely a result of GBP10.3 million of
contributions paid during the period, positive returns on pension
assets and the benefit of applying updated demographic assumptions
based on the CMI 2016 model (as compared to the estimate made at 31
December 2016). This reflects life expectancy of 19.7 years for a
male aged 65, down from 20.1 years in the prior year and in line
with the Health Study completed in 2015.
Each of the financial assumptions were reviewed in light of
market conditions resulting in the application of a discount rate
of 2.50% (down from 2.70% at 31 December 2016), and a decrease in
inflation assumption by 0.10% to 3.30%. These assumptions have
partially offset the benefit experienced by the mortality rate
change discussed above.
The Pension Framework Agreement and the required level of
contributions have been reviewed as part of the review of strategic
options relating to the refinancing of the Bonds on 1 June 2019.
Refer to the Strategic review, above for further details, and to
Note 17 for more detailed disclosure surrounding the Johnston Press
Pension Plan.
Five-year history:
30 December 31 December 2 January 3 January 28 December
2017 2016 2016 2015 2013
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== =========== =========== ========= ========= ===========
Fair value of scheme assets 561,425 547,885 473,413 480,479 420,306
---------------------------------- ----------- ----------- --------- --------- -----------
Present value of defined benefit
obligations (608,612) (615,610) (500,375) (567,509) (498,640)
---------------------------------- ----------- ----------- --------- --------- -----------
Additional obligation under IFRIC
14 - - - (2,971) -
================================== =========== =========== ========= ========= ===========
Net deficit in the plan (47,187) (67,725) (26,962) (90,001) (78,334)
================================== =========== =========== ========= ========= ===========
The Group has seen a substantial increase in asset values over
the five years to December 2017. Changes in deficit rates and
inflation assumptions have partially offset this value increase,
the deficit falling from a peak of GBP90.0 million at the beginning
of 2015 to GBP47.2 million. See Note 17 for more detailed
disclosure surrounding the Johnston Press Pension Plan
Reconciliation of statutory and adjusted results
Adjusted operating profit of GBP33.1 million (FY 2016: GBP36.9
million) includes the results of the i from the acquisition date
and has been calculated after adjusting for revenue and cost of
sales for closed titles and digital brands. Adjustments made to
operating costs include restructuring, impairment and other
non-trading related costs.
Continuing statutory revenue has been adjusted for disposed and
closed titles and digital products to give adjusted revenue. The
adjustment to revenue is a reduction of GBP0.4 million in 2017, and
GBP11.9 million in 2016. A detailed reconciliation of the statutory
to adjusted revenue is shown on in the Alternative Performance
Measures section.
A reconciliation of statutory to adjusted operating
profit/(loss) and to EBITDA, is provided below:
Operating profit/(loss)
===========================
Full Full
year year
2017 2016
GBPm GBPm
========================================================= ============ =============
Statutory Operating loss (51.2) (323.5)
========================================================= ============ =============
Adjustments
Closed / disposed titles and products (0.1) (4.6)
Redundancy, property restructuring, onerous contract and
sales transformation costs 13.7 9.3
(Disposals)/acquisitions (1.3) 2.5
Impairment of assets 64.4 344.3
Strategic review 3.4 0.7
Pensions 1.9 5.4
Accelerated depreciation 0.9 0.5
Other 1.4 2.2
Adjusted Operating profit 33.1 36.9
========================================================= ============ =============
Adjusted Depreciation and amortisation 7.0 6.9
========================================================= ============ =============
Adjusted EBITDA 40.1 43.9
========================================================= ============ =============
Revenue
=============
Full Full
year year
2017 2016
GBPm GBPm
====================================== ===== ======
Statutory Revenue 201.6 222.7
====================================== ===== ======
Adjustments
Closed / disposed titles and products (0.4) (11.9)
Adjusted Revenue 201.2 210.8
====================================== ===== ======
* Full year 2017 included i newspaper for 52 weeks and 38 weeks
in 2016.
Financial reporting
The effect of IFRS standard changes that are applicable to
annual periods beginning on or after 1 January 2017 and 1 January
2018 are further described in Note 4 to the financial
statements.
Factors affecting future group performance
The performance of the Group will continue to be affected by the
economic conditions in our markets, cyclical conditions, structural
and business-specific circumstances and economic trends including
employment, property transactions, new car sales and the levels of
consumer and SME confidence. However, the outlook for the Group
will also depend on a number of other factors, including:
-- growing new digital revenues in the Group's existing market
segments to offset print revenue decline;
-- ability to adapt to customer requirements through new sales
propositions and digital advertising channels;
-- the impact of new entrants and competitors to the market;
-- continually improving existing efficient operations through
technology infrastructure and improved processes;
-- further re-engineering of the cost base of the business;
-- the level of investment required to support digital growth,
and restructuring, and its impact on cash generation;
-- impact on sterling following Brexit subsequently impacting Euro denominated paper prices;
-- conclusion of negotiations with pension scheme trustees
regarding annual pension contributions; and
-- the outcome of the Strategic Review of the options available
to the Group in respect of the repayment of the Bonds in June 2019
(see Going Concern and Viability Statements.
Liquidity and going concern
As at 30 December 2017, the Group had net debt of GBP195.9
million (excluding mark-to-market accounting adjustment),
comprising cash of GBP25 million and borrowings of GBP220 million.
The borrowings comprise GBP220 million of high yield bonds (the
Bonds), which are repayable on 1 June 2019 and are not subject to
any financial maintenance covenants.
On 29 March 2017, the Group announced it had commenced a
Strategic Review, working with its advisers Rothschild and Ashurst
LLP, to assess the financing options open to the Group in relation
to the Bonds. As a key part of this Strategic Review process, the
Board has engaged with its major stakeholders, including
shareholders, holders of the Bonds, Pension Trustees and the
Pensions Regulator.
On 10 October 2017, the Board announced that it was approaching
its largest bondholders regarding the formation of an ad hoc
committee of bondholders (the "Bondholder Committee") to consider
in greater detail certain potential amendments to the Group's
capital structure. On 2 November 2017, the Group confirmed that the
Bondholder Committee had been formed. The main objectives of these
potential amendments to the Group's capital structure, combined
with certain proposed amendments to the Group's pension scheme, are
to (i) achieve a sustainable level of debt within the Group to
enable it to refinance its debt in the future, and (ii) materially
reduce or eliminate the pension scheme deficit by 2021, whilst
preserving the pension scheme members' benefits. On 1 February
2018, the date of our last trading update, the Board confirmed that
discussions with advisers to the Bondholder Committee were in
progress.
The Group continues to explore these potential amendments to its
capital structure with advisers to the Bondholder Committee and the
Board is satisfied with the continued support of the Group's major
stakeholders during the review process. Any proposal that results
from these discussions will remain subject to negotiation and the
consent of relevant stakeholders, and there can be no certainty
that a formal proposal will be forthcoming. In the event that
consensual amendments to the Group's capital structure cannot be
agreed with relevant stakeholders, alternative options for the
restructuring or refinancing of the Bonds prior to their maturity
in June 2019 will be explored as part of the ongoing strategic
review process.
The Group has performed a review of its financial resources
taking into account, inter alia, the cash currently available to
the Group, the absence of financial maintenance covenants in the
Bonds, and the Group's cash flow projections for the thirteen month
period from the date of this report to 1 June 2019, and, based on
this review, and after considering reasonably possible trading
downside sensitivities and uncertainties, the Board is of the
opinion that, subject to the material uncertainty surrounding the
repayment of the Bonds on 1 June 2019 (referred to below), the
Group has adequate financial resources to meet its operational cash
flow requirements for the next thirteen months from the date of
this report. The directors also anticipate that the Group will
remain in a position to meet its obligations in respect of the
Bonds, including with regard to the payment of interest, in the
period prior to their maturity.
However, given the challenges faced by the newspaper and
printing industry as a whole, the current trading experience of the
Group, and the likely financial position of the Group at the time
the Bonds are due for repayment in June 2019, there is material
uncertainty surrounding the Group's ability to refinance the Bonds
at par in the market on commercially acceptable terms. Failure to
repay, refinance, satisfy or otherwise retire the Bonds at their
maturity would give rise to a default under the indenture governing
the Bonds dated 16 May 2014, and this possibility indicates a
material uncertainty that may cast significant doubt on the Group's
ability to continue as a going concern and if the Strategic Review
does not deliver a solution for the Group it may be unable to
realise its assets and discharge its liabilities in the normal
course of business.
Notwithstanding this material uncertainty, taking into account
that (i) the Strategic Review is ongoing, (ii) the Group has
adequate financial resources to meet its operational cash flow
requirements for the thirteen month period from the date of this
report, and (iii) the Group is, and is anticipated to remain, in a
position to meet its obligations in respect of the Bonds in the
period prior to their maturity, the Directors have concluded it is
appropriate to prepare the financial statements on a going concern
basis.
Viability Statement
Provision C.2.2. of the Corporate Governance Code requires
directors to assess the prospects of a business over a period of
time longer than the 12 months typically required to determine the
going concern basis for the preparation of the financial statements
of a business. The directors have previously determined that the
period of three years from the balance sheet date is appropriate
for the purposes of conducting this review. This period was
selected with reference to the Group's strategy and planning cycle.
The Board formally reviews strategy twice a year, normally in May
and September, with a view to informing the subsequent annual
budget setting. The budget forms year one of the three year plan,
with projections for years two and three. A three year plan for the
Group covering the period 2018 to 2020 was considered by the board
initially in September 2017 and, subsequently, in April 2018.
In light of the ongoing Strategic Review to assess the financing
options open to the Group in relation to the Bonds, the directors
have reconsidered the period over which they can reasonably assess
the Group's viability. As noted in the review of Liquidity and
Going Concern, there is a material uncertainty surrounding the
Group's ability to refinance the Bonds, which are repayable in full
on 1 June 2019 and are not subject to any financial maintenance
covenants, at par in the market on commercially acceptable terms.
Failure to repay, refinance, satisfy or otherwise retire the Bonds
at their maturity would give rise to a default under the indenture
governing the bonds dated 16 May 2014, and this possibility
indicates a material uncertainty that may cast significant doubt on
the Group's ability to continue as a going concern and if the
Strategic Review does not deliver a solution for the Group it may
be unable to realise its assets and discharge its liabilities in
the normal course of business.
Given that it is not currently possible to determine the Group's
capital structure beyond June 2019 (which will determine, inter
alia, the term, cost, financial maintenance covenants (if any) and
quantum of any borrowings, and the level of contributions to the
pension scheme), it is not possible for the Board to comment on the
Group's ability to continue in operation and meet its liabilities
as they fall due beyond June 2019 and the directors have therefore
concluded that it is necessary to shorten the viability assessment
period to the thirteen month period from the date of this report to
1 June 2019, in line with the period of the going concern review.
On this basis, and acknowledging the material uncertainty around
the repayment, refinancing, satisfaction or other retirement of the
Bonds in June 2019, the Board confirms that it has a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period to 1 June
2019.
Whilst it is not possible for the Board to comment on its
ability to continue in operation and meet its liabilities as they
fall due beyond June 2019, as noted above, the Group has continued
to produce a three year plan for the Group for the period covering
2018 to 2020 as part of the Group's normal strategic planning cycle
on the assumption that the Group can secure an appropriate
restructuring or refinancing of the Bonds on, or before, 1 June
2019.
In setting the annual budget and three year plan for 2018 to
2020 the Board considered the current trading position and the
principal operating and financial risks and opportunities
identified by the Group. In particular:
-- The opportunity to invest and grow its audiences and its digital revenue streams;
-- The ability of the Group to continue to reduce costs, to
mitigate the continuing decline in print based circulation and
advertising revenues; and
-- The level of capital expenditure required to support investment in growth, and the level of restructuring costs needed to support further cost reduction initiatives.
The Group operates in an industry which is undergoing a
sustained period of significant structural change. This is driven
in part by new competitors and new methods of accessing content
which are provided by rapidly-changing technology and which are in
turn facilitating very significant and ongoing changes in consumer
behaviour. The Group's ability to adapt to this constantly changing
environment will affect its prospects over the three year
period.
In reviewing its three year plan, the Group conducted
sensitivity analysis to understand the impact of the combination of
a reduction in digital advertising growth rates, an additional
decline in other revenue streams and shortfalls in cost savings. As
a result of these sensitivities the business would be cash
consumptive, before taking mitigating actions. The Board has
identified a number of mitigating actions that could be taken, if
necessary, in order to preserve the Group's liquidity, including
reductions in capex, restructuring and property disposals. In the
three year plan the Group has assumed that there would be no
reduction in interest payments and pension contributions post June
2019. The future assessments and plans adopted by the Board are
subject to change and a level of market uncertainty. As a result of
the risks and uncertainties faced by the business (including those
outlined in the Principal Risks & Uncertainties section the
outcomes reflected in its plan cannot be guaranteed.
The Group's trading performance in 2017 reflected continuing
declines in local print advertising and newspaper sales, being only
partially offset by a substantial improvement in the performance of
the i newspaper (driven by both National print advertising and
print circulation revenues), strengthening digital revenue
(excluding classifieds) and cost savings.
The three year plan for 2018 to 2020 demonstrates that, with no
reduction in financing costs and pension contributions (refer to
the financial review), the operations remain profitable and cash
generative. Whilst declines in local print advertising and local
newspaper sales revenue are expected to continue over this period,
further strong growth in both the profitability of the i newspaper
brand and digital revenue (excluding classifieds) is expected to
continue which, along with additional cost savings, should help
maintain profitability.
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Results
Announcement in accordance with applicable laws and regulations.
The responsibility statement below has been prepared in connection
with the Group's full Annual Report for the 52 week period ended 30
December 2017. Certain points thereof are not included within this
Annual Results Announcement.
The Directors confirm to the best of their knowledge that:
a) the consolidated financial statements, from which the
financial information within these preliminary consolidated
financial results have been extracted, are prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union, and give a true and fair view of the assets,
liabilities, financial position and loss of the Group 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
Group and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties faced by the Group.
By order of the Board:
Ashley Highfield David King
Chief Executive Officer Chief Financial Officer
16 April 2018 16 April 2018
Group Income Statement
For the 52-week period ended 30 December 2017
Restated(1)
52 weeks 52 weeks
ended 30 ended
December 31 December
2017 2016
Notes GBP'000 GBP'000
======================================================== =========== ========= ============
Continuing operations
Revenue 6 201,616 222,699
Cost of sales (135,726) (143,474)
======================================================== =========== ========= ============
Gross profit 65,890 79,225
======================================================== =========== ========= ============
Operating expenses before impairment and write-downs(1) (52,677) (58,385)
Impairment and write-downs 7 (64,426) (344,326)
======================================================== =========== ========= ============
Total operating expenses (117,103) (402,711)
======================================================== =========== ========= ============
Operating loss 6, 7 (51,213) (323,486)
======================================================== =========== ========= ============
Financing
Interest receivable 45 73
Net finance expense on pension liabilities/assets 8a (1,690) (831)
Change in fair value of borrowings 8b (22,825) 43,619
Finance costs 8c (19,286) (20,056)
======================================================== =========== ========= ============
Total net finance (expense) / income (43,756) 22,805
======================================================== =========== ========= ============
Loss before tax (94,969) (300,681)
Tax credit 9 16,389 53,371
======================================================== =========== ========= ============
Loss from continuing operations (78,580) (247,310)
======================================================== =========== ========= ============
Net profit from discontinued operations 10 - 28
======================================================== =========== ========= ============
Consolidated loss for the period (78,580) (247,282)
======================================================== =========== ========= ============
1 Prior period comparatives have been restated, refer to Note
3.
The accompanying notes are an integral part of these financial
statements.
Restated(1)
52 weeks 52 weeks
ended 30 ended
December 31 December
Notes 2017 2016
============================================= ===== ========= ============
From continuing and discontinuing operations
Loss per Share (p)
Basic 12 (74.6) (234.9)
============================================= ===== ========= ============
Diluted 12 (74.6) (234.9)
============================================= ===== ========= ============
From continuing operations
Loss per Share (p)
Basic 12 (74.6) (234.9)
=========================== ====== =======
Diluted 12 (74.6) (234.9)
=========================== ====== =======
1 Prior period comparatives have been restated, refer to Note
3.
Group Statement of Comprehensive Income
For the 52-week period ended 30 December 2017
Translation Retained
reserve earnings Total
GBP'000 GBP'000 GBP'000
======================================================= =========== ========== ========
Loss for the period - (78,580) (78,580)
Other items of comprehensive income
Items that will not be reclassified subsequently
to profit or loss
Actuarial gain on defined benefit pension schemes - 11,942 11,942
Deferred tax on pension balances - (2,030) (2,030)
Total items that will not be reclassified subsequently
to profit or loss - 9,912 9,912
======================================================= =========== ========== ========
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of foreign
operations(1) (26) - (26)
======================================================= =========== ========== ========
Total items that may be reclassified subsequently
to profit or loss (26) - (26)
======================================================= =========== ========== ========
Total other comprehensive (loss)/gain for the
period (26) 9,912 9,886
======================================================= =========== ========== ========
Total comprehensive loss for the period (26) (68,668) (68,694)
======================================================= =========== ========== ========
1 Movements in the translation reserve relate to the translation
of interests in dormant Irish subsidiaries.
For the 52-week period ended 31 December 2016
Restated(1)
Revaluation Translation Retained Restated(1)
reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
================================================== =========== =========== =========== ===========
Loss for the period - - (247,282) (247,282)
Other items of comprehensive income
Items that will not be reclassified subsequently
to profit or loss
Actuarial loss on defined benefit pension
schemes - - (45,799) (45,799)
Deferred tax on pension balances - - 6,337 6,337
Current tax on pension contribution relating
to actuarial valuation loss - - 1,073 1,073
================================================== =========== =========== =========== ===========
Total items that will not be reclassified
subsequently to profit or loss - - (38,389) (38,389)
================================================== =========== =========== =========== ===========
Items that may be reclassified subsequently
to profit or loss
Revaluation adjustment (3) - - (3)
Exchange differences on translation of
foreign operations(2) - (62) - (62)
================================================== =========== =========== =========== ===========
Total items that may be reclassified subsequently
to profit or loss (3) (62) - (65)
================================================== =========== =========== =========== ===========
Total other comprehensive loss for the
period (3) (62) (38,389) (38,454)
================================================== =========== =========== =========== ===========
Total comprehensive loss for the period (3) (62) (285,671) (285,736)
================================================== =========== =========== =========== ===========
1 Prior period comparatives have been restated, refer to Note
3.
2 Movements in the translation reserve relate to the translation
of interests in dormant Irish subsidiaries.
Group Statement of Changes in Equity
For the 52-week period ended 30 December 2017
Share
based Restated(1)
Share Share payments Revaluation Own Translation Retained Restated(1)
capital premium reserve reserve shares reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======== ======== ========= =========== ======== =========== =========== ===========
Opening balances 116,171 312,702 8,200 1,728 (3,331) 9,258 (470,808) (26,080)
========================= ======== ======== ========= =========== ======== =========== =========== ===========
Loss for the period - - - - - - (78,580) (78,580)
Other comprehensive
(loss)/gain
for the period - - - - - (26) 9,912 9,886
========================= ======== ======== ========= =========== ======== =========== =========== ===========
Total comprehensive loss
for the period - - - - - (26) (68,668) (68,694)
Recognised directly in
equity:
Share based payments
charge - - 1,290 - - - - 1,290
Release of SBP reserve
for expired warrants(2) - - (3,798) - - - 3,798 -
Release of SBP reserve
for expired share
schemes(2) - - (3,564) - - - 3,564 -
========================= ======== ======== ========= =========== ======== =========== =========== ===========
Net changes directly in
equity - - (6,072) - - - 7,362 1,290
========================= ======== ======== ========= =========== ======== =========== =========== ===========
Total movements - - (6,072) - - (26) (61,306) (67,404)
========================= ======== ======== ========= =========== ======== =========== =========== ===========
Equity/(Deficit) at the
end of the period 116,171 312,702 2,128 1,728 (3,331) 9,232 (532,114) (93,484)
========================= ======== ======== ========= =========== ======== =========== =========== ===========
For the 52-week period ended 31 December 2016
Share
based Restated(1)
Share Share payments Revaluation Own Translation Retained Restated(1)
capital premium reserve reserve shares reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================= ================= ================= ====================== ================== ================== =================== =========== ===========
Opening balances 116,171 312,702 6,963 1,731 (3,582) 9,320 (185,329) 257,976
================= ================= ================= ====================== ================== ================== =================== =========== ===========
Loss for the
period - - - - - - (247,282) (247,282)
Other
comprehensive
loss
for the period - - - (3) - (62) (38,389) (38,454)
================= ================= ================= ====================== ================== ================== =================== =========== ===========
Total
comprehensive
loss
for the period - - - (3) - (62) (285,671) (285,736)
Recognised
directly in
equity:
Preference share
dividends(3)
(Note 11) - - - - - - (152) (152)
Share based
payments charge - - 1,832 - - - - 1,832
Deferred bonus
plan
exercised(4) - - (64) - 251 - (187) -
Release of SBP
reserve
for expired
share schemes(2) - - (531) - - - 531 -
================= ================= ================= ====================== ================== ================== =================== =========== ===========
Net changes
directly in
equity - - 1,237 - 251 - 192 1,680
================= ================= ================= ====================== ================== ================== =================== =========== ===========
Total movements - - 1,237 (3) 251 (62) (285,479) (284,056)
================= ================= ================= ====================== ================== ================== =================== =========== ===========
Equity/(Deficit)
at the
end of the
period 116,171 312,702 8,200 1,728 (3,331) 9,258 (470,808) (26,080)
================= ================= ================= ====================== ================== ================== =================== =========== ===========
1 Prior year-end comparatives have been restated, refer to Note
3. The cumulative effect of restatements detailed in Note 3 has
been to decrease opening retained earnings for the 52 week period
ended 30 December 2017 by GBP1.4 million.
