Annual Results for 52 weeks ended 30 December 2018

Notes to the consolidated financial statements 

for the 52 weeks ended 30 December 2018 (52 weeks ended 31 December 2017)

1.         General information

The financial information in the Annual Results Announcement is derived from but does not represent the full statutory accounts of Reach plc. The statutory accounts for the 52 weeks ended 31 December 2017 have been filed with the Registrar of Companies and those for the 52 weeks ended 30 December 2018 will be filed following the Annual General Meeting on 2 May 2019. The auditors' reports on the statutory accounts for the 52 weeks ended 31 December 2017 and for the 52 weeks ended 30 December 2018 were unqualified, do not include reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying the reports and do not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Whilst the financial information included in this Annual Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Annual Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The Annual Report for the 52 weeks ended 30 December 2018 will be available on the Company's website at www.reachplc.com and at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP on 26 February 2019 and will be sent to shareholders who have elected to receive a hard copy with the documents for the Annual General Meeting to be held on 2 May 2019.

The financial information has been prepared for the 52 weeks ended 30 December 2018 and the comparative period has been prepared for the 52 weeks ended 31 December 2017. Throughout this report, the financial information for the 52 weeks ended 30 December 2018 is referred to and headed 2018 and for the 52 weeks ended 31 December 2017 is referred to and headed 2017. The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like for like basis as described on page 2.

2.         Accounting polices

Basis of preparation

The financial information has been prepared in accordance with IFRS as adopted by the European Union. These are subject to ongoing amendment by the International Accounting Standards Board and by the European Union and are therefore subject to change. As a result, the financial information contained herein will need to be updated for any subsequent amendment to IFRS or any new standards that are issued. The financial information has been prepared under the historical cost convention as modified by the revaluation of freehold properties which on transition to IFRS were deemed to be the cost of the asset and for derivative financial instruments and shared-based payments that have been measured at fair value.

The accounting policies used in the preparation of the consolidated financial statements for the 52 weeks ended 30 December 2018 have been consistently applied to all the periods presented except for the changes in accounting policy noted below and are set out in the Reach plc 2018 Annual Report. These consolidated financial statements have been prepared on a going concern basis as set out in the Management Report in this Annual Results Announcement.

Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial statements as applied in the Group's latest annual consolidated financial statements.

The adoption of IFRS 9 (Amended) 'Financial Instruments' and IFRS 15 (Issued) 'Revenue from Contracts with Customers' has had no material impact on the Group. The latest assessment of the impact of IFRS 16 (Issued) 'Leases' (effective for periods beginning on or after 1 January 2019) revealed that, when adopted based on the operating leases at the reporting date, fixed assets and lease obligations of around £45 million would be recognised on the consolidated balance sheet with no material impact on operating profit as operating lease costs would be replaced with an equivalent depreciation and interest charge in the consolidated income statement.

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

·       IFRS 4 (Amended) 'Applying Insurance Contracts'

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

·       IAS 40 (Amended) 'Investment Property'

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

·       Annual improvements 2014 - 2016 cycle

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

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

·       IFRS 9 (Amended) 'Financial Instruments'

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

·       IAS 19 (Amended) 'Employee Benefits'*

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

·       Annual improvements 2015 - 2017 cycle*

 

 

Key sources of estimation uncertainty

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

Provisions (notes 8, 15 and 19)

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

Retirement benefits (note 14)

Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. An estimate of the allowance for GMP equalisation of £15.8 million has been included within liabilities at 30 December 2018 and is subject to change as more detailed member calculations are undertaken and could change as a result of future legal judgements. 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 a long-term equity and debt mix based on the period end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times. In calculating leverage of 2.5 times, the Group assumes that pension obligations are treated as debt. The leverage calculation for the Group's financing facilities excludes pension obligations.

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:

Identification of cash-generating units (note 12)

There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our portfolio of newspapers and websites to determine the appropriate cash-generating unit. The Group operates its newspaper titles and websites such that the majority of the revenues are interdependent and revenue would be materially lower if titles and websites operated in isolation. As such, management do not consider that an impairment review at an individual title or website 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 titles and websites in Publishing have increased revenue interdependency and the number of cash-generating units has reduced.

Identification of intangible assets acquired in business combinations (note 20)

Significant judgement is involved in respect of the identification of intangible assets acquired in business combinations, such as publishing rights and titles, and in calculating their fair values. These judgements impact the amount of goodwill recognised on acquisitions. This involves consideration of the intangible assets acquired and the selection and application of a suitable valuation method and associated assumptions such as the discount rate and the useful economic life attributed to the assets. The Group has sufficient experience of valuations techniques and therefore performs the valuations internally.

Determination of the acquisition date in business combinations (note 35)

The directors have applied judgement with respect to the acquisition date relating to the Express & Star acquisition. The acquisition of the UK publishing assets was completed on 28 February 2018. Post completion, a merger review was instigated by the Competition and Markets Authority ('CMA') and the transaction was also reviewed by the Secretary of State for Digital, Culture, Media and Sport ('Secretary of State') for public interest considerations. On 20 June 2018 the acquisition was cleared by the Secretary of State and the CMA. The directors have concluded that the benefits of ownership had passed on the date the acquisition completed, that the acquisition date was 28 February 2018 and the acquisition has been included in the consolidated financial statements from 1 March 2018.

