TIDMRCH
RNS Number : 0243H
Reach PLC
25 July 2023
Reach plc - Interim Results - 26 weeks to 25 June 2023
25 July 2023
Customer Value Strategy driving stronger, more sustainable
revenue
Cost actions support stronger H2 performance; full year profit
expectations maintained
Jim Mullen Chief Executive
"We continue to execute on our Customer Value Strategy, which is
driving higher quality, more sustainable digital revenues. Digital
growth for the period has been materially affected by lower
referral traffic across the sector, particularly following
Facebook's deprioritisation of news content, which has driven page
view declines for publishers.
In spite of this and continued macroeconomic uncertainty, our
focus on customer data means we're driving more diversified, higher
performing revenues, with greater exposure to directly sold, higher
value advertising. Our scale audience and base of registered
customers supports the growth of first party data, a key advantage
in a market moving closer to a future without third party
cookies.
The ongoing resilience and predictability of print underpins
continued investment in a strong digital offering, with circulation
revenue growing and newsprint costs starting to decline. Cash
generation is supported by a focus on driving efficiencies, with
cost reductions on plan and expected to support a stronger second
half performance. We expect full year profits for 2023 to be in
line with the current market consensus. The business has a strong
balance sheet which supports long term growth, dividend and pension
commitments. "
Business Highlights
Digital revenue impacted by sector decline in page views,
data-led outperformance improves digital mix
-- Data-driven revenue(1) continues to outperform; now representing 41%
of digital (H122: 35%, FY19: 24%)
-- Overall digital revenue reflects 16% page view decline (2% excluding
Facebook) and lower open market yields
-- Registrations 13.2m (H122: 11.5m) with 5.4m 28 day actives
-- US operation established; editorial team of more than 30, Express.com
launched, Mirror.com live in coming months
-- Innovation continuing; agreements to share Mantis data with Google
and Amazon and trials of metered paywalls
Growing circulation revenue, cost action phasing supports
stronger H2 profit delivery
-- Strong print circulation performance - revenue up by 2% and volumes
in line with our expectations
-- Newsprint pricing beginning to decline driven by lower cost of energy
-- On track to deliver 5-6% reduction in overall operating cost base,
with the majority of savings during H2
Results Overview
Financial Summary
--------------------- ------- ------------------------ ------------------------
26 weeks to 25 June Adjusted results(2) Statutory results
2023
------- ------------------------ ------------------------
2023 2022 Change 2023 2022 Change
----------------------------- ------ ------ -------- ------ ------ --------
Revenue GBPm 279.4 297.4 (6.1%) 279.4 297.4 (6.1%)
--------------------- ------- ------ ------ -------- ------ ------ --------
Operating costs GBPm 244.6 251.6 2.8% 268.9 263.6 (2.0%)
--------------------- ------- ------ ------ -------- ------ ------ --------
Operating profit GBPm 36.1 47.2 (23.5%) 11.1 34.5 (67.8%)
--------------------- ------- ------ ------ -------- ------ ------ --------
Earnings per share Pence 8.7 12.0 (27.5%) 1.5 8.1 (81.5%)
--------------------- ------- ------ ------ -------- ------ ------ --------
Net (debt)/cash GBPm (3.5) 43.8 NA (3.5) 43.8 NA
--------------------- ------- ------ ------ -------- ------ ------ --------
Dividend per share Pence 2.88 2.88 - 2.88 2.88 -
--------------------- ------- ------ ------ -------- ------ ------ --------
Group revenue down 6.1% - strong circulation performance; page
view decline impacting digital
-- Print GBP217.3m (H122: GBP223.4m) down 2.7%, circulation up 2.4%,
advertising down 18.3%
-- Digital revenue GBP60.8m (H122: GBP72.5m) down 16.1%; data-led revenue
GBP24.9m broadly flat but outperforming; with other digital down 24%
to GBP35.9m (H122: GBP47.2m) predominantly driven by page view decline
-- Circulation growth reflects print resilience; volumes continuing as
expected after latest price increases
-- Print advertising revenue continuing to move in line with circulation
volumes
Quarterly Year-on-Year Revenue Movements
2023 Q1 YOY Q2 YOY H1 YOY
% % %
Digital Revenue (13.4%) (18.7%) (16.1%)
-------- -------- --------
Print Revenue (3.0%) (2.5%) (2.7%)
-------- -------- --------
* circulation revenue 2.6% 2.2% 2.4%
-------- -------- --------
* advertising revenue (21.1%) (15.7%) (18.3%)
-------- -------- --------
Group Revenue (5.6%) (6.5%) (6.1%)
-------- -------- --------
Newsprint inflation easing, cost reduction running to plan -
savings H2 weighted
-- A djusted operating profit of GBP36.1m down GBP11.1m or 23.5% (H122:
GBP47.2m); reflecting decline in revenue
-- Significant reduction in wholesale energy costs driving quarter on
quarter reduction in the price of newsprint
-- Lower overall operating costs; on track for full year reduction of
5-6% with savings H2 weighted
-- Statutory operating profit of GBP11.1m (H122: GBP34.5m) down 67.8%,
driven by revenue decline and an increase in adjusting items, GBP25.0m
(H122: GBP12.7m), which include the legal costs of the HLI trial and
higher restructuring charges in relation to cost savings
-- Statutory EPS of 1.5p (H122: 8.1p) down 81.5% due to lower operating
profit
Pensions
-- The IAS19 pension accounting deficit (net of deferred tax) at the
half year was GBP106.4m (FY22: GBP113.9m), with the increase in discount
rate and contributions, offset by reduction in asset values
-- We continue to work with Trustees of the one remaining scheme to achieve
resolution of the 2019 triennial review of pensions. D iscussions
with Trustees around the 2022 triennial review of pension commitments
now ongoing
Cash & Capital Allocation
-- Lower adjusted operating cash flow (3) of GBP18.9m (H122: GBP39.2m)
reflects both lower in period profit and restructuring payments GBP12.1m
(H122: GBP4.0m) following cost reduction plans
-- Net debt(4) of GBP3.5m is a decrease in cash of GBP28.9m versus the
FY22 closing position of GBP25.4m. The movement includes payments
of GBP3.5m related to historical legal issues and the GBP7.0m final
deferred consideration in respect of the Express & Star. Credit facility
of GBP120m had a drawing of GBP15.0m at the reporting date
-- Interim dividend proposed of 2.88 pence per share (H122: 2.88p) reflecting
Board's confidence in the resilience of the Reach business model and
understanding of the importance of dividends to shareholders
Full Year Outlook
We remain on track with expectations for the full year, despite
macroeconomic uncertainty and the year on year decline in page
views. Although external factors are impacting digital growth for
2023, our focus on customer engagement and diversifying digital
revenues is helping to mitigate the impact and we expect to benefit
from less demanding second half comparatives.
In print, while we annualise the uplift from last year's cover
price changes during H2, revenues remain resilient and predictable,
with lower newsprint prices supporting profitability.
Plans to reduce full year operating costs by 5-6% are on track
with H2 weighted savings supporting profit expectations for 2023
which remain in-line with the current market consensus.(5)
The High Court trial around historic legal issues has now
concluded - we expect a judgement on time limitation during the
autumn. The balance sheet remains strong with full year cash
conversion benefiting from an improved working capital position. We
expect a small net debt position at the year end. Reach is well
positioned to benefit when external conditions improve, with more
diversified revenues, growing customer engagement and audience
expansion supporting a stronger digital future.
Notes
Includes revenue from advertising activity which utilises data generated
(1) via registrations, audience behavioural or Mantis contextual. It also
includes other strategically driven revenues, less dependent on audience
volumes such as affiliates, partnerships and ecommerce. Revenues included
in 'data-driven' has been revised to reflect the continued evolution
of the Customer Value Strategy. Comparatives have been restated to
reflect this change. Full disclosure of historic comparatives can
be found within the Finance Review and in the appendices of our interims
slide presentation.
Set out in note 18 is the reconciliation between the statutory and
(2) adjusted results. The current period is for the 26 weeks ended 25
June 2023 ('2023') and the comparative period is for the 26 weeks
ended 26 June 2022 ('2022').
An adjusted cash flow is presented in note 19 which reconciles the
(3) adjusted operating profit to the net change in cash and cash equivalents.
Note 20 provides a reconciliation between the statutory and adjusted
cash flows.
Net debt balance comprises cash and cash equivalents of GBP11.5m (note
(4) 14) less bank borrowings of GBP15.0m (note 14) but excludes lease
obligations.
Market expectations compiled by the Company are an average of analyst
(5) published forecasts - consensus adjusted operating profit for FY23
GBP94.9m.
Enquiries
Reach
Jim Mullen, Chief Executive Officer
Darren Fisher, Chief Financial Officer
Lija Kresowaty, Head of External Communications communications@reachplc.com
Matt Sharff, Investor Relations Director 07341 470 722
Teneo reachplc@teneo.com
Giles Kernick / David Allchurch 020 7353 4200
Jim Mullen, Chief Executive Officer and Darren Fisher, Chief
Financial Officer will be hosting a webcast at 9:00am (BST) on 25
July 2023. It will be followed by a live question and answer
session.
The presentation slides will be available on www.reachplc.com
from 7.00am (BST). An archive of all materials, including a Q&A
transcript will also be available after the event.
You can join the webcast to watch the presentation or listen to
the Q&A via the following weblink, which you can copy and paste
into your browser: https://edge.media-server.com/mmc/p/9bcqwxcf
To participate in the Q&A session and register to ask a
question, please access the following weblink and register your
details
https://register.vevent.com/register/BI4ad40d19b9cd48bbb4cf13a12c7d0ad4
Please try to allow at least 10 minutes prior to the start time
to provide sufficient time to access the event.
Forward looking statements
This announcement has been prepared in relation to the financial
results for the 26 weeks ended 25 June 2023. Certain information
contained in this announcement may constitute 'forward-looking
statements', which can be identified by the use of terms such as
'may', 'will', 'would', 'could', 'should', 'expect', 'seek,
'anticipate', 'project', 'estimate', 'intend', 'continue',
'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the
negatives thereof) or words of similar meaning. Forward-looking
statements can be made in writing but also may be made verbally by
members of management of the Company (including, without
limitation, during management presentations to financial analysts)
in connection with this announcement. These forward-looking
statements include all matters that are not historical facts and
include statements regarding the Company's intentions, beliefs or
current expectations concerning, among other things, the Company's
results of operations, financial condition, changes in global or
regional trade conditions, changes in tax rates, liquidity,
prospects, growth and strategies. By their nature, forward-looking
statements involve risks, assumptions and uncertainties that could
cause actual events or results or actual performance or other
financial condition or performance measures of the Company to
differ materially from those reflected or contemplated in such
forward-looking statements. No representation or warranty is made
as to the achievement or reasonableness of and no reliance should
be placed on such forward-looking statements. The forward-looking
statements reflect knowledge and information available at the date
of this announcement and the Company does not undertake any
obligation to update or revise any forward-looking statement,
whether as a result of new information or to reflect any change in
circumstances or in the Company's expectations or otherwise.
Chief Executive's Review
Execution of strategy supports long term growth
We are executing our strategy and creating a platform for
digitally led growth over the long term. While external market
conditions have impacted our financial performance, limiting our
near term growth potential, we are committed to strengthening and
diversifying our digital offering, ensuring that we're well
positioned to grow as the macro environment improves.
Our strategy is focused around getting to know our customers
better, using data-led insights to create more relevant content and
a more engaging customer experience. And we are delivering. With a
greater proportion of revenue now supported by first party data, we
are diversifying digital revenues and generating more from higher
value advertising while reducing our reliance on the open market.
Since implementing the Customer Value Strategy in 2019, we have
registered close to 30% of our UK audience, with just over 40% of
digital revenue now 'data-driven' which will grow further as
advertisers continue to seek alternatives to third party cookie
based targeting.
Near term digital performance held back by external factors
In the near term, it's clear that performance reflects
significant external headwinds, which have inflated operating costs
and suppressed topline growth.
While group revenue continues to benefit from strong and
predictable print circulation, digital has been held back by a
decline in traffic which is affecting the sector more broadly.
Following a three-year period in which the business generated
around 10% annual growth in page views (from c.1.3bn per month to
1.7bn per month) recent changes to Facebook's news feed have driven
a significant decrease in customers being referred to our sites. As
a result, page views during H1 fell by 16% (2% excl. Facebook) to
1.4bn which was a material driver of digital revenue decline in the
period.
Driving deeper engagement; growing new audiences
Despite this, we remain the UK's largest commercial publisher
and sixth largest digital business with an audience equal to three
quarters of the digital population(1) . We have 13.2 million
registered customers, with 5.4 million active on a monthly basis
(up 14%).
Engagement is central to our digital strategy and we're
continually exploring new ways to build stronger relationships with
our wider audience. During the period, this included both web push
browser notifications and the use of WhatsApp Communities, in
addition to our well established roster of newsletters, as part of
a focus on broadening the ways we directly communicate with
customers.
We continue to upgrade our machine learning tools to improve the
site experience and extend customer time on site, with further
upgrades in content recommendation tools. We're also continuing to
drive a better on-site customer experience with the trial of a new
front end platform which should improve page load speeds which is
key to how our sites rank in search.
The expansion of our US business is progressing well with an
editorial staff of more than 30 now up and running in our New York
office. We're seeing a good pick up of our US content by
aggregators like MSN and expect to drive a growing level of on site
traffic during H2 following the recent launch of the Express US
site and Mirror, which launches shortly.
Diversifying revenues
As well as using data to grow engagement and differentiate our
ad supply, we've continued to focus on areas less dependent on
direct customer volumes. Our development of revenues from
ecommerce, partnerships and affiliates in particular are all
supporting the growing proportion of data-driven revenues.
We've made good progress on the development of curated
marketplace revenues, signing new data partnerships with Google,
Microsoft and Amazon. The Google Ad Exchange agreement is the first
time that publisher data has been used to enrich the value of ad
slots on the open market, while the Amazon deal makes Reach the
first external partner hosting ads with first party data signals on
behalf of the site's own ad sales operation. We're also exploring
opportunities for direct customer revenues, testing a metered
paywall on the M.E.N. app and introducing a series of paid for
newsletters.