2 Release of reserve on lapse to distributable reserves.
3 Given the discretionary nature of the dividend right, the
preference shares are considered to be equity under IAS 32.
4 Includes release of own shares to retained earnings on
exercise of options in the prior financial period.
Restated(1)
and
re-presented(2)
30 December 31 December
Group Statement of Financial Position 2017 2016
At 30 December 2017 Notes GBP'000 GBP'000
====================================== ===== =========== ================
Non-current assets
Intangible assets 13 89,611 152,050
Property, plant and equipment 14 29,249 36,684
Available for sale investments 970 970
Trade and other receivables 1 1
====================================== ===== =========== ================
119,831 189,705
====================================== ===== =========== ================
Current assets
Assets classified as held for sale 178 16,384
Inventories 2,490 2,262
Trade and other receivables 27,658 30,757
Cash and cash equivalents 25,028 16,058
====================================== ===== =========== ================
55,354 65,461
====================================== ===== =========== ================
Total assets 175,185 255,166
====================================== ===== =========== ================
Current liabilities
Trade and other payables 34,146 38,138
Current tax liabilities 113 25
Borrowings 16 180 98
Short-term provisions 19 1,602 1,606
====================================== ===== =========== ================
36,041 39,867
====================================== ===== =========== ================
Non-current liabilities
Borrowings 16 166,505 143,468
Retirement benefit obligation 17 47,187 67,725
Deferred tax liabilities 18 9,509 23,739
Trade and other payables 3,484 3,477
Long-term provisions 19 5,943 2,970
====================================== ===== =========== ================
232,628 241,379
====================================== ===== =========== ================
Total liabilities 268,669 281,246
====================================== ===== =========== ================
Net liabilities (93,484) (26,080)
====================================== ===== =========== ================
Equity
Share capital 116,171 116,171
Share premium account 312,702 312,702
Share based payments reserve 2,128 8,199
Revaluation reserve 1,728 1,728
Own shares (3,331) (3,331)
Translation reserve 9,232 9,259
Retained earnings (532,114) (470,808)
====================================== ===== =========== ================
Total shareholders deficit (93,484) (26,080)
====================================== ===== =========== ================
1 Prior year-end comparatives have been restated, refer to Note
3.
2 Prior period comparatives have been re-presented. Refer to
Note 16.
The financial statements of Johnston Press plc, registered in
Scotland (number 15382), were approved by the Board of Directors
and authorised for issue on 16 April 2018. They were signed on its
behalf by:
Ashley Highfield David King
Chief Executive Officer Chief Financial Officer
Group Cash Flow Statement
For the 52-week period ended 30 December 2017
Re-presented(1)
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
Notes GBP'000 GBP'000
======================================================== ===== ============ ===============
Cash flow from operating activities
Cash generated from operations 20 12,182 16,272
Cash consumed by discontinued operations - (395)
Income tax received 217 600
======================================================== ===== ============ ===============
Net cash inflow from operating activities 12,399 16,477
======================================================== ===== ============ ===============
Investing activities
Interest received 45 73
Proceeds on disposal of intangible assets - 90
Proceeds on disposal of subsidiary 17,000 4,250
Proceeds on disposal of property, plant and equipment 11 716
Proceeds on disposal of assets held for sale (excluding
sale of subsidiaries) 5,183 1,526
Expenditure on digital intangible assets 13 (1,680) (2,690)
Purchases of property, plant and equipment 14 (2,961) (3,432)
Acquisition of publishing titles (2,000) (22,000)
Expenditure incurred on disposal of discontinued
operations - (73)
======================================================== ===== ============ ===============
Net cash from/(used in) investing activities 15,599 (21,540)
======================================================== ===== ============ ===============
Financing activities
Dividends paid 11 - (76)
Interest paid (18,985) (19,363)
Interest element of finance lease rental payments (43) (4)
======================================================== ===== ============ ===============
Net cash used in financing activities (19,028) (19,443)
======================================================== ===== ============ ===============
Net increase/(decrease) in cash and cash equivalents 8,970 (24,506)
Cash and cash equivalents at the beginning of
period 16,058 40,564
-------------------------------------------------------- ----- ------------ ---------------
Cash and cash equivalents at the end of the period 25,028 16,058
======================================================== ===== ============ ===============
1 Prior period comparatives have been re-presented. Refer to
Note 16.
The accompanying notes are an integral part of these financial
statements.
Notes to the Condensed Consolidated Financial Statements
For the 52-week period ended 30 December 2017
1. General Information
The financial information in the Preliminary Results
Announcement is derived from but does not represent the full
statutory accounts of Johnston Press plc. The statutory accounts
for the 52 week period ended 31 December 2016 have been filed with
the Registrar of Companies and those for the 52 week period ended
30 December 2017 will be filed following the Company's Annual
General Meeting in 2018. The auditor's reports on the statutory
accounts for the 52 and 52 week periods ended 31 December 2016 and
30 December 2017 were unqualified. Neither report contained a
statement under Sections 498 (2) or (3) of the Companies Act 2006.
However, the report for the period ended 30 December 2017 will
include a material uncertainty in respect of going concern.
Whilst the financial information included in this Results
Announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRS), this announcement does not itself contain
sufficient information to comply with IFRS. This Results
Announcement constitutes a dissemination announcement in accordance
with Section 6.3 of the Disclosure and Transparency Rules (DTR).
The 2017 Annual Report and Accounts for the 52 weeks ended 30
December 2017 will be made available on the Company's website at
www.johnstonpress.co.uk, at the Company's registered office at
Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS and
sent to shareholders in May 2018.
2. Basis of preparation
Johnston Press plc ('Johnston Press' or 'the Group') is a public
limited liability company incorporated in Scotland under the
Companies Act 2006 and listed on the London Stock Exchange. The
registered office is Orchard Brae House, 30 Queensferry Road,
Edinburgh, EH4 2HS. The principal activities of the Group are
described in the Operational Review and Financial Review sections
of the Strategic Report.
These financial statements have been prepared for the 52-week
period ended 30 December 2017 (2016: 52-week period ended 31
December 2016).
The significant accounting policies used in preparing this
information are set out in Note 4.
The financial statements have also been adjusted, where
appropriate, by new or amended IFRS's described below.
The condensed consolidated financial statements of Johnston
Press Plc have been prepared on a going concern basis (discussed
further in the Financial Review and below) and under the historical
cost convention, except for the revaluation of certain properties
and financial instruments, share-based payments and defined benefit
pension obligations that are measured at revalued amounts or fair
value at the end of each reporting period. The accounting policies
adopted in the preparation of this condensed consolidated financial
statement are consistent with those applied by the Group in its
audited consolidated financial statements for the period ended 31
December 2016 other than as disclosed in the Significant Accounting
Policies note.
Going concern
As at 30 December 2017, the Group had net debt of GBP195.9
million (excluding mark-to-market accounting adjustment),
comprising cash of GBP25 million and borrowings of GBP220 million.
The borrowings comprise GBP220 million of high yield bonds (the
Bonds), which are repayable on 1 June 2019 and are not subject to
any financial maintenance covenants.
On 29 March 2017, the Group announced it had commenced a
Strategic Review, working with its advisers Rothschild and Ashurst
LLP, to assess the financing options open to the Group in relation
to the Bonds. As a key part of this Strategic Review process, the
Board has engaged with its major stakeholders, including
shareholders, holders of the Bonds, Pension Trustees and the
Pensions Regulator.
On 10 October 2017, the Board announced that it was approaching
its largest bondholders regarding the formation of an ad hoc
committee of bondholders (the "Bondholder Committee") to consider
in greater detail certain potential amendments to the Group's
capital structure. On 2 November 2017, the Group confirmed that the
Bondholder Committee had been formed. The main objectives of these
potential amendments to the Group's capital structure, combined
with certain proposed amendments to the Group's pension scheme, are
to (i) achieve a sustainable level of debt within the Group to
enable it to refinance its debt in the future, and (ii) materially
reduce or eliminate the pension scheme deficit by 2021, whilst
preserving the pension scheme members' benefits. On 1 February
2018, the date of our last trading update, the Board confirmed that
discussions with advisers to the Bondholder Committee were in
progress.
The Group continues to explore these potential amendments to its
capital structure with advisers to the Bondholder Committee and the
Board is satisfied with the continued support of the Group's major
stakeholders during the review process. Any proposal that results
from these discussions will remain subject to negotiation and the
consent of relevant stakeholders, and there can be no certainty
that a formal proposal will be forthcoming. In the event that
consensual amendments to the Group's capital structure cannot be
agreed with relevant stakeholders, alternative options for the
restructuring or refinancing of the Bonds prior to their maturity
in June 2019 will be explored as part of the ongoing strategic
review process.
The Group has performed a review of its financial resources
taking into account, inter alia, the cash currently available to
the Group, the absence of financial maintenance covenants in the
Bonds, and the Group's cash flow projections for the thirteen month
period from the date of this report to 1 June 2019, and, based on
this review, and after considering reasonably possible trading
downside sensitivities and uncertainties, the Board is of the
opinion that, subject to the material uncertainty surrounding the
repayment of the Bonds on 1 June 2019 (referred to below), the
Group has adequate financial resources to meet its operational cash
flow requirements for the next thirteen months from the date of
this report. The directors also anticipate that the Group will
remain in a position to meet its obligations in respect of the
Bonds, including with regard to the payment of interest, in the
period prior to their maturity.
However, given the challenges faced by the newspaper and
printing industry as a whole, the current trading experience of the
Group, and the likely financial position of the Group at the time
the Bonds are due for repayment in June 2019, there is material
uncertainty surrounding the Group's ability to refinance the Bonds
at par in the market on commercially acceptable terms. Failure to
repay, refinance, satisfy or otherwise retire the Bonds at their
maturity would give rise to a default under the indenture governing
the Bonds dated 16 May 2014, and this possibility indicates a
material uncertainty that may cast significant doubt on the Group's
ability to continue as a going concern and if the Strategic Review
does not deliver a solution for the Group it may be unable to
realise its assets and discharge its liabilities in the normal
course of business.
Notwithstanding this material uncertainty, taking into account
that (i) the Strategic Review is ongoing, (ii) the Group has
adequate financial resources to meet its operational cash flow
requirements for the thirteen month period from the date of this
report, and (iii) the Group is, and is anticipated to remain, in a
position to meet its obligations in respect of the Bonds in the
period prior to their maturity, the Directors have concluded it is
appropriate to prepare the financial statements on a going concern
basis.
3. Restatements
Operating segment note
The operating segment note has been restated to reflect the
correct allocation of operating costs between the publishing and
contract printing segments for the 52 week period ended 31 December
2016. The impact has been to reduce the publishing net segment loss
by GBP37.7 million and to increase the contracting printing net
segment loss by GBP37.7 million reflecting operating costs of
GBP34.6 million and impairment and write downs of GBP3.1 million.
There is no impact on the Group net segment result.
Provisions
The Group Statement of Financial Position as at 31 December 2016
has been restated to reflect the correct allocation of onerous
lease and dilapidations provisions between current and non-current
liabilities. The impact has been to reduce short-term provisions by
GBP1.4 million and increase long-term provisions by GBP1.4 million.
There is no impact on total liabilities or net liabilities.
Sales ledger credit write offs
In the current year it was noted that there has been historic
releases of sales ledger credit balances made up predominantly of
overpayments by customers. These should not be released unless six
years has passed under the Limitations Act of 1980. Therefore, the
impact has been to decrease opening 2016 retained earnings by
GBP1.0 million and increase trade and other creditors by GBP1.0
million at the beginning of 2016. Then during 2016 the impact is to
increase operating expenses by GBP0.4m and increase trade and other
creditors by GBP0.4 million to a final position at 31 December 2016
of GBP1.4 million. This has impacted statutory EPS by increasing
both the diluted and basic Loss per Share from (234.6)p to
(234.9)p.
4. Significant accounting policies
Alternative performance measures
The Directors assess the performance of the Group using both
statutory accounting measures and a variety of alternative
performance measures (APMs). The key APMs monitored by the Group
are:
-- adjusted revenue
-- adjusted EBITDA;
-- adjusted EBITDA margin %;
-- adjusted operating profit;
-- adjusted operating profit margin %; and
-- cash and net debt (excluding mark-to-market). Refer to
Financial Review for calculation of net debt (excluding
mark-to-market).
The business has been through a period of enormous change over
an extended period. This has resulted from structural change in the
sector. Audiences have increased their use of online and mobile
platforms to access information and news, resulting in accelerated
newspaper circulation volume decline. Advertisers have also
increasingly sought to use digital services to reach their target
audiences. Together, this structural shift has resulted in
year-on-year declines in the Group's income.
The Group has initiated a series of restructuring programs to
remove cost from the business with the objective of designing a
sustainable print publishing business model, while at the same time
investing in building a digital income stream.
The resulting restructuring projects has seen a substantial
redesign of each area of the business, including management layers
and structures, products and services, content creation and our
sales routes to market. In streamlining the organisation, a
significant investment in redundancy has seen more than 2047 posts
closed over the last four years. The Group has also sought to
reflect its change in shape and scale in support areas including
making substantial reductions in its property portfolio, technology
licences and fleet. The speed of its action, both in anticipating
and responding to recent changes in the sector has meant that some
existing contracts no longer reflect the current needs of the
business.
In 2017, the Group initiated new changes to its business model,
including how it allocated resources to different brands, its mix
of field and call centre based sales staff, while also adopting a
clear policy of downsizing its property portfolio, taking advantage
of natural lease breaks, typically moving to smaller short-term
serviced offices in towns and smaller cities, while maintaining
larger hubs in Preston, Leeds, Edinburgh, Peterborough, Sheffield
and Portsmouth.
To provide investors and other users of the Group's financial
statements with additional clarity and understanding of both the
cost of this business change programme, and the resulting impact on
the Group's underlying trading, the Directors believe that it is
appropriate to additionally present the Alternative Performance
Measures used by management in running the business and in
determining management and executive remuneration.
Although management believes the alternative performance
measures are important in considering the performance of the Group,
they are not intended to be considered in isolation, or as a
substitute for, or superior to financial information on a statutory
basis. The adjusted figures are not a financial measure defined or
specified in the applicable financial reporting framework, and
therefore may not be comparable to similar measures presented by
other entities. When reviewing and selecting these adjusting items,
the Directors considered the guidelines issued by the European
Securities and Markets Authority (ESMA).
A reconciliation between the statutory and the adjusted results
is provided under Alternative Performance Measures within the
financial information. The reconciliation includes explanations
each 'adjusting item' and why they been adjusted for. An adjusting
item is one that is judged to require separate presentation to
enable a better understanding of the trading performance of the
business in the period. Items are adjusted if they are significant
in value and/or do not form part of ongoing underlying trading.
They will, in many cases, be 'one-off' and include items that span
more than one financial period.
Prior year comparatives have been restated so that the adjusted
results are presented on a consistent basis between periods.
Restated figures have been highlighted in the Alternative
Performance Measures section. In the opinion of the Directors,
disclosing the adjusting items provides supplementary information
to aid understanding of the Group's trading performance and also
provides a basis of comparison between periods
Refer to the Alternative Performance Measures section for more
detail.
Adoption of new or amended standards and interpretations in the
current year
The following new and amended IFRS's have been adopted for the
52-week period which commenced 1 January 2017 and ended 30 December
2017:
Accounting standard Requirements Impact on financial statements
====================== ============================ ==============================
Amendments to IAS Clarifies how to account None - no fair value movement
12 - Recognition for deferred tax assets giving rise to consideration
of Deferred Tax related to debt instruments of these technical changes.
Assets for Unrealised measured at fair value. Refer Note 16 - Borrowings.
Leases*
====================== ============================ ==============================
Amendments to IAS Requires companies to None - no fair value movement
7 - Disclosure disclosure information giving rise to consideration
Initiative* about changes in their of these technical changes.
financing liabilities. Refer Note 16 - Borrowings.
====================== ============================ ==============================
Annual improvements Minor amendments to IFRS Minor revisions taken into
to IFRS Standards 12. consideration when applying
2014-2016 Cycle* standards.
====================== ============================ ==============================
New and amended standards applicable for annual periods
beginning in 2018 and beyond
The following new standards, which are applicable to the Group,
have been published but are not yet effective and have not yet been
adopted by the EU:
Accounting standard Requirements Mandatory application date
============================= ==================================== ==================================
Annual improvements Minor amendments to a For periods beginning on or
to IFRS Standards number of standards. after 1 January 2018. No material
2014-2016 Cycle* impact on the Group's net
results or net assets.
============================= ==================================== ==================================
IFRS 9 - Financial Sets out the principles For periods beginning on
Instruments and Amendments of the recognition, de-recognition, or after 1 January 2018.
to IFRS 9 classification and measurement The Group will early adopt
of financial assets and for the period beginning
financial liabilities on 31 December 2017 due to
together with requirements there only being one-day
relating to the impairment difference. Management are
of financial assets and in the process of performing
hedge accounting. a detailed review of the
impact of IFRS 9. Refer to
IFRS 9 - Financial Instruments
and Amendments to IFRS 9
detailed below the table.
----------------------------- ------------------------------------ ----------------------------------
IFRS 15 - Revenue Establishes when revenue For periods beginning on
from Contracts with should be recognised, or after 1 January 2018.
Customers and Clarifications how it should be measured The Group will early adopt
to IFRS 15 and what disclosures for the period beginning
about contracts with on 31 December 2017 due to
customers are needed. there only being one day
difference. Management are
The clarifications relate in the process of performing
to the application and a detailed review of the
provide transitional impact of IFRS 15. Refer
relief regarding first to IFRS 15 - Revenue from
time adoption of the Contracts with Customers
standard. and Clarifications to IFRS
15 detailed below the table.
============================= ==================================== ==================================
Amendments to IFRS Clarifies how to account For periods beginning on
2 - Classification for certain types of or after 1 January 2018.
and Measurement of share based payment transactions. No material impact on the
Share-based Payment Group's net results or net
Transactions* assets.
----------------------------- ------------------------------------ ----------------------------------
IFRIC Interpretation Addresses the exchange For periods beginning on
22 - Foreign Currency rate to use in transactions or after 1 January 2018.
Transactions and that involve advance Minimal impact anticipated.
Advance Consideration* consideration paid or
received in a foreign
currency.
============================= ==================================== ==================================
IFRIC 23 - Uncertainty Sets out how to determine For periods beginning on
over Income Tax Treatments* the accounting tax position or after 1 January 2019.
when there is uncertainty Minimal impact anticipated.
over income tax treatments.
============================= ==================================== ==================================
IRFS 16 - Leases* Establishes principles For periods beginning on
for the recognition, or after 1 January 2019.
measurement, presentation IFRS 16 will require the
and disclosure of leases Group to recognise a lease
for both lessees and liability and a right-of-use
lessors. asset for most of those leases
previously treated as operating
leases. The Group is currently
going through an exercise
to evaluate the impact of
this standard on our business.
Whilst it is too early to
conclude what the impact
will be, IFRS 16 may have
a material impact given the
amount of leases entered
into by the Group. The Group
will be in a better position
to report what the expected
impact will be in next year's
Annual Report once the impact
assessment has been finalised.
============================= ==================================== ==================================
* Not yet EU endorsed.
IFRS 9 - Financial Instruments and Amendments to IFRS 9
IFRS 9 'Financial Instruments' is applicable for reporting
periods beginning on or after 1 January 2018 but will be early
adopted for the financial statements of Johnston Press Plc for the
52-week period beginning on 31 December 2017. This is because there
is only a one-day difference between the mandatory application date
and the period beginning date, and the Company therefore considers
it appropriate to apply the new standard for the year commencing on
31 December 2017. Johnston Press has identified the following areas
where the adoption of IFRS 9 will have an effect and are still in
the process of assessing the financial impact of the changes
detailed below:
-- The Group's borrowings of GBP220 million 8.625% secured notes
due 1 June 2019 have been designated into fair value through profit
and loss (FVTPL) category under IAS 39. Management expects that
this designation will flow through to IFRS 9. However, that
standard requires that effects of changes in the liability's own
credit risk are presented in Other Comprehensive Income (OCI),
unless such presentation would result in a greater mismatch in
profit or loss than if those amounts were presented in profit or
loss. Management consider future changes in fair value that relate
to own credit risk will be included in OCI in IFRS 9. In contrast
under IAS 39 those changes were presented in profit and loss. This
represents the most significant area of change on transition to
IFRS 9 in the context of the Group. Under IFRS 9 7.2.15, management
do not anticipate comparatives being restated.