 

 

3.         Operating segments

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

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

Segment revenue and results

52 weeks ended 30 December 2018	Publishing 2018 £m	Printing 2018 £m	Specialist Digital 2018 £m	Central 2018 £m	Total 2018 £m
Revenue
Segment sales	679.0	157.2	8.3	1.3	845.8
Inter-segment sales	-	(121.6)	(0.3)	-	(121.9)
Total revenue	679.0	35.6	8.0	1.3	723.9
Segment result	153.8	-	2.1	(10.3)	145.6
Operating adjusted items					(253.2)
Operating loss					(107.6)
Investment revenues					0.1
Pension finance charge					(8.6)
Finance costs					(3.8)
Loss before tax					(119.9)
Tax charge					0.3
Loss for the period					(119.6)

 

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

 

 

4.         Revenue

	2018 £m	2017 £m
Publishing Print	575.4	494.6
Circulation	362.1	284.7
Advertising	176.7	177.6
Other	36.6	32.3
Publishing Digital	103.6	83.9
Display and transactional	91.3	68.7
Classified	12.3	15.2
Printing	35.6	31.6
Specialist Digital	8.0	9.6
Central	1.3	3.5
Total revenue	723.9	623.2

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

	2018 £m	2017 £m
UK and Republic of Ireland	721.9	621.5
Continental Europe	1.8	1.6
Rest of World	0.2	0.1
Total revenue	723.9	623.2

5.         Operating adjusted items

	2018 £m	2017 £m
Impairment of goodwill, publishing rights and titles and freehold buildings (note 12)	(200.0)	-
Pension past service costs for GMP equalisation and administrative expenses (note 14)	(18.8)	(1.0)
Provision for historical legal issues (note 15)	(12.5)	(10.5)
Restructuring charges in respect of cost reduction measures (note 15)	(20.0)	(12.6)
Other (a)	(1.6)	(2.3)
Operating adjusted items included in administrative expenses	(252.9)	(26.4)
Operating adjusted items included in share of results of associates (b)	(0.3)	(0.4)
Total operating adjusted items	(253.2)	(26.8)

(a)   Other includes: amortisation of intangible assets of 0.2 million (2017: £0.3 million - note 12), transaction costs of £6.3 million (2017: £2.2 million - note 20), profit on disposal of property of £2.3 million with total net proceeds of £6.6 million less carrying value of £4.3 million (2017: £0.2 million), charge relating to property carrying value of £0.8 million (2017: nil) and profit on disposal of subsidiary undertaking of £3.4 million (2017: nil - note 21).

(b)   Group's share of restructuring costs and amortisation incurred by PA Group partially offset by the profit on disposal of a trade by Brand Events.

 

 

6.         Investment revenues

	2018 £m	2017 £m
Interest income on bank deposits and other interest receipts	0.1	0.1

7.         Finance costs

	2018 £m	2017 £m
Interest on bank overdrafts and borrowings	(3.8)	(2.3)
Total interest expense	(3.8)	(2.3)
Fair value loss on derivative financial instruments	-	(3.8)
Foreign exchange gain on retranslation of borrowings	-	1.9
Finance costs	(3.8)	(4.2)

8.         Tax

	2018 £m	2017 £m
Corporation tax charge for the period	(17.2)	(17.4)
Prior period adjustment	-	(0.4)
Current tax charge	(17.2)	(17.8)
Deferred tax credit/(charge) for the period	17.5	(1.2)
Prior period adjustment	-	(0.1)
Deferred tax credit/(charge)	17.5	(1.3)
Tax credit/(charge)	0.3	(19.1)
Reconciliation of tax credit/(charge)	%	%
Standard rate of corporation tax	19.0	(19.3)
Tax effect of items that are not deductible in determining taxable profit	(19.5)	(3.6)
Tax effect of items that are not taxable in determining taxable profit	0.7	-
Prior period adjustment	-	(0.5)
Tax effect of share of results of associates	0.1	0.1
Tax credit/(charge) rate	0.3	(23.3)

 

The standard rate of corporation tax for the period is 19% (2017: blended rate of 19.25% being a mix of 20% up to 31 March 2017 and 19% from 1 April 2017). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax liabilities amounted to £4.5 million (2017: £7.7 million) at the reporting date and include net provisions of £1.3 million (2017: £3.2 million). At the reporting date the maximum tax exposure relating to uncertain tax items is some £7 million (2017: £7 million).

The tax on actuarial gains on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a credit of £0.8 million comprising a deferred tax credit of £8.7 million and a current tax charge of £7.9 million (2017: charge of £10.5 million comprising a deferred tax charge of £15.5 million and a current tax credit of £5.0 million).

 

 

9.         Dividends

	2018 Pence per share	2017 Pence per share
Dividends paid per share and recognised as distributions to equity holders in the period	5.92	5.60
Dividend proposed per share but not paid nor included in the accounting records	3.77	3.55

The Board proposes a final dividend for 2018 of 3.77 pence per share. An interim dividend for 2018 of 2.37 pence per share was paid on 28 September 2018 bringing the total dividend in respect of 2018 to 6.14 pence per share. The 2018 final dividend payment is expected to amount to £11.2 million.

On 3 May 2018 the final dividend proposed for 2017 of 3.55 pence per share was approved by shareholders at the Annual General Meeting and was paid on 8 June 2018.

