RNS Number : 6093M
Johnston Press PLC
28 August 2013
 



 

FOR IMMEDIATE  RELEASE

28 August 2013

JOHNSTON PRESS PLC

RESULTS FOR THE 26 WEEKS ENDED 29 JUNE 2013

 

Like for like operating profit** up 4.3%, debt down £55.3m against June 2012

Johnston Press plc ("Johnston Press" or "the Group"), one of the leading community media groups in the UK and Ireland, announces its results for the 26 week period ended 29 June 2013.

 

Like for like operating profit** for the six months increased by 4.3% from £27.4m to £28.6m, the first increase in like for like operating profit for seven years. 

 

Total advertising revenues declined 13.6% in the first half. The decline seen at the start of the year of 17.6% narrowed during February and March to 12.6%, narrowing further to 6.3% in June and July.

 

Digital revenues were up 13.3% in the first half and up 31.9% period on period in June and July.

 

Net debt is down 15.3% period on period to £306.4m from £361.7m.

 

Key financials


Statutory basis



Like for like


2013

26 weeks

2012

26 weeks



2013

26 weeks

2012

26 weeks


£'m

£'m



£'m

£'m

Revenue

159.9^

206.1^



144.3*

159.9*

Operating (loss)/profit

(225.4)

37.8



28.6**

 

27.4**

Profit/(Loss) before tax

(248.7)

13.6





Net Debt

 

306.4

361.7



306.4

361.7

Basic Earnings per share(pence)

(29.75)

2.34





 

^ includes receipt of £10.0m (2012: £30.0m) in connection with the cancellation of contract printing arrangements with News International

* before non-recurring and IAS 21/39 items, after adjusting for the cancellation of contract print arrangements with News International (£7.1m) and excluding revenues from 5 titles that changed format from daily to weekly in advertising and newspaper sales of £5.6m in 2013 and £9.1m in 2012

** before non-recurring and IAS 21/39 items, after adjusting for the cancellation of contract printing arrangements with News International of £3m in 2012

 

 

Key highlights

 

·      Revenue: Like for like total revenues at £144.3m,  down 9.8% period on period

 

·      Digital Revenues:  Up 13.3% period on period, from £10.3m to £11.6m

 

·      Cost Reduction: Costs, before non-recurring and IAS 21/39 items, have reduced by £24.3m

 

·      Operating Margin (before non-recurring and IAS21/39 items): Up by nearly 2% to 19.1%, from 17.3%

 

·      Debt Reduction:  Net debt is down £55.3m from June 2012 to £306.4m at 29 June 2013

 

·      Net Non-recurring Items: Net non-recurring items of £254.0m, including a £10.0m receipt associated with the termination of the News International contract, a £194.5m impairment charge on publishing titles and a £57.9m write-down on print press assets

 

Revenues

 

·      Total revenues decreased by 9.8% on a like for like basis period on period with broadly similar declines across all categories, a pattern replicated across the industry as consumer confidence remained low in the first five months of 2013.

 

·      Total advertising revenues declined 13.6% in the half year. The decline seen at the start of the year of 17.6% narrowed during February and March to 12.6%.  The improving trend continued, with the decline rates narrowing further to 6.3% across June and July.

 

·      During the first half of 2013 digital revenue has increased by 13.3%.   Excluding digital recruitment advertising, which continued to be affected by a slow jobs market, digital revenues were up 23.7% in the first six months. Within this, local online display, digital property and digital motor revenues grew by 17.1%, 91.2% and 175.8% respectively.

 

·      Excluding the impact of changing five daily titles to weekly format in May 2012, the Group's like for like circulation revenues decline reduced by just 0.7% in the first half. Circulation revenues for titles relaunched during 2013 are showing early signs of improvement. The Relaunch of the portfolio is now complete.

 

 

Non-recurring items

 

·      The results include a net charge of £254.0m in respect of non-recurring items. The charge includes a non-cash accounting adjustment reducing the carrying value of our publishing titles by £194.5m and print assets by £57.9m and properties held for resale by £3.5m, with a £10m cash receipt from the cancellation of the remaining element of our News International print contract and other cash costs of £8.9m in connection with the further restructuring of the business and a pension protection fund levy.

 

Summary and outlook

Commenting on the outlook, the Chief Executive, Ashley Highfield, said:

 

"Johnston Press has continued to make good progress during the first half in the implementation of its strategy for growth, completing the re-launch of its print titles and investing further in technology to build its digital platform whilst maintaining a tight control on costs. It is encouraging to see the benefits of our actions starting to come through, with the Group achieving its first like for like operating profit increase in seven years.

Although the economic outlook is not without challenges, momentum has continued into the second half, underpinned by the re-structuring and re-focusing of the business, an increasingly stable advertising market and growth in circulation and digital revenues. This has enabled us to report like for like operating profit up 4.3%, digital revenues up 13.3% and net debt down 15.3%, with total advertising decline rate narrowing to 6.3% during June and July 2013."