-- The new classification approach in IFRS 9 for financial
assets is not expected to have a material impact on the measurement
basis of our financial assets due to the nature of the business and
types of financial assets held; however, this assessment is still
ongoing. The standard introduces an expected loss model approach to
impairment of financial assets, which are principally accounts
receivable and cash balances held with banks. Management is
currently quantifying the financial impact of the new impairment
model. Initial assessments indicate this is not likely to be
material.
-- The Group holds a strategic non-controlling interest of 3.53%
in Press Association Group Limited. These shares are classified as
available for sale under IAS 39. Under IAS 39, these were held at
cost due to the so-called 'cost exemption' in that standard. In
IFRS 9, these investments are anticipated to be at fair value
through profit and loss [assuming Fair Value Through Other
Comprehensive Income designation not made] with no cost exemption.
Management have not quantified the impact and are still in the
process of assessing the impact of the measurement differences in
respect of these investments.
IFRS 15 - Revenue from Contracts with Customers and
Clarifications to IFRS 15
IFRS 15 'Revenue from Contracts with Customers' will apply to
the financial statements of Johnston Press Plc for the 52-week
period beginning on 31 December 2017. Johnston Press has identified
the following areas where the adoption of IFRS 15 will have an
effect and are currently finalising the quantification of the
impact. Revenue streams where a significant impact is not expected
have not been commented upon below.
IFRS 15 'Revenue from Contracts with Customers' replaces IAS 18
'Revenue', IAS 11 'Construction Contracts' and several
revenue-related interpretations. IFRS 15 is based on revenue being
recognised as and when 'transfer of control' (of the goods or
services provided) occurs which is a change from the 'risks and
rewards' model under the current revenue standards.
The Group plans to adopt IFRS 15 using a fully retrospective
application which will include restatement of the prior period
comparatives under the new standard. Our application will make use
of the following practical expedients:
-- Contracts which are completed at the beginning of the
earliest period presented will not be restated.
-- Completed contracts with variable consideration will use the
transaction price at the date the contract was completed rather
than estimates of variable consideration in comparative
periods.
-- Contract modi cations which occurred before the beginning of
the earliest period presented will be re ected in aggregate.
-- Contracts that are started and completed in the same annual
reporting period will not be restated.
-- IFRS 15 has been applied to portfolios of contracts which
have similar characteristics and where we expect that the nancial
statements would not differ significantly had the standard been
applied to the individual contracts within the portfolio. Newspaper
subscription contracts have been considered under the portfolio
approach as each agreement will share common characteristics, such
as performance obligations, contract length and consideration.
For tax purposes, adjustments to revenue or costs would be
brought into account on the first day of the accounting period in
which IFRS 15 is adopted.
The Group has identified the following areas where the adoption
of IFRS 15 will have an effect on the financial statements and are
still in the process of assessing the overall impact.
It should also be noted that there will be no impact on cash ows
with collection remaining in line with contractual terms.
Print and digital subscriptions
Digital subscriptions are offered free of charge with certain
print subscriptions. Under IFRS 15 these have been determined to be
two distinct performance obligations within a single contract. The
Group's existing revenue recognition policy under IAS 18 in
relation to digital and print subscriptions is to allocate all of
the consideration to the print subscription. Under IFRS 15 the
stand-alone selling price of the digital subscription and the print
subscription will have to be estimated and the total subscription
value allocated between the two distinct performance obligations,
although ultimately the revenue recognised will be at the same
point in time as under IAS 18.
Although this is unlikely to significantly change the total
subscription revenue recognised during the period, the work in
assessing this is still ongoing. It will most likely change the
allocation of revenue between operating segments.
Print subscription vouchers
The Group offers a number of newspaper subscriptions using a
'paper coupon' which may be redeemed at local retailers for a
newspaper. The current accounting policy is to recognise the
revenue from print subscriptions over the subscription period.
Certain publications coupons have an expiration date which extends
beyond the subscription period which the consumer has entered into.
Under IFRS 15 the revenue recognised for these types of
subscriptions will be required to be deferred over the period which
the coupons are expected to be redeemed and key judgements will
need to be made over when coupons are expected to be redeemed and
how many are expected to lapse.
The Group is currently quantifying the impact. It is probable
that an element of the subscription revenue will be deferred to
later periods depending on the level of breakage estimated.
Contract print
The Group enters into a range of contract print arrangements
with third parties to perform printing services; promises include
the provision of inks, paper and delivery of newspapers to a
specified warehouse. These contracts often contain elements of
variable consideration under IFRS 15, such as consideration per
newspaper being variable on total number of newspapers printed over
the contract period and stepped rebate schemes. At inception of the
contract there are judgements to be made regarding print volumes,
as this will impact the price per newspaper that can be
recognised.
The Group's existing revenue recognition policy is to recognise
revenue from contract print arrangements during the period, in line
with volumes produced. With one exception, all customers are billed
on a weekly/monthly basis, in line with their contractual pricing,
for their actual print volumes, which can vary by print job. There
is one contract that has annual minimum quantities, and in any
contract year these minimum volumes are billed on a monthly basis.
Revenue above minimum volumes on this contract, is recognised at
each reporting date. Under IAS 18 this is permissible, however,
under IFRS 15 the transaction price of the entire contract over the
contractual term is estimated at inception of the contract and
constrained to the extent that it is highly probable if included in
revenue recognised does not result in a significant reversal to
revenue recognised in future periods.
The Group is still in the process of assessing the impact to the
contract print revenue that will be recognised under IFRS 15. The
Group will be required to make judgements at the inception of the
contract on expected print volumes, price per unit, paper costs and
rebates.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 30 or 31 December each year. Control
is achieved when the Company:
-- has the power over the investee;
-- is exposed, or has rights, to variable return from its involvement with the investee; and
-- has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
When the Company has less than a majority of the voting rights
of an investee, it considers that it has power over the investee
when the voting rights are sufficient to give it the practical
ability to direct the relevant activities of the investee
unilaterally. The Company considers all relevant facts and
circumstances in assessing whether or not the Company's voting
rights in an investee are sufficient to give it power,
including:
-- the size of the Company's holding of voting rights relative
to the size and dispersion of holdings of the other vote
holders;
-- potential voting rights held by the Company, other vote holders or other parties;
-- rights arising from other contractual arrangements; and
-- any additional facts and circumstances that indicate that the
Company has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders' meetings.
Consolidation of a subsidiary begins when the Company obtains
control over the subsidiary and ceases when the Company loses
control of the subsidiary. Specifically, the results of
subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the date the Company
gains control until the date when the Company ceases to control the
subsidiary.
Profit or loss and each component of other comprehensive income
are attributed to the owners of the Company. Total comprehensive
income of the subsidiaries is attributed to the owners of the
Company.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with the Group's accounting policies.
All intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
When the Group disposes of a subsidiary, the gain or loss on
disposal recognised in profit or loss is calculated as the
difference between: (i) the aggregate of the fair value of the
consideration received and the fair value of any retained interest,
and (ii) the previous carrying amount of the assets (including
goodwill), less liabilities of the subsidiary. All amounts
previously recognised in other comprehensive income in relation to
that subsidiary are accounted for as if the Group had directly
disposed of the related assets or liabilities of the subsidiary
(i.e. reclassified to profit or loss or transferred to another
category of equity as specified/permitted by applicable IFRSs).
The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair
value on initial recognition for subsequent accounting under IAS 39
Financial Instruments: Recognition and Measurement, when
applicable, the costs on initial recognition of an investment in an
associate or a joint venture
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values at the date of exchange of assets
given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquiree.
Acquisition-related costs are recognised in the Income Statement as
incurred.
The acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3,
including publishing titles, are recognised at their fair value at
the acquisition date, except for:
-- deferred tax assets or liabilities related to employee
benefit arrangements are recognised and measured in accordance with
IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;
and
-- non-current assets (or disposal groups) that are classified
as held for sale in accordance with IFRS 5 'Non-Current Assets Held
for Sale and Discontinued Operations', are recognised and measured
at fair value less costs to sell.
Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of carrying amount and fair value
less costs of disposal.
Assets and disposal groups are classified as held for sale if
their carrying amount will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset (or
disposal group) is available for immediate sale in its present
condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one
year from the date of classification.
When the Group is committed to a sale plan involving loss of
control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale when the criteria
described above are met, regardless of whether the Group will
retain a non-controlling interest in its former subsidiary after
the sale.
Publishing titles
The Group's principal intangible assets are publishing titles.
The Group does not capitalise internally generated publishing
titles. Titles separately acquired before 1 January 1996 are stated
at cost and titles owned by subsidiaries acquired after 1 January
1996 are recorded at fair value at the date of acquisition. These
publishing titles have no finite life and consequently are not
amortised. The carrying value of the titles is reviewed for
impairment at least annually with testing undertaken to determine
any diminution in the recoverable amount below carrying value. The
recoverable amount is the higher of the fair value less costs to
sell and the value in use is based on the net present value of
estimated future cash flows. The discount rate is post-tax and
reflects current market assessments of time, value of money and
risks specific to asset for which estimates of future cash flows
have not been adjusted. Any impairment loss is recognised as an
expense immediately. A reversal of an impairment loss is recognised
immediately in the Group Income Statement given these assets are
not carried at revalued amounts.
For the purpose of impairment testing, publishing titles are
allocated to each of the Group's cash generating units and are
included within the Group's publishing segment (Note 6).
Cash-generating units are determined by grouping assets at the
lowest levels for which there are separately identifiable cash
flows. Cash generating units are tested for impairment annually or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash generating unit is
less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of the value of
publishing titles and then to the other assets of the unit pro-rata
on the basis of the carrying amount of each asset in the unit.
Other intangible assets
Other intangible assets in respect of digital activities are
amortised using the straight-line method over the expected life of
three to five years and are tested for impairment at each reporting
date or more frequently where there is an indication that the
recoverable amount is less than the carrying amount. Costs incurred
in the development of websites are only capitalised if the criteria
specified in IAS 38 are met.
Valuation of share based payments
The Group estimates the expected value of equity-settled share
based payments and this is charged through the Income Statement
over the vesting periods of the relevant awards. The cost is
estimated using a Black-Scholes valuation model. The Black-Scholes
calculations are based on a number of assumptions and are amended
to take account of estimated levels of share vesting and
exercise.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods
and services provided in the normal course of business, net of
discounts, VAT and other sales-related taxes.
Print advertising revenue is recognised on publication and
circulation revenue is recognised at the point of sale. Digital
revenues are recognised on publication for advertising or delivery
of service for other digital revenues. Printing revenue is
recognised when the service is provided.
Foreign currencies
The individual financial statements of each Group company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial
position of each Group company are expressed in pounds sterling,
which is the functional currency of the Company and the
presentation currency for the consolidated financial
statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
period end, monetary assets and liabilities that are denominated in
foreign currencies are retranslated at the rates prevailing at the
close of business on the last working day of the period.
Non-monetary items carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
profit or loss for the period. Exchange differences arising on the
retranslation of non-monetary items carried at fair value are
included in profit or loss for the period except for differences
arising on the retranslation of non-monetary items carried at
historical cost in respect of which gains and losses are recognised
directly in equity.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the period end date.
Income and expense items are translated at the average exchange
rates for the period. Exchange differences arising, if any, are
classified as equity and transferred to the Group's translation
reserve. Such translation differences are recognised as income or
as expenses in the period in which the operation is disposed
of.
Fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
Property, plant and equipment
Property, plant and equipment balances are shown at cost, net of
depreciation and any provision for impairment. In certain cases the
amounts of previous revaluations of properties conducted in 1996 or
1997 or the fair value of the property at the date of the
acquisition by the Group have been treated as the deemed cost on
transition to IFRS.
For the purpose of annual impairment testing of printing
presses, these assets are allocated to each of the Group's cash
generating units and are included within the Group's printing
segment (Note 6). Cash generating units are determined by grouping
assets are at the lowest levels for which there are separately
identifiable cash flows. Cash generating units are tested for
impairment annually or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash generating unit is less than the carrying amount of the unit,
the impairment loss is allocated first to reduce the carrying
amount of the value of publishing titles and then to the other
assets of the unit pro-rata on the basis of the carrying amount of
each asset in the unit.
Depreciation is provided on all property, plant and equipment,
excluding land, at varying rates calculated to write-off cost over
the useful lives. The principal rates employed are:
Freehold land Nil
Freehold property 2.5% reducing balance
Leasehold property Term of lease
Computer and IT equipment 20% to 33% straight-line
Other production equipment 6.67% to 33% straight-line
Furniture and fittings 15% reducing balance, 20%
straight-line
Motor vehicles 25% straight-line
Printing presses are depreciated over 25 years on a
straight-line basis. Any direct enhancements to the presses are
depreciated such that these assets are coterminous with the
underlying press or their economic useful life if that is
determined to be shorter. Ancillary press equipment is depreciated
over their economic useful life, which ranges between 5 and 15
years on a straight-line basis.
Assets classified as held for sale
Where a property or a significant item of equipment (such as a
print press or property no longer required as part of Group
operations) is marketed for sale, management is highly committed to
the sale and the asset is available for immediate sale, the Group
classifies that asset as held for sale. All assets in this category
are expected to be sold within 12 months, as per the criteria of
IFRS 5, and have therefore been classified as current assets. The
value of the asset is held at the lower of the net book value or
the expected net realisable sale value.
The Directors have estimated the sale values based on the
current price that the asset is being marketed at and advice from
independent property agents. The actual sale proceeds may differ
from the estimate.
Provisions for onerous leases and dilapidations
Where the Group exits a rented property, an estimate of the
anticipated total future cost payable under the terms of the
operating lease, including rentals, rates and other related
expenses, is charged to the Income Statement at the point where the
unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it.
Where there is a break clause in the contract, rentals are provided
for up to that point. In addition, an estimate is made of the
likelihood of sub-letting the premises and any rentals that would
be receivable from a sub-tenant. Where receipt of sub-lease rentals
is considered reasonable, these amounts are deducted from the
rentals payable by the Group under the lease and provision charged
for the net amount.
Under the terms of a number of property leases, the Group is
required to return the property to its original condition at the
lease expiry date. The Group has estimated the expected costs of
these dilapidations and charged these costs to the Income
Statement. No discounting has been applied to the provision as the
effect of the discounting is not considered material.
Inventories
Inventories, largely paper, plates and ink, are stated at the
lower of cost and net realisable value. Cost incurred in bringing
materials to their present location and condition comprises: (a)
raw materials and goods for resale at purchase cost on a first-in
first-out basis, and (b) work in progress at cost of direct
materials, labour and certain overheads. Net realisable value
comprises selling price less any further costs expected to be
incurred to completion and disposal.
Cash and cash equivalents
Cash and cash equivalents are those cash balances held by the
Group and short-term bank deposits with an original maturity of
three months or less.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group's Statement of Financial Position when the Group becomes a
party to the contractual provisions of the instrument.
Financial assets
Investments are recognised and derecognised on the trade date in
accordance with the terms of the purchase or sale contract and are
initially measured at fair value, plus transaction costs.
Available for sale financial assets
Listed and unlisted investments are shown as available for sale
and are stated at fair value. Fair value of listed investments is
determined with reference to quoted market prices. Fair value of
unlisted investments is determined by reference to the latest set
of audited results. Gains and losses arising from changes in fair
value are recognised in other comprehensive income and accumulated
in the investments revaluation reserve, with the exception of
impairment losses, interest calculated using the effective interest
method and foreign exchange gains and losses on monetary assets,
which are recognised directly in profit or loss. Where the
investment is disposed of or is determined to be impaired, the
cumulative gain or loss previously recognised in reserves in
reclassified to profit or loss.
Dividends on available for sale equity investments are
recognised in the Income Statement when the Group's right to
receive the payment is established.
Available for sale equity investments that do not have a quoted
market price in an active market and whose fair value cannot be
reliably measured and derivatives that are linked to and must be
settled by delivery of such unquoted equity investments are
measured at cost less any identified impairment losses at the end
of each reporting period.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed
or determinable payments that are not quoted in an active market
are classified as 'loans and receivables'. Loans and receivables
are measured at amortised cost using the effective interest method,
less any impairment. Interest income is recognised by applying the
effective interest rate, except for short-term receivables when the
recognition of interest would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at
each period end date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been impacted.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables where the carrying amount is reduced
through the use of an allowance for estimated irrecoverable
amounts. Changes in the carrying value of this allowance are
recognised in the Income Statement.
Financial liabilities and equity
Debt and equity instruments issued by the Group are classified
as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities.
Equity instruments issued by the Group are recognised at the
proceeds received, net of direct issue costs.
Dividend distributions
Dividend distributions to the Company's shareholders are
recognised as a liability in the consolidated financial statements
in the period in which the dividends are approved.
Preference shares
All the preference shares carry the right, subject to the
discretion and ability of the Group to distribute profits, to a
fixed dividend of 13.75% and rank in priority to the ordinary
shares. Due to the significant impairment that arose during the
financial year ended 31 December 2016 and which extinguished
distributable reserves, preference share dividends cannot be paid.
Given the discretionary nature of the dividend right to be paid in
the current year, the preference shares are considered to be equity
under IAS 32.
In the event that Johnston Press plc, the holding company,
returns to a position in which it has distributable reserves, the
Board will consider paying all unpaid dividends from such date as
when the last payment was made. The Group is under no legal
obligation to make a payment in respect of prior year
dividends.
Borrowings
The borrowings of GBP220 million 8.625% senior secured notes due
1 June 2019 agreed as part of the June 2014 refinancing are
recorded at fair value through profit and loss and classified as
Level 1 according to IFRS 13. As the borrowings are shown at fair
value the associated issue costs have been charged to the Income
Statement (refer to Note 8c).
Trade payables
Trade payables are not interest-bearing and are stated at their
nominal value.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the Group. Assets held under finance leases are
recognised at their fair value at the inception of the lease or, if
lower, the present value of the minimum lease payments. The asset
is recognised within property, plant and equipment and the
corresponding liability to the lessor is included within
obligations under finance leases. Lease payments are apportioned
between finance charges which are charged to the consolidated
income statement and reductions in the lease obligation.
Rentals payable under operating leases are charged to the Group
Income Statement on a straight-line basis over the term of the
relevant lease. In the event that lease incentives are received to
enter into operating leases, such incentives are recognised as a
liability. The aggregate benefit of incentives is recognised as a
reduction of rental expense on a straight-line basis over the term
of the lease.
Where the Group is a lessor, rental income from operating leases
is recognised on a straight-line basis over the term of the
relevant lease.
Operating loss
Operating loss is stated after charging restructuring,
impairment, depreciation, amortisation and staff costs but before
investment income, other finance income, finance costs and the
results of discontinued operations.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event and it is probable that the
Group will be required to settle that obligation. Provisions are
measured at the Directors' best estimate of the expenditure
required to settle the obligation at the reporting date and are
discounted to present value where the effect is material.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
period. Taxable profit differs from profit before tax as reported
in the Income Statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the period-end
date.
Tax liabilities are recognised when it is considered probable
that there will be a future outflow of funds to a taxing
authority
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax-based values
used in the computation of taxable profit, and is accounted for
using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the Income
Statement, except when it relates to items charged or credited
directly to other comprehensive income, in which case the deferred
tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when the relevant
requirements of IAS 12 are satisfied.
Retirement benefit costs
The Group provides pensions to employees through various
schemes.
Payments to defined contribution retirement benefit schemes are
charged to the Income Statement as an expense as they fall due.
For the defined benefit scheme, the cost of providing benefits
is determined using the Projected Unit Credit Method, with
actuarial valuations being carried out at each period end date.
Actuarial gains and losses and the return on scheme assets are
recognised in full in the period in which they occur. They are
recognised outside the Income Statement and presented in the
Statement of Comprehensive Income. Past service cost is recognised
as an expense at the earlier of the date when a plan amendment or
curtailment occurs and the date when an entity recognises any
termination benefits, or related restructuring costs. Net-interest
is calculated by applying the discount rate at the beginning of the
period to the net defined benefit liability or asset at the
beginning of the period (taking account of changes in the net
liability or asset over the period due to contributions paid) and
is recognised within finance costs.
The retirement benefit obligation recognised in the Statement of
Financial Position represents the present value of the defined
benefit obligation reduced by the fair value of scheme assets. Any
asset resulting from this calculation is recognised in full on the
balance sheet on the basis that the Group has an unconditional
right to any surplus assuming the gradual settlement of liabilities
over time until all members have left the Plan.
There has been a change in accounting policy in the current
period to present all of the net defined benefit obligation as a
non-current liability, which is in line with common practice. The
impact on the 31 December 2016 retirement benefit obligation was to
move GBP10.3 million from current liabilities to non-current
liabilities. This has resulted in no change in the total retirement
benefit obligation in the prior reporting period.
5. Critical accounting judgements and key sources of estimation
uncertainty
Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
management has made the following judgements that have the most
significant effect on the amounts recognised in the financial
statements (apart from those involving estimations, which are dealt
with below). The estimates and associated assumptions are based on
historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
Impairment of publishing titles and print presses
Key areas of judgement in the value in use calculation include
the identification of appropriate CGUs. The Group has identified
its publishing and print CGUs based on the geographic regions in
which it operates. This is considered to be the lowest level at
which cash inflows generated are largely independent of the cash
inflows from other groups of assets and has been consistently
applied in the current and prior periods.