Total dividends paid in 2018 were £17.5 million (2017 final dividend payment of £10.5 million and 2018 interim dividend payment of £7.0 million).

10.        Earnings per share

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

 

	2018 Thousand	2017 Thousand
Weighted average number of ordinary shares for basic earnings per share	291,478	272,730
Effect of potential dilutive ordinary shares in respect of share awards	1,571	1,481
Weighted average number of ordinary shares for diluted earnings per share	293,049	274,211

On 28 February 2018, the Company issued 25,826,746 ordinary shares in connection with the acquisition of Express & Star (note 20). The weighted average number of potentially dilutive ordinary shares not currently dilutive was 3,964,133 (2017: 3,201,611).

Statutory (loss)/earnings per share	2018 Pence	2017 Pence
(Loss)/earnings per share - basic	(41.0)	23.0
(Loss)/earnings per share - diluted	(41.0)	22.9

 

Adjusted earnings per share	2018 Pence	2017 Pence
Earnings per share - basic	39.2	36.1
Earnings per share - diluted	39.0	35.9

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

11.        Notes to the consolidated cash flow statement

	2018 £m	2017 £m
Operating (loss)/profit	(107.6)	97.9
Depreciation of property, plant and equipment	22.3	20.4
Impairment charge	200.0	-
Amortisation of intangible assets	0.2	0.3
Share of results of associates	(0.8)	(0.4)
Charge for share-based payments	1.0	0.5
Profit on disposal of land and buildings	(1.5)	(0.2)
Profit on disposal of subsidiary undertaking	(3.4)	-
Research and development tax credit	-	(1.0)
Write-off of fixed assets	0.5	1.9
Pension administrative expenses	3.0	1.0
Pension past service costs	15.8	-
Operating cash flows before movements in working capital	129.5	120.4
Decrease in inventories	0.1	0.9
Increase in receivables	(2.9)	-
Increase/(decrease) in payables	11.1	(14.5)
Cash generated from operations	137.8	106.8

 

 

 

12.        Goodwill and other intangible assets

The Group had four cash-generating units at the beginning of the year (Nationals and Regionals in Publishing and Digital Classified Recruitment and Digital Marketing Services in Specialist Digital). This increased to five cash-generating units after completion of the acquisition of Express & Star (note 20) which is included in Publishing and then reduced to four cash-generating units after the disposal of the Digital Marketing Services business (note 21). During the year it was recognised that the cash inflows of the Nationals and Regionals cash-generating units were largely interdependent such that they have been combined into a single cash-generating unit. The increase in the interdependency has been accelerated due to the increased scale of advertising packages sold across all titles and websites and reflects the groupwide nature of our wholesale and distribution contracts. At the year end the Group had three cash-generating units (Publishing excluding Express & Star, Express & Star and Digital Classified Recruitment).

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

	Goodwill £m	Publishing rights and titles £m	Customer relationships and domain names £m	Total  intangible assets £m
Opening carrying value	102.0	798.9	0.3	901.2
Acquisition of subsidiary undertaking (note 20)	35.9	106.1	-	142.0
Amortisation	-	-	(0.2)	(0.2)
Disposal of subsidiary undertaking (note 21)	(3.4)	-	(0.1)	(3.5)
Impairment	(92.5)	(95.0)	-	(187.5)
Closing carrying value	42.0	810.0	-	852.0

Goodwill of £42.0 million comprises Express & Star £35.9 million and Digital Classified Recruitment £6.1 million. Publishing rights and titles comprises Publishing excluding Express & Star £703.9 million and Express & Star £106.1 million. Given the acquisition completed on 28 February 2018, the Express & Star balances are considered provisional under IFRS 3 (note 20).

The directors consider publishing rights and titles (with a carrying amount of £810.0 million) have indefinite economic lives due to the longevity of the brands and the ability to evolve the brands in an ever changing media landscape. There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our portfolio of newspapers and websites to determine the appropriate cash-generating unit. The Group operates its newspaper titles and websites such that the majority of the revenues are interdependent and revenue would be materially lower if titles and websites operated in isolation. As such, management do not consider that an impairment review at an individual title or website level is appropriate or practical.

The Group tests the carrying value of assets at the cash-generating unit level for impairment at each reporting date or more frequently if there are indications that assets might be impaired. The review is undertaken by assessing whether the carrying value of assets is supported by their value in use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount.

The Group prepared cash flow projections for a cash-generating unit using the budget for 2019 and projections for 2020 and 2021. The growth rates for the three-year period are internal projections based on both internal and external market information and reflect past experience of and the risk associated with each asset. Cash flow projections beyond 2021 are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates for the relevant markets. The long-term growth rates are based on the Board's view of the cash-generating unit's market position and maturity of the relevant market. The long-term growth rates for Publishing excluding Express & Star is -2.0% (2017: Nationals 0% and Regionals -1% with a weighted average combined decline of -0.4%), for Express & Star is -2.0% and for Digital Classified Recruitment is -1.0% (2017: 0%).

The post-tax discount rate used at the reporting date in respect of all cash-generating units is11.0% (2017: 10.5%) reflecting a long-term equity and debt mix based on the period end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times. In calculating leverage of 2.5 times the Group assumes that pension obligations are treated as debt. Although we use a leverage of 2.5 times which is higher than that permissible by the Group's financing facilities, the Group's financing facilities exclude pension obligations in calculating leverage. The equivalent pre-tax discount rate is 13.4% (2017: 12.8%).  