 

We remain focused on adapting our business to the changing environment in which we operate and reaching the point where digital growth will offset any further decline so that we can return to overall top line growth.

In view of this operational progress, we expect the results for 2013 to be broadly in line with current market expectations."

 

 

 

 

For further information please contact:

Johnston Press

Ashley Highfield, Chief Executive Officer

David King, Chief Financial Officer

 

020 7466 5000 (today) or

0131 225 3361 (thereafter)

 

Buchanan

Richard Oldworth/Sophie McNulty/Clare Akhurst

 

020 7466 5000

 

The Half Year Report for the period ended 29 June 2013 is available at www.johnstonpress.co.uk/investors

 

 

Forward-looking statements

 

The report contains forward looking statements.  Although the Group believes that the expectation reflected in these forward-looking statements are reasonable, it can give no assurance that the expectations will prove to have been correct.  Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements.  The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

 

 



Johnston Press plc

Chief Executive's Half Year Statement

 

Overview and strategy update

The first half of 2013 has seen continued progress on the implementation of the strategy set out at the start of 2012: to grow our overall audience through re-launching our print titles and investing in new digital products across all platforms, to stem the decline in top line revenue and return to top line growth, to accelerate the growth of digital revenues, and thus to reverse the decline in operating profit enabling us to continue paying down debt. I am pleased to say that solid progress has been made on all of these key objectives.

Headlines:

After a difficult first quarter due to a combination of continued economic uncertainty affecting High Street advertising spending and unusually harsh weather, which we talked to in our interim statement in May 2013, trading improved during the second quarter, and the period on period performance has continued to strengthen into the summer months.  Most encouragingly, although we report a headline operating loss due to write downs (primarily as a result of changes in projected future cash flows and the rate at which they are discounted), our like for like operating profit* for the period is up for the first time in seven years:

Like for like operating profit* up 4.3%  to £28.6m, the first increase in seven years

Net non-recurring charges of £254.0m during the period, including a £10.0m receipt associated with the termination of the News International contract, a £194.5m impairment charge on publishing titles and a £57.9m write-down on print press assets, resulting in an operating loss of £225.4m

Net debt down 15.3% period on period as at 30 June 2013 to £306.4m from £361.7m at the end of June 2012

Total like for like revenues^ of £144.3m, with a  period-on-period decline rate of  9.8% 

Total advertising revenues declined 13.6% period on period in the first half of the year with the decline rate narrowing to 6.3% period on period during June and July 2013

Digital revenues up 13.3% period on period in the first half and up 31.9% period on period in June and July 2013  (reaching 14.4% of total advertising revenues)

Like for like circulation revenues~ decline reduced to just 0.7% in the first half.   Circulation revenues for titles relaunched during 2013 are showing early signs of improvement. Relaunch of portfolio now completed

Pension deficit down £21.9m to less than £100m as a result of an increase in asset values

Operating margins (before non-recurring and IAS21/39 items) up 1.8% period on period to 19.1% during H1 2013 with cost base down £24.3m period on period

*before non-recurring and IAS21/39 items and after adjusting 2012 operating profit by £3.0m representing impact of the proactive cancellation of News International contract in 2012  

^ before non-recurring and IAS21/39 items and after adjusting for the proactive cancellation of contract print arrangements with News International (£7.1m) and excluding revenues from 5 titles that changed format from daily to weekly in print advertising and newspaper sales of £5.6m in 2013 and £9.1m in 2012

~ excluding the impact of changing five daily titles to weekly format in 2012

Building our overall audience

In the first half of the year we grew our overall audience by almost by 100,000 users a month. This was driven by growth in our web and mobile audiences where we grew our monthly audience to over 11.8m unique users, representing period on period growth of 16.8%. This has more than compensated for the decline in our print audiences, where we saw a decline broadly in line with the market at 11.7% period on period, with cover price increases and adverse weather conditions the primary contributing factors.

We now reach more people with our content than ever.  Our mobile offering has grown from a standing start at the beginning of 2012 to over 4m users (this is over 32% of our local site visits), mostly within the advertiser attractive ABC1 18-34 demograph. We also continue to embrace social media; we now have over 700,000 followers on Twitter.

We continue to expand our content and services, especially video and social media, to resonate ever better with our audiences new and old, from greater sports coverage online to digitising our print archive across all titles. We are investing further in technology, and have rolled out templated newspapers, new workflows, and new laptops and smartphones that are enabling our journalists to spend more time on the ground, in the heart of the communities we serve, generating and curating print and digital content that will allow our titles to remain both trusted and relevant.