Other accounting judgements:
Alternative Performance Measures (APMs)
In the reporting of financial information in the Alternative
Performance Measures section of the Annual Report, the Group uses
certain measures that are not required under IFRS or the Generally
Accepted Accounting Principles (GAAP) under which the Group
reports. In the opinion of the Directors, disclosing the key APM's
of adjusted revenue, adjusted EBITDA, adjusted EBITDA margin %,
adjusted operating profit, adjusted operating profit margin % and
net debt (excluding mark-to-market) provides supplemental
information to the statutory results reported under IFRS to show
the Group's underlying trading performance. The adjusted results
reflect the way management and the Directors assess the Group's
performance and involve judgement, which is explained more fully in
the Alternative Performance Measures section of the Annual
Report.
The adjusted figures are not a financial measure defined or
specified in the applicable financial reporting framework, and
therefore may not be comparable to similar measures presented by
other entities.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the period end date 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.
Impairment of publishing titles and print presses
The Group is required to test, on an annual basis, whether
intangible assets with indefinite useful lives have suffered any
impairment based on the recoverable amount of its cash generating
units. Determining whether publishing titles and print presses are
impaired requires an estimation of the value in use of the CGUs to
which these assets are allocated. Key sources of estimation
uncertainty in the value in use calculation include the estimation
of future cash flows of CGUs affected by expected changes in
underlying revenues and direct costs as well as corporate and
central cost allocations through the forecast period, the long-term
growth rates and a suitable discount rate to apply to the
aforementioned cash flows in order to calculate the net present
value.
Determining whether print presses are impaired requires an
estimation of the value in use of each print site. The value in use
calculation requires the Group to estimate the future cash flows
expected to arise from the print sites and a suitable discount rate
in order to calculate present value. Details of the impairment
reviews that the Group performs in relation to other intangible
assets are provided in Note 13.
Valuation of pension liabilities
The Group records in its Statement of Financial Position a
liability equivalent to the deficit on the Group's defined benefit
pension scheme. The pension liability is determined with advice
from the Group's actuarial advisers and fluctuates based on a
number of factors, some of which are outside the control of
management. The main factors that can impact the valuation
include:
-- the discount rate used to discount future liabilities back to
the present date, determined each year from the yield on corporate
bonds;
-- the actual returns on investments experienced as compared to
the expected rates used in the previous valuation;
-- the actual rates of pension increase as compared to the
expected rates used in the previous valuation;
-- the forecast inflation rate experienced as compared to the
expected rates used in the previous valuation; and
-- mortality assumptions based on standard base table adjusted
to reflect specific conclusions and conditions based on a study of
the actual scheme members.
The liabilities of the defined benefit pension schemes operated
by the Group are determined using methods relying on actuarial
estimates and assumptions, including rates in increase in pensions,
expected returns on scheme plan assets, life expectancies and
discount rates. Details of the key assumptions are set out in the
Group's accounting policies section above and within Note 17. The
sensitivity analysis performed within Note 17 allows the users of
the accounts to see the impact of potential movements in
assumptions. The Group takes advice from independent actuaries
relating to the appropriateness of the assumptions. Changes in
assumptions used may have a significant effect on the Group
statement of comprehensive income and the Group statement of
financial position.
Going concern
When preparing financial statements, management is required to
make an assessment of an entities ability to continue as a going
concern and prepare financial statements on this basis unless
management either intends to liquidate the entity or to cease
trading or has no realistic alternative but to do so. When
management is aware, in making its assessment, of material
uncertainties related to events or conditions that may cast
significant doubt upon the entities ability to continue as a going
concern, the entity shall disclose those uncertainties. In
assessing whether the going concern assumption is appropriate,
management takes into account all available information about the
future, which is at least, but is not limited to, 12 months from
the end of the reporting period. Management have undertaken an
analysis of the trading expectations for the Group as outlined in
its three-year plan, including conducting reasonable downside
sensitivities, considered cash balances held at the end of each
period and the current circumstances and options that exist in
relation to the Bond maturing on 1 June 2019 and the lack of
financial maintenance covenants existing. Detailed disclosures on
the status and material uncertainties existing in relation to the
Bond maturity have been included in the Directors Report under
liquidity and going concern and in the Viability Statement. Based
on the review, and as detailed in Note 2, the Directors have
concluded that it is appropriate to prepare the Group's financial
statements on a going concern basis.
6. Operating segments
Information reported to the Chief Executive Officer for the
purpose of resource allocation and assessment of segment
performance is focused on the two areas of publishing (in print and
online) and contract printing. Geographical segments are not
presented as the Group operates solely in the UK.
Unless otherwise indicated the segment information reported on
the following pages does not include any amounts for discontinued
operations which are described in more detail in Note 10. It has
not been adjusted to reflect disposed or closed titles or
products.
a) Segment revenues and results
The following is an analysis of the Group's revenue and results
by reportable segment:
52-week period ended 30 December 52-week period ended 31
2017 December 2016
============================================== ====================================== ===========
Restated(5)
Restated(5) -
Contract - Contract Restated(3)
Publishing printing Eliminations Group Publishing printing Eliminations -Group
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== ========== ========= ============ ========= =========== =========== ============ ===========
Revenue
Print
advertising 74,265 - - 74,265 95,674 - - 95,674
Digital
advertising 25,976 - - 25,976 26,950 - - 26,950
Newspaper
sales 79,102 - - 79,102 79,849 - - 79,849
Contract
printing - 13,321 - 13,321 - 12,788 - 12,788
Other 8,002 950 - 8,952 6,735 703 - 7,438
============== ========== ========= ============ ========= =========== =========== ============ ===========
Total external
sales 187,345 14,271 201,616 209,208 13,491 - 222,699
Inter-segment
sales(1) - 20,486 (20,486) - - 23,597 (23,597) -
============== ========== ========= ============ ========= =========== =========== ============ ===========
Total
revenue(2) 187,345 34,757 (20,486) 201,616 209,208 37,088 (23,597) 222,699
============== ========== ========= ============ ========= =========== =========== ============ ===========
Impairment and
write
downs(3) (63,668) (758) - (64,426) (341,246) (3,080) - (344,326)
Adjustments
(excluding
impairment
and write
downs) (3) (18,760) (295) - (19,055) (20,202) (14) - (20,216)
-------------- --------- ------------ ----------- ----------- ------------ -----------
Operating
costs(3,)
(4,5) (138,161) (31,187) - (169,348) (147,026) (34,617) - (181,643)
============== ========== ========= ============ ========= =========== =========== ============ ===========
Net segment
result
(restated)(5) (33,244) 2,517 (20,486) (51,213) (299,266) (623) (23,597) (323,486)
============== ========== ========= ============ ========= =========== =========== ============ ===========
Interest
receivable 45 73
Net finance expense on
pension
assets/liabilities (1,690) (831)
Change in fair
value
of borrowings (22,825) 43,619
Finance costs (19,286) (20,056)
============== ========== ========= ============ ========= =========== =========== ============ ===========
Loss before
tax (94,969) (300,681)
Taxation
credit 16,389 53,371
============== ========== ========= ============ ========= =========== =========== ============ -----------
Loss after tax for the period -
continuing
operations (78,580) (247,310)
===================================== ============ ========= =========== =========== ============ ===========
Profit after tax for the
period
- discontinued operations - 28
========================== ========= ============ ========= =========== =========== ============ ===========
Consolidated loss after
tax
for the period (78,580) (247,282)
========================== ========= ============ ========= =========== =========== ============ ===========
1 Inter-segment sales are charged at market rates.
2 Revenue from sale of goods and services for 2017 was GBP201.6
million (2016: GBP222.7 million). There was other operating income
in the year of GBP0.8 million (2016: GBP0.1 million) relating to
rental income on sub-let properties, please see Note 7 for more
details. This means total revenue as defined by IAS 18 is GBP202.4
million (2016: GBP222.8 million).
3 Total adjustments presented in the Alternative Performance
Measures section of GBP83.5 million (2016: GBP364.5 million)
consists of impairment and write downs of GBP64.4 million (2016:
GBP344.3 million) and adjustments (excluding impairment and write
downs) of GBP19.1 million (2016: GBP20.2 million). The prior period
comparative figures have been re-presented to separately present
impairment and write downs, adjustments (excluding impairment and
write downs) and operating costs. The prior period financial
statements disclosed total operating costs of GBP545.7 million. In
the disclosure above this amount has been split into impairment and
write downs of GBP344.3 million, adjustments (excluding impairment
and write downs) of GBP20.2 million and operating costs GBP181.6
million. The total of these amounts represents an increase of
GBP0.4 million on the operating costs figure disclosed in the prior
period signed financial statements as a result of the sales ledger
credits write off disclosed in note 3.
4 Includes depreciation and amortisation.
5 Net segment result for the 52 weeks ended 31 December 2016 has
been restated to reflect the correct allocation of operating costs
between the Publishing and Contract printing segments. Refer to
Note 3 for more detail.
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in Note 4. The segment
result represents the (loss)/profit earned by each segment without
allocation of the share of results of associates, investment
income, finance costs (including in relation to pension assets and
liabilities) and income tax expense or credit. This is the measure
reported to the Group's Chief Executive Officer for the purpose of
resource allocation and assessment of segment performance.
The Group, in common with the rest of the publishing industry,
is subject to the main holiday periods of Easter, summer and
Christmas as well as school and bank holidays. Since these fall
across both half years, the Group's financial results are not
usually subject to significant seasonable variations from
period-to-period.
b) Segment assets
30 December 31 December
2017 2016
GBP'000 GBP'000
====================================== =========== ===========
Assets
Publishing 149,097 229,315
Contract printing 26,088 25,851
====================================== =========== ===========
Total segment and consolidated assets 175,185 255,166
====================================== =========== ===========
For the purposes of monitoring segment performance and
allocating resources between segments, the Group's Chief Executive
Officer monitors the tangible, intangible and financial assets
attributable to each segment. All assets are allocated to
reportable segments and unless specifically part of the contract
printing business, they are allocated to publishing, with the
exception of available for sale investments and derivative
financial instruments.
c) Other segment information
52 weeks to 30 December 52 weeks to 31 December
2017 2016
====================================== =============================== ------------------------------------------
Restated(1),(2)
Restated(1),(2) -
Contract - Contract
Publishing printing Group Publishing printing Group
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================================== ========== ========= ======== =============== =============== ========
Additions to property, plant and
equipment 2,114 847 2,961 4,562 764 5,326
Depreciation and amortisation expense
(continuing)(1) 6,614 1,295 7,909 6,021 1,394 7,415
Impairment of property, plant and
equipment(2) 3,103 758 3,861 4,396 3,080 7,476
Impairment of intangible assets(2) 60,453 - 60,453 336,850 - 336,850
Impairment of assets held for sale 112 - 112
====================================== ========== ========= ======== =============== =============== ========
1 Includes amortisation of digital intangible assets (Note 13)
and depreciation charge on property, plant and equipment (Note
14).
2 The allocation of the impairment charges between publishing
and contract printing has been re-presented for the 52 weeks ended
31 December 2016. Refer to Note 3.
7. Loss for the period
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
Notes GBP'000 GBP'000
===================================================== ===== ============ ============
Operating loss is shown after charging/(crediting):
Depreciation of property, plant and equipment(1) 14 4,243 6,550
Amortisation of intangible fixed assets(2) 13 3,666 865
Impairment charges:
Impairment of intangible fixed assets 13 60,453 336,850
Impairment of property, plant and equipment(3) 14 3,861 7,476
Impairment of assets held for sale 112 -
Profit on disposal of assets:
Profit on disposal of plant and equipment (11) (16)
Profit on disposal of intangible assets - (65)
Profit on disposal of property(4) (2,952) (129)
Loss on disposal of Midlands titles to Iliffe Media
Ltd 611 -
Cost of inventories recognised as expense 15,074 17,241
Movement in allowance for doubtful debts (408) (659)
Staff costs(5) 85,725 92,671
Operating lease charges(6) 3,939 4,904
Rentals received on sublet property (818) (108)
Pension Protection Fund levy 17 270 422
===================================================== ===== ============ ============
1The prior year comparative figure consists of the following
amounts that were disclosed in the prior year financial statements:
depreciation of property, plant and equipment (GBP6.1 million) and
accelerated depreciation charge on property, plant and equipment
(GBP0.4 million).
2 The prior year comparative figure consists of the following
amounts that were disclosed in the prior year financial statements:
amortisation of intangible fixed assets (GBP0.8 million) and
accelerated amortisation charge on intangible fixed assets (GBP0.1
million).
3 Disclosure of impairment of property, plant and equipment was
not included in the operating (loss)/profit for the period note in
the prior year financial statements. This has been added to this
note to improve information available to users of the financial
statements.
4 The prior year comparative figure consists of the following
amounts that were disclosed in the prior year financial statements:
profit on disposal of assets held for sale (GBP0.3 million) and
loss on disposal of property (GBP0.2 million).
5 The prior year comparative figure consists of the following
amounts that were disclosed in the prior year financial statements:
staff costs excluding redundancy costs (GBP87.1 million) and
redundancy costs (GBP5.6 million).
6 The prior year comparative figure consists of the following
amounts that were disclosed in the prior year financial statements:
operating lease charges on property (GBP3.7 million) and vehicles
(GBP1.2 million).
Staff costs shown above include GBP1.4 million (31 December
2016: GBP1.2 million) relating to remuneration of Directors.
Auditor's remuneration is as per the table below.
Profit on disposal of property
The Group operates a large portfolio of properties, including
leaseholds and some freeholds, and regularly exits leases at lease
breaks, whilst renewing leases of properties that continue to meet
the Group's needs. Profits of GBP3.0 million for the period ended
30 December 2017 (31 December 2016: GBP0.3 million) from property
sales were included in operating profit. There were five such sales
for the period ended 30 December 2017 (31 December 2016: 10).
Loss on disposal of Midland's titles
On 17 January 2017, the Group completed the disposal of the
entire issued share capital of Johnston Publishing East Anglia
Limited, which owned 13 publishing titles and associated websites
in East Anglia and the East Midlands, to Iliffe Media Limited for
gross cash consideration of GBP17.0 million less associated
disposal costs of GBP1.4 million, which resulted in a loss on
disposal of GBP0.6 million. Refer to Note 15 for further details of
the disposal.
AUDITORS REMUNERATION
The analysis of the Auditor's remuneration is as follows:
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 GBP'000
============================================================ ============ ============
Fees payable for the audit of the Company's annual accounts 214 214
Fees payable for other services: audit of subsidiary
accounts 373 180
============================================================ ============ ============
Total audit fees(1) 587 394
============================================================ ============ ============
Non-audit services
Half year review 58 56
Tax compliance services (related to assistance with
corporate tax returns) - 69
Tax advisory services - 148
Corporate finance services(3) 296 430
Other services(4) 435 -
============================================================ ============ ============
Total non-audit services 789 703
============================================================ ============ ============
Total audit and non-audit service fees 1,376 1,097
============================================================ ============ ============
Fee payable to the Company's Auditor in respect of audit
of associated pension scheme 16 16
============================================================ ============ ============
Total fees 1,392 1,113
============================================================ ============ ============
1 The fees payable in relation to the audit of subsidiaries in
2017 includes GBP75,000 related to the finalisation of the audit
for the year ended 31 December 2016.
2 There were no tax fees relating to the services provided by
Deloitte during 2017, following the appointment of KPMG as tax
advisors to the Group commencing 1 January 2017.
3 The corporate finance services relates to reporting work
associated with circulars to shareholders required around the
approval of the disposal of the Midlands titles (Note 15). This
work commenced in 2016 and was completed in 2017. GBP430,000
included in the 2016 comparative relates to the acquisition of the
i.
4 Other services relate to a consulting engagement related to
sales transformation.
All non-audit services were considered and approved by the Audit
Committee. The Audit Committee considers that these non-audit
services have not impacted the independence of the audit
process.
Details of the Company's policy on the use of the external
Auditor for non-audit services, the reasons why the Auditor was
used rather than another supplier and how the Auditor's
independence and objectivity was safeguarded are set out in the
Audit Committee Report. No services were provided pursuant to
contingent fee arrangements.
8. Financing
a) Net finance expense on pension liabilities/assets
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
Note GBP'000 GBP'000
================================================== ==== ============ ============
Interest on assets 14,597 17,514
Interest on liabilities (16,287) (18,345)
================================================== ==== ============ ============
Net finance expense on pension liabilities/assets 17 (1,690) (831)
================================================== ==== ============ ============
b) Change in fair value of borrowings
The fair value movement on the 8.625% Senior Secured notes due 1
June 2019 resulted in a loss of GBP22.8 million (31 December 2016:
GBP43.6 million gain) and was based on quoted market fair value.
Refer to Note 16.
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
c) Finance costs GBP'000 GBP'000
====================================== ============= ============
Interest on bond (18,764) (18,975)
Interest on bank overdrafts and loans (6) (382)
Amortisation of term debt issue costs (8) (194)
Finance leases(1) (43) (4)
Financing fees (85) (14)
Refinancing fees(2) - (487)
Term debt issue costs(3) (380) -
Total finance costs (19,286) (20,056)
====================================== ============= ============
1 Prior period comparatives have been re-presented. Refer to
Note 16.
2 Exceptional refinancing fees charged in the prior period
relate to unrecoverable VAT on 2014 refinancing fees.
3 Revolving credit facility issuance costs written off as a
consequence of termination of the facility.
9. Tax
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 GBP'000
============================================================= ============ ============
Current tax
Charge for the period - 1,073
Adjustment in respect of prior periods (129) (329)
============================================================= ============ ============
Total current tax (credit)/charge (129) 744
============================================================= ============ ============
Deferred tax (Note 18)
(Credit)/Charge for the period (5,098) 7,092
Non-recurring items:
Deferred tax adjustment relating to the impairment/disposal
of publishing titles in the period (13,260) (61,433)
Deferred tax adjustment in respect of prior periods relating
to the bond issue costs (823) -
Derecognition of unrecoverable deferred tax assets 2,095 -
Deferred tax adjustment in respect of prior periods 509 601
Recurring items:
Deferred tax adjustment relating to bond issue costs 317 -
Credit relating to reduction in deferred tax rate 17%
(2016: 17%) - (375)
============================================================= ============ ============
Total deferred tax credit (16,260) (54,115)
============================================================= ============ ============
Total tax credit for the period (16,389) (53,371)
============================================================= ============ ============
UK corporation tax is calculated at 19.25% (31 December 2016:
20.0%) of the estimated assessable profit for the period. The
19.25% basic tax rate applied for the 2017 accounting year was a
blended rate, being a mix of 20% up to 31 March 2017 and 19% from 1
April 2017 (2016: 20%). Taxation for other jurisdictions is
calculated at the rates prevailing in the relevant
jurisdiction.
The Income Statement includes a tax credit of GBP16.4 million
which comprises a current tax credit of GBP0.1 million and deferred
tax credit of GBP16.3 million. The deferred tax credit has largely
arisen from GBP59.2 million of impairment charges on the Group's
publishing title intangible assets (GBP10.1 million deferred tax
credit) and the disposal of the East Anglia and East Midlands
publishing titles in January 2017 resulting in a deferred tax
credit of GBP3.2 million. GBP3.9 million of the current year
deferred tax credit has arisen on the Group's Bond, due to
different accounting treatment applied on the Bond at the Group
level in contrast with that applied at the subsidiary entity level
due to statutory reporting requirements. This was offset by a
deferred tax charge of GBP2.1 million recognised in the income
statement as a result of certain deferred tax assets being deemed
unrecoverable.
The tax on actuarial gains/(losses) on the defined benefit
pension scheme includes a GBP1.5 million deferred tax charge to the
consolidated income statement and a GBP2.0 million tax charge taken
to the Statement of Other comprehensive income.
In November 2017, the UK government introduced new rules with
effect from 1 April 2017 which would restrict the deductibility of
net interest costs. In the current year the GBP1.8m impact of these
new restrictions was included in the calculation of the current
year tax charge. Due to uncertainty regarding the Group's ability
to recover the disallowed interest which can be carried forward
under these rules, no deferred tax asset has been recognised in
relation to the disallowed amount. Having also assessed the
recoverability of its deferred tax assets from timing differences,
the Group has recognised a deferred tax charge of GBP2.1 million to
derecognise temporary differences relating to accelerated tax
depreciation due to uncertainty as to the timing of future
recoverability.
The Group's effective tax rate was 17.3% for the 2017 financial
year (2016: 17.8%). In the period, the effective tax rate was lower
than the prevailing UK corporation tax rate of 19.25%, largely due
to the disallowance of corporate interest restriction amounts, the
difference between current and deferred tax rates and the impact of
deferred tax not recognised overall reducing the effective tax rate
by 6.3%. This has been partly offset by the deferred tax impact of
the disposal of the East Anglia and East Midlands publishing titles
disposed in January 2017 increasing the effective tax rate by
3.1%.
The Group expects that, subject to the uncertain outcome of the
strategic review, the effective tax rate will remain relatively
consistent with the current and prior year and reflect the
reduction of UK corporate tax rates over the next few years.
At the reporting date the Group has recorded GBP0.1m of
uncertain tax positions where tax could become payable in the
future.
