Half-yearly Financial Report

7.         Finance costs

	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks ended 1 July 2018 (unaudited) £m	52 weeks ended  30 December 2018 (audited) £m
Interest on bank overdrafts and borrowings	(1.5)	(1.8)	(3.8)

8.         Tax

	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks ended 1 July 2018 (unaudited) £m	52 weeks ended  30 December 2018 (audited) £m
Corporation tax charge for the period	(10.8)	(10.6)	(17.2)
Current tax charge	(10.8)	(10.6)	(17.2)
Deferred tax (charge)/credit for the period	(0.4)	11.0	17.5
Deferred tax (charge)/credit	(0.4)	11.0	17.5
Tax (charge)/credit	(11.2)	0.4	0.3
Reconciliation of tax (charge)/credit	%	%	%
Standard rate of corporation tax	(19.0)	19.0	19.0
Tax effect of items that are not deductible in determining taxable profit	(0.4)	(18.7)	(19.5)
Tax effect of items that are not taxable in determining taxable profit	-	-	0.7
Tax effect of share of results of associates	0.2	0.1	0.1
Tax (charge)/credit rate	(19.2)	0.4	0.3

 

The standard rate of corporation tax for the period is 19% (2018:19%). 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 liabilities amounted to £7.2 million (26 weeks ended 1 July 2018: £7.3 million and 52 weeks ended 30 December 2018: £4.5 million) at the reporting date and include net provisions of £1.1 million (26 weeks ended 1 July 2018: £3.8 million and 52 weeks ended 30 December 2018: £1.3 million). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £7 million.

The tax on actuarial losses/gains on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a credit of £3.2 million comprising a deferred tax charge of £1.1 million and a current tax credit of £4.3 million (26 weeks ended 1 July 2018: charge of £11.3 million comprising a deferred tax charge of £19.0 million and a current tax credit of £7.7 million and 52 weeks ended 30 December 2018: credit of £0.8 million comprising a deferred tax credit of £8.7 million and a current tax charge of £7.9 million).

9.         Dividends

	26 weeks ended 30 June 2019 (unaudited) Pence Per share	26 weeks ended 1 July 2018 (unaudited) Pence Per share	52 weeks ended  30 December 2018  (audited) Pence Per share
Dividends paid per share and recognised as distributions to equity holders in the period	3.77	3.55	5.92
Dividend proposed per share but not paid nor included in the accounting records	2.50	2.37	3.77

The Board has approved an interim dividend for 2019 of 2.50 pence per share.

On 2 May 2019 the final dividend proposed for 2018 of 3.77 pence per share was approved by shareholders at the Annual General Meeting and was paid on 7 June 2019. The total dividend payment amounted 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. An interim dividend for 2018 of 2.37 pence per share was paid on 28 September 2018. The total dividend payment in 2018 amounted to £17.5 million.

 

 

10.        Earnings per share

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

 

	26 weeks ended 30 June 2019 (unaudited) Thousand	26 weeks ended 1 July 2018 (unaudited) Thousand	52 weeks ended  31 December 2018 (audited) Thousand
Weighted average number of ordinary shares for basic earnings per share	296,032	287,174	291,478
Effect of potential dilutive ordinary shares in respect of share awards	1,798	1,327	1,571
Weighted average number of ordinary shares for diluted earnings per share	297,830	288,501	293,049

The weighted average number of potentially dilutive ordinary shares not currently dilutive was 5,879,561 (1 July 2018: 4,521,046 and 30 December 2018: 3,964,133).