 

Stemming the rate of decline in profits and revenues and returning to top line growth

Like for like operating profit (before non-recurring and IAS 21/39 items and after adjusting for the cancellation of our contract printing arrangements with News International) grew by 4.3% to £28.6m, representing the first increase for seven years. This continues the trend we have seen where a long term average annual profit decline of 19.1% between 2006 and 2010 was reduced to 10.3% in 2011 and 4.7% in 2012.

This has been achieved by both continued tight cost control (reducing our cost base by £24.3m, including 21% fewer sales staff achieved through new centralised call centres, and new software and processes), and a strengthening in a number of revenue line items. The reduction in our cost base is ahead of the £20.0m target for 2013 and we believe that there are further cost savings to be delivered in the second half.

Total like for like revenues for the first six months of the year were £144.3m, a decline of 9.8% (before non-recurring and IAS21/39 items after adjusting for the revenue impact of £7.1m resulting from the News International contract cancellation and also excluding the £3.5m net revenue impact for the titles that changed format from daily to weekly in 2012). Much of the continued weakness of the advertising market was due to the challenging economic conditions which continued into Q2 and severe adverse weather during April. Both the market, and our performance within the market, has improved since then. The total advertising revenues period on period decline rate improved to 6.3% in June and July 2013. Within this overall improving trend in advertising performance, some line items that we are strategically focused on as future share gain opportunities, are particularly encouraging: 'TheSmartList' for example, our new fixed price recruitment consultancy business, is over 40% ahead of its business plan whilst online motors and online property were up 175.8% and 91.2% period on period respectively.

Total advertising revenues declined by 13.6% in the first half. The decline in  total advertising seen at the start of the period of 17.6% narrowed during February and March to 12.6%, as the centralisation of 14 contact centres into two undertaken during 2012 started to bed-in and deliver new outbound revenue streams. However, severe weather in April, and continued pessimism about the economy, dampened this progress. The decline in total advertising revenues in June and July has narrowed to 6.3% as a result of renewed optimism, signs of economic recovery and a focus within the Company on winning back lapsed customers and selling longer series of advertising packages using our new Salesforce software.

The summer periods of June and July were the first periods where external factors such as the weather, and internal factors such as converting some of our titles from dailies to weeklies, did not impact our period on period comparisons. In this period our advertising volumes were down only 1.4% on the same period last year, clearly demonstrating my belief that there is strong demand for our print advertising product and we remain as relevant to our national and local advertisers as we have always been especially now we have refreshed and redesigned our print titles.

The cancellation of the News International contract contributed £3.0m to the reduction in operating profit  to £28.6m (before non-recurring and IAS21/39 items) but also delivered cash receipts totalling £40m across 2012 and 2013 which, net of tax,  was used to reduce net debt. The cancellation of this contract in 2012 also contributed £7.1m to the reduction in revenue (before non-recurring and IAS21/39 items) to £149.9m.

The on-going restructuring and re-focusing of the business, coupled with an increasingly stable advertising market, and growth in circulation and digital revenues, has allowed us to increase our operating profit margin (before non-recurring and IAS21/39 items) at the half year to 19.1%, up almost 2 percentage points compared to this time last year. In line with our longer term strategy we will continue to execute further efficiency opportunities as we transform the business to a digital-first publishing model.

Substantially grow digital

During last year, 2012, we became the largest (10m unique users a month) and fastest growing (adding 2m new digital users during the year) digital regional publisher, and grew digital revenues by 12.0%. We moved from packaging just 10% of display adverts with print to a 40% digital conversion rate. In the first half of 2013, we have accelerated this performance growing digital revenues by 13.3% period on period.   Excluding digital recruitment advertising, which continued to be affected by a slow jobs market, digital revenues were up 23.7% in the first six months.  In June and July our overall digital performance improved still further with a period on period revenue growth rate of 32% across these two months. Our digital conversion rate grew from 40% in 2012 to 48% in the first half of 2013.

In July we exceeded our 2013 year-end target for unique users when we hit 12.5m for the month. This is up 20% on the first half of 2012 and demonstrates that our relaunched websites, with improved look and feel, better navigation, improved social media content and substantially more video, are resonating with our audiences. We will complete the rollout of the new websites across our smaller titles during September 2013.

Our new standalone digital brands, DealMonster (hyper-local daily deals) and WOW24/7 (hyper-local entertainment listings guide with national coverage), are growing fast, with the DealMonster business profitable within 20 months of its launch.  Our new recruitment business, TheSmartList, which we launched at the end of last year, is also now profitable and we have recently signed a joint venture agreement with STV, through which we have launched this business into the Scottish market.

Within our digital growth story, it is worth highlighting the first half growth in online motors and online property revenues, which were 175.8% and 91.2% up period on period respectively albeit off relatively low bases, and reflect the progress we are making with our partnership approach with Motors.co.uk and Zoopla. We have also just relaunched an online business directory site, Find-It, in partnership with Scoot.