(1) Data from Ipsos Iris - Reach average UK audience Jan-May 2023: 37.2m
(Jan-May 2022: 38.6m). Total UK internet population Jan-May 2023:
50.0m (Jan-May 2022: 49.9m)
Exploring AI opportunities
We continue to explore the ways in which AI could benefit our
business, with our ad tech, product and editorial teams working
closely on several pilot initiatives as we test and learn. We are
in the early stages, focusing on the ways that tools can improve
efficiency, for example in interrogating data and information
gathering, potentially freeing up time to produce more content.
While we do this work, it's important we maintain trust with our
audience and advertisers, which is why we've also been establishing
editorial principles for transparency, for example, making clear to
readers when AI tools have been used in creating a story.
Growth in circulation revenue supports strong print cashflow
The performance of our print business remains resilient.
Circulation revenue grew during the period by just over 2%, volumes
continue to be predictable and advertising has been robust, moving
in-line with newspaper volumes and down c.18%. With over 70% of
print revenue generated by circulation, revenue and cashflow are
supported by the habitual nature of newspaper consumption - one in
five UK adults read a Reach print title last month. Revenue growth
in H1 has been driven by cover price increases, but also through
the growing use of themed one-off specials. These one-off
publications included 'Rising Dragons', a celebration of Wrexham's
promotion to league two, 'Treble Winners' a Man City souvenir
publication and 'Love TV', a celebration of the best of British
television.
We continue to think creatively around maximising value from our
print assets. The Reach Sport business continues to grow revenue
from programme production and sales for Premier League clubs, with
the Rugby World Cup to come during H2. We're also consolidating our
archival assets with over 200 million original photographs helping
grow revenue through syndication and licensing.
Revenue management is also supported by detailed footfall and
frequency modelling which means we align volume supplied and
availability by outlet type. Since 2019 we have increased
availability from c.80% to c.90% across key national and regional
titles to support this. Continuous improvement of production and
distribution ensures we maximise sales at lowest cost. We're
reducing the cost of energy in print sites with the installation of
solar panels, have lowered the cost of ink and printing plates and
expect to benefit from reducing newsprint costs during H2.
Telling the stories of our communities
This year our local titles have done a tremendous job telling
the stories of their communities, whether uncovering injustices or
celebrating the happy moments. The Manchester Evening News has
earned well-deserved recognition for their Awaab's Law
investigation and campaign. Their exposé into the housing
shortfalls in Rochdale and the tragic death of Awaab Ishak earned
them Scoop of the Year at the Regional Press Awards, an Orwell
Prize shortlisting and an INMA Global Media Award. SussexLive also
dug deep into their own local housing crisis, with a special
investigation, while Nottinghamshire Live sensitively led the way
on the tragic university murders that have shaken the
community.
Meanwhile, our national newsbrands continue to break the stories
which rock the political landscape, notably this year the Sunday
Mail in Scotland which first broke the story on the SNP membership
scandal.
And so often our titles excel at bringing out the fun in life.
WalesOnline have made the most of Wrexham FC becoming an unlikely
celeb hotspot, the Liverpool Echo made themselves the trusted guide
to all things Eurovision, and the Daily Star continue to turn heads
with their irreverent front pages, whether covering politics or
UFOs. Their world-famous Lizzie Lettuce continued her hot streak
well into 2023, with the team taking home a bronze from the
prestigious Cannes Lions International Festival of Creativity.
We also continue to tell stories in different ways, whether with
the written word, snappy videos or with podcasts. Our increasingly
popular Curiously TikTok channel has found particular success
reaching a younger audience with wellness, pop culture and gaming
content and these learnings have also proven useful in informing
the video strategies of our more established newsbrands.
We've won several awards for our podcasts this year so far,
including the Northern Agenda winning Best Local & Community
Podcast at the Publisher Podcast Awards, and our commercial team
winning in the branded content category at the Campaign Media
Awards for their Let's Talk About Grief Podcast for Co-op, while
our D&I team won Best New Podcast at the Quill Podcast Awards
for their D&I Spy podcast.
Building our culture around sustainability
The challenges currently faced by businesses, their people,
their customers and by society in general are significant. We've
made real progress to ensure we're sustainable and able to grow as
these challenges subside. The changes we're making are not always
easy and I want to recognise the dedication of everyone at Reach
and thank them for their hard work and professionalism as we
continue to deliver our strategy and evolve.
Now that we have built a formalised ESG framework and strategy,
we continue to gather the data we need to build a clearer picture
of Scope 3 emissions - this essential work will inform our science
based targets and net zero goals. Just to name one example of
progress in this area, this summer our teams are working to install
9000m(2) of solar panels at our print sites in Watford, Glasgow and
Oldham, a project which will be not only environmentally friendly
but both cost and energy efficient.
A key part of our sustainability roadmap is to better educate
and engage all of our colleagues in our efforts, and our newest
colleague network, called ReachSustainability, will play a crucial
role in this work. Earlier this spring our gender equality network,
ReachEquality, and the industry body Women in Journalism, worked
together with our Online Safety Editor Dr Rebecca Whittington to
deliver a groundbreaking piece of research, which received
widespread industry praise and paved the way for further
cross-industry cooperation to find solutions. Keeping our
journalists safe remains one of our top priorities and we are proud
to be leading the way in this area.
Continuing to drive efficiencies
Increased inflation had a significant impact on our
profitability during 2022, particularly due to a 60% increase in
the like for like cost of newsprint. To help mitigate the impact of
external headwinds we announced plans to reduce our operating cost
base by 5-6% for the year. We remain on track with those plans
which are enabling continued investment in digital expansion and
are expected to deliver stronger H2 profits.
Addressing future cashflows - HLI and pensions
The High Court trial relating to allegations of historical
voicemail interception and other forms of unlawful information
gathering which was heard in May and June, has now completed. We
expect a judgement around time limitation during the Autumn.
We have concluded the 2019 triennial valuation review of pension
commitments for five of the six Group's defined benefit pension
schemes. We are continuing discussions with trustees of the MGN
scheme. Discussions on the 2022 triennial valuation reviews are now
underway for all of the groups' schemes.
Balance sheet strength underpins cash commitments
The reliability of our cash flows and strength of our balance
sheet provides a strong base for the growth in the long term. It
ensures we can continue to build our digital capabilities and
support all ongoing commitments, to both pension holders and to
investors.
Jim Mullen
Chief Executive Officer
25 July 2023
Finance Review
While we continue to deliver our Customer Value Strategy our
first half digital performance reflects a significant reduction in
page views from Facebook which is impacting the whole sector, and
the impact of ongoing macroeconomic uncertainty. Print revenue has
been robust, with growth in circulation revenues driven by cover
price increases. The cost reduction plans we put in place at the
start of the year have helped to mitigate the ongoing impact of
inflation, with overall operating costs lower by around 3%, partly
offsetting the impact of lower revenue on operating profit.
Our statutory performance reflects a period on period increase
in adjusted items, which include the legal costs of the HLI trial
and higher restructuring charges in relation to cost reduction
plans. The Group has a strong balance sheet and liquidity with a
closing cash balance of GBP11.5m and a GBP15.0m drawdown on the
facilities resulting in a net debt position of GBP3.5m. The expiry
date of the Group's revolving credit facility of GBP120.0m is
November 2026.
Summary income statement
Adjusted Adjusted Statutory Statutory
2023 2022 2023 2022
GBPm GBPm GBPm GBPm
---------------------------- --------- --------- ---------- ----------
Revenue 279.4 297.4 279.4 297.4
Costs (244.6) (251.6) (268.9) (263.6)
Associates 1.3 1.4 0.6 0.7
---------------------------- --------- --------- ---------- ----------
Operating profit 36.1 47.2 11.1 34.5
Finance costs (1.3) (1.3) (4.4) (2.5)
---------------------------- --------- --------- ---------- ----------
Profit before tax 34.8 45.9 6.7 32.0
Tax charge (7.6) (8.5) (2.1) (6.8)
---------------------------- --------- --------- ---------- ----------
Profit after tax 27.2 37.4 4.6 25.2
---------------------------- --------- --------- ---------- ----------
Earnings per share - basic 8.7 12.0 1.5 8.1
---------------------------- --------- --------- ---------- ----------
Group revenue fell by GBP18.0m or 6.1% with print down 2.7% and
digital revenue down 16.1%.
Adjusted costs decreased by GBP7.0m or 2.8%, partially
offsetting the decline in revenue. The H1 cost base benefitted from
newsprint cost inflation easing and cost savings delivered through
the ongoing cost programme. Statutory costs were higher by GBP5.3m
or 2.0%, driven by the increase in operating adjusted items of
GBP12.3m (GBP24.3m in 2023 versus GBP12.0m in 2022).
Adjusted operating profit declined GBP11.1m or 23.5%. The
adjusted operating margin of 12.9% in 2023 compares to 15.9% for
2022. Statutory operating profit decreased by GBP23.4m or 67.8%
primarily due to the increase in operating adjusted items.
Adjusted earnings per share decreased by 3.3p or 27.5% to 8.7p.
Statutory earnings per share decreased by 6.6p to 1.5p, principally
due to the decrease in operating profit.
Revenue
2023 2022
Actual Actual
GBPm GBPm
--------------- -------- --------
Print 217.3 223.4
--------------- -------- --------
Circulation 155.4 151.8
Advertising 37.0 45.3
Printing 10.3 11.5
Other 14.6 14.8
--------------- -------- --------
Digital 60.8 72.5
Other 1.3 1.5
--------------- -------- --------
Total revenue 279.4 297.4
--------------- -------- --------
Actual Actual Actual Actual
Q1 2023 Q2 2023 H1 2023 H1 2022
YOY YOY YOY YOY
% % % %
----------------- --------- --------- --------- ---------
Digital revenue (13.4) (18.7) (16.1) 5.4
Print revenue (3.0) (2.5) (2.7) (3.9)
Circulation 2.6 2.2 2.4 (5.1)
Advertising (21.1) (15.7) (18.3) (9.9)
Total Revenue (5.6) (6.5) (6.1) (1.6)
----------------- --------- --------- --------- ---------
Revenue bridge
Actual YOY
GBPm %
---------------- ------- -------
2022HY revenue 297
Circulation 3 2.4
Advertising (8) (18.3)
Printing (1) (10.4)
Other - (1.4)
Print (6) (2.7)
Digital (12) (16.1)
Other - (13.3)
2023HY revenue 279 (6.1)
------------------ ------- -------
Print revenue decreased by GBP6.1m or 2.7% (2022: down
3.9%).
Strong circulation performance with revenue up 2.4% (2022: down
5.1%) for the period driven by cover price increases, which were
above recent historical levels during the second half of 2022.
Print advertising revenue declined 18.3% (2022: down 9.9%). H122
benefited from elevated government spending on public health
messaging during the period. Entertainment, media and retail were
the biggest drivers on the year on year decline partially offset by
growth in holidays and travel and a small decline in telecoms.
Print revenue also includes external or third-party printing
revenues and other print-related revenues. Printing revenue
decreased by 10.4% (2022: up 19.8%) impacted by the year end
closure of one print plant which reduced spare capacity available
for third-party printing. Other print revenue decreased marginally
by 1.4% (2022: up 18.4%).
Digital revenue decreased by 16.1% to GBP60.8m (2022: GBP72.5m).
Revenue has been impacted by lower advertising demand in a
continued period of macroeconomic uncertainty and due to a material
impact from reduced page views following Facebook's
deprioritisation of news content which has driven a reduction in
referral traffic for publishers across the sector. Strategically
driven or 'data-led revenues' of GBP24.9m were down 1.2% and now
represent 41% of digital (2022 35%, FY2019 24%).
Revised data-driven revenue definition
As explained in footnote 1 on page 3, the definition of
'data-driven' revenue has been revised to reflect the continued
evolution of the Customer Value Strategy. This includes revenue
from advertising activity which utilises data generated via
registrations, audience behavioural or Mantis contextual. It also
includes other strategically driven revenues, less dependent on
audience volumes such as affiliates, partnerships and ecommerce.
Comparatives have been restated to reflect this change. As
previously disclosed, data-driven revenues were; GBP12.5m in
H12021, GBP30.6m in FY2021, GBP22.5m in H12022, GBP47.7m in FY2022.
Under revised definition those comparatives are; GBP16.6m in
H12021, GBP37.8m in FY2021, GBP25.2m in H12022, GBP57.6m in
FY2022.
Costs
Adjusted Adjusted Statutory Statutory
2023 2022 2023 2022
GBPm GBPm GBPm GBPm
------------------------------- --------- --------- ---------- ----------
Labour (114.5) (119.0) (114.5) (119.0)
Newsprint (33.4) (38.8) (33.4) (38.8)
Depreciation and amortisation (10.3) (9.9) (10.3) (9.9)
Other (86.4) (83.9) (110.7) (95.9)
------------------------------- --------- --------- ---------- ----------
Total costs (244.6) (251.6) (268.9) (263.6)
------------------------------- --------- --------- ---------- ----------
Adjusted costs of GBP244.6m (2022: GBP251.6m) decreased by
GBP7.0m or 2.8%. This was driven by reduction in circulation
volumes, in addition to reduced labour costs as a result of our
cost reduction programme. Other costs increased due to continued
inflation on overheads. Statutory costs were higher by GBP5.3m or
2.0% primarily due to higher operating adjusted items which were
GBP12.3m higher at GBP24.3m.
Operating adjusted items included in statutory costs related to
the following:
Statutory Statutory
2023 2022
GBPm GBPm
---------------------------------------------------- ---------- ----------
Provision for historical legal issues (5.9) (5.9)
Restructuring charges in respect of cost reduction
measures (10.2) (5.4)
Pension administrative expenses (2.6) (2.2)
Other items (5.6) 1.5
---------------------------------------------------- ---------- ----------
Operating adjusted items in statutory costs (24.3) (12.0)
---------------------------------------------------- ---------- ----------
The Group has incurred a GBP5.9m (2022: GBP5.9m) increase in the
provision for historical legal issues relating to the costs
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering.
Restructuring charges of GBP10.2m (2022: GBP5.4m) incurred in
respect of cost reduction measures are principally severance costs
that relate to cost management actions taken in the period.
Pension costs of GBP2.6m (2022: GBP2.2m) comprise external
pension administrative expenses.
Other adjusted items comprise the Group's legal fees in respect
of historical legal issues (GBP4.6m), adviser costs in relation to
the triennial funding valuations (GBP1.2m), internal pension
administrative expenses (GBP0.3m) and corporate simplification
costs (GBP0.2m), less a reduction in National Insurance costs
relating to share awards (GBP0.4m) and the profit on sale of
impaired assets (GBP0.3m).