Statutory earnings/(loss) per share	Pence	Pence	Pence
Earnings/(loss) per share - basic	15.9	(39.4)	(41.0)
Earnings/(loss) per share - diluted	15.8	(39.4)	(41.0)

 

Adjusted earnings per share	Pence	Pence	Pence
Earnings per share - basic	19.1	18.2	39.2
Earnings per share - diluted	19.0	18.1	39.0

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

11.        Notes to the consolidated cash flow statement

 

	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  31 December 2018 (audited) £m
Operating profit/(loss)	63.7	(107.3)	(107.6)
Depreciation of property, plant and equipment	11.0	11.1	22.3
Impairment of goodwill and other intangible assets	-	150.0	200.0
Amortisation of intangible assets	-	0.2	0.2
Share of results of associates	(0.6)	(0.5)	(0.8)
Charge for share-based payments	0.4	0.4	1.0
Profit on disposal of land and buildings	-	-	(1.5)
Profit on disposal of subsidiary undertaking	-	-	(3.4)
Write-off of fixed assets	-	-	0.5
Pension administrative expenses	1.1	1.6	3.0
Pension past service costs	-	-	15.8
Operating cash flows before movements in working capital	75.6	55.5	129.5
Decrease in inventories	0.2	0.6	0.1
Increase in receivables	(1.8)	(6.2)	(2.9)
(Decrease)/increase in payables	(3.6)	10.8	11.1
Cash generated from operations	70.4	60.7	137.8

 

 

 

 

12.        Goodwill and other intangible assets

The Group had three cash-generating units at the prior reporting date (Publishing excluding Express & Star, Express & Star and Digital Classified Recruitment). The Express & Star business has been fully integrated within the Publishing business such that the cash inflows are largely interdependent and they have been combined into a single cash-generating unit. This reflects the scale of advertising packages sold across all titles and websites and reflects the group wide nature of our printing operations and the wholesale and distribution contracts. At the reporting date the Group has two cash-generating units (Publishing and Digital Classified Recruitment).

The carrying value of goodwill and other intangible assets is:

	Goodwill £m	Publishing rights and titles £m	Total  Intangible assets £m
Opening carrying value	42.0	810.0	852.0
Closing carrying value	42.0	810.0	852.0

Goodwill of £42.0 million comprises Publishing £35.9 million and Digital Classified Recruitment £6.1 million. Publishing rights and titles comprises Publishing £810.0 million.

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 £810.0 million) have indefinite economic lives due to the longevity of the brands and the ability to evolve them 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 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.

There were no indicators of impairment in the first half and therefore no impairment review has been undertaken at the half year. In 2018, the total impairment charge for the year was £200.0 million (£187.1 million net of deferred tax). The charge was allocated to goodwill (£92.5 million), publishing rights and titles (£95.0 million) and freehold buildings (£12.5 million). Of the £200.0 million impairment charge, £150.0 million was charged at the 2018 half year and a further £50.0 million was charged at the 2018 year end.

When completing an impairment review, the Group prepares cash flow projections for a cash-generating unit using the latest forecasts and projections. The growth rates for the first 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 in outer years 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 current long-term growth rate for Publishing is -2.0% and for Digital Classified Recruitment is -1.0%. 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.

The current post-tax and equivalent pre-tax discount rate used in respect of all cash-generating units is 11.0% and 13.4% respectively. 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. Although we use a leverage of 2.5 times which is higher than that permissible by the Group's financing facilities (2.0 times), the Group's financing facilities exclude pension obligations in calculating leverage.

The Group's 2018 Annual Report highlighted that the impairment review is highly sensitive to reasonably possible changes in key assumptions used in the value in use calculations.

A combination of reasonably possible changes in key assumptions such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected or the scale of cost saving initiatives being delivered in the short term being lower than forecast, could lead to a material impairment in the Publishing cash-generating unit. For the 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.        Retirement benefit schemes

Defined contribution pension schemes

The Group operates a defined contribution pension scheme for qualifying employees: The Reach Pension Plan (the "RPP"). The two Group Personal Pension Plans (the GPP") for Express & Star employees were closed on 31 March 2019 with all members given the opportunity to join the RPP on 1 April 2019. 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 current service cost charged to the consolidated income statement for the period of £8.6 million (26 weeks ended 1 July 2018: £8.2 million and 52 weeks ended 30 December 2018: £14.9 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').