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

At the interim we performed a full impairment review. As part of this the future long-term growth rate for the then Regionals cash-generating unit was reduced to -2% from -1% at the 2017 year end. This reflected a more challenging than expected trading environment, in particular local print advertising and lower digital growth. Lower than expected digital growth was a combination of digital revenue upsold from print being impacted by declining print revenues and by a change in the algorithms by both Facebook and Google early in 2018 which impacted digital audience growth and therefore revenue. We continue to believe that there are significant longer term benefits of our scale local digital audiences and there are opportunities to grow revenue and profit in the longer term. A £150.0 million impairment charge was reflected in the interim results. The combination of the Regionals and Nationals cash-generating units was recognised following the impairment charge being recorded.

At the reporting date we performed a full impairment review. In this review the discount rate was increased from 10.5% to 11.0% reflecting increased volatility and the long-term growth rate used for the Publishing cash-generating units was set at -2.0%, in line with that used for Regionals in the interim review. The changes in the assumptions together with consideration of the impact of the uncertainties created by the process of the UK exiting the European Union which may have an impact in the short term resulted in an impairment charge of £50.0 million in respect of the Publishing excluding Express & Star cash-generating unit.
 

The total impairment charge for the year is £200.0 million (£187.1 million net of deferred tax). The charge has been allocated to goodwill (£92.5 million), publishing rights and titles (£95.0 million) and freehold buildings (£12.5 million).

The impairment review is highly sensitive to reasonably possible changes in key assumptions used in the value in use calculations. Reasonably possible changes in key assumptions used in the value in use calculations would have the following impact on the Publishing excluding Express & Star cash-generating unit:

·       In the short term, assuming that revenue declines are materially in line with our projections, the key assumption driving the value in use calculated is the ability to deliver cost savings targets to protect profitability. The Group has a strong track record in delivering these savings. Notwithstanding this, if EBITDA in 2021 (being the final year before the perpetuity factor) was £5 million lower in the Publishing excluding Express & Star cash-generating unit this would have increased the impairment charge by £33 million.

·       In the medium to long term, the key assumption that drives value in use is the ability to generate digital revenue growth as the structural change in the industry continues. If digital revenue in 2021 (being the final year before the perpetuity factor) was £5 million or 2% below forecast in the Publishing excluding Express & Star cash-generating unit this would have increased the impairment charge by £33 million.

·       The structural challenges faced are currently more acute in locally sourced rather than nationally sourced print revenues. This also impacts digital revenue upsold from print which is impacted by declining print revenues. Digital growth can also be impacted by factors such as the impact seen by a change in the algorithms by both Facebook and Google early in 2018 which impacted digital audience growth. With the uncertainty in the pace of decline of print advertising and of growth in digital revenue, the long-term decline in the Publishing excluding Express & Star cash-generating unit is -2.0% which compares to a weighted average combined decline of -0.4% at the prior year end and -0.6% at the interim review. A further 0.5% increase in the long-term decline to -2.5% would have increased the impairment charge by £32 million.

·       An increase of 0.5 percentage points in the post-tax discount rate from 11.0% to 11.5% would have increased the impairment charge by £34 million.

A combination of reasonably possible changes in key assumptions relating to the Publishing excluding Express & Star cash-generating unit, such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected or the scale of cost saving initiatives being delivered in the short term being lower than forecast, would lead to a further future impairment in the Publishing excluding Express & Star cash-generating unit. For the Express & Star and Digital Classified Recruitment cash-generating units, reasonably possible changes in key assumptions used in the value in use calculations would not result in an impairment charge.

13.        Net debt

The net debt for the Group is as follows:

	31 December 2017 £m	Cash flow £m	Loans drawn £m	Loans repaid £m	Transfer to current £m	30 December 2018 £m
Non-current liabilities
Acquisition Term Loan	-	-	(60.0)	-	20.3	(39.7)
	-	-	(60.0)	-	20.3	(39.7)
Current liabilities
Acquisition Term Loan	-	-	(10.0)	10.0	(20.3)	(20.3)
Revolving Credit Facility	(25.0)	-	(10.0)	35.0	-	-
	(25.0)	-	(20.0)	45.0	(20.3)	(20.3)
Debt	(25.0)		(80.0)	45.0	-	(60.0)
Current assets
Cash and cash equivalents	16.0	(31.8)	80.0	(45.0)	-	19.2
Cash and cash equivalents	16.0	(31.8)	80.0	(45.0)	-	19.2
Net debt	(9.0)	(31.8)	-	-	-	(40.8)

Net debt at the end of the year comprised £60.0 million drawings on the Acquisition Term Loan ('ATL') less cash balances of £19.2 million. The Group had no drawings at the end of the year on the Revolving Credit Facility ('RCF').

A new £75 million ATL was procured in February 2018 and £70 million was drawn to partially fund the acquisition of the UK publishing assets (note 20) which together with a drawing on the Group's RCF and cash balances were used to fund the initial consideration to the seller and the initial pension contribution to the defined benefit pension schemes. The remaining £5 million was available for completion of the acquisition of the Ireland publishing assets (note 20). On 27 July 2018, the Group prepaid the £10 million repayment due under the ATL in December 2018 and on 10 October 2018 cancelled the undrawn £5 million. The outstanding £60 million drawn on the facility is repayable in three instalments of £20.3 million, £20.3 million and £19.4 million in December 2019, 2020 and 2021 respectively.