In 2022 other adjusted items related to adviser costs in
relation to pension valuation costs (GBP0.8m), less a reduction in
National Insurance costs relating to share awards (GBP1.9m) and the
profit on sale of an impaired asset (GBP0.4m).
Profit
Adjusted operating profit of GBP36.1m was down GBP11.1m or 23.5%
reflecting the decline in revenue of 6.1% partially offset by a
decrease in adjusted operating costs of 2.8%.
This is also reflected in our adjusted operating margin which
decreased by 3.0 percentage points from 15.9% in 2022 to 12.9% in
2023.
Adjusted YOY
Adjusted operating profit bridge GBPm %
---------------------------------- --------- ------
2022HY adjusted operating profit 47
Revenue mix (18)
Inflation (8)
Investment (5)
Efficiencies 22
Other (2)
2023HY adjusted operating profit 36 (24%)
------------------------------------ --------- ------
Reconciliation of statutory to adjusted results
2023 Operating Pension
Statutory adjusted finance Adjusted
results items charge results
GBPm GBPm GBPm GBPm
----------------------------- ----------- ------------- -------- ----------
Revenue 279.4 - - 279.4
Operating profit 11.1 25.0 - 36.1
Profit before tax 6.7 25.0 3.1 34.8
Profit after tax 4.6 20.2 2.4 27.2
Basic earnings per share (p) 1.5 6.4 0.8 8.7
----------------------------- ----------- ------------- -------- ----------
The Group excludes from the adjusted results: operating adjusted
items and the pension finance charge. Adjusted items relate to
costs or income that derive from events or transactions that fall
within the normal activities of the Group, but are excluded from
the Group's adjusted profit measures, individually or, if of a
similar type in aggregate, due to their size and/or nature in order
to better reflect management's view of the performance of the
Group.
Items are adjusted on the basis that they distort the underlying
performance of the business where they relate to material items
that can recur (including impairment, restructuring and tax rate
changes) or relate to historic liabilities (including historical
legal and contractual issues, defined benefit pension schemes which
are all closed to future accrual).
Other items may be included in adjusted items if they are not
expected to recur in future years, such as the property
rationalisation in the previous years and items such as transaction
and restructuring costs incurred on acquisitions or the profit or
loss on the sale of subsidiaries, associates or freehold
buildings.
Management excludes these from the results that it uses to
manage the business and on which bonuses are based to reflect the
underlying performance of the business and believes that the
adjusted results, presented alongside the statutory results,
provide users with additional useful information. Further details
on the items excluded from the adjusted results are set out in note
5.
Balance sheet and cash flows
Historical legal issues provision
The historical legal issues provision relates to the cost
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering.
Payments of GBP3.5m have been made during the year and the
provision has been increased by GBP5.9m. At the half year a
provision of GBP45.4m remains outstanding and this represents the
current best estimate of the amount required to resolve this
historical matter. Further details relating to the nature of the
liability, the calculation basis and the expected timing of
payments are set out in note 15.
Decrease in accounting pension deficit
The IAS 19 pension deficit (net of deferred tax) in respect of
the Group's defined benefit pension schemes decreased by GBP7.5m
from GBP113.9m at year end to GBP106.4m at the half year. The
increase in the discount rate and Group contributions has been
partially offset by reductions in asset values. The triennial
valuations for funding of the defined benefit pension schemes as at
31 December 2019 have been agreed for five of the schemes, with one
scheme outstanding. We continue to work with both the Trustees of
the one remaining scheme and the Pensions Regulator. The process to
determine the 31 December 2022 valutions has now commenced.
During 2022, the Trustees of the Express Newspapers Senior
Managers Pension Fund purchased a bulk annuity (at no cost to the
Group) and the scheme now has all pension liabilities covered by
annuity policies. In 2021, the Trustees of the West Ferry scheme
purchased a bulk annuity and the scheme now has all pension
liabilities covered by annuity policies. Group contributions in
respect of the remaining four defined benefit pension schemes in
the first half were GBP23.3m (2022: GBP23.0m) under the current
schedule of contributions. Contributions in 2023 are expected to be
GBP55.8m under the current schedule of contributions for the four
schemes.
Deferred consideration
Deferred consideration is attributable to the acquisition of the
Express & Star. The third and final payment of GBP7.0m was made
on 28 February 2023. There is no remaining liability in relation to
deferred consideration.
Adjusted cash flow
GBPm GBPm
------------------------------ ----- -----
Adjusted EBITDA 46
Tax 1
Restructuring (12)
Capital expenditure (7)
Lease repayments (2)
Interest inc. on leases (1)
Working capital movements (6)
Adjusted operating cash flow 19
Historical legal issues (4)
Pension payments (23)
Dividends (14)
Adjusted net cash flow (22)
Payment for Express & Star (7)
-------------------------------- ----- -----
Cash movement (29)
-------------------------------- ----- -----
Cash balances
Net debt at the half year is GBP3.5m, a result of a GBP28.9m
reduction in cash balances during the year, from a net cash
position of GBP25.4m at the end of 2022. The Group has GBP15.0m
drawn down on the Group's revolving credit facility, with the
overall total cash position of GBP11.5m at the half year. The Group
has a revolving credit facility of GBP120.0m, which expires during
November 2026.
Cash generated from operations on a statutory basis was GBP24.8m
(2022: GBP47.5m). The Group presents an adjusted cash flow which
reconciles the adjusted operating profit to the net change in cash
and cash equivalents, which is set out in note 19. A reconciliation
between the statutory and the adjusted cash flow is set out in note
20. The adjusted operating cash flow was GBP18.9m (2022:
GBP39.2m).
Dividends
The Board paid a final dividend for 2022 of 4.46 pence per share
in June 2023. An interim dividend for 2023 of 2.88 pence per share
will be paid on 22 September 2023 to shareholders on the register
on 11 August 2023.
In declaring interim dividend of 2.88 pence per share for 2023
(2022: 2.88 pence per share), the Board has considered all
investment requirements and its funding commitments to the defined
benefit pension schemes.
Principal risks and uncertainties
The Group recognises the importance of the effective
understanding and management of risk in enabling us to identify
factors, both externally and internally, that may materially affect
our ability to achieve our goals. There is an ongoing process for
the identification, evaluation and management of the principal
risks faced by the Group, including emerging risks. Appropriate
mitigating actions are in place to minimise the impact of the risks
and uncertainties which are identified as part of the risk process.
All risks are considered in the context of our strategic
objectives, the changing regulatory and compliance landscape and
enabling the continuity of our operations.
These principal risks and uncertainties, the risk appetite in
relation to these and the resulting actions are set out in the
Reach plc 2022 Annual Report which is available on our website at
www.reachplc.com.
The principal risks and uncertainties continue to be:
deterioration in macroeconomic conditions; print revenue decline
acceleration; insufficient digital revenue growth; cyber security
breach; data protection failure; supply chain failure; health and
safety issue; lack of funding capability; inability to recruit and
retain talent and brand reputation damage.
Going concern statement
The directors assessed the Group's prospects, both as a going
concern and its longer term viability, at the time of approval of
the Group's 2022 Annual Report. Further information is set out in
the Reach plc 2022 Annual Report.
At the half year, the directors have reviewed the going concern
assessment, specifically any potential impact of the downturn in
pages views experienced in the digital market during 2023. The
Group undertakes regular forecasts and projections of trading,
identifying areas of focus for management to improve delivery of
the Strategy and to continue to mitigate the current impact of
macroeconomic headwinds. The Group has a strong balance sheet and
liquidity with a cash balance of GBP11.5m. The Group has drawn
GBP15.0m of its revolving credit facility which expires during
2026, with GBP105.0m remaining available.
Accordingly, the directors have adopted the going concern basis
of accounting in the preparation of the Group's half-yearly
financial report.
Statement of directors' responsibilities
The directors are responsible for preparing the half-yearly
financial report in accordance with applicable laws and
regulations. The directors confirm to the best of their
knowledge:
a) that the interim condensed consolidated financial statements have
been prepared in accordance with UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting' and that the interim management
report includes a fair review of the information required by DTR 4.2.7
and DTR 4.2.8 namely:
i. an indication of important events that have occurred during the
first six months and their impact on the interim condensed consolidated
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
ii. material related-party transactions in the first six months and
any material changes in the related-party transactions described
in the last annual report.
By order of the Board of Directors
Darren Fisher
Chief Financial Officer 25 July 2023
Condensed interim consolidated financial statements
Consolidated income statement
for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022
and 52 weeks ended 25 December 2022)
Adjusted Adjusted Adjusted
Adjusted Items Statutory Adjusted Items Statutory Adjusted Items Statutory
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 52 weeks 52 weeks 52 weeks
notes ended ended ended ended ended ended ended ended ended
25 June 25 June 25 June 26 June 26 June 26 June 25 25 25
2023 2023 2023 2022 2022 2022 December December December
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm (audited) (audited) (audited)
GBPm GBPm GBPm
---------------- ------- ------------- ------------ ------------- ------------- ------------ ------------- ----------- ---------- -----------
Revenue 4 279.4 - 279.4 297.4 - 297.4 601.4 - 601.4
Cost of sales (178.4) - (178.4) (187.3) - (187.3) (375.7) - (375.7)
---------------- ------- ------------- ------------ ------------- ------------- ------------ ------------- ----------- ---------- -----------
Gross profit 101.0 - 101.0 110.1 - 110.1 225.7 - 225.7
Distribution
costs (19.1) - (19.1) (19.9) - (19.9) (38.1) - (38.1)
Administrative
expenses (47.1) (24.3) (71.4) (44.4) (12.0) (56.4) (84.3) (33.4) (117.7)
Share of
results of
associates 1.3 (0.7) 0.6 1.4 (0.7) 0.7 2.8 (1.4) 1.4
Operating
profit 36.1 (25.0) 11.1 47.2 (12.7) 34.5 106.1 (34.8) 71.3
Interest income 6 0.6 - 0.6 - - - 0.1 - 0.1
Pension finance
charge 13 - (3.1) (3.1) - (1.2) (1.2) - (2.3) (2.3)
Finance costs 7 (1.9) - (1.9) (1.3) - (1.3) (2.9) - (2.9)
---------------- ------- ------------- ------------ ------------- ------------- ------------ ------------- ----------- ---------- -----------
Profit before
tax 34.8 (28.1) 6.7 45.9 (13.9) 32.0 103.3 (37.1) 66.2
Tax charge 8 (7.6) 5.5 (2.1) (8.5) 1.7 (6.8) (18.8) 4.9 (13.9)
---------------- ------- ------------- ------------ ------------- ------------- ------------ ------------- ----------- ---------- -----------
Profit for the
period
attributable
to equity
holders of the
parent 27.2 (22.6) 4.6 37.4 (12.2) 25.2 84.5 (32.2) 52.3
Earnings per 2023 2023 2022 2022 2022 2022
share Notes Pence Pence Pence Pence Pence Pence
---------------- ------- ------------- ------------ ------------- ------------- ------------ ------------- ----------- ---------- -----------
Earnings per
share -
basic 10 8.7 1.5 12.0 8.1 27.1 16.8
Earnings per
share -
diluted 10 8.6 1.5 11.7 7.9 26.7 16.5
---------------- ------- ------------- ------------ ------------- ------------- ------------ ------------- ----------- ---------- -----------
The above results were derived from continuing operations. Set
out in note 18 is the reconciliation between the statutory and
adjusted results.