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 at the reporting date, the uninsured liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners. The average term from the reporting date 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: at 31 December 2016 for the MGN Scheme showed a deficit of £476.0 million, for the Trinity Scheme showed a deficit of £78.0 million and for the MIN Scheme showed a deficit of £68.2 million; at 5 April 2017 for the EN88 Scheme showed a deficit of £69.8 million and for the ENSM Scheme showed a deficit of £3.2 million; and at 31 December 2017 for the WF Scheme showed a deficit of £6.5 million.

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 2018 (including an initial pension contribution of £41.2 million paid into the E&S Schemes in connection with the acquisition of Express & Star). Contributions (which include funding for pensions administrative expenses) are payable monthly and 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.

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 defined benefit pension schemes will be as at 31 December 2019 and this is required to be completed by 31 March 2021, although we expect 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. An allowance for GMP equalisation was included within liabilities at 30 December 2018 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 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 12% 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 78% 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 22% 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 prior 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 the current or prior period 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 June 2019.

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	(1,795.3)	(533.5)	(2,328.8)
Present value of insured scheme liabilities	(178.0)	(149.8)	(327.8)
Total present value of scheme liabilities	(1,973.3)	(683.3)	(2,656.6)
Invested and cash assets at fair value	1,433.0	581.8	2,014.8
Value of liability matching insurance contracts	178.0	149.8	327.8
Total fair value of scheme assets	1,611.0	731.6	2,342.6
Funded (deficit)/surplus	(362.3)	48.3	(314.0)
Impact of IFRIC 14	-	(34.2)	(34.2)
Net scheme (deficit)/surplus	(362.3)	14.1	(348.2)

 

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

	30 June 2019 £m	1 July 2018 £m	31 December 2018 £m
Financial assumptions (nominal % pa)
Discount rate	2.25	2.62	2.76
Retail price inflation rate	3.21	3.06	3.20
Consumer price inflation rate	2.21	1.88	2.00
Rate of pension increase in deferment	2.38	1.86	2.22
Rate of pension increases in payment (weighted average across the scheme's)	3.40	3.32	3.39
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65	21.4	21.6	21.6
Female currently aged 65	23.3	23.5	23.5
Male currently aged 55	22.0	22.2	22.3
Female currently aged 55	24.1	24.3	24.3

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	-215/+235	-200/+215
Retail price inflation rate +/- 0.5% pa	+50/-46	+45/-42
Consumer price inflation rate +/- 0.5% pa	+47/-45	+48/-46
Life expectancy at age 65 +/- 1 year	+150/-150	+130/-135

The RPI sensitivity impacts the rate of increases in deferment for some of the pensions in the EN88 and ENSM schemes and some of the pensions in payment for all schemes except the MGN Scheme. The CPI sensitivity impacts the rate of increases in deferment for some of the pensions in most schemes and the rate of increases in payment for some of the pensions in payment for all schemes.

The effect on the deficit is usually lower than the effect on the liabilities due to the matching impact on the value of the insurance contracts held in respect of some of the liabilities. Each assumption variation represents a reasonably possible change in the assumption over the next year but might not represent the actual effect because assumption changes are unlikely to happen in isolation.

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

 

 

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

Consolidated income statement	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  30 December 2018 (audited) £m
Pension administrative expenses	(1.1)	(1.6)	(3.0)
Past service costs	-	-	(15.8)
Pension finance charge	(4.1)	(4.4)	(8.6)
Defined benefit cost recognised in income statement	(5.2)	(6.0)	(27.4)

 

Consolidated statement of comprehensive income	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  30 December 2018 (audited) £m
Actuarial gain due to liability experience	5.4	12.4	7.0
Actuarial (loss)/gain due to liability assumption changes	(216.9)	76.1	98.7
Total liability actuarial (loss)/gain	(211.5)	88.5	105.7
Returns on scheme assets greater than/(less than) discount rate	194.3	(23.9)	(98.0)
Change in impact of IFRIC 14	(1.7)	(5.3)	(3.1)
Total (loss)/gain recognised in statement of comprehensive income	(18.9)	59.3	4.6