We have also launched our new Digital Marketing Services offer for Small and Medium Enterprises (which provides services such as Search Engine Marketing, Social Media Marketing and website build).  As part of this we have signed an agreement with Google, becoming a Premier SME Partner which will see Google working closely with our local sales teams in the sale of Google AdWords.

As part of our expanding range of e-commerce activities, we have signed an agreement with Brightsolid, the online technology and publishing group, for the digitisation of our historic newspaper archive.  Separately, we have partnered with Newsquest on the launch of our new online dating platform.

During June and July 2013, digital represented over 14.4% of total advertising revenues, up from less than 10% this time last year.

Keeping our print circulation revenues stable

In 2012 we started the process of relaunching our newspaper titles and successfully relaunched 69 titles. In the first half of this year we completed the relaunch programme covering a total of 227 titles. We have now relaunched all of our paid-for titles in our total portfolio of over 300 brands (including free newspapers and magazines). This is a huge achievement for our team and one that is delivering attractive modern papers which are more appealing to both a wider pool of advertisers (who report that our more modern look better reflects their brands and delivers a more consistent and easier to buy advertising opportunity), and to key demographics and new audiences in our communities.

In the period the Group's circulation revenues decline reduced to just 0.7% (excluding the impact of converting some of our daily titles to weeklies in the spring of 2012). Circulation revenues for titles relaunched during 2013 are showing early signs of improvement.

 

Continuing to pay down our debt

Reducing debt as quickly as possible remains a key management priority. Our net debt at the half year stood at £306.4m, down 15.3% period on period from £361.7m, and we remain on track with our strategy of using strong operating cash-flow and sale of non-core assets to reduce debt further.

Outlook

Johnston Press has continued to make good progress during the first half in the implementation of its strategy for growth, completing the re-launch of its print titles and investing further in technology to build its digital platform whilst maintaining a tight control on costs. It is encouraging to see the benefits of our actions starting to come through, with the Group achieving its first like for like operating profit increase in seven years.

Although the economic outlook is not without challenges, momentum has continued into the second half, underpinned by the re-structuring and re-focusing of the business, an increasingly stable advertising market and growth in circulation and digital revenues. This has enabled us to report like for like operating profit up 4.3%, digital revenues up 13.3% and net debt down 15.3%, with the total advertising decline rate narrowing to 6.3% during June and July 2013.

We remain focused on adapting our business to the changing environment in which we operate and reaching the point where digital growth will offset any further decline so that we can return to overall top line growth.

In view of this operational progress, we expect the results for 2013 to be broadly in line with current market expectations.

 

 

Trading Review and Summary Performance

Total revenue (before non-recurring items) in the first half of 2013 was £149.9m compared to £176.1m in 2012. The table below sets out the summarised Group total revenue:

Table 1 - Group Revenue


 

Before non-recurring and IAS21/39 items


Like for Like*


2013

 2012



2013

 2012



£'m

£'m

%


£'m

£'m

%

 

Revenue








 

Total advertising

93.0

107.7

(13.6)%


89.0

102.2

(12.9)%

 

Newspaper sales

44.4

46.7

(4.9)%


42.8

43.1

(0.7)%

 

Contract printing

6.1

12.6

(51.6)%


6.1

5.5

9.3%

 

Other

6.4

9.1

(29.7)%


6.4

9.1

(29.7)%

 

Total revenue

149.9

176.1

(14.8)%


144.3

159.9

(9.8)%

 

* after adjusting for the cancellation of contract print arrangements with News International (£7.1m) and excluding revenues from five titles that changed format from daily to weekly in advertising and newspaper sales of £5.6m in 2013 and £9.1m in 2012

 

Within total advertising revenue, after a difficult start to the period impacted by severe weather conditions in January and February, print advertising performance (down 16.4% period on period across the period) improved towards the end of the first half (the period on period decline rate decreased to 8.9% in June) with signs of some upturn in the economic environment, renewed focus on winning back lapsed customers and an acceleration of our drive to sell longer series advertising packages.

Display advertising was down 15.3% while classified advertising declined by 17.3% with the employment and motors categories being the most affected.

Operating performance across the geographies in which the Group operates was broadly similar, albeit the performance in the south of England and the Republic of Ireland was slightly stronger than the performance in Scotland and the north of England.

Digital revenues grew by 13.3% (from £10.3m to £11.6m) in the period. Within this, online employment revenues declined by 3.0% with declines within print employment revenues impacting on the upsell to digital. The balance of digital revenues grew by 23.7%, and within this local online display, digital property and digital motor revenues grew by 17.1%, 91.2% and 175.8% respectively.

While newspaper sales revenues (before non-recurring and IAS21/39 items) were down 4.9% in the first half of the year, this includes the impact of changing five daily titles to weekly format in May 2012. Excluding these titles, the revenue decline reduces to just 0.7 %. This represents an improvement on 2012 performance and, taking into account the impact of poor weather at the beginning of the year and the benefit of the title relaunch programme which is now complete, we anticipate the current positive trend to continue in the second half of the year. 