The tax credit for the period, relating to continuing
operations, can be reconciled to the loss per the Income Statement
as follows:
Restated(1)
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 % GBP'000 %
========================================================= ============ ===== ============ =====
Loss before tax (94,969) (300,681)
========================================================= ============ ===== ============ =====
Tax at 19.25% (31 December 2016: 20%) (18,281) 19.3 (60,136) 20.0
Release of deferred tax liability relating to
disposed intangible assets (2,963) 3.1 - -
Tax effect of corporate interest restriction 1,765 (1.9) - -
Tax effect of items that are not (deductible)/assessable
in determining taxable profit (225) 0.2 55 0.1
Fixed asset related differences (431) 0.5 - -
Unrecognised deferred tax assets 3,113 (3.3) - -
Effect of difference between deferred and current
tax rate 1,076 (1.1) 6,813 (2.3)
Effect of reduction in deferred tax rate - - (375) 0.1
Adjustment in respect of prior years (443) 0.5 272 (0.1)
--------------------------------------------------------- ------------ ----- ------------ -----
Total tax credit (16,389) 17.3 (53,371) 17.8
========================================================= ============ ===== ============ =====
1 The prior period comparatives have been restated. Refer to
Note 3 for details.
10. Discontinued operations
For the period ended 30 December 2017, there were no
discontinued operations.
In the prior comparative period, on 18 August 2016 the Group
completed the sale of its Isle of Man titles to Tindle Newspapers
Ltd, the UK-based publisher, for GBP4.25 million in cash. The
results of the discontinued operations were as follows:
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 GBP'000
================================================================= ============ ============
Revenue - 1,753
Expenses - (1,504)
================================================================= ============ ============
Net profit attributable to discontinued operations (attributable
to owners of the Company) - 249
Net loss on disposal - (221)
================================================================= ============ ============
Net profit from discontinued operations - 28
================================================================= ============ ============
For the period ended 31 December 2016, the Isle of Man titles
consumed cash flows from operations of GBP0.4 million, investing
activities of GBPnil and financing activities of GBPnil.
For additional information on the net assets disposed of refer
to Note 15.
11. Dividends
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 GBP'000
======================================================= ============ ============
Amounts recognised as distributions to equity holders
in the period:
Preference dividends
13.75% Cumulative preference shares (13.75p per share) - 104
13.75% 'A' preference shares (13.75p per share) - 48
======================================================= ============ ============
- 152
======================================================= ============ ============
The provisions of the Group's Bond restrict the Company's
ability to pay dividends on the Company's ordinary shares until
certain conditions, including that net leverage is below 2.25x
EBITDA, are met. Although the Board wishes to resume dividend
payments as soon as is appropriate, no ordinary dividend is
declared for the period.
Due to the significant impairment that arose during the
financial year ended 31 December 2016 which extinguished
distributable reserves, preference share dividends cannot be
paid.
12. Earnings per Share
The calculation of Earnings per Share is based on the following
loss and weighted average number of shares:
Continuing and discontinued operations
Restated(1)
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 GBP'000
======================================================== ============ ============
Loss
Loss for the period (78,580) (247,282)
Preference dividend(2) - (152)
======================================================== ============ ============
Loss for the purposes of basic and diluted Earnings per
Share (78,580) (247,434)
======================================================== ============ ============
Loss per share (p)
Basic (74.6) (234.9)
Diluted(3) (74.6) (234.9)
======================================================== ============ ============
1 The prior period comparatives have been restated. Refer to
Note 3 for details.
2 In line with IAS 33, the preference dividend and the number of
preference shares are excluded from the calculation of Earnings per
Share.
3 Diluted Earnings per Share are presented when a company could
be called upon to issue shares that would decrease net profit or
increase Loss per Share.
Continuing operations
Restated(1)
52 weeks 52 weeks
to to
30 December 31 December
2017 2016
GBP'000 GBP'000
======================================================== ============ ============
Loss
Loss for the period (78,580) (247,310)
Preference dividend(2) - (152)
======================================================== ============ ============
Loss for the purposes of basic and diluted Earnings per
Share (78,580) (247,462)
======================================================== ============ ============
Loss per Share (p)
Basic (74.6) (234.9)
Diluted(3) (74.6) (234.9)
======================================================== ============ ============
1 The prior period comparatives have been restated. Refer to
Note 3 for details.
2 In line with IAS 33, the preference dividend and the number of
preference shares are excluded from the calculation of Earnings per
Share.
3 Diluted Earnings per Share are presented when a company could
be called upon to issue shares that would decrease net profit or
increase Loss per Share.
Number of shares 30 December 31 December
2017 2016
GBP'000 GBP'000
====================================================== =========== ===========
Weighted average number of ordinary shares 105,878 105,878
Less shares held by Employee Share Trust (552) (552)
====================================================== =========== ===========
Number of shares for the purpose of ordinary loss per
share 105,326 105,326
Effect of dilutive potential ordinary shares - -
====================================================== =========== ===========
Number of shares for the purposes of diluted loss per
share 105,326 105,326
====================================================== =========== ===========
Adjusted
Restated(1)
30 December 31 December
2017 2016
GBP'000 GBP'000
====================================================== =========== ============
Adjusted profit
Adjusted profit for the period(1) 7,279 13,500
Preference dividend(2) - (152)
====================================================== =========== ============
Adjusted profit for the purposes of basic and diluted
Earnings per Share 7,279 13,348
====================================================== =========== ============
Adjusted Profit per Share (p)
Adjusted basic 6.9 12.7
Adjusted diluted(3) 6.9 12.7
====================================================== =========== ============
1 Prior year adjusted earnings used in the adjusted EPS
calculation has been restated so that they are presented on a
consistent basis with current year adjusted earnings. For a
reconciliation from statutory (loss)/earnings refer to the
Alternative Performance Measures section within this financial
information.
2 In line with IAS 33, the preference dividend and the number of
preference shares are excluded from the calculation of Earnings per
Share.
3 Diluted Earnings per Share are presented when a company could
be called upon to issue shares that would decrease net profit or
increase Loss per Share.
13. Intangible assets
Digital
Publishing intangible
titles assets Total
GBP'000 GBP'000 GBP'000
=============================================== ========== =========== =========
Cost
At 1 January 2017 1,121,984 15,312 1,137,296
Additions - 1,680 1,680
Disposals - (4,127) (4,127)
=============================================== ========== =========== =========
At 30 December 2017 1,121,984 12,865 1,134,849
=============================================== ========== =========== =========
Accumulated impairment losses and amortisation
At 1 January 2017 978,439 6,807 985,246
Amortisation for the period(1) - 3,666 3,666
Disposals - (4,127) (4,127)
Impairment losses for the period 59,174 1,279 60,453
=============================================== ========== =========== =========
At 30 December 2017 1,037,613 7,625 1,045,238
=============================================== ========== =========== =========
Carrying amount
At 30 December 2017 84,371 5,240 89,611
=============================================== ========== =========== =========
Digital
Publishing intangible
titles assets Total
GBP'000 GBP'000 GBP'000
======================================================= ========== =========== =========
Cost
At 2 January 2016 1,149,190 4,718 1,153,908
Additions 24,000 796 24,796
Disposals (16,496) (337) (16,833)
Transfer to assets classified as held for sale (34,710) - (34,710)
Transfers from property, plant and equipment (Note 14) - 10,135 10,135
======================================================= ========== =========== =========
At 31 December 2016 1,121,984 15,312 1,137,296
======================================================= ========== =========== =========
Accumulated impairment losses and amortisation
At 2 January 2016 672,795 2,066 674,861
Amortisation for the period - 866 866
Disposals (12,496) (337) (12,833)
Impairment losses for the period 336,850 - 336,850
Transfer to assets classified as held for sale (18,710) - (18,710)
Transfers from property, plant and equipment (Note 14) - 4,212 4,212
At 31 December 2016 978,439 6,807 985,246
======================================================= ========== =========== =========
Carrying amount
At 31 December 2016 143,545 8,505 152,050
======================================================= ========== =========== =========
1 Includes accelerated amortisation charge of GBP0.7 million
(2016: GBP0.3 million) as a result of a review of the Group's
customer database.
Publishing brands
The carrying amount of publishing brands by cash generating unit
(CGU) is as follows:
31 December 30 December
2016 Impairment 2017
GBP'000 GBP'000 GBP'000
=========================================== =========== ========== ===========
Scotland(1) 9,436 (1,213) 8,223
North(2) 64,430 (28,775) 35,655
North West(3) 9,734 (9,734) -
Midlands 2,903 - 2,903
South(4) 19,452 (19,452) -
Northern Ireland 13,590 - 13,590
The i 24,000 - 24,000
=========================================== =========== ========== ===========
Total carrying amount of publishing titles 143,545 (59,174) 84,371
=========================================== =========== ========== ===========
1 As at 30 December 2017 the recoverable amount of the Scottish
CGU is GBP11.4 million. This is its value in use.
2 As at 30 December 2017 the recoverable amount of the North CGU
is GBP41.4 million. This is its value in use.
3 As at 30 December 2017 the recoverable amount of the North
West CGU is GBP0.4 million. This is its value in use.
4 As at 30 December 2017 the recoverable amount of the South CGU
is GBP1.7 million. This is its value in use.
Impairment assessment
The Group tests the carrying value of publishing brands held
within the publishing operating segment for impairment annually or
more frequently if there are indications that they might be
impaired. If an impairment charge is required this is allocated
first to reduce the carrying amount of any goodwill allocated to
the CGU and then to the other assets of the CGU but subject to not
reducing any asset below its recoverable amount. The impairment
reviews of the carrying value of the intangible assets, performed
during the period, resulted in impairment charges recorded against
publishing title intangible assets of GBP59.2 million, corporate
digital intangible assets of GBP1.3 million and corporate tangible
assets of GBP3.1 million (refer to Note 14).
The Directors consider that publishing brands have an indefinite
economic life. Their economic life will in large part be determined
by their ability to adapt over time to market requirements in the
changing media landscape. The publishing brands are grouped by CGU,
being the lowest levels for which there are separately identifiable
cash flows independent of the cash inflows from other groups of
assets. The recently acquired i newspaper, which serves a national
market, is held in a separate CGU. For the remaining regional
brands in the Group it is not practicable to review individual
publishing rights and titles due to the interdependencies of
revenues and cash inflows within the CGUs.
The recoverable amounts of the CGUs are determined from value in
use calculations. The key assumptions for the value in use
calculations are:
-- expected changes in underlying revenues and direct costs during the period;
-- corporate and central cost allocations;
-- growth rates; and
-- the discount rate.
The Group prepares discounted cash flow forecasts using:
-- the Board-approved budget for 2018, and the projections for
2019 and 2020 which reflects management's current experience and
future expectations of the markets the CGUs operate in. Changes in
underlying revenue and direct costs are based on past practices and
expectations of future changes in the market by reference to the
Groups own experience and, where appropriate, publicly available
market estimates. These include changes in demand for print and
digital, circulation, cover prices, advertising rates as well as
movement in newsprint and production costs and inflation;
-- capital expenditure cash flows to reflect the cycle of capital investment required;
-- net cash inflows for future years are extrapolated beyond
2020 based on the Board's view of the estimated annual long-term
performance. A long-term decline rate between 0% and 4% reflecting
the Groups experience and best estimate of future trends has been
included for all CGUs. The long-term decline rates used are based
on the Directors view of the market conditions for the CGU and its
titles and brands in their current form; and
-- management estimate discount rates using post-tax rates that
reflect current market assessments of the time value of money, the
risks specific to the CGUs and the risks that the regional media
industry is facing. The post-tax discount rate applied to the
future cash flows for the period ended 30 December 2017 was 11.0%
(31 December 2016: 11.0%).
Some CGUs impacted by the impairment charge in the period have
limited or no headroom of value in use over the carrying value of
assets. Therefore, the impairment review is highly sensitive to
reasonable possible changes in key assumptions used in the value in
use calculations. A combination of reasonably possible changes in
key assumptions to the CGUs, such as digital growth being slower
than forecast or the decline in print revenues, could lead to a
further impairment.
The Group has conducted sensitivity analysis on the impairment
test of each CGUs carrying value.
A decrease in the long-term decline rate of 1.0% (which has the
effect of increasing the decline rate from between 0% and 4% to
between 1% and 5%), beyond 2020, would result in a further Group
impairment of GBP2.2 million and erosion of GBP9.0 million of
headroom in the combined Midlands, Northern Ireland and i CGUs. An
increase in the long-term decline rate is possible if the
advertising market conditions do not improve.
A decrease in the operating profit (after central cost
allocation) of 1.0% in each of the three years in the forecast
period from 2018-2020, would result in a further Group impairment
of GBP0.5 million and erosion of GBP1.4 million of headroom in the
combined Midlands, Northern Ireland and i CGUs. A decrease in the
operating profit after central cost allocation is possible if
revenues or costs do not meet forecasted numbers.
An increase in the discount rate of 1.0%, from 11.0% to 12.0%
would result in an additional impairment of GBP2.8 million, and
erosion of GBP10.7 million of headroom in the combined Midlands,
Northern Ireland and i CGUs. An increase in the risk-free interest
rate or risk premium could result in a higher discount rate being
applied to the impairment assessment.
Decline rate Performance Discount rate
sensitivity sensitivity sensitivity
GBP'000 GBP'000 GBP'000
============================================ ============ ============ =============
Scotland (442) (114) (565)
North (1,806) (414) (2,271)
North West 42 (4) 43
Midlands - - -
South (4) (17) (16)
Northern Ireland - - -
The i - - -
============================================ ============ ============ =============
Total potential impairment from sensitivity
analysis (2,210) (549) (2,809)
============================================ ============ ============ =============
Digital intangible assets
Digital intangible assets primarily relate to the Group's local
websites, which form the core platform for the Group's digital
revenue activities. These assets are being amortised using the
straight-line method over the expected life, of three to five
years. Amortisation for the year has been charged through cost of
sales. Digital intangible assets are tested for impairment at each
reporting date or more frequently where there is an indication that
the recoverable amount is less than the carrying amount.
Costs incurred in the development of websites are only
capitalised if the criteria specified in IAS38 are met.
Disposal of Midlands titles
On 17 January 2017, the Group completed the disposal of the
entire issued share capital of Johnston Publishing East Anglia
Limited, which owned 13 publishing titles and associated websites
in East Anglia and the East Midlands, to Iliffe Media Limited for
gross cash consideration of GBP17.0 million, less associated
disposal costs of GBP1.4 million.
The net intangible assets disposed of amounted to GBP16.0
million and further details can be found in Note 15.
14. Property, plant and equipment
Freehold
land
and Leasehold Plant Motor
buildings buildings and machinery Vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== ========== ========== ============== ========= ===============
Cost
At 1 January 2017 56,899 6,086 114,280 440 177,705
Additions - 646 2,315 - 2,961
Disposals - (1,282) (10,303) (215) (11,800)
Transfers to assets held for sale (4,948) - (240) - (5,188)
Exchange differences - 27 - - 27
=================================== ========== ========== ============== ========= ===============
At 30 December 2017 51,951 5,477 106,052 225 163,705
=================================== ========== ========== ============== ========= ===============
Depreciation
At 1 January 2017 41,304 2,150 97,127 440 141,021
Disposals - (1,196) (10,245) (215) (11,656)
Charge for the period(1) 380 504 3,359 - 4,243
Impairment 2,037 253 1,571 - 3,861
Transfers to assets held for sale (2,830) - (210) - (3,040)
Exchange differences - 27 - - 27
=================================== ========== ========== ============== ========= ===============
At 30 December 2017 40,891 1,738 91,602 225 134,456
=================================== ========== ========== ============== ========= ===============
Carrying amount
At 30 December 2017 11,060 3,739 14,450 - 29,249
=================================== ========== ========== ============== ========= ===============
1 Includes accelerated depreciation of GBP0.2 million on certain
property assets within the Group.
Cost
At 2 January 2016 60,587 6,526 126,001 889 194,003
Additions 9 431 4,886 - 5,326
Disposals - (489) (6,263) (449) (7,201)
Transfers to assets held for sale (3,697) (568) (209) - (4,474)
Transfers to digital intangible assets
(Note 13) - - (10,135) - (10,135)
Exchange differences - 186 - - 186
======================================== ======= ===== ======== ===== ========
At 31 December 2016 56,899 6,086 114,280 440 177,705
======================================== ======= ===== ======== ===== ========
Depreciation
At 2 January 2016 39,048 2,341 99,012 889 141,290
Disposals - (489) (6,249) (449) (7,187)
Charge for the period 380 459 5,685 - 6,524
Transfers to digital intangible assets
(Note 13) - - (4,212) - (4,212)
Transfers to assets held for sale (2,520) (311) (189) - (3,020)
Impairment 4,396 - 3,080 - 7,476
Exchange differences - 150 - - 150
======================================== ======= ===== ======== ===== ========
At 31 December 2016 41,304 2,150 97,127 440 141,021
======================================== ======= ===== ======== ===== ========
Carrying amount
At 31 December 2016 15,595 3,936 17,153 - 36,684
======================================== ======= ===== ======== ===== ========
Assets held under finance leases included above at net carrying amount(2)
At 1 January 2017 - - 610 - 610
==================================================== === === ======== =======
At 30 December 2017 - - 981 - 981
==================================================== === === ======== =======
2 Prior period comparatives have been re-presented. Refer to
Note 16.
During the 52-week period ended 30 December 2017, the Group
recognised an accelerated depreciation charge of GBP0.2 million
(2016: GBP0.5 million charge). The write-down in the current and
prior period arose from decisions to rationalise facilities and are
calculated based on fair value less costs of sale as quoted by
external valuers.
During the period the Group carried out a review of the
recoverable amount of its print manufacturing plant and related
equipment, which are used in the Group's print segment. The Group
has three print presses in Dinnington, Portsmouth and Carn. Each
print site is assessed independently for impairment, as separate
CGUs. The recoverable amount of each CGU is determined from value
in use calculations. The key assumptions for the value in use
calculations are:
-- expected changes in underlying revenues and direct costs during the period;
-- growth rates; and
-- the discount rate.
The Group prepares discounted cash flow forecasts using:
-- the Board approved budget for 2018 and the projections for
2019 and 2020 which reflects management's current experience and
future expectations of the markets the CGUs operate in. Changes in
underlying revenue and direct costs are based on past practices and
expectations of future changes in the market. These include changes
in internal and external print revenue as well as movement in
newsprint and production costs and inflation;
-- capital expenditure cash flows to reflect the cycle of capital investment required;
-- net cash inflows for future years are extrapolated beyond
2020 based on the Board's view of the estimated annual long-term
performance. A long-term decline rate of 0% reflecting the Group's
ability to attract new business, to realise decline in existing
internal and external contracts has been included for all print
press CGUs (31 December 2016: 0% growth); and
-- management estimate discount rates using post-tax rates that
reflect current market assessments of the time, value of money and
the risks specific to the CGUs. The post-tax discount rate applied
to the future cash flows for the period ended 30 December 2017 was
11.0% (31 December 2016: 11.0%). The pre-tax discount rate is a
range between 5.2% and 12.4% (31 December 2016: 11.9% to 13.0%).
The post-tax discount rate reflects management's view of the
current risk profile of the underlying assets being valued with
regard to the current economic environment and the risks that the
regional media industry is facing. The present value of the cash
flows is then compared to the carrying value of the asset to
determine if there is any impairment loss.
Impairment charges totalling of GBP3.9 million have been
recognised against property, plant and equipment for the period
ended 30 December 2017. This consists of:
-- a GBP3.1 million impairment charge allocated against
corporate assets arising out of the impairment assessment performed
over the publishing title intangible asset CGUs (refer to Note 13
for details);
-- an GBP0.8 million impairment charge arising out of the
impairment assessment performed in relation to the Carn print site
CGU. As at 30 December 2017 the recoverable amount of the Carn
print site CGU is GBP0.4 million. This is its value in use.
The comparative period included a GBP5.5 million impairment
charge to the Dinnington print site. The impairment charge has been
included in the Income Statement in exceptional items and arises
from Guardian News & Media renegotiating its contract,
following the transition of The Guardian and Observer newspapers
from Berliner to Tabloid format.
The prior year comparative includes a write-down of GBP1.9
million to record a property at its expected realisable value. The
property belongs to the Group's publishing segment and the
impairments have been included in the Income Statement in
exceptional items.
15. Disposal of subsidiary
East Anglia/East Midlands
In the current period ended 30 December 2017, Group completed
the disposal of the entire issued share capital of Johnston
Publishing East Anglia Limited, which owned 13 publishing titles
and associated websites in East Anglia and the East Midlands, to
Iliffe Media Limited for gross cash consideration of GBP17.0
million less associated disposal costs of GBP1.4 million. The
Group's revolving credit facility was cancelled on completion of
the sale, and as a consequence the Group is no longer subject to
any covenants. The disposal was approved by shareholders of the
Company at a general meeting on 11 January 2017.
As part of the sale agreement, the Group entered in to a
Transitional Services Agreement (TSA) to provide services including
pre-press, editorial, IT, finance and project management, for a
period of 12 months commencing 17 January 2017. The Group will
continue to provide these services beyond the original contractual
period, on a time and materials basis, until such time as the
transition of certain services to new providers has been
completed.