 

Consolidated balance sheet	30 June 2019 (unaudited) £m	1 July 2018 (unaudited) £m	30 December 2018 (audited) £m
Present value of uninsured scheme liabilities	(2,328.8)	(2,168.9)	(2,145.3)
Present value of insured scheme liabilities	(327.8)	(319.7)	(317.5)
Total present value of scheme liabilities	(2,656.6)	(2,488.6)	(2,462.8)
Invested and cash assets at fair value	2,014.8	1,906.6	1,829.2
Value of liability matching insurance contracts	327.8	319.7	317.5
Total fair value of scheme assets	2,342.6	2,226.3	2,146.7
Funded deficit	(314.0)	( 262.3)	(316.1)
Impact of IFRIC 14	(34.2)	( 34.7)	(32.5)
Net scheme deficit	(348.2)	( 297.0)	(348.6)
Non-current assets - retirement benefit assets	19.8	12.3	10.2
Non-current liabilities - retirement benefit obligations	(368.0)	(309.3)	(358.8)
Net scheme deficit	(348.2)	(297.0)	(348.6)
Net scheme deficit included in consolidated balance sheet	(348.2)	(297.0)	(348.6)
Deferred tax included in consolidated balance sheet	63.4	54.7	64.5
Net scheme deficit after deferred tax	(284.8)	(242.3)	(284.1)

 

Movement in net scheme deficit	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  30 December 2018 (audited) £m
Opening net scheme deficit	(348.6)	(377.6)	(377.6)
Acquisition of subsidiary undertakings pension schemes	-	(38.3)	(38.3)
Contributions	24.5	65.6	90.1
Consolidated income statement	(5.2)	(6.0)	(27.4)
Consolidated statement of comprehensive income	(18.9)	59.3	4.6
Closing net scheme deficit	(348.2)	(297.0)	(348.6)

 

 

Changes in the present value of scheme liabilities	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  30 December 2018 (audited) £m
Opening present value of scheme liabilities	(2,462.8)	(1,929.2)	(1,929.2)
Acquisition of subsidiary undertakings pension schemes	-	(682.7)	(682.7)
Past service cost loss	-	-	(18.7)
Interest cost	(33.1)	(29.2)	(61.4)
Actuarial gain- experience	5.4	12.4	7.0
Actuarial gain - change to demographic assumptions	9.7	16.5	16.6
Actuarial (loss)/gain - change to financial assumptions	(226.6)	59.6	82.1
Benefits paid	50.8	64.0	123.5
Closing present value of scheme liabilities	(2,656.6)	(2,488.6)	(2,462.8)

 

Changes in the fair value of scheme assets	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  30 December 2018 (audited) £m
Opening fair value of scheme assets	2,146.7	1,551.6	1,551.6
Acquisition of subsidiary undertakings pension schemes	-	673.8	673.8
Past service cost gain	-	-	2.9
Interest income	29.0	24.8	52.8
Actual return on assets greater than/(less than) discount rate	194.3	(23.9)	(98.0)
Contributions by employer	24.5	65.6	90.1
Benefits paid	(50.8)	(64.0)	(123.5)
Administrative expenses	(1.1)	(1.6)	(3.0)
Closing fair value of scheme assets	2,342.6	2,226.3	2,146.7

 

Changes in impact of IFRIC 14	26 weeks ended 30 June 2019 (unaudited) £m	26 weeks  ended 1 July 2018 (unaudited) £m	52 weeks  ended  30 December 2018 (audited) £m
Opening impact of IFRIC 14	(32.5)	-	-
Acquisition of subsidiary undertakings pension schemes	-	(29.4)	(29.4)
Increase in impact of IFRIC 14	(1.7)	(5.3)	(3.1)
Closing impact of IFRIC 14	(34.2)	(34.7)	(32.5)