Consolidated statement of comprehensive income
for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022
and 52 weeks ended 25 December 2022)
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
notes
------------------------------------------ ------- ------------------- ------------------ --------------
Profit for the period 4.6 25.2 52.3
------------------------------------------ ------- ------------------- ------------------ --------------
Items that will not be reclassified
to profit and loss:
Actuarial (loss)/gain on defined benefit
pension schemes 13 (7.9) 42.9 (35.0)
Tax on actuarial (loss)/gain on defined
benefit pension schemes 8 2.0 (10.7) 7.4
Share of items recognised by associates
after tax - - (1.7)
------------------------------------------ ------- ------------------- ------------------ --------------
Other comprehensive (loss)/income for
the period (5.9) 32.2 (29.3)
Total comprehensive (loss)/income for
the period (1.3) 57.4 23.0
------------------------------------------ ------- ------------------- ------------------ --------------
Consolidated cash flow statement
for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022
and 52 weeks ended 25 December 2022)
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
notes
------------------------------------------------- ------- ------------------- ------------------ --------------
Cash flows from operating activities
Cash generated from operations 11 24.8 47.5 80.1
Pension deficit funding payments 13 (23.3) (23.0) (55.1)
Income tax received/(paid) 0.5 (4.0) (5.0)
------------------------------------------------- ------- ------------------- ------------------ --------------
Net cash inflow from operating activities 2.0 20.5 20.0
------------------------------------------------- ------- ------------------- ------------------ --------------
Investing activities
Interest received 0.3 - 0.1
Dividends received from associated undertakings - - 2.5
Proceeds on disposal of property, plant
and equipment 0.5 0.4 0.4
Purchases of property, plant and equipment (1.7) (3.1) (3.0)
Expenditure on internally generated development 12 (6.0) (4.0) (10.7)
Interest received on leases 0.3 - -
Finance lease receipts 0.6 - -
Deferred consideration payment 14 (7.0) (17.1) (17.1)
Net cash used in investing activities (13.0) (23.8) (27.8)
Financing activities
Interest and charges paid on bank borrowings (0.9) (0.9) (1.9)
Dividends paid 9 (14.0) (13.9) (22.9)
Interest paid on leases (0.5) (0.5) (1.1)
Repayments of obligations under leases (2.5) (2.3) (5.6)
Purchase of own shares 16 - (1.0) (1.0)
Drawdown of borrowings - - 15.0
Net cash used in financing activities (17.9) (18.6) (17.5)
------------------------------------------------- ------- ------------------- ------------------ --------------
Net decrease in cash and cash equivalents (28.9) (21.9) (25.3)
------------------------------------------------- ------- ------------------- ------------------ --------------
Cash and cash equivalents at the beginning
of the period 14 40.4 65.7 65.7
------------------------------------------------- ------- ------------------- ------------------ --------------
Cash and cash equivalents at the end
of the period 14 11.5 43.8 40.4
------------------------------------------------- ------- ------------------- ------------------ --------------
Consolidated statement of changes in equity
for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022
and 52 weeks ended 25 December 2022)
(Accumulated
Share Capital loss)
Share premium Merger redemption / retained
capital account reserve reserve earnings Total
GBPm GBPm GBPm GBPm and other GBPm
reserves
GBPm
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
At 26 December 2022 (audited) 32.2 605.4 17.4 4.4 (21.9) 637.5
Profit for the period - - - - 4.6 4.6
Other comprehensive loss for
the period - - - - (5.9) (5.9)
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Total comprehensive loss for
the period - - - - (1.3) (1.3)
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Purchase of own shares - - - - - -
Credit to equity for equity-settled
share-based payments - - - - 0.9 0.9
Dividends paid (note 9) - - - - (14.0) (14.0)
At 25 June 2023 (unaudited) 32.2 605.4 17.4 4.4 (36.3) 623.1
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
At 27 December 2021 (audited) 32.2 605.4 17.4 4.4 (20.6) 638.8
Profit for the period - - - - 25.2 25.2
Other comprehensive income
for the period - - - - 32.2 32.2
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Total comprehensive income
for the period - - - - 57.4 57.4
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Purchase of own shares - - - - (1.0) (1.0)
Credit to equity for equity-settled
share-based payments - - - - 1.1 1.1
Dividends paid - - - - (13.9) (13.9)
---------- ---------- ---------- ------------- ------------- --------
At 26 June 2022 (unaudited) 32.2 605.4 17.4 4.4 23.0 682.4
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
At 27 December 2021 (audited) 32.2 605.4 17.4 4.4 (20.6) 638.8
Profit for the period - - - - 52.3 52.3
Other comprehensive loss for
the period - - - - (29.3) (29.3)
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Total comprehensive income
for the period - - - - 23.0 23.0
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Purchase of own shares - - - - (1.0) (1.0)
Credit to equity for equity-settled
share-based payments - - - - 1.8 1.8
Deferred tax credit for equity-settled
share-based payments - - - - (2.2) (2.2)
Dividends paid - - - - (22.9) (22.9)
At 25 December 2022 (audited) 32.2 605.4 17.4 4.4 (21.9) 637.5
---------------------------------------- ---------- ---------- ---------- ------------- ------------- --------
Consolidated balance sheet
at 25 June 2023 (at 26 June 2022 and 25 December 2022)
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
notes GBPm GBPm GBPm
--------------------------------------------- ------- -------------------- ------------------- --------------
Non-current assets
Goodwill 12 35.9 35.9 35.9
Other intangible assets 12 836.8 827.6 832.9
Property, plant and equipment 134.8 153.1 140.1
Right-of-use assets 11.7 11.1 10.9
Finance lease receivable 9.8 - 10.4
Investment in associates 15.2 18.1 14.6
Retirement benefit assets 13 56.4 94.4 51.2
1,100.6 1,140.2 1,096.0
--------------------------------------------- ------- -------------------- ------------------- --------------
Current assets
Inventories 12.7 7.5 12.9
Trade and other receivables 88.2 91.2 95.2
Current tax receivable 8 12.2 13.1 13.9
Finance lease receivable 0.6 - 0.6
Cash and cash equivalents 14 11.5 43.8 40.4
--------------------------------------------- ------- -------------------- -------------------
125.2 155.6 163.0
--------------------------------------------- ------- -------------------- ------------------- --------------
Total assets 1,225.8 1,295.8 1,259.0
--------------------------------------------- ------- -------------------- ------------------- --------------
Non-current liabilities
--------------
Trade and other payables (2.8) (6.2) (4.5)
Lease liabilities 14 (27.0) (27.8) (26.8)
Retirement benefit obligations 13 (197.6) (185.8) (202.1)
Provisions 15 (43.7) (40.6) (36.6)
Deferred tax liabilities (189.9) (201.2) (191.6)
(461.0) (461.6) (461.6)
--------------------------------------------- ------- -------------------- ------------------- --------------
Current liabilities
Trade and other payables (104.6) (110.5) (106.7)
Deferred consideration 14 - (7.0) (7.0)
Borrowings (15.0) - (15.0)
Lease liabilities 14 (4.5) (5.9) (4.9)
Provisions 15 (17.6) (28.4) (26.3)
(141.7) (151.8) (159.9)
--------------------------------------------- ------- -------------------- ------------------- --------------
Total liabilities (602.7) (613.4) (621.5)
--------------------------------------------- ------- -------------------- ------------------- --------------
Net assets 623.1 682.4 637.5
--------------------------------------------- ------- -------------------- ------------------- --------------
Equity
Share capital 16 32.2 32.2 32.2
Share premium account 16 605.4 605.4 605.4
Merger reserve 16 17.4 17.4 17.4
Capital redemption reserve 16 4.4 4.4 4.4
(Accumulated loss)/retained earnings and
other reserves 16 (36.3) 23.0 (21.9)
--------------------------------------------- ------- -------------------- ------------------- --------------
Total equity attributable to equity holders
of the parent 623.1 682.4 637.5
--------------------------------------------- ------- -------------------- ------------------- --------------
Notes to the consolidated financial statements
for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022
and 52 weeks ended 25 December 2022)
1 . General information
The financial information in respect of the 52 weeks ended 25
December 2022 does not constitute statutory accounts within the
meaning of Section 434 of the Companies Act 2006. A copy of the
statutory accounts for that period has been delivered to the
Registrar of Companies and is available at the Company's registered
office at One Canada Square, Canary Wharf, London E14 5AP and on
the Company's website at www.reachplc.com. The auditors' report was
unqualified, did not include reference to any matters to which the
auditors drew attention by way of emphasis without qualifying the
report and did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006.
The financial information for the 26 weeks ended 25 June 2023
and the 26 weeks ended 26 June 2022 do not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006 and have not been audited. No statutory accounts for these
periods have been delivered to the Registrar of Companies. This
half-yearly financial report constitutes a dissemination
announcement in accordance with Section 6.3 of the Disclosure and
Transparency Rules.
The auditors, PricewaterhouseCoopers LLP, have carried out a
review of the condensed set of financial statements and their
report is set out at the end of this announcement.
The half-yearly financial report was approved by the directors
on 25 July 2023. This announcement is available at the Company's
registered office at One Canada Square, Canary Wharf, London E14
5AP and on the Company's website at www.reachplc.com.
2 . Accounting policies
Basis of preparation
The Group's annual consolidated financial statements are
prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. The
condensed consolidated financial statements included in this
half-yearly financial report have been prepared in accordance with
the UK-adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority. Taxes on income in the interim period are accrued using
the tax rate that would be applicable to expected total annual
profit or loss. There are no material changes to the nature and
type of related party transactions since the 2022 Annual
Report.
Going concern
The directors assessed the Group's prospects, both as a going
concern and its longer term viability, at the time of approval of
the Group's 2022 Annual Report. Further information is set out in
the Reach plc 2022 Annual Report.
At the half year, the directors have reviewed the going concern
assessment, specifically any potential impact of the downturn in
pages views experienced in the digital market during 2023. The
Group undertakes regular forecasts and projections of trading,
identifying areas of focus for management to improve delivery of
the Strategy and to continue to mitigate the current impact of
macroeconomic headwinds. The Group has a strong balance sheet and
liquidity with a cash balance of GBP11.5m. The Group has drawn
GBP15.0m of its revolving credit facility which expires during
2026, with GBP105.0m remaining available.
Accordingly, the directors have adopted the going concern basis
of accounting in the preparation of the Group's half-yearly
financial report.
Changes in accounting policy
The same accounting policies, presentation and methods of
computation are followed in the interim condensed consolidated
financial statements as applied in the Group's latest annual
consolidated financial statements.
In addition to the accounting policies disclosed in the Group's
latest annual consolidated financial statements, the Group also
opts to present cash flows relating to the use of its revolving
credit facility net where the loans drawn down through use of the
facility are repaid within 3 months of the initial draw down.
Alternative performance measures
The Company presents the results on a statutory and adjusted
basis and revenue trends on a statutory and like-for-like basis.
The Company believes that the adjusted basis and like-for-like
trends will provide investors with useful supplemental information
about the financial performance of the Group, enable comparison of
financial results between periods where certain items may vary
independent of business performance, and allow for greater
transparency with respect to key performance indicators used by
management in operating the Group and making decisions. Although
management believes the adjusted basis is important in evaluating
the Group, they are not intended to be considered in isolation or
as a substitute for, or as superior to, financial information on a
statutory basis. Revenue trends on an actual and like-for-like
basis are the same for the 26 weeks ended 25 June 2023 . The
alternative performance measures are not recognised measures under
IFRS and do not have standardised meanings prescribed by IFRS and
may be different to those used by other companies, limiting the
usefulness for comparison purposes. Note 18 sets out the
reconciliation between the statutory and adjusted results. An
adjusted cash flow is presented in note 19 which reconciles the
adjusted operating profit to the net change in cash and cash
equivalents. Set out in note 20 is the reconciliation between the
statutory and adjusted cash flow.
Adjusted items
Adjusted items relate to costs or incomes that derive from
events or transactions that fall within the normal activities of
the Group, but are excluded from the Group's adjusted profit
measures, individually or, if of a similar type in aggregate, due
to their size and/or nature in order to better reflect management's
view of the performance of the Group. The adjusted profit measures
are not recognised profit measures under IFRS and may not be
directly comparable with adjusted profit measures used by other
companies. Details of adjusted items are set out in notes 5 and
18.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty that have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed
below:
Historical Legal Issues (note 15)
The historical legal issues provision relates to the cost
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering.
There are three parts to the provision: known claims, potential
future claims and common court costs. The key uncertainties in
relation to this matter relate to how many claims will be received,
how each claim progresses, the amount of any settlement and the
associated legal costs. Our assumptions have been based on
historical trends, our experience and the expected evolution of
claims and costs.
During the first half of the year, the associated settlement
costs have been ahead of historical trends and experience. This has
resulted in a change to the provision estimate and a further charge
of GBP5.9m in the year. At the period end, a provision of GBP45.4m
remains outstanding and this represents the current best estimate
of the amount required to resolve this historical matter. The
majority of the provision is expected to be utilised within the
next three years.
Our view on the range of outcomes at the reporting date for the
provision, applying more and less favourable outcomes to all
aspects of the provision is GBP35m to GBP64m ( 26 June 2022: GBP32m
to GBP53m and 25 December 2022 : GBP32m to GBP56m). However, it is
unknown how long it will take to fully resolve this matter and
despite making a best estimate of the provision, the timing of
utilisation and possible range, the total universe of claims is
unknown and there are both ongoing legal matters (including a trial
which commenced in May 2023 and finished on 30 June 2023 where we
expect a verdict from the trial at some point in the latter part of
2023) and the potential for new legal matters which could mean that
the final outcome is outside of the range of outcomes. Due to these
unquantifiable uncertainties, a contingent liability has been
highlighted in note 17.
Taxation (note 8)
There is uncertainty as to the tax deductibility of expenditure
relating to historical legal issues in the current year and
additional tax liabilities that may fall due in relation to earlier
years. At the reporting date, the maximum amount of the additional
unprovided tax exposure relating to this uncertain tax item is
GBP8.4m ( 26 June 2022: GBP7.7m and 25 December 2022: GBP8.1m ).
There is uncertainty as to the final outcome and timing of this
item, with a possible range of outcomes for the potential tax
exposure being nil to GBP28.6m ( 26 June 2022: nil to GBP26.2m and
25 December 2022: nil to GBP27.2m) .
Retirement benefits (note 13)
Actuarial assumptions adopted and external factors can
significantly impact the surplus or deficit of defined benefit
pension schemes. Valuations for funding and accounting purposes are
based on assumptions about future economic and demographic
variables. These result in risk of a volatile valuation deficit and
the risk that the ultimate cost of paying benefits is higher than
the current assessed liability value. Advice is sourced from
independent and qualified actuaries in selecting suitable
assumptions at each reporting date.
Impairment review (note 12)
There is uncertainty in the value-in-use calculation. The most
significant area of uncertainty relates to expected future cash
flows for each cash-generating unit. Determining whether the
carrying values of assets in a cash-generating unit are impaired
requires an estimation of the value in use of the cash-generating
unit to which these have been allocated. The value-in-use
calculation requires the Group to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value. Projections are
based on both internal and external market information and reflect
past experience. The discount rate reflects the weighted average
cost of capital of the Group. The Group tests the carrying value of
assets at the cash-generating unit level for impairment annually or
more frequently if there are indicators that assets might be
impaired. For the 26 weeks to 25 June 2023, there have been no
indicators of impairment and therefore no review has been
undertaken.
Restructuring and property provisions (note 15)
Provisions are measured at the best estimate of the expenditure
required to settle the obligation based on the assessment of the
related facts and circumstances at each reporting date. There is
uncertainty in relation to the size and length of property related
provisions.
Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
described above, management has made the following judgements that
have the most significant effect on the amounts recognised in the
financial statements:
Indefinite life assumption in respect of publishing rights and
titles (note 12)
There is judgement required in continuing to adopt an indefinite
life assumption in respect of publishing rights and titles. The
directors consider publishing rights and titles (with a carrying
amount of GBP818.7m) have indefinite economic lives due to the
longevity of the brands and the ability to evolve them in an
ever-changing media landscape. The brands are central to the
delivery of the Customer Value Strategy which is delivering digital
revenue growth. A t each reporting date management review the
suitability of this assumption.
Identification of cash-generating units (note 12)
There is judgement required in determining the cash-generating
unit relating to our Publishing brands. At each reporting date
management review the interdependency of revenues across our
portfolio of Publishing brands to determine the appropriate
cash-generating unit. The Group operates its Publishing brands such
that a majority of the revenues are interdependent and revenue
would be materially lower if brands operated in isolation. As such,
management do not consider that an impairment review at an
individual brand level is appropriate or practical. As the Group
continues to centralise revenue generating functions and has moved
to a matrix operating structure over the past few years, all of the
individual brands in Publishing have increased revenue
interdependency and are assessed for impairment as a single
Publishing cash-generating unit.
3. Segments
The performance of the Group is presented as a single reporting
segment as this is the basis of internal reports regularly reviewed
by the Board and chief operating decision maker (executive
directors) to allocate resources and to assess performance. The
Group's operations are primarily located in the UK and the Group is
not subject to significant seasonality during the year.