The net assets related to the sale of the East Anglian and
Midlands titles that were disposed of are as follows:
Net assets: 17 January
2017
GBP'000
================================= ==========
Publishing titles 16,000
Tangible assets 143
Deferred newspaper sales revenue 88
================================== ==========
Net assets disposed of 16,231
================================== ==========
Cash consideration:
===================== =======
Gross cash received 17,000
Disposal costs (1,380)
====================== =======
Net cash received 15,620
====================== =======
Net loss on disposal (611)
====================== =======
Isle of Man
As referred to in Note 10, the Group disposed of its investment
in the Isle of Man Newspapers Limited in the prior period on the 18
August 2016, whose titles consisted of the Isle of Man Examiner,
Isle of Man Courier, Manx Independent and www.iomtoday.com.im to
Tindle Newspapers Ltd, the UK-based publisher, for GBP4.25 million
in cash.
The net assets of the Isle of Man Newspapers Limited at the date
of disposal were as follows:
18 August
2016
GBP'000
============================ =========
Intangible fixed assets 4,000
Tangible assets 14
Trade and other receivables 446
Cash and cash equivalents 43
Trade and other payables (232)
============================ =========
Net assets disposed of 4,271
============================ =========
Cash consideration 4,250
Disposal costs (200)
============================ =========
Net cash consideration 4,050
============================ =========
Net loss on disposal (221)
============================ =========
The impact of this disposal on the Group's results in the prior
period is disclosed in Note 10.
16. Borrowings
The borrowings at 30 December 2017 are recorded at quoted market
fair value and classified as Level 1 according to IFRS 13. As the
borrowings are shown at fair value the associated issue costs
against the 8.625% Senior secured notes due 1 June 2019 ('the
Bond') have been charged to the Income Statement (refer to Note
8c).
The breakdown of the 8.625% senior secured notes due 1 June 2019
is as follows:
Re-presented(1)
30 December 31 December
2017 2016
GBP'000 GBP'000
==================================== =========== ===============
Principal amount(2) 220,000 220,000
Bond discount - initial (4,400) (4,400)
Fair value gain from inception(3) (49,775) (72,600)
==================================== =========== ===============
Total secured notes at market value 165,825 143,000
==================================== =========== ===============
Finance leases 860 566
==================================== =========== ===============
Total borrowings 166,685 143,566
==================================== =========== ===============
The borrowings are disclosed in the financial statements as:
30 December Re-presented(1)
31 December
2017 2016
GBP'000 GBP'000
======================= =========== ===============
Current borrowings 180 98
Non-current borrowings 166,505 143,468
======================= =========== ===============
Total borrowings 166,685 143,566
======================= =========== ===============
The Group's net debt(1) is:
30 December Re-presented(1)
31 December
2017 2016
GBP'000 GBP'000
========================== =========== ===============
Gross borrowings as above 166,685 143,566
Cash and cash equivalents (25,028) (16,058)
========================== =========== ===============
Net debt(4) 141,657 127,508
========================== =========== ===============
1 In the prior period there existed finance lease obligations
included within other creditors, which were considered immaterial
and not separately disclosed. However, following the inception of
new finance leases during the year, finance leases are now
considered material and are disclosed separately. Therefore the
finance lease liability has been re-presented in the prior period
to borrowings and the associated finance lease disclosure
comparatives have been added for comparability with the new current
year disclosures. There were no finance leases in year ended 2
January 2016. There is no effect on EPS.
2 The principal amount remaining is stated after a GBP5 million
Bond buy back in August 2015.
3 The fair value loss for the period to 30 December 2017
amounted to GBP22.8 million (period to 31 December 2016: GBP43.6
million gain).
4 Net debt is a non-statutory term presented to show the Group's
borrowings net of cash equivalents and Bond fair value
movements.
Finance leases
The Group leases some of its equipment under finance leases. The
average lease term is five years (31 December 2016: five years) and
the Group, in some cases, has the option to purchase the equipment
at the end of the lease term. There is no contingent rent payable
or restrictions imposed by these finance lease agreements, such as
those concerning dividends, additional debt and further leasing.
Future minimum lease payments under finance leases together with
the present value of minimum lease payments are as follows:
30 December 30 December 31 December 31 December
2017 2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
Present
Present value Minimum value of Minimum
of payments payments payments payments
Less than one year 180 234 98 135
One to five years 680 764 468 537
================================== ============= ========================== =========== =============
Total 860 998 566 672
================================== ============= ========================== =========== =============
Less amounts representing finance
charges (138) (106)
================================== ============= ========================== =========== =============
Present value of minimum lease
payments 860 566
================================== ============= ========================== =========== =============
17. Retirement benefit obligation
Characteristics of the Group's pension-related liabilities
The Johnston Press Retirement Savings Plan
The Johnston Press Retirement Savings Plan is a defined
contribution Master Trust arrangement for current employees,
operated by Zurich. Contributions by the Group are a percentage of
basic salary. Employer contributions range from 1% of qualifying
earnings, for employees statutorily enrolled, through to 12% of
basic salary for Senior Executives. Employees who were active
members of the Money Purchase section of the Johnston Press Pension
Plan on 31 August 2013 transferred from the Johnston Press Pension
Plan to the Johnston Press Retirement Savings Plan from 1 September
2013.
The Johnston Press Pension Plan ('the Plan')
The Johnston Press Pension Plan is a defined benefit pension
plan closed to new members and closed to future accrual. There was
a defined contribution section of the Johnston Press Pension Plan
which was closed in August 2013 and members' defined contribution
benefits were transferred to the Johnston Press Retirement Savings
Plan.
The Plan operates under trust law applying in the relevant parts
of the United Kingdom, and the assets of the Plan are held
separately from those of the Group. The Plan is managed and
administered by independent Trustees on behalf of the members.
Trustees have a duty to act in the best interests of the members
and must act in accordance with the Plan's Trust Deed and Rules and
UK pensions legislation.
There are seven Trustees, four are appointed by the Company
(including an independent professional trustee as Chairman) and
three are nominated by members of the Plan.
A valuation of the Johnston Press Pension Plan as at 31 December
2012 was commissioned by the Trustees and took account of the 2014
Capital Refinancing Plan.
In conjunction with the 2014 Capital Refinancing Plan, the Plan
Trustees and the Group entered into a Pension Framework Agreement,
agreeing, inter alia, to the following:
-- On implementation of the Capital Refinancing Plan in June
2014, the secured guarantee provided in favour of the Plan Trustees
by the Group and certain of its subsidiaries in relation to any
default on a payment obligation under the Johnston Press Pension
Plan was removed. In return for the removal of this security and
the aforementioned guarantee, an unsecured cross-guarantee was
provided on implementation of the Capital Refinancing Plan by the
Group and certain of its subsidiaries in favour of the Plan
Trustees in relation to any default on a payment obligation under
the Plan. Each claim made under the unsecured cross-guarantee is
capped at an amount equal to the aggregate Section 75 (s.75) debt
of the Johnston Press Pension Plan at the date any claim made by
the Plan Trustees falls due.
-- The deficit as at the 31 December 2012 valuation date will be
sought to be addressed by 31 December 2024 by entry into a recovery
plan (see below).
-- Settlement of previously incurred Pension Protection Fund (PPF) levies and s.75 debts.
-- The Plan was entitled to receive 25% of net proceeds from
business or asset disposals up to and including 31 August 2015
exceeding GBP1 million in a single transaction or GBP2.5 million
over the course of a financial year, subject to certain permitted
disposals, conditions in relation to financial leverage and other
exceptions set out in the Framework Agreement.
-- The Group would also pay additional contributions to the Plan
in the event that the 2014/2015 PPF levy and/or
the 2015/2016 PPF levy was less than GBP3.2 million, equal to
the amount the levy falls below GBP3.2 million, up to a maximum of
GBP2.5 million.
-- Additional contributions would also be payable to the
Johnston Press Pension Plan in the event that the Group satisfies
certain conditions in relation to financial leverage.
As part of the 31 December 2012 triennial valuation, this
Pension Framework Agreement was reflected in the valuation
documentation of the Plan, and subsequently it was submitted to The
Pensions Regulator.
The Pension Framework Agreement and the required level of
contributions are subject to review as part of the triennial
valuation as at 31 December 2015.
Discussions are currently ongoing between the Trustees and the
Company. The statutory deadline for sign off of the valuation was
31 March 2017 and the Trustees have informed the Pensions Regulator
(tPR) that the valuation has not been signed off due to ongoing
discussions with the Company. The Trustees and the Plan's advisers
have met with tPR and had regular conference call updates over the
course of the year to keep tPR updated on the progress of the
discussions.
In the meantime, the Schedule of Contributions and Recovery Plan
dated 29 July 2014 remain in force. Under these, the Group will pay
the following annual contributions to the Plan: GBP10.6 million in
the year to 31 December 2018 increasing by 3% per annum with a
final payment of GBP12.7 million in the year to 31 December
2024.
Difference between funding valuation and IAS19 valuation
A funding valuation is carried out every three years by a
qualified actuary on behalf of the Board of Trustees, the purpose
of which is to determine the money that needs to be put into the
Plan.
IAS19 is an accounting rule covering employee benefits under
which the deficit shown on the balance sheet of the financial
statements is determined.
The purpose of the funding valuation is therefore different to
the IAS19 valuation. And the approach to each of these valuations
is different too, meaning the funding and IAS19 deficits are
different:
-- The IAS19 accounting standard requires all companies to
assess their liabilities by assuming that future investment returns
will be in line with yields on high-quality corporate bonds
-- The Plan invests in a range of assets which are expected to
deliver higher returns than the yields currently available on
corporate bonds. The Trustees can take account of these higher
expected returns in setting the liabilities under the funding
valuation
-- Other assumptions used differ between the IAS19 and funding
valuations. The Trustees are required to use prudent assumptions
for funding whereas IAS19 requires best estimate assumptions.
Whilst discussions with the Trustees on the latest triennial
funding valuation as at 31 December 2015 are ongoing, the latest
estimate of the funding deficit is GBP45.9 million at 30 June 2017.
This compares with the IAS19 deficit at the same date of GBP53.1
million.
Maturity profile
The weighted average term of the liabilities (known as 'the
duration') is 16 years.
The table below shows the split of the Defined Benefit
Obligation by member type at 30 December 2017:
Defined benefit obligation GBP000
at 30 December 2017
============================ ========
Deferred pensioners 300,416
Pensioners 308,196
============================ ========
Total 608,612
============================ ========
Risks
The Plan exposes the Group to a number of risks, the most
significant of which are described below:
Interest rate The IAS19 liabilities are calculated using a discount
risk rate based on the yields available on AA corporate
bonds. A reduction in bond yields (and hence the discount
rate) will increase the Plan's liabilities.
The Plan invests in Liability Driven Investment (LDI)
assets to hedge the majority of this risk - see Investment
Strategy below.
================ ==============================================================
Inflation risk Pension increases in payment and revaluation of deferred
members' benefits before retirement are linked to inflation.
Higher levels of inflation will lead to higher liabilities.
The Plan's LDI investments provide a hedge against
the majority of this risk - see Investment Strategy
below.
Pension increases in payment and deferred revaluation
are both subject to caps which limit the inflation
risk to an extent. And the Plan offers members the
option of a Pension Increase Exchange at retirement,
where members can give up future increases on some
of their pension for an immediate, one-off uplift to
the initial pension. This further reduces the level
of inflation risk.
================ ==============================================================
Investment risk Whilst the IAS19 liabilities are calculated by reference
to AA corporate bond yields, the Plan invests in a
range of different asset classes with the aim of balancing
the objectives of targeting investment growth and managing
risk.
The Plan's assets include some growth assets that are
expected to perform better than corporate bonds in
the long-term, but the value of these assets will fluctuate
due to changes in market prices. To limit this risk,
the Trustees invest in a diverse portfolio of instruments
across various markets.
The mismatch between assets and liabilities does mean
there will be some short-term volatility between asset
and liability values. The Plan's LDI investments limit
the extent of this volatility - see Investment Strategy
below. All else being equal, if the returns are less
than the discount rate then the deficit will increase.
The Trustees will monitor and review the investment
strategy with respect to the liabilities in conjunction
with each actuarial valuation. The investment strategy
will be set with consideration to the appropriate level
of risk required for the funding strategy as set out
in the Plan's Statement of Funding Principles.
================ ==============================================================
Longevity risk Increases in life expectancy will lead to higher liabilities.
The Company will keep the life expectancy assumptions
under review, taking into account the results of the
medically underwritten health study, information from
the Trustee's actuary on the Plan's actual mortality
experience and mortality trends in the wider population.
================ ==============================================================
IFRIC 14
Under the Rules of the Plan the Group has an unconditional right
to any surplus assuming the gradual settlement of liabilities over
time until all members have left the Plan.
Therefore under IFRIC 14 the Group is neither required to
reflect any additional liabilities in relation to deficit funding
commitments, nor restrict any Plan surplus that arises.
IFRIC 14 is currently in the process of being amended and the
Company will review its IFRIC 14 position when the amendment is
published.
Amounts arising from pension-related liabilities in the Group's
financial statements
The following tables identify the amounts in the Group's
financial statements arising from its pension-related
liabilities:
30 December 31 December
Income statement - pensions and other pension-related 2017 2016
liabilities costs Notes GBP'000 GBP'000
======================================================== ===== =========== ===========
Employment costs:
Defined contribution scheme (3,732) (4,047)
Defined benefit scheme:
Plan expenses (IAS19) (1,289) (563)
Pension Protection Fund Levy (270) (422)
Past service cost - (3,539)
Net finance cost on Johnston Press Pension Plan (IAS19) 8a (1,690) (831)
======================================================== ===== =========== ===========
Total defined benefit scheme (3,249) (5,355)
======================================================== ===== =========== ===========
Total pension costs (6,981) (9,402)
======================================================== ===== =========== ===========
30 December 31 December
2017 2016
Other comprehensive income - gains/(losses) on pension GBP'000 GBP'000
=============================================================== =========== ===========
Gains on plan assets in excess of interest 13,587 69,806
Losses from changes to financial assumptions (13,071) (104,200)
Gains/(Losses) from changes to demographic assumptions 11,420 (6,710)
Experience losses arising on the benefit obligation - (5,013)
=============================================================== =========== ===========
Actuarial gain/(loss) recognised in the statement of
comprehensive income 11,936 (46,117)
Deferred tax(1) (2,029) 6,390
=============================================================== =========== ===========
Actuarial gain/(loss) recognised in the statement of
comprehensive income net of tax 9,907 (39,727)
=============================================================== =========== ===========
(1) Deferred tax adjustment in the period arises due to the
reduction in corporate tax rate and increase in pension deficit. A
17% deferred tax rate has been applied to the deferred tax movement
in respect of the defined benefit scheme.
During the 2015 period, a medically underwritten study was
carried out by KPMG to identify the current health of a sample
group of existing Plan members, assessed via telephone interviews
targeted towards members with the most significant liabilities in
the Plan. The results of the study continue to be used to inform
the mortality assumptions for use in calculating the IAS19 scheme
liabilities.
30 December 31 December
Statement of financial position - net defined benefit pension 2017 2016
deficit GBP'000 GBP'000
=============================================================== =========== ===========
Amounts included in the Group Statement of Financial Position:
Fair value of scheme assets 561,425 547,885
Present value of defined benefit obligations (608,612) (615,610)
=============================================================== =========== ===========
Amount included in non-current liabilities (47,187) (67,725)
=============================================================== =========== ===========
30 December 31 December
Analysis of amounts recognised of the net defined benefit 2017 2016
pension deficit GBP'000 GBP'000
=========================================================== =========== ===========
Net defined benefit pension deficit at beginning of period (67,725) (26,962)
=========================================================== =========== ===========
Defined benefit obligation at beginning of period (615,610) (500,375)
Income statement:
Interest cost (16,287) (18,345)
Past service cost - (3,539)
Other comprehensive income:
Experience losses - (5,013)
Re-measurement of defined benefit obligation:
Arising from changes in demographic assumptions 11,420 (6,710)
Arising from changes in financial assumptions (13,071) (104,200)
Cash flows:
Benefits paid (by fund and Group) 24,936 22,572
=========================================================== =========== ===========
Defined benefit obligation at end of the period (608,612) (615,610)
=========================================================== =========== ===========
Fair value of plan assets at beginning of period 547,885 473,413
Income statement:
Interest income on plan assets 14,597 17,514
Other comprehensive income:
Return on plan assets less interest 13,587 69,806
Cash flows:
Company contributions(1) 10,292 9,724
Benefits paid (by fund and Group) (24,936) (22,572)
=========================================================== =========== ===========
Fair value of plan assets at end of period 561,425 547,885
=========================================================== =========== ===========
Net defined benefit pension deficit at end of period (47,187) (67,725)
=========================================================== =========== ===========
1 Comprises annual employer contributions of GBP10.3 million (30
December 2016: GBP9.7 million) and plan expenses of GBPnil (30
December 2016: GBPnil).
Analysis of fair value of plan assets
30 December 31 December
2017 2016
GBP'000 GBP'000
======================================= =========== ===========
Global Equity Fund - 86,342
Volatility Controlled Synthetic Equity 22,294 -
Multi Asset Credit 169,718 112,775
Diversified Growth Funds 204,977 202,247
Liability Driven Investment 122,645 141,913
Cash and Cash Equivalents 40,419 3,180
Insured Benefits 1,372 1,428
======================================= =========== ===========
Total fair value of plan assets 561,425 547,885
======================================= =========== ===========
The Volatility Controlled Synthetic Equity is a structure that
has been set up to provide volatility controlled exposure to global
equity markets. The volatility target is 10% and the underlying
allocation is split between equity and cash to target this. The
fair value of this mandate has been determined by the investment
manager based on relevant guidance and represents the Net Asset
Value of the underlying cash and derivatives providing equity
exposure.
Insured Benefits are annuities held in the name of the Trustees
with various providers. These annuities have been valued using the
IAS19 assumptions.
Multi Asset Credit represents holdings in pooled investment
vehicles investing in a range of credit assets such as loans,
high-yield bonds and asset backed securities. The investment
managers have full discretion in the selection of the underlying
assets.
Diversified Growth Funds represent holdings in pooled investment
vehicles investing in a range of growth assets such as equities,
property, commodities, bonds and cash with managers having full
discretion in the selection of the underlying assets.
Liability Driven Investment (LDI) consists of investments in the
Aberdeen Standard Investments ILPS and State Street LDI funds,
which use swap-based and gilt-based derivatives to hedge movements
in the Plan's liabilities (discussed in more detail below).
The fair values of the investments in the Multi Asset Credit,
Diversified Growth and LDI funds are provided by the investment
managers, based on the values of the assets underlying these funds.
The managers use quoted prices where available and determine the
fair value of the unquoted investments based on relevant
guidance.
The Plan does not directly invest in any of the Company's own
transferable financial instruments or any property occupied by, or
other assets used by, the Company. The Plan does invest into funds
that do have the discretion to purchase Company financial
instruments (these are pooled funds with large numbers of
investors), but the level from time to time would be expected to
make up a very small proportion of overall Plan assets -
significantly below the 5% self-investment threshold for UK pension
schemes as set out in the Section 40 of the Pensions Act 1995.
Investment strategy
Investment managers are appointed by the Trustees to manage the
Plan's assets. The Trustees agree the strategic investment strategy
after taking appropriate advice. Subject to the investment strategy
laid down by the Trustees, day-to-day management of the Plan's
portfolio, which includes full discretion over stock selection, is
the responsibility of the investment managers.
Over the course of 2017, the Trustees took a series of decisions
regarding the investment strategy, with three main aims: to
increase the level of interest rate and inflation hedging, to
improve the cashflow generation of the Plan's assets and to manage
the equity downside risk.
-- Between June 2014 and July 2016, the Plan's liability
matching assets were solely invested in a range of leveraged (fixed
interest and inflation-linked) single gilt funds managed by State
Street Global Advisors (SSGA).
-- Between August 2016 and February 2017, the Plan's investment
in liability matching assets was increased by introducing an
allocation in the Aberdeen Standard Investments ILPS fund range
alongside the SSGA LDI portfolio. The ILPS fund range provides
leveraged interest rate and inflation exposure using a mixture of
gilt-based and swap-based derivatives. The leverage in the ILPS
holdings is also used to provide diversified growth exposure on top
of the hedging.
-- Since February 2017, the SSGA LDI portfolio and the Aberdeen
Standard Investments ILPS allocation have broadly hedged the Plan's
funded liabilities (as measured on a gilts + 0.5% pa basis).
-- The other assets of the Plan are designed to provide growth
and income over time, to meet the benefit payments as they fall
due. Over the course of 2017, the Plan has added more
income-focused assets (including investing GBP56 million into the
TwentyFour Strategic Income Fund) and has added protection to the
equity portfolio (replacing the Fidelity actively-managed physical
equity funds, with a synthetic equity mandate with downside
protection and volatility control).
-- Overall, the changes to the investment strategy (both LDI and
growth changes) should reduce the level of volatility in the Plan's
funding level.
Liability Driven Investments (LDI)
The Johnston Press Pension Plan invests in leveraged Liability
Driven Investment (LDI) funds which use swap-based and gilt-based
derivatives in order to match a proportion of the interest rate and
inflation sensitivity of the Plan's liabilities. The current
leverage on the LDI mandates is around 2x-3x. This means that every
GBP1 invested in LDI funds hedges GBP2-GBP3 of liabilities.