The Group also has access to an undrawn £83.3 million amortising RCF which is committed until December 2021. The RCF amortises by £8.33 million every six months from June 2019 to December 2020 down to £50.0 million for the last year of the term.

 

 

14.        Retirement benefit schemes

Defined contribution pension schemes

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

The current service cost charged to the consolidated income statement for the year of £14.9 million (2017: £13.6 million) represents contributions paid by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.

Defined benefit pension schemes

Background

The defined benefit pension schemes operated by the Group are all closed to future accrual. The Group has six defined benefit pension schemes:

·       Trinity Mirror schemes (the 'TM Schemes'): the MGN Pension Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN Scheme'); and

·       Express & Star schemes (the 'E&S Schemes'): the Express Newspapers 1988 Pension Fund (the 'EN88 Scheme'), the Express Newspapers Senior Management Pension Fund (the 'ENSM Scheme') and the West Ferry Printers Pension Scheme (the 'WF Scheme').

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

Characteristics

The defined benefit pension schemes provide pensions to members, which are based on the final salary pension payable, normally from age 65 (although some schemes have some pensions normally payable from an earlier age) plus surviving spouses or dependants benefits following a member's death. Benefits increase both before and after retirement either in line with statutory minimum requirements or in accordance with the scheme rules if greater. Such increases are either at fixed rates or in line with retail or consumer prices but subject to upper and lower limits. All of the schemes are independent of the Group with assets held independently of the Group. They are governed by Trustees who administer benefits in accordance with the scheme rules and appropriate UK legislation. The schemes each have a professional or experienced independent trustee as their chairman with generally half of the remaining Trustees nominated by the members and half by the Group.

Maturity profile and cash flow

Across all of the schemes, the uninsured liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners. The average term from the year end to payment of the remaining uninsured benefits is expected to be around 19 years. Uninsured pension payments in 2018, excluding lump sums and transfer value payments, were £64 million and these are projected to rise to an annual peak in 2031 of £101 million and reducing thereafter.

Funding arrangements

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

The funding valuations of the schemes have all been agreed in the last 15 months. The valuations at 31 December 2016 showed deficits of £476.0 million for the MGN Scheme, £78.0 million for the Trinity Scheme and £68.2 million for the MIN Scheme. The valuations at 5 April 2017 showed deficits of £69.8 million for the EN88 Scheme and £3.2 million for the ENSM Scheme. The valuation at 31 December 2017 showed a deficit of £6.5 million for the WF Scheme.

The deficits in all schemes are expected to be removed before or in 2027 by a combination of the contributions and asset returns. The Group paid £90.1 million into the defined benefit pension schemes in the year (including an initial pension contribution of £41.2 million paid into the E&S Schemes in connection with the acquisition of Express & Star). Contributions have been agreed for 2019 and 2020 at £48.9 million per annum. Thereafter, contributions per the current schedule of contributions are for £56.1 million per annum in 2021 to 2023, £55.3 million per annum in 2024 to 2026 and £53.3 million in 2027. Payments to the TM Schemes in 2017 were £38.7 million comprising £36.2 million of deficit funding and £2.5 million in connection with the share buyback.

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

 

 

The future deficit funding commitments are linked to the three-yearly actuarial valuations. There is no link to the IAS 19 valuations which use different actuarial assumptions and are updated at each reporting date. The next valuation for funding of all six pension schemes will be as at 31 December 2019 and this is required to be completed by 31 March 2021, although we anticipate this to be completed by 31 December 2020.

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

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. We have therefore included an allowance for GMP equalisation within liabilities at 30 December 2018 and this has been 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 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 risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value.

The main sources of risk are:

 

·          Investment risk: a reduction in asset returns (or assumed future asset returns);

·          Inflation risk: an increase in benefit increases (or assumed future increases); and

·          Longevity risk: an increase in average life spans (or assumed life expectancy).

These risks are managed by:

 

·          Investing in insured annuity policies: the income from these policies exactly matches the benefit payments for the members covered, removing all of the above risks. At the reporting date the insured annuity policies covered 13% of total liabilities;

·          Investing a proportion of assets in other classes such as government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however, some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the reporting date non equity assets amounted to 76% 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 24% of assets excluding the insured annuity policies; and

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

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

The three E&S Schemes each has an accounting surplus at the reporting date, before allowing for the IFRIC 14 asset ceiling.

Across the three TM Schemes, the invested assets are expected to be sufficient to pay the uninsured benefits due up to 2044, based on the reporting date assumptions. The remaining uninsured benefit payments, payable from 2045, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid up to 2027.

For the TM Schemes, actuarial projections at the year end reporting date show removal of the combined accounting deficit by the end of 2025 due to scheduled contributions and asset returns at the current target rate. From this point, the assets are projected to be sufficient to fully fund the liabilities on the accounting basis.

The Group is not exposed to any unusual, entity specific or scheme specific risks. Other than the impact of GMP equalisation, there were no plan amendments, settlements or curtailments in 2018 or 2017 which resulted in a pension cost.
 

Results

For the purposes of the Group's consolidated financial statements, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at 30 December 2018.