Contract print revenues in the first half of the year were £6.5m lower than in 2012 driven mainly by the News International contract cancellation (£7.1m). We have already secured some new contract work (£0.6m ) which has partially offset this revenue loss, but at lower margins, and we continue to discuss the sale of further freed up capacity with other interested parties. The operating profit impact of the lost News International revenue has also been partially offset by bringing some external printing of our own titles in-house.

Other revenues were down £2.7m period on period.  Leaflet volumes have continued to decline in 2013 affected primarily by the closure of a number of free titles in the second half of 2012. This revenue shortfall has largely been offset by a corresponding saving in leaflet distribution costs.

Table 2 - Group Summary Operating Profit


 

Before non-recurring and IAS21/39 items


Like for Like*


2013

2012



2013

2012



£'m

£'m

%


£'m

£'m

%

 

Operating profit

28.6

30.4

(5.9)%


28.6

27.4

4.3%

 

Operating margin

19.1%

17.3%



19.1%

16.2%


 

* after adjusting for the cancellation of contract printing arrangements with News International

Within operating profit (before non-recurring and IAS 21/39 items) of £28.6m for the first half, costs continue to be actively managed and have reduced by £24.3m (before non-recurring items and IAS 21/39 adjustments) compared with the same period in 2012. The reduction in costs includes current year savings (through further headcount reductions, office closures and an assortment of other initiatives) as well as the full year effect of the savings made last year. We are confident that we will achieve further cost savings in the year.

The tight management of costs has allowed us to improve the Group's operating margin (before non-recurring and IAS 21/39 items) for the first half to 19.1% compared with 17.3% in the first half of 2012.

A significant net non-recurring loss of £254.0m was recognised in the first half of this year. This loss is primarily driven by write-downs in the value of the Group's publishing titles (£194.5m), its print assets (£57.9m) and other non-essential assets that the Group is currently marketing for sale (£3.5m). 

Accounting standards (IAS 36) require us to assess the recoverable value of our publishing titles and print assets by discounting the anticipated future cash flows the Group expects to derive from these assets at a market discount rate and we update our long term forecast model annually to satisfy this requirement, and more frequently if we identify impairment indicators. The reduction in value of the publishing titles is primarily driven by a change in the rate used to discount future cash flows from 11.0% to 12.0% for our UK publishing titles and from 11.0% to 15.9% for our Republic of Ireland titles (as a result of an increase in risk free rates of return and a revised market view on optimal media sector debt equity structures) and an update to underlying anticipated cash flows as a result of recent trading results The key cash flow assumptions for our publishing titles are explained in note 10. The anticipated future cash flows from the print assets have reduced following the buy-out of the Group's contract printing arrangements with News International.   

The values of the non-essential assets the Group intends to sell have been reduced to their expected net realisable value.

In addition to the write-down of asset values, the Group incurred other restructuring costs (including redundancy costs) of £5.0m and a Pension Protection Fund contribution of £3.1m.

Offsetting these losses, the Group received £10.0m from News International in compensation for the termination of the remainder of its contractual commitment to receive printing services from the Group.

The Group incurred an operating loss (after non-recurring and IAS 21/39 items) of £225.4m in the first half. This compares with a £37.8m profit in the same period in 2012. The loss this year arises as a result of the net non-recurring loss totalling £254.0m (see above).

Finance costs are shown in the table below.  These have reduced versus 2012, with the impact of the less favourable terms of the amended facilities agreed in April 2012 being more than offset by the impact of reduced levels of debt period on period. The amended facilities include provisions that would reduce the amount of the PIK payable below that shown in the table in the event of an early repayment of the facilities prior to 31 December 2014.

 

Table 2 - Finance Costs

               

2013

2012


£'m

£'m

 

Net interest paid or payable

12.4

13.6

Payment-in-kind (PIK) accrual

5.7

5.1

Amortisation of facility costs

2.0

2.5


20.1

21.2

 

During the period there was a net charge of £2.8m in relation to IAS 21/39 adjustments; being the net of the movements on retranslation of our US dollar and Euro denominated borrowings and on our hedging arrangements. The equivalent figure for the first half of 2012 was a net charge of £1.9m.

 

Cash Flow/Net Debt

The Group's net debt at 29 June 2013 was £306.4m. The Group continues to maintain a tight control of working capital and capital expenditure with £4.2m having been spent on asset purchases in the first half offset by £2.6m received from non-essential asset sales.  Cash interest paid in the first half was £18.2m, an increase of 33.9% on the same period in 2012, due to the December 2012 interest payment (£5.1m) falling into the 2013 period. Excluding this December 2012 payment, cash interest paid in the first half was 3.6% lower period on period as a result of the lower period on period debt levels throughout 2013.