4. Revenue
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
--------------- ------------------- ------------------ --------------
Print 217.3 223.4 448.6
--------------- ------------------- ------------------ --------------
Circulation 155.4 151.8 307.7
Advertising 37.0 45.3 86.9
Printing 10.3 11.5 23.1
Other 14.6 14.8 30.9
--------------- ------------------- ------------------ --------------
Digital 60.8 72.5 149.8
Other 1.3 1.5 3.0
Total revenue 279.4 297.4 601.4
--------------- ------------------- ------------------ --------------
The Group's operations are located primarily in the UK.
5. Operating adjusted items
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
----------------------------------------------------- ------------------- ------------------ --------------
Provision for historical legal issues (note
15) (5.9) (5.9) (11.0)
Restructuring charges in respect of cost reduction
measures (note 15) (10.2) (5.4) (15.5)
Pension administrative expenses and past service
costs (note 13) (2.6) (2.2) (14.8)
Sublet of closed print site - - 16.6
Other items (note 18) (5.6) 1.5 (8.7)
Operating adjusted items included in administrative
expenses (24.3) (12.0) (33.4)
Operating adjusted items included in share
of results of associates (0.7) (0.7) (1.4)
Total operating adjusted items (25.0) (12.7) (34.8)
----------------------------------------------------- ------------------- ------------------ --------------
Operating adjusted items relate to costs or incomes that derive
from events or transactions that fall within the normal activities
of the Group, but are excluded from the Group's adjusted profit
measures, individually or, if of a similar type in aggregate, due
to their size and/or nature in order to better reflect management's
view of the performance of the Group. The adjusted profit measures
are not recognised profit measures under IFRS and may not be
directly comparable with adjusted profit measures used by other
companies. Set out in note 18 is the reconciliation between the
statutory and adjusted results which includes descriptions of the
items included in adjusted items.
The Group has incurred a GBP5.9m ( 26 weeks ended 26 June 2022 :
GBP5.9m and 52 weeks ended 25 December 2022: GBP11.0m ) increase in
the provision for historical legal issues relating to the cost
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering
(note 15).
Restructuring charges of GBP10.2m ( 26 weeks ended 26 June 2022
: GBP5.4m and 52 weeks ended 25 December 2022: GBP15.5m ) incurred
in respect of cost reduction measures are principally severance
costs that relate to cost management actions taken in the
period.
Pension costs of GBP2.6m ( 26 weeks ended 26 June 2022 : GBP2.2m
and 52 weeks ended 25 December 2022: GBP14.8m ) comprise pension
administrative expenses of GBP2.6m ( 26 weeks ended 26 June 2022 :
pension administrative expenses of GBP2.2m and 52 weeks ended 25
December 2022: pension administrative expenses of GBP4.2m and past
service costs relating to a Barber Window equalisation adjustment
of GBP10.6m).
In the 52 weeks ended 25 December 2022, the sublet of the vacant
print site which was closed in 2020 has resulted in the reversal of
an impairment in right-of-use assets of GBP11.0m and previously
onerous costs of the vacant print site of GBP5.6m. The impairment
and onerous closure costs of the vacant print site were recognised
in operating adjusted items in 2020.
Other adjusted items comprise the Group's legal fees in respect
of historical legal issues (GBP4.6m), adviser costs in relation to
the triennial funding valuations (GBP1.2m), internal pension
administration expenses (GBP0.3m) and corporate simplification
costs (GBP0.2m), less a reduction in National Insurance costs
relating to share awards (GBP0.4m) and the profit on sale of
impaired assets (GBP0.3m).
In the 26 weeks ended 26 June 2022, other adjusted items related
to adviser costs in relation to triennial funding valuations
(GBP0.8m), less a reduction in National Insurance costs relating to
share awards (GBP1.9m) and the profit on sale of impaired assets
(GBP0.4m).
In the 52 weeks ended 25 December 2022, other adjusted items
comprise the Group's legal fees in respect of historical legal
issues (GBP5.2m), adviser costs in relation to the triennial
funding valuations (GBP1.6m), impairment of vacant freehold
property (GBP4.2m) and plant and equipment (0.8m) less a reduction
in National Insurance costs relating to share awards (GBP2.7m) and
the profit on sale of impaired assets (GBP0.4m).
6. Interest income
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------------- ------------------- ------------------ --------------
Interest income on bank deposits 0.3 - 0.1
Interest on finance lease receivable 0.3 - -
-------------------------------------- ------------------- ------------------ --------------
Interest income 0.6 - 0.1
-------------------------------------- ------------------- ------------------ --------------
7. Finance costs
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
----------------------------------------- ------------------- ------------------ --------------
Interest and charges on bank borrowings (1.4) (0.8) (1.8)
Interest on lease liabilities (0.5) (0.5) (1.1)
----------------------------------------- ------------------- ------------------ --------------
Finance costs (1.9) (1.3) (2.9)
----------------------------------------- ------------------- ------------------ --------------
8. Tax charge
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
---------------------------------------------- ------------------- ------------------ --------------
Corporation tax charge for the period (1.8) (4.4) (4.5)
Prior period adjustment - - (0.7)
---------------------------------------------- ------------------- ------------------ --------------
Current tax charge (1.8) (4.4) (5.2)
---------------------------------------------- ------------------- ------------------ --------------
Deferred tax charge for the period (0.3) (2.4) (9.0)
Prior period adjustment - - 0.3
Deferred tax charge (0.3) (2.4) (8.7)
---------------------------------------------- ------------------- ------------------ --------------
Tax charge (2.1) (6.8) (13.9)
---------------------------------------------- ------------------- ------------------ --------------
Reconciliation of tax charge GBPm
---------------------------------------------- ------------------- ------------------ --------------
Profit before tax 6.7 32.0 66.2
---------------------------------------------- ------------------- ------------------ --------------
Standard rate of corporation tax of 23.5%
(2022: 19%) (1.6) (6.1) (12.6)
Tax effect of permanent items that are not
included in determining taxable profit (0.1) (0.8) (1.2)
Overseas profits taxed at rate lower than (0.5)
UK - -
Prior period adjustment - - (0.4)
Tax effect of share of results of associates 0.1 0.1 0.3
Tax charge (2.1) (6.8) (13.9)
---------------------------------------------- ------------------- ------------------ --------------
The standard rate of corporation tax for the period is 23.5%
(2022: 19%). The tax effect of items that are not deductible in
determining taxable profit includes certain costs where there is
uncertainty as to their deductibility. The current tax receivable
amounted to GBP12.2m (26 June 2022: GBP13.1m receivable and 25
December 2022: GBP13.9m receivable). At the reporting date the
maximum amount of the unprovided tax exposure relating to uncertain
tax items is some GBP8.4m (26 June 2022: GBP7.7m and 25 December
2022: GBP8.1m). There is uncertainty as to the final outcome and
timing of this item, with a possible range of outcomes for the
potential tax exposure being nil to GBP28.6m ( 26 June 2022: nil to
GBP26.2m and 25 December 2022: nil to GBP27.2m).
The tax on actuarial gains or losses on defined benefit pension
schemes taken to the consolidated statement of comprehensive income
is a deferred tax credit of GBP2.0m (26 weeks ended 26 June 2022:
charge of GBP10.7m and 52 weeks ended 25 December 2022: credit of
GBP7.4m).
9. Dividends
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2023 (unaudited) 2022 (unaudited) 2022
Pence Pence (audited)
Per share Per share Pence
Per share
----------------------------------------------- ------------------ ------------------ -------------
Amounts recognised as distributions to equity
holders in the period
Dividends paid per share - prior year final
dividend 4.46 4.46 4.46
Dividends paid per share - interim dividend - - 2.88
----------------------------------------------- ------------------ ------------------ -------------
Total dividend paid per share 4.46 4.46 7.34
----------------------------------------------- ------------------ ------------------ -------------
Dividend proposed per share but not paid nor
included in the accounting records 2.88 2.88 4.46
----------------------------------------------- ------------------ ------------------ -------------
The Board has approved an interim dividend for 2023 of 2.88
pence per share.
On 3 May 2023, the final dividend proposed for 2022 of 4.46
pence per share was approved by shareholders at the Annual General
Meeting and was paid on 2 June 2023. The total dividend payment
amounted to GBP14.0m.
10. Earnings per share
Basic earnings per share is calculated by dividing profit for
the period attributable to equity holders of the parent by the
weighted average number of ordinary shares during the period and
diluted earnings per share is calculated by adjusting the weighted
average number of ordinary shares in issue on the assumption of
conversion of all potentially dilutive ordinary shares.
26 weeks 25 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2023 (unaudited) 2022 (unaudited) 2022
Thousand Thousand (audited)
Thousand
---------------------------------------------- ------------------ ------------------ -------------
Weighted average number of ordinary shares
for basic earnings per share 313,768 311,636 312,153
Effect of potential dilutive ordinary shares
in respect of share awards 3,214 6,848 4,828
Weighted average number of ordinary shares
for diluted earnings per share 316,982 318,484 316,981
---------------------------------------------- ------------------ ------------------ -------------
The weighted average number of potentially dilutive ordinary
shares not currently dilutive was 5,614,749 (26 June 2022:
4,414,629 and 25 December 2022: 5,406,814).
Statutory earnings per share
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2023 2022 2022
(unaudited) (unaudited) (audited)
Pence Pence Pence
Earnings per share - basic 1.5 8.1 16.8
Earnings per share - diluted 1.5 7.9 16.5
------------------------------- --------------- -------------- ---------------
Adjusted earnings per share
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2023 2022 2022
(unaudited) (unaudited) (audited)
Pence Pence Pence
------------------------------ --------------- -------------- ---------------
Earnings per share - basic 8.7 12.0 27.1
Earnings per share - diluted 8.6 11.7 26.7
------------------------------ --------------- -------------- ---------------
Set out in note 18 is the reconciliation between the statutory
and adjusted results.
11. Cash flows from operating activities
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (audited)
GBPm (unaudited) GBPm
GBPm
------------------------------------------------------ ------------------ ------------- -------------
Operating profit 11.1 34.5 71.3
Depreciation of property, plant and equipment 6.9 7.7 15.2
Depreciation of right-of-use assets 1.3 1.5 2.9
Amortisation of other intangible assets 2.1 0.7 2.1
Share of results of associates (0.6) (0.7) (1.4)
Share-based payments charge 0.9 0.9 1.5
Impairment of property, plant and equipment - - 5.0
Impairment of right-of-use assets 0.2 - -
Reversal of impairment of right-of-use assets - - (11.0)
Profit on disposal of property, plant and equipment (0.3) (0.4) (0.4)
Pension administrative expenses and past service
costs 2.6 2.2 14.8
Operating cash flows before movements in working
capital 24.2 46.4 100.0
Decrease/(increase) in inventories 0.2 (2.0) (7.4)
Decrease in receivables 6.9 11.0 7.2
Decrease in payables (6.5) (7.9) (19.7)
------------------------------------------------------ ------------------ ------------- -------------
Cash generated from operations 24.8 47.5 80.1
------------------------------------------------------ ------------------ ------------- -------------
12. Goodwill and other intangible assets
Other intangible
assets
-------------------------
Publishing Internally
rights generated
Goodwill and titles assets Total
GBPm GBPm GBPm GBPm
----------------------------------------- --------- ------------ ----------- ----------
Cost
At 25 December 2022 (audited) 189.9 2,100.3 16.7 2,306.9
Additions - - 6.0 6.0
At 25 June 2023 (unaudited) 189.9 2,100.3 22.7 2,312.9
----------------------------------------- --------- ------------ ----------- ----------
Accumulated depreciation and impairment
At 25 December 2022 (audited) (154.0) (1,281.6) (2.5) (1,438.1)
Charge for the period - - (2.1) (2.1)
At 25 June 2023 (unaudited) (154.0) (1,281.6) (4.6) (1,440.2)
----------------------------------------- --------- ------------ ----------- ----------
Carrying amount
At 25 December 2022 (audited) 35.9 818.7 14.2 868.8
----------------------------------------- --------- ------------ ----------- ----------
At 25 June 2023 (unaudited) 35.9 818.7 18.1 872.7
----------------------------------------- --------- ------------ ----------- ----------
During the period, the Group has capitalised internally
generated assets relating to software and website development costs
of GBP6.0m (26 weeks ended 26 June 2022: GBP4.0m and 52 weeks ended
25 December 2022: GBP10.7m). These assets are amortised using the
straight-line method over their estimated useful lives (3-5
years).
Publishing rights and titles are not amortised. There is
judgement required in continuing to adopt an indefinite life
assumption in respect of publishing rights and titles. The
directors consider publishing rights and titles (with a carrying
amount of GBP818.7m) have indefinite economic lives due to the
longevity of the brands and the ability to evolve them in an
ever-changing media landscape. The brands are central to the
delivery of the Customer Value Strategy which is delivering digital
revenue growth. This, combined with our inbuilt and relentless
focus on maximising efficiency, gives confidence that the delivery
of sustainable growth in revenue, profit and cash flow is
achievable in the future.
There is judgement required in determining the cash-generating
units. At each reporting date management review the interdependency
of revenues across our Publishing brands to determine the
appropriate cash-generating unit. The Group operates its Publishing
brands such that a majority of the revenues are interdependent and
revenue would be materially lower if brands operated in isolation.
As such, management do not consider that an impairment review at an
individual brand level is appropriate or practical. As the Group
continues to centralise revenue generating functions and has moved
to a matrix operating structure over the past few years all of the
individual brands in Publishing have increased revenue
interdependency and are assessed for impairment as a single
Publishing cash-generating unit.
The Group tests the carrying value of assets at the
cash-generating unit level for impairment annually or more
frequently if there are indicators that assets might be impaired.
The review is undertaken by assessing whether the carrying value of
assets is supported by their value-in-use which is calculated as
the net present value of future cash flows derived from those
assets, using cash flow projections. If an impairment charge is
required this is allocated first to reduce the carrying amount of
any goodwill allocated to the cash-generating unit and then to the
other assets of the cash-generating unit but subject to not
reducing any asset below its recoverable amount. No indicators have
been identified as at 25 June 2023. The last annual impairment test
was undertaken as at 25 December 2022. The details of the
impairment assessment are included in note 16 of the 2022 Annual
Report.
13. Retirement benefit schemes
Defined contribution pension schemes
The Group operates defined contribution pension schemes for
qualifying employees, where the assets of the schemes are held
separately from those of the Group in funds under the control of
Trustees.