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

	TM Schemes £m	E&S Schemes £m	Total £m
Present value of uninsured scheme liabilities	(1,641.9)	(503.4)	(2,145.3)
Present value of insured scheme liabilities	(171.6)	(145.9)	(317.5)
Total present value of scheme liabilities	(1,813.5)	(649.3)	(2,462.8)
Invested and cash assets at fair value	1,289.1	540.1	1,829.2
Value of liability matching insurance contracts	171.6	145.9	317.5
Total fair value of scheme assets	1,460.7	686.0	2,146.7
Funded (deficit)/surplus	(352.8)	36.7	(316.1)
Impact of IFRIC 14	-	(32.5)	(32.5)
Net scheme deficit	(352.8)	4.2	(348.6)

 

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

	2018	2017
Financial assumptions (nominal % pa)
Discount rate	2.75	2.50
Retail price inflation rate	3.20	3.15
Consumer price inflation rate	2.00	1.95
Rate of pension increase in deferment	2.20	1.95
Rate of pension increases in payment (weighted average across the schemes)	3.40	3.70
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65	21.6	21.7
Female currently aged 65	23.5	23.6
Male currently aged 55	22.3	22.4
Female currently aged 55	24.3	24.4

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

	Effect on liabilities £m	Effect on deficit £m
Discount rate +/- 0.5% pa	-200/+220	-185/+200
Retail price inflation rate +/- 0.5% pa	+46/-43	+41/-39
Consumer price inflation rate +/- 0.5% pa	+44/-42	+44/-42
Life expectancy at age 65 +/- 1 year	+140/-140	+120/-125

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 make no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.

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

Consolidated income statement	2018 £m	2017 £m
Pension administrative expenses	(3.0)	(1.0)
Past service costs	(15.8)	-
Pension finance charge	(8.6)	(11.9)
Defined benefit cost recognised in income statement	(27.4)	(12.9)

 

 

Consolidated statement of comprehensive income	2018 £m	2017 £m
Actuarial gain/(loss) due to liability experience	7.0	(6.0)
Actuarial gain/(loss) due to liability assumption changes	98.7	(12.6)
Total liability actuarial gain/(loss)	105.7	(18.6)
Returns on scheme assets (less)/greater than discount rate	(98.0)	81.2
Impact of IFRIC 14	(3.1)	-
Total gain recognised in statement of comprehensive income	4.6	62.6

 

Consolidated balance sheet	2018 £m	2017 £m
Present value of uninsured scheme liabilities	(2,145.3)	(1,747.1)
Present value of insured scheme liabilities	(317.5)	(182.1)
Total present value of scheme liabilities	(2,462.8)	(1,929.2)
Invested and cash assets at fair value	1,829.2	1,369.5
Value of liability matching insurance contracts	317.5	182.1
Total fair value of scheme assets	2,146.7	1,551.6
Funded deficit	(316.1)	(377.6)
Impact of IFRIC 14	(32.5)	-
Net scheme deficit	(348.6)	(377.6)
Non-current assets - retirement benefit assets	10.2	-
Non-current liabilities - retirement benefit obligations	(358.8)	(377.6)
Net scheme deficit	(348.6)	(377.6)
Net scheme deficit included in consolidated balance sheet	(348.6)	(377.6)
Deferred tax included in consolidated balance sheet	64.5	66.2
Net scheme deficit after deferred tax	(284.1)	(311.4)

 

Movement in net scheme deficit	2018 £m	2017 £m
Opening net scheme deficit	(377.6)	(466.0)
Acquisition of subsidiary undertakings pensions schemes	(38.3)	-
Contributions	90.1	38.7
Consolidated income statement	(30.5)	(12.9)
Consolidated statement of comprehensive income	7.7	62.6
Closing net scheme deficit	(348.6)	(377.6)

 

Changes in the present value of scheme liabilities	2018 £m	2017 £m
Opening present value of scheme liabilities	(1,929.2)	(2,127.6)
Acquisition of subsidiary undertakings pension schemes	(682.7)	-
Past service cost loss	(18.7)	-
Interest cost	(61.4)	(51.8)
Actuarial gain/(loss) - experience	7.0	(6.0)
Actuarial gain - change to demographic assumptions	16.6	26.7
Actuarial gain/(loss) - change to financial assumptions	82.1	(39.3)
Benefits paid	123.5	95.5
Bulk transfer due to buyout	-	173.3
Closing present value of scheme liabilities	(2,462.8)	(1,929.2)

 

Impact of IFRIC 14	2018 £m	2017 £m
Opening impact of IFRIC 14	-	-
Acquisition of subsidiary undertakings pension schemes	(29.4)	-
Increase in impact of IFRIC 14	(3.1)	-
Closing impact of IFRIC 14	(32.5)	-

 

 

 

Changes in the fair value of scheme assets	2018 £m	2017 £m
Opening fair value of scheme assets	1,551.6	1,661.6
Acquisition of subsidiary undertakings pension schemes	673.8	-
Past service cost gain	2.9	-
Interest income	52.8	39.9
Actual return on assets (less)/greater than discount rate	(98.0)	81.2
Contributions by employer	90.1	38.7
Benefits paid	(123.5)	(95.5)
Administrative expenses	(3.0)	(1.0)
Bulk transfer due to buyout	-	(173.3)
Closing fair value of scheme assets	2,146.7	1,551.6