 

Net Asset Position

At the period end, the Group had net assets of £104.3 million, a decrease of £169.7 million on the position at 29 December 2012. This decrease is a direct consequence of the asset write-downs taken in the period (see above).

 

Going Concern

The Group continues to adopt the going concern basis of accounting in preparing the unaudited condensed consolidated interim financial statements.

The Group's bank facilities and private placement loan notes contain three quarterly covenant tests, Consolidated EBITDA to Consolidated Net Borrowing Costs, Consolidated Net Borrowings to Consolidated EBITDA, and Consolidated Net Cash Flow to Total Debt Service, in addition to a Consolidated Net Worth covenant which is tested at the half year and year end. The covenants levels remain constant until September 2013, and when last tested at 29 June 2013, were all met. From December 2013 both EBITDA covenants levels contractually tighten through to the maturity of the facilities in September 2015.

The Group's key strategic financial priority remains paying down of debt. Since the renegotiation of new facilities in April 2012, net debt has been reduced from a peak of £361.7m to £306.4m. This reduction was helped considerably by the Group successfully negotiating the buy-out of its print contract by News International in July 2012, following the closure of the News of the World.  This, along with the further buy-out of their remaining print contracts in March 2013, generated gross proceeds of £40.0m offset by an annualised reduction in pre-tax operating profit of £13.4m, before adjustments for subsequent actions undertaken to mitigate the lost income. We agreed with the lenders to accelerate the debt repayment profile using these net proceeds after tax and printing press consolidation costs.

While the Group continues to report strong and improving trends in like-for-like profitability, the negotiated buy-out of the News International print contracts means that the Group is operating closer to its financial covenants than was originally intended by both the Group and its lenders.

The Board has undertaken a recent and thorough review of its forecasts and associated risks. These forecasts extend for a period of 12 months from the date of approval of these unaudited condensed consolidated interim financial statements and demonstrate compliance with financial covenants over the period. The Directors are satisfied that it is reasonable to adopt the going concern basis of accounting following this review, further details of which are set out below.

The forecasts make key assumptions, based on information available to the Directors, on a number of items including in relation to:

·     External advertising  forecasts;

·     Current print advertising run rates;

·     Growth in digital revenues;

·     The impact of newspaper cover price increases on circulation revenues;

·     Existing and planned cost reduction measures;

·     Planned disposals of non-strategic assets; and

·     Projected debt service and interest costs over the next 12 months.

The Directors recognise that some of the assumptions referred to above are not within the Group's control, and around which therefore there remains some uncertainty. Good progress has been and continues to be made against all of the key assumptions: like for like trading is improving, digital revenues are growing strongly, circulation revenues have stabilised, cost savings targets have been exceeded, good progress has been made on planned asset disposals, and debt reduction is on schedule, as evidenced by like-for-like increases in operating profits and margins, and debt reduction.

The risks described are not new.  However, in the event that a number of the following were to happen concurrently - a deteriorating economic climate, a lack of successful execution of the strategy by the Group, the inability to continue to make cost savings, and a lack of success or delays in completing the sale of non-core property and other assets - and thus the Group were to breach its financial covenants, then this would give lenders, acting in their majority, the ability to demand repayment of the facilities.  Prior to such eventuality, however, the Group would seek to engage in further constructive discussion with its lenders. In light of the forthcoming scheduled tightening of covenants and in accordance with Accounting Standards and the UK Financial Reporting Council guidance for directors on going concern, it is appropriate for the directors to recognise a material uncertainty, which may give rise to significant doubt over the Group's  ability to continue as a going concern, and if the majority of lenders chose to exercise their rights in such an event, the Group  may be unable to realise assets and discharge its liabilities in the normal course of business.  The unaudited condensed consolidated interim financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

Nevertheless, after making enquiries and considering the uncertainties above, the Directors have a reasonable expectation that the Group will continue to trade within the terms of its existing financial arrangements and will have adequate resources to continue operating in the normal course of business for the foreseeable future. Thus the Group continues to adopt the going concern basis of accounting in preparing the unaudited condensed consolidated interim financial statements.

Business Risks

The principal risks and uncertainties for the second six months of the financial year are the same risks and uncertainties referred to and discussed within pages 24 and 25 of the 2012 Annual Report and Accounts. In particular, the Group is affected by the general economic conditions in the markets in which it operates, and these conditions remain uncertain and outside the Group's control. Such factors include changes in gross domestic product (GDP), the level of property transactions, the volume of new car sales and the level of unemployment. The results of the Group are also impacted by the public sector and the continued pressures on public finances have continued to result in reductions in the employment and other classified revenues in particular. While recent UK economic data has been encouraging, consumer confidence remains low throughout the United Kingdom and the Republic of Ireland and concerns continue around the economic performance of both economies, the future of the Eurozone and the level and timing of future GDP growth.