The current service cost charged to the consolidated income
statement for the period of GBP8.7m ( 26 weeks ended 26 June 2022:
GBP9.0m and 52 weeks ended 25 December 2022: GBP18.1m) represents
contributions paid by the Group at rates specified in the scheme
rules. All amounts that were due have been paid over to the schemes
at all reporting dates.
Defined benefit pension schemes
Background
The defined benefit pension schemes operated by the Group are
all closed to future accrual. The Group has six defined benefit
pension schemes:
-- the MGN Pension Scheme (the 'MGN Scheme'), the Trinity
Retirement Benefit Scheme (the 'Trinity Scheme'), the Midland
Independent Newspapers Pension Scheme (the 'MIN Scheme'), the
Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the
Express Newspapers Senior Management Pension Fund (the 'ENSM
Scheme') and the West Ferry Printers Pension Scheme (the 'WF
Scheme').
Characteristics
The defined benefit pension schemes provide pensions to members,
which are based on the final salary pension payable, normally from
age 65 (although some schemes have some pensions normally payable
from an earlier age) plus surviving spouses or dependants' benefits
following a member's death. Benefits increase both before and after
retirement either in line with statutory minimum requirements or in
accordance with the scheme rules if greater. Such increases are
either at fixed rates or in line with retail or consumer prices but
subject to upper and lower limits. All of the schemes are
independent of the Group with assets held independently of the
Group. They are governed by Trustees who administer benefits in
accordance with the scheme rules and appropriate UK legislation.
The schemes each have a professional or experienced independent
Trustee as their Chairman with generally half of the remaining
Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across all of the schemes, the uninsured liabilities related 60%
to current pensioners and their spouses or dependants and 40% to
deferred pensioners. The average term from the period end to
payment of the remaining uninsured benefits is expected to be
around 12 years. Uninsured pension payments in 2022, excluding lump
sums and transfer value payments, were GBP73m and these are
projected on the prior reporting date assumptions to rise to an
annual peak in 2034 of GBP104m and reducing thereafter.
Funding arrangements
The funding of the Group's schemes is subject to UK pension
legislation as well as the guidance and codes of practice issued by
the Pensions Regulator. Funding targets are agreed between the
Trustees and the Group and are reviewed and revised usually every
three years. The funding targets must include a margin for prudence
above the expected cost of paying the benefits and so are different
to the liability value for IAS 19 purposes. The funding deficits
revealed by these triennial valuations are removed over time in
accordance with an agreed recovery plan and schedule of
contributions for each scheme. The latest completed valuation for
five of the Group's schemes was as at 31 December 2019, and the
process to determine the 31 December 2022 valuations has now
commenced.
Discussions in relation to the funding valuations of the MGN
Scheme at 31 December 2019 are ongoing. The funding valuation of
the MGN scheme at 31 December 2016 showed a deficit of GBP476.0m.
The Group paid contributions of GBP17.0m to the MGN Scheme in the
first half of 2023 and the current schedule of contributions
includes payments of GBP40.9m pa from 2023 to 2027.
The funding valuation of the Trinity Scheme at 31 December 2019
was agreed on 21 December 2022. This showed a deficit of GBP57.2m.
The Group paid contributions of GBP2.2m to this scheme in the first
half of 2023 and agreed an unchanged schedule of contributions of
payments of GBP5.2m pa from 2023 to 2027.
The funding valuation of the MIN Scheme at 31 December 2019 was
agreed after the year end on 3 February 2023. This showed a deficit
of GBP73.8m. The Group paid contributions of GBP2.9m to this scheme
in the first half of 2023 and the agreed schedule of contributions
features payments of GBP6.9m pa from 2023 to 2025, GBP7.8m pa in
2026 and 2027 and GBP8.6m pa in 2028 and 2029.
The funding valuations of the EN88 Scheme and ENSM Scheme at 31
December 2019 were agreed on 10 December 2021. For the EN88 Scheme
this showed a deficit of GBP25.1m. The Group paid contributions of
GBP1.2m to this scheme in the first half of 2023 and the agreed
schedule of contributions includes payments of GBP2.8m pa from 2023
to 2026 and GBP0.8m in 2027. During 2022, the Trustees of the ENSM
Scheme purchased a bulk annuity at no cost to the Group and the
scheme now has all pension liabilities covered by annuity policies
and no further funding is expected. The Group paid GBP9.6m to the
WF Scheme in 2021 which together with the payment of GBP5.0m made
in 2020 enabled the Trustees to purchase a bulk annuity and the
scheme now has all pension liabilities covered by annuity policies
and no further funding is expected.
Group contributions in respect of the defined benefit pension
schemes in the period were GBP23.3m (2022 H1: GBP23.0m). GBP32.5m
of Group contributions relating to these schemes are due to be paid
in the second half of the year.
At the prior year end, the funding deficits in all schemes were
expected to be removed before or around 2029 by a combination of
the contributions and asset returns. Contributions (which include
funding for pension administrative expenses) are payable monthly.
Contributions per the current schedule of contributions are
GBP55.8m pa in 2023 to 2025, GBP56.7m in 2026, GBP54.7m in 2027 and
GBP8.6m pa in 2028 and 2029.
The future deficit funding commitments are linked to the
three-yearly actuarial valuations. Although the funding commitments
do not generally impact the IAS 19 position, IFRIC 14 guides
companies to consider for IAS 19 disclosures whether any surplus
can be recognised as a balance sheet asset and whether any future
funding commitments in excess of the IAS 19 liability should be
provisioned for. Based on the interpretation of the rules for each
of the defined benefit pension schemes, the Group considers that it
has an unconditional right to any potential surplus on the ultimate
wind-up after all benefits to members have been paid in respect of
all of the schemes except the WF Scheme. Under IFRIC 14 it is
therefore appropriate to recognise any IAS 19 surpluses which may
emerge in future and not to recognise any potential additional
liabilities in respect of future funding commitments of all of the
schemes except for the WF Scheme. For the WF Scheme at the
reporting date, the assets are surplus to the IAS 19 benefit
liabilities and the impact of IFRIC 14 removes this surplus. As no
further contributions are expected to the WF Scheme, the Group no
longer recognises a deficit of its future deficit contribution
commitment to the scheme.
The calculation of Guaranteed Minimum Pension ('GMP') is set out
in legislation and members of pension schemes that were contracted
out of the State Earnings-Related Pension Scheme ('SERPS') between
6 April 1978 and 5 April 1997 will have built up an entitlement to
a GMP. GMPs were intended to broadly replicate the SERPS pension
benefits but due to their design they give rise to inequalities
between men and women, in particular, the GMP for a male comes into
payment at age 65 whereas for a female it comes into payment at the
age of 60 and GMPs typically receive different levels of increase
to non GMP benefits. On 26 October 2018, the High Court handed down
its judgement in the Lloyds Trustees vs Lloyds Bank plc and Others
case relating to the equalisation of member benefits for the gender
effects of GMP equalisation. This judgement creates a precedent for
other UK defined benefit schemes with GMPs. The judgement confirmed
that GMP equalisation was required for the period 17 May 1990 to 5
April 1997 and provided some clarification on legally acceptable
methods for achieving equalisation. An allowance for GMP
equalisation was first included within liabilities at 30 December
2018 and was recognised as a charge for past service costs in the
income statement. In 2020 further clarification was issued relating
to GMP equalisation in respect of transfers out of schemes and a
further allowance for GMP equalisation was included within
liabilities at 27 December 2020 and was recognised as a charge for
past service costs in the income statement. The estimate is subject
to change as we undertake more detailed member calculations, as
guidance is issued and/or as a result of future legal
judgements.
Risks
Valuations for funding and accounting purposes are based on
assumptions about future economic and demographic variables. This
results in the risk of a volatile valuation deficit and the risk
that the ultimate cost of paying benefits is higher than the
current assessed liability value.
The main sources of risk are:
-- investment risk: a reduction in asset returns (or assumed future asset
returns);
-- inflation risk: an increase in benefit increases (or assumed future
increases); and
-- longevity risk: an increase in average life spans (or assumed life
expectancy).
These risks are managed by:
-- investing in insured annuity policies: the income from these policies
exactly matches the benefit payments for the members covered, removing
all of the above risks. At the reporting date the insured annuity
policies covered 15% of total liabilities;
-- investing a proportion of assets in other classes such as government
and corporate bonds and in liability driven investments: changes in
the values of the assets aim to broadly match changes in the values
of the uninsured liabilities, reducing the investment risk, however
some risk remains as the durations of the bonds are typically shorter
than those of the liabilities and so the values may still move differently.
At the reporting date non-equity assets amounted to 94% of assets
excluding the insured annuity policies;
-- investing a proportion of assets in equities: with the aim of achieving
outperformance and so reducing the deficits over the long term. At
the reporting date this amounted to 6% of assets excluding the insured
annuity policies; and
-- the gradual sale of equities over time to purchase additional annuity
policies or liability matching investments: to further reduce risk
as the schemes, which are closed to future accrual, mature.
Pension scheme accounting deficits are snapshots at moments in
time and are not used by either the Group or Trustees to frame
funding policy. The Group and Trustees seek to be aligned in
focusing on the long-term sustainability of the funding policy
which aims to balance the interests of the Group's shareholders and
members of the schemes. The Group and Trustees also seek to be
aligned in reducing pensions risk over the long term and at a pace
which is affordable to the Group.
The EN88 Scheme, the ENSM Scheme, the Trinity Scheme and the WF
Scheme have an accounting surplus at the reporting date, before
allowing for the IFRIC 14 asset ceiling. Across the MGN Scheme and
the MIN Scheme, the invested assets are expected to be sufficient
to pay the uninsured benefits due up to 2041, based on the prior
reporting date assumptions. The remaining uninsured benefit
payments, payable from 2042, are due to be funded by a combination
of asset outperformance and the deficit contributions currently
scheduled to be paid up to 2027 for the MGN Scheme and 2029 for the
MIN Scheme. For the MGN Scheme and MIN Scheme, actuarial
projections at the prior reporting date show removal of the
accounting deficit by the end of 2026 for MGN and 2028 for MIN due
to scheduled contributions and asset returns at the target rate
assumed at the last reporting date. From this point, the assets are
projected to be sufficient to fully fund the liabilities on the
accounting basis. The Group is not exposed to any unusual, entity
specific or scheme specific risks. Other than the impact of Barber
Window equalisation adjustment in the prior period, there were no
plan amendments, settlements or curtailments which in the current
and prior period resulted in a pension cost.
Results
For the purposes of the Group's consolidated financial
statements, valuations have been performed in accordance with the
requirements of IAS 19 with scheme liabilities calculated using a
consistent projected unit valuation method and compared to the
estimated value of the scheme assets at 25 June 2023.
Based on actuarial advice, the assumptions used in calculating
the scheme liabilities are:
25 June 26 June 25 December
2023 2022 2022
GBPm GBPm GBPm
-------------------------------------------------- ---------------- ---------------- ----------------
Financial assumptions (nominal % pa)
Discount rate 5.38 3.72 4.90
Retail price inflation rate 3.29 3.40 3.29
Consumer price inflation rate 1.0% pa 1.0% pa 1.0% pa
lower than lower than lower than
RPI to RPI to RPI to
2030 and 2030 and 2030 and
equal to equal to equal to
RPI thereafter RPI thereafter RPI thereafter
Rate of pension increases in deferment 2.92 3.08 2.90
Rate of pension increases in payment 3.39 3.38 3.38
-------------------------------------------------- ---------------- ---------------- ----------------
Mortality assumptions - future life expectancies
from age 65 (years)
Male currently aged 65 21.3 21.8 21.6
Female currently aged 65 23.7 24.1 24.0
Male currently aged 55 20.9 21.5 21.3
Female currently aged 55 24.1 24.6 24.5
-------------------------------------------------- ---------------- ---------------- ----------------
The defined benefit pension liabilities are valued using
actuarial assumptions about future benefit increases and scheme
member demographics, and the resulting projected benefits are
discounted to the reporting date at appropriate corporate bond
yields. For the 2022 year-end and 2023 half year, the financial
assumptions have been derived as a yield curve with different rates
per year, with the figures in the tables above representing a
weighted average of these rates across all of the schemes. This is
considered to be a more robust and accurate approach to setting
assumptions as it allows for each scheme's individual
circumstances, rather than considering the schemes in aggregate as
has been done in the past.
The discount rate should be chosen to be equal to the yield
available on 'high quality' corporate bonds of appropriate term and
currency. For the 2022 year-end and 2023 half year, the discount
rate has been set to reflect the full corporate bond yield curve
with a different average assumption for each scheme, based on the
scheme-specific cash flows and set separately for uninsured and
insured liabilities within each scheme, reflecting their respective
durations.
The inflation assumptions are based on market expectations over
the period of the liabilities. For the 2022 year-end and 2023 half
year, the inflation assumptions have been set using the full
inflation curve. The RPI assumption is set based on the break-even
RPI inflation curve with a margin deducted. This margin, called an
inflation risk premium, reflects the fact that the RPI market
implied inflation curve can be affected by market distortions and
as a result it is thought to overstate the underlying market
expectations for future RPI inflation. Allowing for the extent of
RPI linkage on the schemes' benefits pre and post 2030, the average
inflation risk premium has been set at 0.2% per annum to 2030 and
0.4% per annum thereafter. The CPI assumption is set based on a
margin deducted from the RPI assumption, due to lack of market data
on CPI expectations. Following the UK Statistics Authority's
announcement of the intention to align RPI with CPIH from 2030 the
assumed gap between RPI and CPI inflation is 1.0% per annum up to
2030 and 0.0% per annum beyond 2030.
The estimated impacts on the IAS 19 liabilities and on the IAS
19 deficit at the reporting date, due to a reasonably possible
change in key assumptions over the next year, are set out in the
table below:
Effect on Effect on
liabilities deficit
GBPm GBPm
--------------------------------------------- ------------ ---------
Discount rate +/- 1.0% pa -175/+210 -155/+185
Retail price inflation rate +/- 0.5% pa +22/-22 +14/-14
Consumer price inflation rate +/- 0.5% pa +23/-21 +22/-20
Life expectancy at age 65 +/- 1 year +70/-70 +55/-60
--------------------------------------------- ------------ ---------
The RPI sensitivity impacts the rate of increases in deferment
for some of the pensions in the EN88 Scheme and the ENSM Scheme and
some of the pensions in payment for all schemes except the MGN
Scheme. The CPI sensitivity impacts the rate of increases in
deferment for some of the pensions in most schemes and the rate of
increases in payment for some of the pensions in payment for all
schemes.