 

Fair value of scheme assets	2018 £m	2017 £m
UK equities	37.4	66.1
US equities	99.5	218.3
Other overseas equities	275.8	279.1
Property	37.5	24.6
Corporate bonds	287.8	240.5
Fixed interest gilts	127.1	60.0
Index linked gilts	48.6	24.8
Liability driven investment	459.1	148.9
Cash and other	456.4	307.2
Invested and cash assets at fair value	1,829.2	1,369.5
Value of insurance contracts	317.5	182.1
Fair value of scheme assets	2,146.7	1,551.6

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

15.        Provisions

	Share-based payments £m	Property £m	Restructuring £m	Other £m	Total £m
At 31 December 2017	(0.2)	(6.2)	(2.4)	(11.5)	(20.3)
Acquisition of subsidiary undertakings	-	(2.3)	-	(0.4)	(2.7)
Charged to income statement	-	(0.4)	(20.0)	(14.4)	(34.8)
Utilisation of provision	0.1	2.3	18.1	10.9	31.4
At 30 December 2018	(0.1)	(6.6)	(4.3)	(15.4)	(26.4)

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

	2018 £m	2017 £m
Current	(22.3)	(16.6)
Non-current	(4.1)	(3.7)
	(26.4)	(20.3)

The share-based payments provision relates to National Insurance obligations attached to the future crystallisation of awards. This provision will be utilised over the next three years.

The property provision relates to onerous property leases and future committed costs related to occupied, let and vacant properties. The majority of the provision will be utilised over the next two years and reflects the remaining term of the leases or expected period of vacancy.

The restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. This provision is expected to be utilised within the next year.

The other provision relates to legal and other costs relating to historical litigation and is expected to be utilised within the next year. The cost associated with the settlement of civil claims in relation to phone hacking has been higher than expected, in particular the legal fees of the claimant's lawyers, which contributed to the provision for settling these historical claims being increased by £12.5 million during the year bringing the total amount provided to £75.5 million. At the period end, £13.6 million of the provision remains outstanding and this represents the Board's best estimate of the amount required to settle the expected claims. This estimate is based on historical trends and experience of claims and costs, and in some cases, proposed offers to settle claims.

 

 

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

16.        Share capital and reserves

During the year, the Company issued 25,826,746 shares (at 77.44 pence) relating to the acquisition of Express & Star (note 20). The total share capital increased to 309,286,317 allotted, called-up and fully paid ordinary shares of 10 pence each. The share premium account reflects the premium on issued ordinary shares. The merger reserve increased by £17.4 million reflecting the premium on the shares allotted in relation to the acquisition of Express & Star (note 20) and decreased by £37.9 million which has been transferred to retained earnings and other reserves as a result of the impairment during the year (note 12). The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buyback programmes.

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

Shares purchased by the Trinity Mirror Employee Benefit Trust (the 'Trust') are included in retained earnings and other reserves at £4.3 million (2017: £4.9 million). During the year, 480,280 were released relating to grants made in prior years (2017: 447,096).

During the year, 1,529,406 awards were granted to executive directors on a discretionary basis under the Long Term Incentive Plan (2017: 1,219,327). The exercise price of the granted awards is £1 for each block of awards granted. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions and are required to be held for a further two years. During the prior period, 111,792 awards were granted to executive directors under the Restricted Share Plan. The awards vest after three years.

During the year, 1,709,295 awards were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (2017: 1,242,316). The exercise price of the granted awards is £1 for each block of awards granted. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.

17.        Reconciliation of statutory to adjusted results

   52 weeks ended 30 December 2018

	Statutory results £m	Operating adjusted items (a) £m	Finance costs (b) £m	Pension finance charge (c) £m	Tax items (d) £m	Adjusted results £m
Revenue	723.9	-	-	-	-	723.9
Operating (loss)/profit	(107.6)	253.2	-	-	-	145.6
(Loss)/profit before tax	(119.9)	253.2	-	8.6	-	141.9
(Loss)/profit after tax	(119.6)	226.8	-	7.0	-	114.2
Basic (loss)/earnings per share (p)	(41.0)	77.8	-	2.4	-	39.2

   52 weeks ended 31 December 2017

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

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

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

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

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

 

Set out on page 2 is the rationale for the alternative performance measures adopted by the Group. The reconciliations in this note highlight the impact on the respective components of the income statement. Items are adjusted for where they relate to material items in the year (impairment, restructuring, disposals) or relate to historic liabilities (historical legal issues, defined benefit pension schemes which are all closed to future accrual).
 

18.        Reconciliation of statutory to like for like revenue

	52 weeks ended 30 December 2018 £m	(a) £m	(b) £m	52 weeks ended 30 December 2018 (like for like) £m	52 weeks ended 31 December 2017  £m	(a) £m	(b) £m	(c) £m	52 weeks ended 31 December 2017 (like for like) £m
Publishing Print	575.4	26.2	-	601.6	494.6	172.1	-	(7.5)	659.2
Circulation	362.1	17.5	-	379.6	284.7	115.5	-	(0.1)	400.1
Advertising	176.7	7.3	-	184.0	177.6	48.8	-	(7.3)	219.1
Other	36.6	1.4	-	38.0	32.3	7.8	-	(0.1)	40.0
Publishing Digital	103.6	3.2	-	106.8	83.9	17.5	-	-	101.4
Display and transactional	91.3	3.2	-	94.5	68.7	17.5	-	--	86.2
Classified	12.3	-	-	12.3	15.2	-	-	-	15.2
Printing	35.6	0.5	-	36.1	31.6	2.7	-	-	34.3
Specialist Digital	8.0	-	(3.6)	4.4	9.6	-	(4.9)	-	4.7
Central	1.3	-	-	1.3	3.5	-	-	-	3.5
Total revenue	723.9	29.9	(3.6)	750.2	623.2	192.3	(4.9)	(7.5)	803.1

 

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

(b) Exclusion of Communicator Corp which was sold in 2018.