Under these strategies, if interest rates fall the value of the
investments will rise to help match the increase in actuarial
liabilities arising from the fall in the discount rate. Similarly,
if interest rates rise, the investments will fall in value, as will
the actuarial liabilities because of an increase in the discount
rate.
If inflation rates rise the value of the investments will rise
to help match the increase in actuarial liabilities arising from
the rise in the inflation rate. Similarly, if inflation rates fall,
the investments will fall in value, as will the actuarial
liabilities because of a decrease in the inflation rate.
The LDI mandate targets 100% interest rate and inflation hedging
of the funded liabilities calculated using a discount rate of 0.5%
pa above gilt yields. This means that changes in interest rates and
inflation will leave the funding level (calculated on a gilts +
0.5% basis) broadly unchanged.
At the year end, the total allocation to Liability Driven
Investment strategies represented 39.3% of the total investment
portfolio. This excludes a 7% allocation to a cash fund which sits
alongside the leveraged LDI funds with State Street.
The Plan hedges its interest rate risk on a gilts basis whereas
the IAS19 discount rate is based on AA corporate bond yields. There
is therefore some mismatching risk should the yields on gilts and
corporate bonds diverge. As a result of this mismatch, the funding
level under IAS19 remains volatile to changes in corporate bond
credit spreads that have not been hedged.
Analysis of Valuation at Valuation at
financial 30 December 31 December
assumptions 2017 2016
=============== ==================================================== ===============================================
Discount rate 2.50% 2.70%
Future pension
increases
Deferred
revaluations
(where linked
to inflation
(CPI)) 2.30% 2.40%
Pensions in
payment
(where linked
to
inflation
(RPI)) 3.30% 3.40%
LPI 2.5%
pension
increases
(RPI) 2.10% 2.15%
LPI 5% pension
increases
(RPI) 3.15% 3.20%
Future life
expectancy
Male 21.3
currently
aged 50
(years) 20.7
Female
currently
aged 50
(years) 22.3 22.8
Male currently 20.1
aged 65
(years) 19.7
Female 21.7
currently
aged 65
(years) 21.4
Mortality 100% of S2PxA tables, 100% of S2PxA tables,
assumption rated up by two years rated up by 2.5
with allowance for years* with allowance
the CMI 2016 projections for the CMI 2015
(smoothing parameter projections and
6.5) and long-term long-term rate of
rate of improvement improvement of 1.25%
of 1.25% pa for males pa for males and
and 1.0% pa for females 1.0% pa for females
=============== ==================================================== ===============================================
Pension increase exchange at retirement
Allowance for 45% of members to exchange their non-statutory
pension increases for a higher level pension at retirement for
those sections where this is automatically offered at
retirement.
Sensitivity analysis of significant assumptions
The following tables present a sensitivity analysis for each
significant actuarial assumption showing how the defined benefit
obligation would have been affected, by changes in the relevant
actuarial assumptions that were reasonably possible at the
reporting date:
Decrease/(Increase)
in defined benefit
obligation
GBPm
=========================================================== ===================
Discount rate
+0.10% discount rate 9,338
Inflation rate
+0.10% inflation rate (5,631)
Mortality
+10.0% to base table mortality rates 21,639
Pension increase exchange
Allowance for 25% take up for sections where automatically
offered 50
=========================================================== ===================
The sensitivities above show the impact on the defined benefit
obligation only, and not any offsetting impact on the value of Plan
assets from the interest rate and inflation hedging strategies.
The sensitivity analysis is based on a change in one assumption
while holding all other assumptions constant, therefore
interdependencies between assumptions are excluded. In line with
previous periods, the methodology applied is consistent to that
used to determine the recognised pension liability.
The inflation assumption sensitivity above factors in the impact
of a change in inflation on increases to deferred benefits and
pensions in payment.
Other pension-related obligations
The Group has agreed to pay the expenses of the Plan and the PPF
levy as they fall due.
The Plan has seen an increase in its obligations with respect to
historic benefit equalisation for a specific group of members ('the
Affected Members') for the Portsmouth & Sunderland section of
the Plan. The Company made an application to the High Court ('the
Court') for a declaration that Normal Retirement Dates (NRDs) for
the Affected Members were validly equalised between male and female
members. A court order dated 19 May 2016 was executed which revised
the NRDs and this has been reflected as a past service cost of
GBP3.5 million in the Income Statement for 2016.
News Media Association Pension Scheme
The Group is a member of the News Media Association (NMA), it
was formerly a member of the Newspaper Society (an unincorporated
body representing the interests of local newspaper publishers).
During 2014 the Newspaper Society incorporated itself as a company
limited by guarantee and entered into a merger with the Newspaper
Publishers' Association (a body representing the interests of
publishers of national newspapers). As part of the merger, existing
members entered into a deed of covenant in respect of the deficit
to the Society's defined benefit pension scheme. The members agreed
to make contributions over a period of 25 years to 2038 or until
such time as the deficit has been addressed, if earlier. The
provision has been made on the former since we have no reliable
estimate about the likelihood of the deficit being addressed before
2038 or, if it was, when this might happen. Applying a discount
rate of 12.0%, the Group's best estimate of this at present value
is GBP0.8 million.
News Media Association Pension Scheme liabilities have been
included within provisions (Note 19).
Other pension-related liabilities
The closing provision relating to unfunded pensions for senior
employees was GBP0.5 million (31 December 2016: GBP0.5 million).
The unfunded pension provision is assessed by a qualified actuary
at each period end.
Post-retirement medical benefit pension-related liabilities for
former Portsmouth and Sunderland members of GBP0.1 million (31
December 2016: GBP0.1 million). The post-retirement medical
benefits represent management's best estimate of the liability
concerned.
Other pension-related liabilities have been included within
provisions (Note 19).
18. Deferred tax
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting periods.
Share Properties Accelerated i Other
based not tax Intangible intangible Pension Bond timing
payments eligible depreciation assets(1) asset balances(1) balances differences Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ======== ========== ============ ========== ========== =========== ======== =========== ========
At 2 January
2016 (139) 3,993 (4,812) 85,754 - (5,282) 5,740 (1,058) 84,196
================ ======== ========== ============ ========== ========== =========== ======== =========== ========
Effect of change
in tax
rates on Income
Statement - (193) 656 (875) - 17 - 21 (374)
Effect of change
in tax
rates on
Statement
of Other
Comprehensive
Income - - - - - 1,348 - - 1,348
Charge to
Statement of
Other
Comprehensive
Income - - - - - (7,685) - - (7,685)
(Credit)/Charge
to income
statement - (518) (1,156) (61,433) 122 - 8,445 198 (54,342)
Adjustment to
prior year
charged to
Statement of
Changes in
Equity (5) - - - - - - - (5)
Adjustment to
prior year
charged to
Income
Statement 144 - (252) - - - - 709 601
================ ======== ========== ============ ========== ========== =========== ======== =========== ========
At 31 December
2016 - 3,282 (5,564) 23,446 122 (11,602) 14,185 (130) 23,739
================ ======== ========== ============ ========== ========== =========== ======== =========== ========
Charge to
Statement of
Other
Comprehensive
Income - - - - - 2,030 - - 2,030
(Credit)/Charge
to Income
Statement - (842) (1,537) (13,260) - 1,461 (3,853) (10) (18,041)
Deferred tax not
recognised - - 2,095 - - - - - 2,095
Adjustment to
prior year
charged to
Income
Statement - - 554 77 (122) - (823) - (314)
================ ======== ========== ============ ========== ========== =========== ======== =========== ========
At 30 December
2017 - 2,440 (4,452) 10,263 - (8,111) 9,509 (140) 9,509
================ ======== ========== ============ ========== ========== =========== ======== =========== ========
(1) In the prior period Intangible included GBP3.2 million of
deferred tax in relation to the East Midlands publishing titles
that have been reclassified to assets held for sale ahead of their
disposal by the Group in January 2017.
The deferred tax movements credited through the Income Statement
in the period total GBP16.3 million. Deferred tax movements charged
to the Statement of Other Comprehensive Income in the period total
GBP2.0 million. There is no impact of rate changes to the deferred
tax balances in the current period, as the substantively enacted
reduction of the standard rate of corporation tax to 17% was
reflected in the prior periods, where appropriate.
The GBP13.3 million deferred tax credit recognised in the income
statement relating to intangible assets has largely arisen from
GBP59.2 million of impairment charges on the Group's publishing
title intangible assets (GBP10.1 million deferred tax credit) and
the disposal of the East Anglia and East Midlands publishing titles
in January 2017 resulting in a deferred tax credit of GBP3.2
million.
The deferred tax credit of GBP3.9 million relating to the
Group's Bond largely includes GBP4.3 million deferred tax credit on
the Bond fair value loss of GBP22.8 million recorded in the period.
A correction to the Bond issue cost treatment has been made in the
period, relating to the issue costs incurred as part of the Group's
2014 refinancing. The correction will result in the Bond issue
costs being amortised to the Income Statement over the term of the
Bond, within Johnston Press plc, rather than the initial treatment
to take an immediate deduction in 2014 when the costs were incurred
and paid. The correction gives rise to a GBP0.8 million prior year
deferred tax credit adjustment.
In November 2017, the UK government introduced new rules with
effect from 1 April 2017 which would restrict the deductibility of
net interest costs. Due to uncertainty regarding the Group's
ability to recover the disallowed interest which can be carried
forward under these rules, no deferred tax asset has been
recognised in relation to the disallowed amount. Having also
assessed the recoverability of its deferred tax assets from timing
differences, the Group has recognised a deferred tax charge of
GBP2.1 million to derecognised deferred tax assets due to
uncertainty as to the timing of future recoverability.
Temporary differences arising in connection with interests in
associates are insignificant.
Certain deferred tax assets and liabilities have been offset.
The following is the analysis of the deferred tax balances (before
offset) for financial reporting purposes:
30 December 31 December
2017 2016
GBP'000 GBP'000
------------------------- ----------- -----------
Deferred tax liabilities 22,212 41,035
Deferred tax assets (12,703) (17,296)
------------------------- ----------- -----------
9,509 23,739
------------------------- ----------- -----------
No deferred tax asset has been recognised in respect of the
following gross accumulated amounts carried forward (available for
offset against future taxable profits) as there is uncertainty
regarding the timing of when these amounts will be recovered:
30 December
2017
GBP'000
---------------------------------------------------- -----------
Tax losses 12,650
Capital losses 7,945
Corporate Interest Restriction disallowance carried
forward 9,169
Fixed asset timing differences 10,883
---------------------------------------------------- -----------
Total 40,647
---------------------------------------------------- -----------
19. Provisions
News Media
Onerous Association Other pension
leases Pension related-
and dilapidations Scheme(1) liabilities(1) Total
GBP'000 GBP'000 GBP'000 GBP'000
============================================== =================== ============ =============== ========
At 31 December 2016 3,237 700 642 4,579
Additional provision in the year 4,431 83 - 4,514
Adjustment for change in discount rate - 69 - 69
Actuarial valuation gain - - (6) (6)
Utilisation of provision (1,501) (91) (19) (1,611)
============================================== =================== ============ =============== ========
At 30 December 2017 6,167 761 617 7,545
============================================== =================== ============ =============== ========
The provisions are disclosed in the financial
statements as:
Current provisions 1,512 90 - 1,602
Non-current provisions 4,655 671 617 5,943
============================================== =================== ============ =============== ========
Total provisions 6,167 761 617 7,545
============================================== =================== ============ =============== ========
(1) For details of other pension related liabilities see Note
17.
Onerous leases and dilapidations
Where the Group exits a rented property, an estimate of the
anticipated total future cost payable under the terms of the
operating lease, including rentals, rates and other related
expenses is provided for at the point of exit as an onerous lease.
Where exited properties are sublet to a third party, an estimate of
the expected future rental income is deducted from the provision
balance.
Under the terms of a number of property leases, the Group is
required to return the property to its original condition at the
lease expiry date. The Group has estimated the expected costs of
leases expiring or expected to be terminated and has also assessed
the entire portfolio and made provisions depending on the state of
the property and the duration of the lease and likely rectification
requirements.
In the current year there was a change in the estimate for the
anticipated total future cost payable for onerous leases and
dilapidations, arising from a change in the Group's property
strategy. This resulted in an additional provision of GBP4.4
million being charged.
20. Notes to the Cash Flow Statement
30 December Restated(1)
31 December
2017 2016
Notes GBP'000 GBP'000
======================================================= ===== =========== ============
Operating loss (51,213) (323,486)
Adjustments for non-cash items:
Impairment of intangible assets 13 60,453 336,850
Impairment of plant, property and equipment(2) 14 3,861 7,476
Impairment of assets held for sale 112 -
13,213 20,840
Amortisation of intangible assets(3) 13 3,666 866
Depreciation charges(3) 14 4,243 6,550
Charge for share based payments 1,290 1,832
Profit on disposal of property assets held for sale (2,952) (401)
Loss on disposal of the Midlands titles 15 611 -
Profit on disposal of property, plant and equipment (11) (16)
Loss on disposal of property - 159
Gain on disposal of intangibles - (65)
Past service cost - 3,539
Currency differences (24) (92)
======================================================= ===== =========== ============
20,036 33,212
Operating items before working capital changes:
Net pension funding contributions - cash 17 (10,292) (9,724)
Movement in provisions 2,891 (598)
======================================================= ===== =========== ============
Cash generated from operations before workings capital
changes 12,635 22,890
Working capital changes:
(Increase)/Decrease in inventories (229) 121
Decrease/(Increase) in receivables 2,720 (181)
Decrease in payables (including restructuring payables
and redundancy accruals) (2,944) (6,558)
======================================================= ===== =========== ============
Cash generated from operations 12,182 16,272
======================================================= ===== =========== ============
1 Prior period comparatives have been restated, refer to Note
3.
2 The prior year comparative figure consists of the following
amounts that were disclosed in the prior year financial statements:
impairment of print presses (GBP5.5 million) and impairment of
property (GBP1.9 million).
3 The increase in the amortisation of intangible assets and
decrease of depreciation charges in the current year is a result of
the transfer of digital intangible assets from plant and machinery
to intangible assets during the 31 December 2016 period.
Cash and cash equivalents (which are presented as a single class
of assets on the face of the Statement of Financial Position)
comprise cash at bank and other short-term highly liquid
investments with a maturity of three months or less.
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's Consolidated Cash Flow Statement as cash flows from
financing activities.
Fair value
1 January Non-cash gains and 30 December
2017 Cash flow movements losses 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================== ========= ========= ========== ========== ===========
Finance leases(4) (566) 118 (412) - (860)
Bond (143,000) - - (22,825) (165,825)
================== ========= ========= ========== ========== ===========
Total liabilities
from financing
activities (143,566) 118 (412) (22,825) (166,685)
================== ========= ========= ========== ========== ===========
(4) Prior year comparatives have been re-presented. Refer to
Note 16.
21. Related party transactions
Associated parties
The Group did not undertake any related party transactions
during the current or preceding period to associated parties.
Transactions with Directors
There were no material transactions with Directors of the
Company during the year, except for those relating to remuneration
and shareholdings, disclosed in the Directors' Remuneration
Report.
For the purposes of IAS 24, Related Party Disclosures,
management below the level of the Company's Board are not regarded
as related parties.
The remuneration of the Directors at the yearend, who are the
key management personnel of the Group, is set out in aggregate in
the audited part of the Directors' Remuneration Report.
22. Post-balance sheet events
There were no material post balance sheet events requiring
disclosure
Alternative performance (non-GAAP) measures
Introduction
The Directors assess the performance of the Group using both
statutory accounting measures and a variety of alternative
performance measures (APMs). The key APMs monitored by the Group
are:
-- adjusted revenue;
-- adjusted EBITDA;
-- adjusted EBITDA margin %;
-- adjusted operating profit;
-- adjusted operating profit margin %; and
-- cash and net debt (excluding mark-to-market). Refer to
Financial Review for calculation of net debt (excluding
mark-to-market).
The business has been through a period of enormous change over
an extended period. This has resulted from structural change in the
sector. Audiences have increased their use of online and mobile
platforms to access information and news, resulting in accelerated
newspaper circulation volume decline. Advertisers have also
increasingly sought to use digital services to reach their target
audiences. Together, this structural shift has resulted in
year-on-year declines in the Group's income.
The Group has initiated a series of restructuring programs to
remove cost from the business with the objective of designing a
sustainable print publishing business model, while at the same time
investing in building a digital income stream.
The resulting restructuring projects have seen a substantial
redesign of each area of the business, including management layers
and structures, products and services, content creation and our
sales routes to market. In streamlining the organisation, a
significant investment in redundancy has seen more than 2047 posts
closed over the last four years. The Group has also sought to
reflect its change in shape and scale in support areas including
making substantial reductions in its property portfolio, technology
licences and fleet. The speed of its action, both in anticipating
and responding to recent changes in the sector has meant that some
existing contracts no longer reflect the current needs of the
business.
In 2017, the Group initiated new changes to its business model,
including how it allocated resources to different brands, its mix
of field and call centre based sales staff, while also adopting a
clear policy of downsizing its property portfolio, taking advantage
of natural lease breaks, typically moving to smaller short-term
serviced offices in local towns and cities, while maintaining
larger hubs in Preston, Leeds, Edinburgh, Peterborough, Sheffield
and Portsmouth.
To provide investors and other users of the Group's financial
statements with additional clarity and understanding of both the
cost of this business change programme, and the resulting impact on
the Group's underlying trading, the Directors believe that it is
appropriate to additionally present the alternative performance
measures used by management in running the business and in
determining management and executive remuneration.
Although management believes the alternative performance
measures are important in considering the performance of the Group,
they are not intended to be considered in isolation, or as a
substitute for, or superior to financial information on a statutory
basis. The adjusted figures are not a financial measure defined or
specified in the applicable financial reporting framework, and
therefore may not be comparable to similar measures presented by
other entities. When reviewing and selecting these adjusting items,
the Directors considered the guidelines issued by the European
Securities and Markets Authority (ESMA).
A reconciliation between the statutory and the adjusted results
is provided under Alternative Performance Measures within the
financial information. The reconciliation includes explanations
each 'adjusting item' and why they been adjusted for. An adjusting
item is one that is judged to require separate presentation to
enable a better understanding of the trading performance of the
business in the period. Items are adjusted if they are significant
in value and/or do not form part of ongoing underlying trading.
They will in many cases be 'one-off', and include items that span
more than one financial period.
Prior year comparatives have been restated so that the adjusted
results are presented on a consistent basis between periods.
Restated figures have been disclosed in footnotes below. In the
opinion of the Directors, disclosing the adjusting items provides
supplementary information to aid understanding of the Group's
trading performance and also provides a basis of comparison between
periods.
Adjusting items - Other supplementary information
Consolidated Income Statement - Reconciliation of statutory and
adjusted numbers
52 weeks to 30 December 52 weeks to 31 December
2017 2016
============================== ============ =============================== =====================================
Restated(2)
Adjusting Restated(1) Adjusting Restated(2)
Statutory items Adjusted Statutory items Adjusted
Notes GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
============================== ============ ========= ========= ========= =========== =========== ===========
Total continuing revenues(2) A 201,616 (379) 201,237 222,699 (11,927) 210,772
============================== ============ ========= ========= ========= =========== =========== ===========
Cost of sales(1, 2) B (127,817) 149 (127,668) (136,059) 1,869 (134,190)
Operating costs(1, 2, 3) B (117,103) 142 (116,961) (402,711) 5,448 (397,263)
============================== ============ ========= ========= ========= =========== =========== ===========
Restructuring C - 13,745 13,745 - 9,299 9,299
Acquisitions/(Disposals)(3) D - (1,314) (1,314) - 2,538 2,538
Impairment of assets(3) E - 64,426 64,426 - 344,326 344,326
Strategic review(3) F - 3,365 3,365 - 733 733
Pensions(3) G - 1,898 1,898 - 5,430 5,430
Other(3) H - 1,361 1,361 - 2,215 2,215
============================== ============ ========= ========= ========= =========== =========== ===========
Total adjustments(2) - 83,481 83,481 - 364,541 364,541
============================================ ========= ========= ========= =========== =========== ===========
Total operating costs(2) (117,103) 83,623 (33,480) (402,711) 369,989 (32,722)
============================================ ========= ========= ========= =========== =========== ===========
Total costs(2) (244,920) 83,772 (161,148) (538,770) 371,858 (166,912)
============================================ ========= ========= ========= =========== =========== ===========
EBITDA(2) n/a n/a 40,089 n/a n/a 43,860
============================================ ========= ========= ========= =========== =========== ===========
EBITDA margin %(2) n/a n/a 19.9% n/a n/a 20.8%
============================================ ========= ========= ========= =========== =========== ===========
Depreciation and amortisation I (7,909) 872 (7,037) (7,415) 498 (6,917)
============================== ============ ========= ========= ========= =========== =========== ===========
Operating (loss)/profit(2) (51,213) 84,265 33,052 (323,486) 360,429 36,943
============================================ ========= ========= ========= =========== =========== ===========
Operating (loss)/profit
margin %(2) (25.4%) n/a 16.4% (145.3%) n/a 17.5%
============================================ ========= ========= ========= =========== =========== ===========
Investment income 45 - 45 73 - 73
Net finance expense on
pension assets/liabilities J (1,690) 1,690 - (831) 831 -
Fair value movement of
borrowings K (22,825) 22,825 - 43,619 (43,619) -
Finance cost L (19,286) 381 (18,905) (20,056) 487 (19,569)
============================== ============ ========= ========= ========= =========== =========== ===========
Finance (costs)/income (43,756) 24,896 (18,860) 22,805 (42,301) (19,496)
============================================ ========= ========= ========= =========== =========== ===========
(Loss)/Profit before tax(1,
2) (94,969) 109,161 14,192 (300,681) 318,128 17,447
============================================ ========= ========= ========= =========== =========== ===========
Tax credit/(charge) M 16,389 (23,302) (6,913) 53,371 (57,318) (3,947)
============================== ============ ========= ========= ========= =========== =========== ===========
(Loss)/Profit from continuing
operations(1, 2) (78,580) 85,859 7,279 (247,310) 260,810 13,500
============================================ ========= ========= ========= =========== =========== ===========
Net profit from discontinued
operations - - - 28 - 28
============================================ ========= ========= ========= =========== =========== ===========
Consolidated (loss)/profit
for the period(1, 2) (78,580) 85,859 7,279 (247,282) 260,810 13,528
============================================ ========= ========= ========= =========== =========== ===========
(1) The prior period statutory figures have been restated. Refer
to Note 3 for details.