The effect on the deficit is usually lower than the effect on
the liabilities due to the matching impact on the value of the
insurance contracts held in respect of some of the liabilities.
Each assumption variation represents a reasonably possible change
in the assumption over the next year but might not represent the
actual effect because assumption changes are unlikely to happen in
isolation. The estimated impact of the assumption variations makes
no allowance for changes in the values of invested assets that
would arise if market conditions were to change in order to give
rise to the assumption variation. If allowance were made, the
estimated impact would likely be lower as the values of invested
assets would normally change in the same directions as the
liability values.
The amounts included in the consolidated income statement,
consolidated statement of comprehensive income and consolidated
balance sheet arising from the Group's obligations in respect of
its defined benefit pension schemes are as follows:
Past service costs of GBP10.6m for the 52 weeks ended 25
December 2022 relates to a Barber Window equalisation adjustment
identified by the Trustees of the MGN Scheme during 2022. The
impact relates to the equalisation of retirement ages to 65, which
was previously implemented from 17 May 1990, rather than the date
of the Deed of Amendment of the Rules which was 4 April 1991.
26 weeks 26 weeks 52 weeks
ended
25 June ended ended
2023 (unaudited) 26 June 25 December
2022
GBPm 2022 (unaudited) (audited)
Consolidated income statement GBPm GBPm
------------------------------------------- ------------------- ------------------ --------------
Pension administrative expenses (2.6) (2.2) (4.2)
Past service costs - - (10.6)
Pension finance charge (3.1) (1.2) (2.3)
------------------------------------------- ------------------- ------------------
Defined benefit cost recognised in income
statement (5.7) (3.4) (17.1)
------------------------------------------- ------------------- ------------------ --------------
Consolidated statement of comprehensive income 26 weeks 26 weeks 52 weeks
ended
25 June ended ended
2023 (unaudited) 26 June 25 December
2022
GBPm 2022 (unaudited) (audited)
GBPm GBPm
Actuarial loss due to liability experience (16.9) (34.3) (60.1)
Actuarial gain due to liability assumption
changes 125.3 645.7 940.4
------------------------------------------------- ------------------- ------------------ --------------
Total liability actuarial gain 108.4 611.4 880.3
Returns on scheme assets less than discount
rate (116.7) (568.8) (915.9)
Impact of IFRIC 14 0.4 0.3 0.6
------------------------------------------------- ------------------- ------------------ --------------
Total (loss)/gain recognised in statement
of comprehensive income (7.9) 42.9 (35.0)
------------------------------------------------- ------------------- ------------------ --------------
Consolidated balance sheet 25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
------------------------------------------------- ------------------- ------------------ ------------
Present value of uninsured scheme liabilities (1,475.2) (1,836.7) (1,571.5)
Present value of insured scheme liabilities (268.4) (312.2) (288.5)
------------------------------------------------- ------------------- ------------------ ------------
Total present value of scheme liabilities (1,743.6) (2,148.9) (1,860.0)
------------------------------------------------- ------------------- ------------------ ------------
Invested and cash assets at fair value 1,334.8 1,746.8 1,421.8
Value of liability matching insurance contracts 268.4 312.2 288.5
------------------------------------------------- ------------------- ------------------ ------------
Total fair value of scheme assets 1,603.2 2,059.0 1,710.3
------------------------------------------------- ------------------- ------------------ ------------
Funded deficit (140.4) (89.9) (149.7)
Impact of IFRIC 14 (0.8) (1.5) (1.2)
------------------------------------------------- ------------------- ------------------ ------------
Net scheme deficit (141.2) (91.4) (150.9)
------------------------------------------------- ------------------- ------------------ ------------
Non- current assets - retirement benefit assets 56.4 94.4 51.2
Non- current liabilities - retirement benefit
obligations (197.6) (185.8) (202.1)
------------------------------------------------- ------------------- ------------------ ------------
Net scheme deficit (141.2) (91.4) (150.9)
------------------------------------------------- ------------------- ------------------ ------------
Net scheme deficit included in consolidated
balance sheet (141.2) (91.4) (150.9)
Deferred tax included in consolidated balance
sheet 34.8 22.3 37.0
------------------------------------------------- ------------------- ------------------ ------------
Net scheme deficit after deferred tax (106.4) (69.1) (113.9)
------------------------------------------------- ------------------- ------------------ ------------
Movement in net scheme deficit 26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 2022 (audited)
(unaudited) (unaudited) GBPm
GBPm GBPm
------------------------------------------------- ------------- ------------ -------------
Opening net scheme deficit (150.9) (153.9) (153.9)
Contributions 23.3 23.0 55.1
Consolidated income statement (5.7) (3.4) (17.1)
Consolidated statement of comprehensive income (7.9) 42.9 (35.0)
Closing net scheme deficit (141.2) (91.4) (150.9)
------------------------------------------------- ------------- ------------ -------------
Changes in the present value of scheme liabilities 26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 2022 (audited)
(unaudited) (unaudited) GBPm
GBPm GBPm
------------------------------------------------------ ------------- ------------ -------------
Opening present value of scheme liabilities (1,860.0) (2,788.4) (2,788.4)
Past service costs - - (10.6)
Interest cost (44.2) (25.0) (49.9)
Actuarial loss - experience (16.9) (34.3) (60.1)
Actuarial gain/(loss) - change to demographic
assumptions 32.2 (3.4) 6.7
Actuarial gain - change to financial assumptions 93.1 649.1 933.7
Benefits paid 52.2 53.1 108.6
Closing present value of scheme liabilities (1,743.6) (2,148.9) (1,860.0)
------------------------------------------------------ ------------- ------------ -------------
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 2022 (audited)
(unaudited) (unaudited) GBPm
Changes in impact of IFRIC 14 GBPm GBPm
------------------------------------------ ------------- ------------ -------------
Opening impact of IFRIC 14 (1.2) (1.8) (1.8)
Decrease in impact of IFRIC 14 0.4 0.3 0.6
Closing impact of IFRIC 14 (0.8) (1.5) (1.2)
------------------------------------------ ------------- ------------ -------------
26 weeks 26 weeks 52 weeks
ended ended ended
25 June 26 June 25 December
2022
2023 2022 (audited)
(unaudited) (unaudited) GBPm
Changes in the fair value of scheme assets GBPm GBPm
------------------------------------------------------- ------------- ------------ -------------
Opening fair value of scheme assets 1,710.3 2,636.3 2,636.3
Interest income at discount rate 41.1 23.8 47.6
Actual return on assets less than discount
rate (116.7) (568.8) (915.9)
Contributions by employer 23.3 23.0 55.1
Benefits paid (52.2) (53.1) (108.6)
Administrative expenses (2.6) (2.2) (4.2)
Closing fair value of scheme assets 1,603.2 2,059.0 1,710.3
------------------------------------------------------- ------------- ------------ -------------
Fair value of scheme assets 25 June 26 June 25 December
2022
2023 (unaudited) 2022 (audited)
GBPm (unaudited) GBPm
GBPm
----------------------------------------- ------------------ ------------ -------------
UK equities 9.8 53.5 27.5
US equities 27.5 159.7 48.5
Other overseas equities 38.2 102.1 28.4
Property 29.7 39.5 33.2
Corporate bonds 365.8 291.3 315.9
Fixed interest gilts 6.2 37.7 6.7
Index linked gilts - 13.9 -
Liability driven investment 587.8 564.6 816.5
Cash and other 269.8 484.5 145.1
----------------------------------------- ------------------ ------------ -------------
Invested and cash assets at fair value 1,334.8 1,746.8 1,421.8
Value of insurance contracts 268.4 312.2 288.5
----------------------------------------- ------------------ ------------ -------------
Fair value of scheme assets 1,603.2 2,059.0 1,710.3
----------------------------------------- ------------------ ------------ -------------
The assets of the schemes are primarily held in pooled
investment vehicles which are unquoted. The pooled investment
vehicles hold both quoted and unquoted investments. Scheme assets
include neither direct investments in the Company's ordinary shares
nor any property assets occupied nor other assets used by the
Group.
14. Net cash/(debt)
The net cash/(debt) for the Group is as follows:
IFRS 16 lease
liabilities
movement
---------------------------- ------------ ------- -----------------------
26 December Cash New Other 25 June
2022 flow Interest Leases movements 2023
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------ ------- ----------- --------- ------------ --------
Liabilities from financing
activities
Borrowings (15.0) - - - - (15.0)
Lease liabilities (31.7) 3.0 (0.5) (2.2) (0.1) (31.5)
(46.7) 3.0 (0.5) (2.2) (0.1) (46.5)
Current assets
Cash and cash equivalents 40.4 (28.9) - - - 11.5
---------------------------- ------------ ------- ----------- --------- ------------ --------
Net cash/(debt) less lease
liabilities (6.3) (35.0)
---------------------------- ------------ ------- ----------- --------- ------------ --------
Net cash/(debt) 25.4 (28.9) - - - (3.5)
---------------------------- ------------ ------- ----------- --------- ------------ --------
The Group has a revolving credit facility of GBP120.0m which
expires on 19 November 2026. The Group had drawings of GBP15.0m at
the reporting date and the facility is subject to two covenants:
Interest Cover and Net Debt to EBITDA, both of which were met at
the reporting date.
Deferred consideration is in respect of the acquisition of
Express & Star.
Payment of the first instalment of GBP18.9m was made on 28
February 2020. The second instalment of GBP16.0m was made on 28
February 2021, the third instalment of GBP17.1m was made on 28
February 2022 and the final instalment of GBP7.0m was made on 28
February 2023. At the reporting date, there was no deferred
consideration balance remaining.
15. Provisions
Share-based Historical
payments Property Restructuring legal Other Total
GBPm GBPm GBPm issues GBPm GBPm
GBPm
----------------------------- ------------ ----------- ---------------- ----------- -------- --------
At 26 December 2022
(audited) (0.9) (9.4) (6.6) (43.0) (3.0) (62.9)
Charged to income
statement (0.1) (0.1) (10.3) (5.9) (0.5) (16.9)
Released to income
statement 0.4 0.2 0.1 - - 0.7
Utilisation of provision 0.2 1.2 12.1 3.5 0.8 17.8
At 25 June 2023 (unaudited) (0.4) (8.1) (4.7) (45.4) (2.7) (61.3)
----------------------------- ------------ ----------- ---------------- ----------- -------- --------
The provisions have been analysed between current and
non-current as follows:
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
------------- ------------------- ------------------ ------------
Current (17.6) (28.4) (26.3)
Non-current (43.7) (40.6) (36.6)
------------- ------------------- ------------------ ------------
(61.3) (69.0) (62.9)
------------- ------------------- ------------------ ------------
The share-based payments provision relates to National Insurance
obligations attached to the future crystallisation of awards. This
provision will be utilised over the next three years.
The property provision relates to property related onerous
contracts and onerous committed costs related to occupied, let and
vacant properties. The provision will be utilised over the
remaining term of the leases or expected period of vacancy.
The restructuring provision relates to restructuring charges
incurred in the delivery of cost reduction measures. The balance at
the period end comprises severance costs of GBP2.6m and closure
costs relating to a print plant of GBP2.1m. The severance costs
provision is expected to be utilised within the next year. The
closure costs provision includes GBP0.1m expected to be utilised
within the next year and GBP2.0m expected to be utilised at the end
of a long-term print plant lease related to the print restructure
in 2020.
The historical legal issues provision relates to the cost
associated with dealing with and resolving civil claims in relation
to historical phone hacking and unlawful information gathering.
There are three parts to the provision: known claims, potential
future claims and common court costs. The key uncertainties in
relation to this matter relate to how many claims will be received,
how each claim progresses, the amount of any settlement and the
associated legal costs. Our assumptions have been based on
historical trends, our experience and the expected evolution of
claims and costs. The known and common costs part of the provision
is calculated using the most likely outcome method, with the
expected value method used for the potential claims provision.
During the first half of the year, the associated settlement
costs have been ahead of historical trends and experience. This has
resulted in a change to the provision estimate and a further charge
of GBP5.9m in the year. At the period end, a provision of GBP45.4m
remains outstanding and this represents the current best estimate
of the amount required to resolve this historical matter. The
majority of the provision is expected to be utilised within the
next three years.
Our view on the range of outcomes at the reporting date for the
provision, applying more and less favourable outcomes to all
aspects of the provision is GBP35m to GBP64m ( 26 June 2022: GBP32m
to GBP53m and 25 December 2022 : GBP32m to GBP56m) . However, it is
unknown how long it will take to fully resolve this matter and
despite making a best estimate of the provision, the timing of
utilisation and possible range, the total universe of claims is
unknown and there are both ongoing legal matters (including a trial
which commenced in May 2023 and finished on 30 June 2023 where we
expect a verdict from the trial at some point in the latter part of
2023) and the potential for new legal matters which could mean that
the final outcome is outside of the range of outcomes. Due to these
unquantifiable uncertainties, a contingent liability note has been
highlighted in note 17.
The other provision balance of GBP2.7m at the period end relates
to libel and other matters and is expected to be utilised over the
next two years.
16. Share capital and reserves
The share capital comprises 322,085,269 allotted, called-up and
fully paid ordinary shares of 10p each.
The share premium reflects the premium on issued ordinary
shares. The merger reserve comprises the premium on the shares
allotted in relation to the acquisition of Express & Star. The
capital redemption reserve represents the nominal value of the
shares purchased and subsequently cancelled under share buy-back
programmes.
The Company holds 4,314,917 shares (26 June 2022: 7,020,988
shares and 25 December 2022: 5,014,410 shares) as Treasury shares.
During the first half of the year, 699,493 shares were withdrawn
from Treasury to satisfy the vesting of awards granted in 2020
under the Reach Long Term Incentive Plan and buy-out awards granted
in 2023.
Cumulative goodwill written off to (accumulated loss)/retained
earnings and other reserves in respect of continuing businesses
acquired prior to 1998 is GBP25.9m (26 June 2022: GBP25.9m and 25
December 2022: GBP25.9m). On transition to IFRS, the revalued
amounts of freehold properties were deemed to be the cost of the
asset and the revaluation reserve has been transferred to
(accumulated loss)/retained earnings and other reserves.
Shares purchased by the Reach Employee Benefit Trust are
included in (accumulated loss)/retained earnings and other reserves
at GBP3.4m (26 June 2022: GBP5.0m and 25 December 2022: GBP3.9m).