 

Fair value of scheme assets	30 June 2019 (unaudited) £m	1 July 2018 (unaudited) £m	30 December 2018 (audited) £m
UK equities	40.6	115.5	37.4
US equities	122.5	198.4	99.5
Other overseas equities	272.1	300.4	275.8
Property	43.5	36.6	37.5
Corporate bonds	266.2	255.1	287.8
Fixed interest gilts	103.9	97.2	127.1
Index linked gilts	43.6	38.3	48.6
Liability driven investment	531.7	353.5	459.1
Cash and other	590.7	511.6	456.4
Invested and cash assets at fair value	2,014.8	1,906.6	1,829.2
Value of insurance contracts	327.8	319.7	317.5
Fair value of scheme assets	2,342.6	2,226.3	2,146.7

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.

 

 

14.        Net debt

The net debt for the Group is as follows:

	30 December 2018 (audited) £m	Cash flow £m	Loans repaid £m	30 June   2019 (unaudited) £m
Non-current liabilities
Acquisition Term Loan	(39.7)	-	-	(39.7)
	(39.7)	-	-	(39.7)
Current liabilities
Acquisition Term Loan	(20.3)	-	20.3	-
	(20.3)	-	20.3	-
Debt	(60.0)	-	20.3	(39.7)
Current assets
Cash and cash equivalents	19.2	27.9	(20.3)	26.8
Cash and cash equivalents	19.2	27.9	(20.3)	26.8
Net debt	(40.8)	27.9	-	(12.9)

Net debt at the reporting date comprised £39.7 million drawings on the Acquisition Term Loan ('ATL') less cash balances of £26.8 million. The Group had no drawings at the end of the year on the Revolving Credit Facility ('RCF'). In the period, the Group repaid early the £20.3 million due under the ATL in December 2019. The outstanding £39.7 million drawn on the ATL is repayable in two instalments of £20.3 million in December 2020 and £19.4 million in December 2021. The Group also has access to an undrawn £75.0 million amortising RCF which is committed until December 2021. The RCF amortises by £8.33 million every six months from December 2019 to December 2020 down to £50.0 million for the last year of the term.

Deferred consideration of £59.0 million in respect of the acquisition of Express & Star is included in trade and other payables in non-current liabilities amounting to £40.1 million (payable £16.0 million on 28 February 2021, £17.1 million on 28 February 2022 and £7.0 million on 28 February 2023) and in current liabilities amounting to £18.9 million (payable on 28 February 2020). 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.

15.        Provisions

	Share-based payments £m	Property £m	Restructuring £m	Other £m	Total £m
At 30 December 2018 (audited)	(0.1)	(6.6)	(4.3)	(15.4)	(26.4)
Charged to income statement	-	-	(6.1)	(0.3)	(6.4)
Utilisation of provision	-	2.1	7.7	2.6	12.4
At 30 June 2019 (unaudited)	(0.1)	(4.5)	(2.7)	(13.1)	(20.4)

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

	30 June 2019 (unaudited) £m	1 July 2018 (unaudited) £m	30 December 2018 (audited) £m
Current	(16.9)	(19.5)	(22.3)
Non-current	(3.5)	(2.9)	(4.1)
	(20.4)	(22.4)	(26.4)

The share-based payments provision relates to National Insurance obligations attached to the future crystallisation of awards. This provision will be utilised over the next three years. The property provision relates to 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 over the next few years. The provision for costs associated with the settlement of civil claims in relation to phone hacking at the period end was £12.0 million 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 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 20.

 

 

16.        Share capital and reserves

The share capital comprises 309,286,317 allotted, called-up and fully paid ordinary shares of 10p each. In 2018, the Company issued 25,826,746 shares (at 77.4 pence) relating to the acquisition of Express & Star. The Company holds 10,017,620 shares as Treasury shares.