(2) The prior period total continuing revenues cost of sales and
operating costs comparative figures have been restated to adjust
out amounts relating to titles and products that were disposed or
closed during 2017. This ensures that adjusted results for both
2017 and the prior period comparative are presented on a consistent
basis, including only the operations of the Group that are
continuing from 30 December 2017.
(3) The classification of the prior period comparatives
adjusting items for operating costs, acquisitions/(disposals),
impairment of assets, strategical review, pensions and other have
been re-presented to enhance the user's understanding of the nature
of the adjusting items.
A Revenue
Revenue adjustment split for 52 weeks ending 30 December
2017
52 weeks to 30 December 2017 52 weeks to 31 December 2016
=============== ================================================== ==========================================================
Restated(2)
Closed Closed
titles Restated(2) titles
Disposed and Disposed and Restated(2) Restated
titles products Total Restated titles products Total (2)
Statutory GBP'000s GBP'000s adjusting Adjusted Statutory GBP'000s GBP'000s adjusting Adjusted
GBP'000s A1 A2 GBP'000s GBP'000s GBP'000s A1 A2 GBP'000s GBP'000s
=============== ========= ======== ======== ========= ======== ========= =========== =========== =========== ========
Advertising
revenue
Print
advertising(2) 74,265 (196) (50) (246) 74,019 95,674 (6,167) (868) (7,035) 88,639
Digital
advertising(2) 25,976 (32) (3) (35) 25,941 26,950 (1,006) (721) (1,727) 25,223
=============== ========= ======== ======== ========= ======== ========= =========== =========== =========== ========
Total
advertising
revenue 100,241 (228) (53) (281) 99,960 122,624 (7,173) (1,589) (8,762) 113,862
=============== ========= ======== ======== ========= ======== ========= =========== =========== =========== ========
Non advertising
revenue
Newspaper
sales(2) 79,102 (92) - (92) 79,010 79,849 (2,852) (69) (2,921) 76,928
Contract
printing(2) 13,321 - - - 13,321 12,788 - - - 12,788
Other(2) 8,952 (3) (3) (6) 8,946 7,438 (221) (23) (244) 7,194
=============== ========= ======== ======== ========= ======== ========= =========== =========== =========== ========
Total other
revenue(2) 101,375 (95) (3) (98) 101,277 100,075 (3,073) (92) (3,165) 96,910
=============== ========= ======== ======== ========= ======== ========= =========== =========== =========== ========
Total
continuing
revenues(2) 201,616 (323) (56) (379) 201,237 222,699 (10,246) (1,681) (11,927) 210,772
=============== ========= ======== ======== ========= ======== ========= =========== =========== =========== ========
(1) The prior period statutory figures have been restated. Refer
to Note 3 for details.
(2) The prior period total continuing revenues, cost of sales
and operating costs comparative figures have been restated to
adjust out amounts relating to titles and products that were
disposed or closed during 2017. This ensures that adjusted results
for both 2017 and the prior period comparative are presented on a
consistent basis, including only the operations of the Group that
are continuing from 30 December 2017.
(3) The prior period total continuing revenues, cost of sales
and operating costs comparative figures have been restated to
adjust out amounts relating to titles and products that were
disposed or closed during 2017. This ensures that adjusted results
for both 2017 and the prior period comparative are presented on a
consistent basis, including only the operations of the Group that
are continuing from 30 December 2017.
A1 Disposed titles
On 17 January 2017, the Group sold its East Anglia and East
Midlands titles to Iliffe Media Ltd. Adjustments made in 2017 in
respect of these titles relate to revenue earned in the two-week
period up to the date of disposal of GBP0.3 million (2016: GBP10.2
million). This adjustment is necessary in order to present results
for the Group's ongoing business portfolio. A prior year adjustment
has been included to ensure the adjusted results are presented on a
consistent basis between periods. The cost of sales and operating
costs associated with the adjusted disposed titles revenue has also
been adjusted. Refer to Note B below for details.
A2 Closed titles and digital products
As part of the ongoing review of the Group's business portfolio,
titles and products considered to be underperforming or not in line
with the Group's strategic objectives have been closed. Revenue
relating to the closed titles and products has been adjusted out to
provide users with a view of the results of the Group's continuing
business portfolio. The prior year comparative figures have been
restated to exclude revenue for the titles and products closed
during 2017, in order to present results for the Group's ongoing
business portfolio. The cost of sales and operating costs
associated with the adjusted closed titles and digital products
revenue has also been adjusted. Refer to Note B below for details.
Details on the closed titles and products revenue adjustments are
set out in the table below:
52 weeks 52 weeks
to 30 to 31
December December
2017 2016
GBP'000 GBP'000 Explanation
================ ========= ========= ===================================================
Closed titles 56 1,027 As part of the ongoing review of the Group's
portfolio, four underperforming titles (2016:
13 titles) were closed during the year. Related
revenue of GBP0.1 million (2016: GBP1.0 million)
has been adjusted.
================ ========= ========= ===================================================
Digital brands - 335 Revenue of GBP0.3 million in the prior period
has been adjusted in respect of the DealMonster
and Business Directory businesses which were
closed in 2016.
================ ========= ========= ===================================================
Motors - 319 The contract with motors.co.uk for online motor
sales expired in March 2016. Related revenue
of GBP0.3 million in the prior period has been
adjusted for.
================ ========= ========= ===================================================
Total adjusting
item 56 1,681
================ ========= ========= ===================================================
B Cost of sales and operating costs
Adjustments are made for cost of sales and operating costs
directly attributable to revenue adjusted in relation to disposed
and closed titles. This adjustment has been made to ensure adjusted
cost of sales expense is presented on a basis that is consistent
with adjusted revenue (Refer to Notes A1 and A2 above for details
on adjusted revenue). Costs adjusted for are set out in the table
below:
Adjusting items 30 December 31 December 30 December 31 December
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
=========================== ============ ============ ============ ============
Cost of sales Operating costs
========================== --------------------------
Disposed titles 135 1,483 59 4,469
Closed titles and digital
products 14 1,258 83 87
=========================== ============ ============ ============ ============
Total adjusting items 149 2,741 142 4,556
=========================== ============ ============ ============ ============
C Restructuring
Business transformation, restructuring and redundancy-related
costs that are incurred in order to streamline individual
components of the Group's business, reduce cost and support
long-term strategy are recorded as adjusting items. In treating
these costs as adjusting items, management assesses whether the
redundancies relate to a fundamental restructure of individual
components of the business. The Group adjusts for and reports the
cost of each years' restructuring program to assist the users of
the financial statements in understanding both the cost of the
restructuring programme, and the resulting trading performance in
the year. A breakdown of the adjustments for restructuring costs is
provided in the table below:
52 weeks 52 weeks
to 30 to 31
December December
2017 2016
GBP'000 GBP'000 Explanation
================= ========= ========= ==========================================================
Redundancy 6,357 5,607 These costs are material and incurred to transform
costs and restructure the business cost base resulting
in a reduction in headcount. Redundancy costs include
the employee costs from the point the individual
notified that their role is at risk, together with
the final termination payment for the individual
made redundant. The Group has consistently applied
this policy historically. This reflects its impact
of the disruption caused to the individual involved
and the impact on short-term productivity within
affected business units.
Adjustments for redundancy costs do not include
those incurred in the ordinary course of business,
which are treated as operating costs, or that may
lead to a direct replacement being appointed.
================= ========= ========= ==========================================================
Business 1,974 2,848 These costs are material, and are incurred in engaging
and sales specialist consultants to advise on the strategic
transformation restructuring of the publishing portfolio, as part
of the redesign of the business to create a sustainable
publishing model. Management considers carefully
that these costs do not represent costs that support
the underlying running of the business which would
not be adjusted items. This item also includes costs
incurred to permanently restructure and streamline
the Group's field sales operation and move activity
into the media sales centre (MSC).
================= ========= ========= ==========================================================
Property-related 4,369 432 The Group has incurred property costs as a result
restructuring of decisions taken to reduce head count and streamline
its operating locations. An empty property provision
of GBP3.2 million (2016: GBP0.4 million) was charged
in the period, which includes an additional GBP1.3
million charge in the period following a reassessment
of the Irish property provision. The Group no longer
occupies these properties following the disposal
of the Irish operations in 2014 but retains the
head leases, and sublets properties to Iconic.
During 2017 the Group exited leases of 25 properties
(2016: 26 properties) covering 228 thousand square
feet (2016: 161 thousand square feet).
A GBP1.2 million dilapidations provision (2016:
nil) has been charged in the period following a
reassessment of estimates used in determining the
provision requirements.
================= ========= ========= ==========================================================
Onerous 1,045 412 As a result of the Group's restructuring activities,
contracts aimed at cutting the cost base of the Group, certain
IT licences, phones and vehicles have become surplus
to operational requirements following reductions
in staff numbers. The GBP0.8 million (2016: GBP0.4
million) profit and loss impact of these onerous
costs has been adjusted for.
In addition, during 2017 the Group provided notice
that it will return the Yorkshire Metro franchise
to DMGT during 2018. The GBP0.2 million (2016: GBPnil)
provision recognised at 30 December 2017 for losses
expected to be incurred through the notice period
has been adjusted for.
================= ========= ========= ==========================================================
Total adjusting
items 13,745 9,299
================= ========= ========= ==========================================================
D Acquisitions/(Disposals)
Acquisition costs and gains and losses on disposal of
subsidiaries and properties can be significant in size, irregular
in nature and fluctuate from period-to-period. Subsidiary and large
property disposals and acquisitions are not ordinary trading
activities as they relate to structural changes to the Group's
business. As a result the gains realised and losses and costs
incurred on these items have been treated as adjusting items. This
is done to provide results that are reflective of the Group's
continuing trading operations. The adjusting items are detailed in
the table below:
52 weeks 52 weeks
to 30 to 31
December December
2017 2016
GBP'000 GBP'000 Explanation
================== ========== ========== ======================================================
(Gain)/Loss (2,433) 166 Gains adjusted in the current period were realised
on disposals on sales of properties in Sheffield GBP1.9
of property million and Peterborough GBP0.5 million. The
adjusted item in the prior period largely consists
of the loss on sale of the Upper Mounts property
in Northampton of GBP0.1 million.
================== ========== ========== ======================================================
i acquisition 508 1,755 Represents acquisition costs incurred to purchase
the i newspaper on 10 April 2016 and a further
one-off contractual payment to ESI in April
2017 and are adjusted so as not to distort
the Group's trading results. The payment was
disclosed in Part V, clause 9 of the 'Proposed
acquisition of the business and certain assets
of I Circular to Shareholders' document.
================== ========== ========== ======================================================
Loss on disposal 611 - Represents the loss on sale of Johnston Publishing
of subsidiary East Anglia Ltd, which included the East Anglia
and East Midlands titles, to Iliffe Media Ltd
on 17 January 2017. The loss has been classified
as an adjusting item as it is individually
significant, relates to divestment of titles
and is not reflective of the Group's ongoing
trading results. The loss represents the differences
between book value and net proceeds.
The revenue, cost of sales and other costs
in relation to the disposed titles have also
been treated as adjusting items for the two
weeks of trading in 2017 and the prior period
comparative. Refer to Notes A1 and B for details.
================== ========== ========== ======================================================
Other - 617 Represents costs incurred by the Group to assess
strategic acquisition and divestment opportunities.
================== ========== ========== ======================================================
Total adjusting
items (1,314) 2,538
================== ========== ========== ======================================================
E Impairment of assets
Impairment charges relating to non-current assets are non-cash
items and can be significant in amount. The Group treats impairment
charges as adjusting items as they relate to the difference between
the remaining carrying value of historic investment costs, and
estimated future value, and are not part of underlying trading. The
valuation is calculated based on judgement of estimated future cash
flows, discounted using a post-tax discount rate of 11.0% (2016:
11.0%) (refer to Notes 13 and 14), which is a market determined
discount rate, not the Group's cost of capital.
52 weeks 52 weeks
to 30 to 31
December December
2017 2016
Impairment of: GBP'000 GBP'000 Explanation
================ ========= ========= =====================================================
Intangible 60,453 336,850 Impairment charges of GBP59.2 million (2016:
assets GBP336.9 million) against publishing titles
and GBP1.3 million against digital intangible
assets have been recognised during the period.
================ ========= ========= =====================================================
Property, plant 3,861 7,476 An impairment charge has been recognised against
and equipment print presses of GBP0.4 million (2016: GBP5.5
million), property (print sites) of GBP0.4 million
(2016: GBP1.9 million) and corporate assets
GBP3.1 million (2016: GBPnil).
================ ========= ========= =====================================================
Assets held 112 - An impairment charge of GBP0.1 million (2016:
for sale GBPnil) has been recognised against properties
classified as held for sale prior to disposal
during the period.
================ ========= ========= =====================================================
Total adjusting
items 64,426 344,326
================ ========= ========= =====================================================
F Strategic review
Legal and advisory costs of GBP3.4 million (2016: GBP0.7
million) in relation to the strategic review disclosed in the
Liquidity and going concern and Viability Statement sections of the
Corporate Governance Report, have been adjusted for. This includes
costs incurred on advisers to the Group, and advisers to the ad hoc
committees and pension Trustees, which the Group is obliged to
fund. Costs incurred in relation to this strategic review are
non-trading in nature. They are treated as adjusting items to
provide improved understanding of the ongoing trading performance
of the Group.
G Pensions
The Johnston Press Pension Plan ('the Plan') is a defined
benefit pension plan that closed to new members and future accrual
in June 2010 (for details refer to Note 17). At 30 December 2017,
the membership base was as follows:
30 December 2017
=================================
Deferred Pension
members members Total
================================= ========= =========
Plan members employed by the
Group 249 27 276
Total Plan members 2,412 2,547 4,959
% of total Plan members employed
by the Group 10.3% 1.1% 5.6%
94.4% of the Plan members are no longer employed by the Group.
The number of staff working in the business, who are members of the
Plan has reduced over time, both as the result of restructuring
activity, but also resignation and retirement. Costs associated
with operating the Plan are treated as adjusting items because they
are not incurred in running the business, nor in generating its
revenue, and do not form part of underlying trading. In contrast,
contributions made by the Group to the defined contribution schemes
nominated by the Group's employees, in respect of their employment
by the Group are not treated as adjusting items. This is because
they are deemed to be part of the cost of employing the Group's
continuing workforce.
The nature of the pension costs that have been adjusted are
detailed in the table below:
52 weeks 52 weeks
to 30 to 31
December December
2017 2016
GBP'000 GBP'000 Explanation
Defined benefit 1,289 953 The Group is required to pay the costs incurred
pension scheme by its trustees in administrating the pension
costs plan, which was closed to new members and future
accrual in June 2010. Given that the vast majority
of the members of the Plan are no longer employed
by the Group, costs associated with operating
the Plan are treated as adjusting items. The
costs include GBP0.6 million (2016: GBP0.6
million) of ongoing operational costs and GBP0.7
million (2016: GBP0.4 million) of costs incurred
in valuing and managing the Plan.
Pension Protection 270 422 The levy is a charge by the PPF who become
Fund (PPF) responsible for scheme members' pensions if
levy the Group becomes unable to meet its pension
obligations. This cost is significant and can
fluctuate from period to period and is material,
with historic PPF levy costs being as high
as GBP3.2 million in 2013/2014.
The Group has limited ability to influence
this cost, which is determined by PPF by reference
to the balance sheet of Johnston Publishing
Limited.
Pension equalisation 339 4,055 The 2017 adjustment is the impact of the Scottish
pension equalisation litigation of GBP0.3 million,
which was concluded and cash settled during
2017.
The prior year amount of GBP4.1 million is
the impact of the Portsmouth and Sunderland
(P&S) pension equalisation court order and
related advisory and legal costs. The PSN equalisation
had previously been disclosed as a contingency
risk of up to GBP8 million.
Both items have been adjusted for to improve
the comparability of results to assess the
on-going performance of the Group.
Total adjusting
items 1,898 5,430
In 2014, the Group agreed to a schedule of contributions to the
scheme. In 2017, the Group paid GBP10.3 million (2016: GBP9.7
million) to the Plan. As part of the deficit reduction program.
These payments are not charged to the Group income statement, in
line with IAS19 Employee Benefits, and so are not adjusting items,
and so are not shown here.
H Other
The items listed in the table below have been adjusted as they
are significant, and do not form part of underlying trading:
52 weeks 52 weeks
to 30 to 31
December December
2017 2016
GBP'000 GBP'000 Explanation
Long-term 1,361 1,900 LTIP expenses are material and have been classified
incentive as an adjusting item from the point at which
plan (LTIP) it was clear that the trigger prices would
costs not be met. An amount of GBP0.8 million (2016:
GBP1.0 million) relating to the Value Creation
Plan has been charged to the profit and loss
account but has been credited back to retained
earnings as it was not paid out.
Reset of revolving - 315 The prior period adjusting item represents
credit facility professional fees to renegotiate the reset
revolving credit facility following the acquisition
of the i and in anticipation of the sale of
the East Anglia and East Midlands titles. These
costs were adjusted for in 2016 as they did
not represent costs relating to ongoing trading
of the Group. The facility ceased in January
2017, when it was cancelled following the sale
of the East Anglia and East Midlands titles.
No related costs were incurred in 2017.
Total adjusting
items 1,361 2,215
I Depreciation and amortisation
The current period operating profit adjusting items includes
accelerated depreciation and amortisation of GBP0.6 million arising
from a result of a review of the carrying value of the consumer
database and GBP0.3 million on properties. The prior period
adjustment comprises accelerated depreciation and amortisation of
GBP0.5 million arising as a result of a review of websites held
within the Group.
J Net finance expense on pension assets/liabilities
Net pension interest expense of GBP1.7 million (2016: GBP0.8
million) required under IAS 19 relating to the net interest on the
pension scheme liabilities less assets has been adjusted as it does
not relate to underlying trading activities. It is a non-cash item
under IAS19 Employee Benefits. This treatment is consistent with
cash pension costs incurred in respect of the closed defined
benefit pension scheme (refer to section G Pensions).
K Fair value movement of borrowings
The fair value movement on the Group's Bond required under IAS
39 is volatile. It does not reflect the gross debt outstanding and
it is treated as an adjusting item to provide the user with clarity
of the gross bond liability. Therefore, the fair value loss of
GBP22.8 million, resulting from an increase in the bond market
value, (2016: gain of GBP43.6 million) has been treated as an
adjusting item.
L Finance cost
An adjustment of GBP0.4 million has been made in 2017 in
relation to the write-off of revolving credit facility issuance
costs in 2014 required as a result of the termination of the
facility in January 2017, following the disposal of the East Anglia
and East Midlands titles. The cost relating to the period after
termination has been treated as an adjusting item as it does not
relate to the operating performance of the Group.
The prior period includes an adjustment of GBP0.5 million made
in relation to unrecoverable VAT on the 2014 refinancing fees. The
refinancing costs were treated as adjusting items in 2014, when
incurred, as they were material in value and as a result were
adjusted.
M Tax credit/(charge)
The taxation impact of the adjusting items of GBP23.3 million
(2016: GBP57.3 million) has been adjusted for. The derecognition of
GBP2.2 million (2016: GBPnil) worth of deferred tax assets due to
the Director's no longer deeming them to be recoverable has been
treated as an adjusting item.
Adjusted cash flow analysis
The table below sets out the way in which management reviews its
cash flows:
52 weeks 52 weeks
to 30 December to 31 December
2017 2016
GBP'm GBP'm
Movements in cash and cash equivalents during the
period:
Cash and cash equivalents generated 20.0 33.6
Movements in working capital 1.5 (3.6)
Long-term provisions 2.9 (0.6)
Total 24.4 29.4
Defined benefit plan pension contributions (10.3) (9.7)
Long-term incentive plans (excluding executive
directors) - (3.9)
Taxation refund 0.2 0.6
Acquisition costs - the i (2.5) (22.0)
Net impact of other investing activities 0.6 0.5
Financing costs (19.0) (19.4)
Net proceeds on disposal of the East Midlands titles 15.6 -
Total movements in cash and cash equivalents during
the period: 9.0 (24.5)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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