The Annual Report highlighted a number of areas where the Group was taking steps to mitigate identified risks and we continue to address these.  Our unique local position continues to allow us to offer advertisers exceptional levels of local market penetration and our challenge is to improve our ability to monetise this. We believe that the strategic changes that we are implementing will allow us to do this effectively and in doing so will transform the position of the Group.

Responsibility Statement

 

We confirm to the best of our knowledge:

a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b) The Chief Executive's Half Year Statement includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 26 weeks and description of the principal risks and uncertainties for the remaining 26 weeks of the financial year); and

c) The Chief Executive's Half Year Statement includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By Order of the Board

 

Ashley Highfield

Chief Executive Officer

28 August 2013

 

David King

Chief Financial Officer

28 August 2013

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.



Independent Review Report to Johnston Press plc

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 29 June 2013 which comprises the Group Income Statement, the Group Statement of Comprehensive Income, the Group Reconciliation of Shareholders' Equity, the Group Statement of Financial Position, the Group Statement of Cash Flows and related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' Responsibilities

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

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our Responsibility

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

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Emphasis of matter on going concern

As a result of our review of the condensed financial statements, we have considered the adequacy of the disclosures in the financial statements concerning the group's ability to continue as a going concern. The Directors have recognised that some of the assumptions adopted by the Group are not within the Group's control, and around which therefore there remains some uncertainty. These uncertainties include: a deteriorating economic climate, a lack of successful execution of the strategy by the Company, the inability to continue to make cost savings, and a lack of success or delays in completing the sale of non-core property and other assets, which if to occur concurrently could result in a breach in the Group's financial covenants.

 

These conditions, along with other matters explained in note 2, indicate the existence of a material uncertainty which may give rise to significant doubt over the group's ability to continue as a going concern. The condensed financial statements do not include the adjustments that would result if the company and group were unable to continue as a going concern.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks to 29 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor
Edinburgh, United Kingdom
28 August 2013

 

 



Group Income Statement (unaudited)

26 weeks to 29 June 2013

 



26 weeks to 29.06.13

26 weeks to 30.06.13

52 weeks to 29.12.12


Notes

Before
non-
recurring and
IAS 21/39
items
£'000

Non-
recurring
items
£'000

IAS
21/39
£'000

Total
£'000

Before
non-
recurring and
IAS 21/39
items
£'000

Non-
recurring
items
£'000

IAS
21/39
£'000

Total
£'000

Total
£'000

Revenue

3a/4

149,927

10,000

-

159,927

176,066

30,000

-

206,066

358,691

Cost of sales


(89,016)

-

-

(89,016)

(111,324)

-

-

(111,324)

(207,868)

Gross profit


60,911

10,000

-

70,911

64,742

30,000

-

94,742

150,823

Operating expenses

4

(32,273)

(69,532)

-

(101,805)

(34,301)

(22,616)

-

(56,917)

(110,382)

Impairment of intangibles

4/10

-

(194,472)

-

(194,472)

-

-

-

-

-

Total operating expenses


(32,273)

(264,004)

-

(296,277)

(34,301)

(22,616)

-

(56,917)

(110,382)

Operating (loss)/profit


28,638

(254,004)

-

(225,366)

30,441

7,384

-

37,825

40,441

Investment income

5

384

-

-

384

75

-

-

75

148

Net finance expense on pension liabilities/assets

6a

(814)

-

-

(814)

(1,230)

-

-

(1,230)

(2,471)

Change in fair value
of hedges


-

-

2,822

2,822

-

-

(3,871)

(3,871)

(7,297)

Retranslation
of USD debt


-

-

(5,116)

(5,116)

-

-

1,512

1,512

4,275

Retranslation
of euro debt




(538)

(538)

-

-

484

484

262

Finance costs

6b

(20,059)

-

-

(20,059)

(21,229)

-

-

(21,229)

(42,129)

Share of results
of associates


2

-

-

2

3

-

-

3

6

(Loss)/profit
before tax


8,151

(254,004)

(2,832)

(248,685)

8,060

7,384

(1,875)

13,569

(6,765)

Tax

7

438

59,313

689

60,440

4,847

(1,809)

(2,123)

915

12,376

(Loss)/profit for
the period


8,589

(194,691)

(2,143)

(188,245)

12,907

5,575

(3,998)

14,484

5,611

Earnings per share (p)

8









- Basic


1.34

(30.75)

(0.34)

(29.75)

2.09

0.89

(0.64)

2.34

0.88

- Diluted


1.34

(30.75)

(0.34)

(29.75)

2.09

0.89

(0.64)

2.34

0.87

 

All of the revenue and (loss)/ profit above is derived from continuing operations.