In 2022 the Trust purchased 521,310 shares for a cash consideration
of GBP1.0m. The Trust received a payment of GBP1.0m from the
Company to purchase these shares. During the period, 1,025,833 were
released relating to grants made in prior years (26 June 2022:
1,118,050 and 25 December 2022: 2,621,142).
During the period, awards relating to 1,623,678 shares were
granted to executive directors on a discretionary basis under the
Long Term Incentive Plan (26 June 2022: 667,448 and 25 December
2022: 667,448). The exercise price of each award is GBP1 for each
block of awards granted. The awards vest after three years, subject
to the continued employment of the participant and satisfaction of
certain performance conditions, and are required to be held for a
further two years. During the period, awards relating to 394,666
were granted to an executive director under the Long Term Incentive
Plan representing a buy-out of awards that were forfeited on
joining the Group. The awards vest in line with the original
vesting dates of the forfeited awards, subject to the continued
employment up to the relevant vesting dates.
During the period, awards relating to 2,967,720 shares were
granted to senior managers on a discretionary basis under the Long
Term Incentive Plan under the Senior Management Incentive Plan (26
June 2022: 1,138,083 and 25 December 2022: 1,256,413). The exercise
price of each award is GBP1 for each block of awards granted. The
awards vest after three years, subject to the continued employment
of the participant and satisfaction of certain performance
conditions.
During the period, no awards relating to shares were granted to
executive directors under the Restricted Share Plan (26 June 2022
and 25 December 2022: 121,575). The awards vest after three
years.
17. Contingent liabilities
It is unknown how long it will take to fully resolve historical
legal issues set out in note 15 and despite making a best estimate
of the provision, the timing of utilisation and possible range, the
total universe of claims is unknown and there are both ongoing
legal matters (including a trial which commenced in May 2023 and
finished on 30 June 2023 where we expect a verdict from the trial
at some point in the latter part of 2023) and the potential for new
legal matters which could mean that the final outcome is outside
our view on the range of outcomes of GBP35m to GBP64m ( 26 June
2022: GBP32m to GBP53m and 25 December 2022 : GBP32m to GBP56m)
.
18. Reconciliation of statutory to adjusted results
26 weeks ended 25 June 2023 (unaudited)
Operating Pension
adjusted finance
Statutory items charge Adjusted
results (a) (b) results
GBPm GBPm GBPm GBPm
------------------------------ ------------- ----------- ---------- ------------
Revenue 279.4 - - 279.4
Operating profit 11.1 25.0 - 36.1
Profit before tax 6.7 25.0 3.1 34.8
Profit after tax 4.6 20.2 2.4 27.2
Basic earnings per share (p) 1.5 6.4 0.8 8.7
------------------------------ ------------- ----------- ---------- ------------
26 weeks ended 26 June 2022 (unaudited)
Operating Pension
adjusted finance
Statutory items charge Adjusted
results (a) (b) results
GBPm GBPm GBPm GBPm
------------------------------ -------------- ------------ ----------- -------------
Revenue 297.4 - - 297.4
Operating profit 34.5 12.7 - 47.2
Profit before tax 32.0 12.7 1.2 45.9
Profit after tax 25.2 11.2 1.0 37.4
Basic earnings per share (p) 8.1 3.6 0.3 12.0
------------------------------ -------------- ------------ ----------- -------------
52 weeks ended 25 December 2022 (audited)
Operating Pension
adjusted finance
Statutory items charge Adjusted
results (a) (b) results
GBPm GBPm GBPm GBPm
------------------------------ -------------- ------------ ----------- -------------
Revenue 601.4 - - 601.4
Operating profit 71.3 34.8 - 106.1
Profit before tax 66.2 34.8 2.3 103.3
Profit after tax 52.3 30.3 1.9 84.5
Basic earnings per share (p) 16.8 9.7 0.6 27.1
------------------------------ -------------- ------------ ----------- -------------
(a) Operating adjusted items relate to the items charged or
credited to operating profit as set out in note 5.
(b) Pension finance charge relating to the defined benefit
pension schemes as set out in note 13.
Set out in note 2 is the rationale for the alternative
performance measures adopted by the Group. The reconciliations in
this note highlight the impact on the respective components of the
income statement. Items are adjusted on the basis that they distort
the underlying performance of the business where they relate to
material items that can recur (including impairment, restructuring,
tax rate changes) or relate to historic liabilities (including
historical legal and contractual issues, defined benefit pension
schemes which are all closed to future accrual). Other items may be
included in adjusted items if they are not expected to recur in
future years, such as the property rationalisation in the previous
years and items such as transaction and restructuring costs
incurred on acquisitions or the profit or loss on the sale of
subsidiaries, associates or freehold buildings.
Provision for historical legal issues relates to the cost
associated with dealing with and resolving civil claims for
historical phone hacking and unlawful information gathering. This
is included in adjusted items as the amounts are material, it
relates to historical matters and movements in the provision can
vary year to year.
Impairments to non-current assets arise following impairment
reviews or where a decision is made to close or retire printing
assets. These non-cash items are included in adjusted items on the
basis that they are material and vary considerably each year,
distorting the underlying performance of the business.
The Group's defined benefit pension schemes are all closed to
new members and to future accrual and are therefore not related to
the current business. The pension administration expenses, the past
service costs and the pension finance charge are included in
adjusted items as the amounts are significant and they relate to
the historical pension commitment.
The opening deferred tax position is recalculated in the period
in which a change in the standard rate of corporation tax has been
enacted or substantively enacted by parliament or when a decision
is reversed. The impact of the change in rates are included in
adjusted items, on the basis that when they occur they are
material, distorting the underlying performance of the
business.
Included in adjusted items in 2023 are restructuring charges of
GBP10.2m, principally severance costs that relate to cost
management actions taken in the period. Other adjusted items
comprise the Group's legal fees in respect of historical legal
issues (GBP4.6m), adviser costs in relation to the triennial
funding valuations (GBP1.2m), internal pension administration
expenses (GBP0.3m) and corporate simplification costs (GBP0.2m),
less a reduction in National Insurance costs relating to share
awards (GBP0.4m) and the profit on sale of impaired assets
(GBP0.3m).
Included in adjusted items in 2022 are restructuring charges of
GBP5.4m, principally severance costs that relate to cost management
actions taken in the period. Other items relate to a National
Insurance Cost credit relating to share awards (GBP1.9m) and the
profit on sale of impaired assets (GBP0.4m) less adviser costs in
relation to the triennial funding valuations (GBP0.8m).
19. Adjusted cash flow
25 June 26 June 25 December
2022
2023 (unaudited) 2022 (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------------------------- ------------------- ------------------ ------------
Adjusted operating profit 36.1 47.2 106.1
Depreciation and amortisation 10.3 9.9 20.2
-------------------------------------------------- ------------------- ------------------
Adjusted EBITDA 46.4 57.1 126.3
Net interest and charges paid on bank borrowings (0.6) (0.9) (1.8)
Income tax received/(paid) 0.5 (4.0) (5.0)
Restructuring payments (12.1) (4.0) (13.8)
Net capital expenditure (7.2) (6.7) (13.3)
Net interest paid on leases (0.2) (0.5) (1.1)
Finance lease receipts 0.6 - -
Repayment of obligation under leases (2.5) (2.3) (5.6)
Working capital and other (6.0) 0.5 (20.9)
-------------------------------------------------- ------------------- ------------------
Adjusted operating cash flow 18.9 39.2 64.8
Historical legal issues payments (3.5) (6.1) (9.0)
Dividends paid (14.0) (13.9) (22.9)
Purchase of own shares - (1.0) (1.0)
Pension funding payments (23.3) (23.0) (55.1)
Adjusted net cash flow (21.9) (4.8) (23.2)
Bank facility drawdown - - 15.0
Acquisition-related cash flows (7.0) (17.1) (17.1)
------------
Net decrease in cash and cash equivalents (28.9) (21.9) (25.3)
-------------------------------------------------- ------------------- ------------------ ------------
20. Reconciliation of statutory to adjusted cash flow
26 weeks ended 25 June
2023 2023 2023
Statutory (a) (b) Adjusted
GBPm GBPm GBPm GBPm
-------------------------------- ---------- ------ ------ ---------
Cash flows from operating
activities
Adjusted operating
Cash generated from operations 24.8 (9.4) 3.5 18.9 cash flow
Pension deficit funding
payments (23.3) - - (23.3) Pension funding payments
Historical legal issues
- (3.5) (3.5) payments
Income tax received 0.5 (0.5) - -
-------------------------------- ----------
Net cash inflow from operating
activities 2.0
-------------------------------- ----------
Investing activities
Net interest and charges
Interest received 0.3 (0.3) - - paid on bank borrowings
Proceeds on disposal of
property, plant and equipment 0.5 (0.5) - - Net capital expenditure
Purchases of property,
plant and equipment (1.7) 1.7 - - Net capital expenditure
Expenditure on internally
generated development (6.0) 6.0 - - Net capital expenditure
Net interest paid
Interest received on leases 0.3 (0.3) - - on leases
Finance lease receipts 0.6 (0.6) - -
Deferred consideration Acquisition related
payment (7.0) - - (7.0) cash flow
Net cash used in investing
activities (13.0)
Financing activities
Interest and charges paid Net interest and charges
on bank borrowings (0.9) 0.9 - - paid on bank borrowings
Dividends paid (14.0) - - (14.0) Dividends paid
Net interest paid
Interest paid on leases (0.5) 0.5 - - on leases
Repayments of obligations
under leases (2.5) 2.5 - -
Net cash used in financing
activities (17.9)
-------------------------------- ---------- ------ ------ ---------
Net decrease in cash and
cash equivalents (28.9) - - (28.9)
-------------------------------- ---------- ------ ------ ---------
(a) Items included in the statutory cash flow on separate lines
which for the adjusted cash flow are included in adjusted operating
cash flow.
(b) Payments in respect of historical legal issues are shown
separately in the adjusted cash flow.
26 weeks ended 26 June
2022 2022 2022
Statutory (a) (b) Adjusted
GBPm GBPm GBPm GBPm
-------------------------------- ---------- ------- ------ ---------
Cash flows from operating
activities
Adjusted operating
Cash generated from operations 47.5 (14.4) 6.1 39.2 cash flow
Pension deficit funding
payments (23.0) - - (23.0) Pension funding payments
Historical legal issues
- (6.1) (6.1) payments
Income tax paid (4.0) 4.0 - -
-------------------------------- ----------
Net cash inflow from operating
activities 20.5
-------------------------------- ----------
Investing activities
Proceeds on disposal of
property, plant and equipment 0.4 (0.4) - - Net capital expenditure
Purchases of property,
plant and equipment (3.1) 3.1 - - Net capital expenditure
Expenditure on internally
generated development (4.0) 4.0 - - Net capital expenditure
Deferred consideration Acquisition related
payment (17.1) - - (17.1) cash flow
Net cash used in investing
activities (23.8)
Financing activities
Dividends paid (13.9) - - (13.9) Dividends paid
Interest and charges paid
on bank borrowings (0.9) 0.9 - -
Purchase of own shares (1.0) - - (1.0) Purchase of own shares
Interest paid on leases (0.5) 0.5 - -
Repayments of obligations
under leases (2.3) 2.3 - -
Net cash used in financing
activities (18.6)
-------------------------------- ---------- ------- ------ ---------
Net decrease in cash and
cash equivalents (21.9) - - (21.9)
-------------------------------- ---------- ------- ------ ---------
(a) Items included in the statutory cash flow on separate lines
which for the adjusted cash flow are included in adjusted operating
cash flow.
(b) Payments in respect of historical legal issues are shown
separately in the adjusted cash flow.
Statutory Adjusted
52 weeks ended 25 December 2022 (a) (b) 2022
2022 GBPm GBPm GBPm GBPm
Cash flows from operating
activities
Adjusted operating
Cash generated from operations 80.1 (24.3) 9.0 64.8 cash flow
Pension deficit funding
payments (55.1) - - (55.1) Pension funding payments
Historical legal issues
- - (9.0) (9.0) payments
Income tax paid (5.0) 5.0 - -
----------------------------------- ----------
Net cash inflow from operating
activities 20.0
----------------------------------- ----------
Investing activities
Net interest and charges
Interest received 0.1 (0.1) - - paid on bank borrowings
Dividends received from
associated undertakings 2.5 (2.5) - -
Proceeds on disposal of
property, plant and equipment 0.4 (0.4) - - Net capital expenditure
Purchases of property,
plant and equipment (3.0) 3.0 - - Net capital expenditure
Expenditure on capitalised
internally generated development (10.7) 10.7 - - Net capital expenditure
Deferred consideration Acquisition-related
payment (17.1) - - (17.1) cash flow
Net cash used in investing
activities (27.8)
Financing activities
Interest and charges paid Net interest and charges
on borrowings (1.9) 1.9 - - paid on bank borrowings
Dividends paid (22.9) - - (22.9) Dividends paid
Interest paid on leases (1.1) 1.1 - -
Repayment of obligations
under leases (5.6) 5.6 - -
Purchase of own shares (1.0) - - (1.0) Purchase of own shares
Drawdown of borrowings 15.0 - - 15.0 Bank facility drawdown
Net cash used in financing
activities (17.5)
----------------------------------- ---------- ------- ------ ---------
Net decrease in cash and
cash equivalents (25.3) - - (25.3)
----------------------------------- ---------- ------- ------ ---------
(a) Items included in the statutory cash flow on separate lines
which for the adjusted cash flow are included in adjusted operating
cash flow.
(b) Payments in respect of historical legal issues are shown
separately in the adjusted cash flow.
Independent review report to Reach plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Reach plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
Interim Results of Reach plc for the 26 week period ended 25 June
2023 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the consolidated balance sheet as at 25 June 2023;
-- the consolidated income statement and the consolidated statement of
comprehensive income for the period then ended;
-- the consolidated cash flow statement for the period then ended;
-- the consolidated statement of changes in equity for the period then
ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
of Reach plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the Interim Results, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results based on our review.
Our conclusion, including our Conclusions relating to going
concern, is based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
25 July 2023
LEI: 213800GNI5XF3XOATR61
Classification: 1.2 Half yearly financial reports and audit
reports/limited reviews
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END
IR VZLFLXDLBBBV
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July 25, 2023 02:00 ET (06:00 GMT)
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