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

19.        Contingent liabilities

There is the potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues (note 15). At this stage, due to the uncertainty in respect of the nature, timing or measurement of any such liabilities, we are unable to reliably estimate how these matters will proceed and their financial impact.

20.        Acquisition of subsidiary undertakings

The Group announced the proposed acquisition of Northern & Shell's publishing assets ('Express & Star') on 9 February 2018 which was subsequently approved at the General Meeting held on 27 February 2018. The acquisition comprised the UK publishing assets and the Ireland publishing assets.

The UK publishing assets comprise national newspapers and magazines together with associated websites and a print plant in Luton and the Ireland publishing assets comprise a 50% equity interest in Independent Star Limited and 100% equity in International Distribution 2018 Limited. The acquisition is earnings enhancing in the first year of acquisition and the increased scale of the enlarged Group provides increased financial flexibility in the medium term for investment and meeting the enlarged Group's pension obligations.

On 28 February 2018, the Group completed the acquisition of the UK publishing assets by acquiring 100% of the equity in Northern & Shell Network Limited and its subsidiaries for £121.7 million with an initial cash consideration of £42.7 million and an equity consideration of £20.0 million (issue of 25,826,746 shares at 77.44 pence per share) both on completion and deferred consideration of £59.0 million (payable as £18.9 million, £16.0 million, £17.1 million and £7.0 million on the second, third, fourth and fifth anniversaries respectively of the acquisition). There are no conditions attached to the payment of the deferred consideration and the transaction was structured such that no interest accrued on these payments. However, under the sale and purchase agreement the Group has the right to offset agreed claims arising from a breach of warranties and indemnities and can also offset any shortfalls on the contracted advertising from the Health Lottery. The deferred consideration has not been discounted as we do not believe that the impact of such discounting is material. The net cash acquired on acquisition was £1.4 million and in June 2018 a working capital payment of £1.3 million was made. The results from the acquisition are included in the Publishing and Printing segments in continuing operations.

The provisional fair value of the consideration is as follows:

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

 

 

 

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

	£m
Other intangible assets	106.1
Fixed assets	28.0
Retirement benefit obligations	(38.3)
Deferred tax assets	18.3
Deferred tax liabilities	(18.0)
Provisions	(2.7)
Working capital	(7.7)
Net cash	1.4
Fair value of net assets	87.1
Goodwill	35.9
Fair value of consideration	123.0

Other intangible assets relates to publishing rights and titles. Working capital includes gross receivables of £10.1 million less provision for doubtful debts of £0.1 million. Provisions relate to property and other (note 15). Goodwill arising on the acquisition is attributed to the significant opportunities arising from combining two large national newspapers and websites which will drive multiple revenue opportunities and cost efficiencies which will enhance revenue and profitability. The goodwill is not expected to be deductible for tax purposes.

The acquisition contributed £159.5 million of revenue (Publishing £156.2 million and Printing £3.3 million) and the revenue of the Group would have increased by £29.9 million (Publishing £29.4 million and Printing £0.5 million) if the acquisition had been made at the beginning of the year. The acquisition contributed a statutory operating profit of £22.8 million profit (Publishing £22.8 million and Printing nil) post acquisition and if the acquisition had been made at the beginning of the year the statutory operating loss of the Group would have increased by £76.6 million (Publishing £76.6 million and Printing nil).

The fair value of consideration will be satisfied as follows:

	£m
Cash consideration paid in 2018	44.0
Cash deferred consideration payable in four annual instalments commencing  28 February 2020	59.0
Total cash consideration paid/payable	103.0
Equity issued as part consideration in 2018	20.0
Fair value of consideration	123.0

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

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

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

On 6 December 2018, the Group completed the acquisition of a 50% equity interest in Independent Star Limited for £4.5 million and 100% equity in International Distribution 2018 Limited for £0.5 million. The total cash consideration paid in 2018 for the acquisition of the two subsidiary undertakings (Northern & Shell Network Limited and International Distribution 2018 Limited) was £43.1 million.  

21.        Disposal of subsidiary undertaking

In September 2018, the Group disposed of The Communicator Corporation Limited. The net assets at the date of disposal and the profit on disposal were as follows:

	£m
Goodwill	3.4
Intangible assets	0.1
Fixed assets	0.3
Trade and other receivables	0.7
Cash and cash equivalents	0.4
Trade and other payables	(0.6)
Net assets	4.3
Profit on disposal	3.4
Total consideration	7.7
Satisfied by:
Cash consideration received	6.8
Deferred cash consideration receivable	0.9
Total consideration	7.7
Net cash flow arising on disposal:
Cash consideration	6.8
Cash disposed	(0.4)
Net cash inflow	6.4