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. Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9 million (2018: £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 £3.8 million (1 July 2018: £4.4 million and 30 December 2018: £4.3 million). During the period, 425,946 were released relating to grants made in prior years (26 weeks ended 1 July 2018: 421,066 and 52 weeks ended 30 December 2018: 480,280). During the period, 1,998,167 awards were granted to Executive Directors on a discretionary basis under the Long Term Incentive Plan (26 weeks ended 1 July 2018 and 52 weeks ended 30 December 2018: 1,529,406). 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 period, 2,593,910 awards were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (26 weeks ended 1 July 2018 and 52 weeks ended 30 December 2018: 1,709,295). 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. During the period 77,399 awards were granted to senior managers under the Restricted Share Plan (26 weeks ended 1 July 2018 and 52 weeks ended 30 December 2018: nil). The awards vest after three years, subject to the continued employment of the participant.

17.        Reconciliation of statutory to adjusted results

26 weeks ended 30 June 2019 (unaudited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Adjusted results £m
Revenue	352.6	-	-	352.6
Operating profit	63.7	7.6	-	71.3
Profit before tax	58.2	7.6	4.1	69.9
Profit after tax	47.0	6.2	3.3	56.5
Basic earnings per share (p)	15.9	2.1	1.1	19.1

26 weeks ended 1 July 2018 (unaudited)

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

52 weeks ended 31 December 2018 (audited)

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £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

(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 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 revenue categories

2018 Categories	26 weeks  ended 1 July 2018 (unaudited)  £m	Reclassification £m	26 weeks  ended 1 July 2018 (unaudited)  £m	2019 Categories
Publishing Print	282.0	24.4	306.4	Print
Circulation	175.7	-	175.7	Circulation
Advertising	88.5	6.9	95.4	Advertising
Printing	-	17.5	17.5	Printing
Other	17.8	-	17.8	Other
Publishing Digital	48.4	(6.9)	41.5	Digital
Display & Transactional	41.5	-	41.5
Classified	6.9	(6.9)	-
Printing	17.5	(17.5)	-
Specialist Digital	4.7	(4.7)	-
Central	1.2	4.7	5.9	Other
Total revenue	353.8	-	353.8	Total revenue

 

2018 Categories	52 weeks  ended 30 December 2018 (audited)  £m	Reclassification £m	52 week s ended 30 December 2018 (audited)  £m	2019 Categories
Publishing Print	575.4	47.9	623.3	Print
Circulation	362.1	-	362.1	Circulation
Advertising	176.7	12.3	189.0	Advertising
Printing	-	35.6	35.6	Printing
Other	36.6	-	36.6	Other
Publishing Digital	103.6	(12.3)	91.3	Digital
Display & Transactional	91.3	-	91.3
Classified	12.3	(12.3)	-
Printing	35.6	(35.6)	-
Specialist Digital	8.0	(8.0)	-
Central	1.3	8.0	9.3	Other
Total revenue	723.9	-	723.9	Total revenue

19.        Reconciliation of statutory to like for like revenue

	26 weeks  ended 1 July 2018 (unaudited)  £m	(a) £m	(b) £m	(c) £m	26 weeks  ended 1 July 2018 (unaudited)  £m
Print	306.4	26.7	(4.5)	-	328.6
Circulation	175.7	17.5	(0.5)	-	192.7
Advertising	95.4	7.3	(3.9)	-	98.8
Printing	17.5	0.5	-	-	18.0
Other	17.8	1.4	(0.1)	-	19.1
Digital	41.5	3.2	(0.3)	-	44.4
Other	5.9	-	-	(2.4)	3.5
Total revenue	353.8	29.9	(4.8)	(2.4)	376.5

(a)        Inclusion of Express & Star assuming owned by the Group from the beginning of 2018.

(b)        Metro handed back to DMGT in December 2018 and other portfolio changes in 2018.

(c)        Exclusion of Communication Corp which was sold in 2018. 

20.     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.