 

 



Group Statement of Comprehensive Income (unaudited)

26 weeks to 29 June 2013

 


Revaluation

Reserve

£'000

Hedging and

Translation

Reserve

£'000

Retained

Earnings

£'000

Total

£'000

Loss for the period

-

-

(188,245)

(188,245)

Items that will not be reclassified subsequently to profit or loss:

Actuarial gain on defined benefit pension schemes (net of tax)

-

-

14,904

14,904

Items that may be reclassified subsequently to profit or loss:

Revaluation adjustment

(6)

-

6

-

Exchange differences on translation of foreign operations

-

944

-

944

Deferred tax on exchange differences

-

(226)

-

(226)

Total comprehensive loss for the period

(6)

718

(173,335)

(172,623)

 

 

Group Statement of Comprehensive Income (unaudited)

26 Weeks to 30 June 2012

 


Revaluation

Reserve

£'000

Hedging and

Translation

Reserve

£'000

Retained

Earnings

£'000

Total

£'000

Profit for the period

-

-

14,484

14,484

Items that will not be reclassified subsequently to profit or loss:

Actuarial gain on defined benefit pension schemes (net of tax)

-

-

428

428

Items that may be reclassified subsequently to profit or loss:

Revaluation adjustment

(43)

-

43

-

Exchange differences on translation of foreign operations

-

(1,232)

-

(1,232)

Deferred tax on exchange differences

-

258

(107)

151

Change in deferred tax rate to 24.0%

-

-

4

4

Total comprehensive income for the period

(43)

(974)

14,852

13,835

 

 

 

 



Group Reconciliation of Shareholders' Equity (unaudited)

26 weeks to 29 June 2013

 


Share

Capital

£'000

Share

Premium

£'000

Share-based Payments

Reserve

£'000

Revaluation

Reserve

£'000

Own

Shares

£'000

Hedging and

Translation

Reserve

£'000

Retained

Earnings

£'000

Total

£'000

Opening balances

65,081

502,818

18,959

1,783

(5,589)

9,267

(318,402)

273,917

Total comprehensive loss for the period

-

-

-

(6)

-

718

(173,335)

(172,623)

Recognised directly in equity









Dividends (note 9)

-

-

-

-

-

-

(76)

(76)

Provision for share-based payments

-

-

347

-

-

-

-

347

Own shares purchased

-

-

-

-

(120)

-

-

(120)

Share warrants exercised

2,796

11

-

-

-

-

-

2,807

Release on exercise of share warrants

-

-

(3,466)

-

-

-

3,466

-

Net change directly in equity

2,796

11

(3,119)

-

(120)

-

3,390

2,958

Total movements

2,796

11

(3,119)

(6)

(120)

718

(169,945)

(169,665)

Equity at the end of the period

67,877

502,829

15,840

1,777

(5,709)

9,985

(488,347)

104,252

 

 

 

Group Reconciliation of Shareholders' Equity (unaudited)

26 Weeks to 30 June 2012

 


Share

Capital

£'000

Share

Premium

£'000

Share-based Payments

Reserve

£'000

Revaluation

Reserve

£'000

Own

Shares

£'000

Hedging and

Translation

Reserve

£'000

Retained

Earnings

£'000

Total

£'000

Opening balances

65,081

502,818

17,845

2,160

(5,379)

9,779

(307,940)

284,364

Total comprehensive income for the period

-

-

-

(43)

-

(974)

14,852

13,835

Recognised directly in equity









Dividends (note 9)

-

-

-

-

-

-

(76)

(76)

Provision for share-based payments

-

-

377

-

-

-

-

377

Own shares purchased

-

-

-

-

(253)

-

-

(253)

Share warrants issued

-

-

551

-

-

-

-

551

Net change directly in equity

-

-

928

-

(253)

-

(76)

599

Total movements

-

-

928

(43)

(253)

(974)

14,776

14,434

Equity at the end of the period

65,081

502,818

18,773

2,117

(5,632)

8,805

(293,164)

298,798

 

 

 



Group Statement of Financial Position (unaudited)

At 29 June 2013

 


Notes

29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Non-current assets





Intangible assets

10

548,806

741,820

742,294

Property, plant and equipment

11

57,291

149,397

127,223

Available for sale investments


970

970

970

Interests in associates


22

18

20

Trade and other receivables


5

6

6

Derivative financial instruments

12

4,991

6,320

2,742



612,085

898,531

873,255

Current assets





Assets classified as held for sale


13,520

5,746

7,601

Inventories


2,347

4,567

2,850

Trade and other receivables


40,787

77,687

41,628

Cash and cash equivalents

13

26,595

10,129

32,789

Derivative financial investments

12

630

399

155



83,879

98,528

85,023

Total assets


695,964

997,059

958,278

Current liabilities





Trade and other payables


53,931

43,185

50,934

Current tax liabilities


947

10,865

2,947

Retirement benefit obligation

14

5,700

5,700

5,700

Borrowings

13

-

18,101

8,520

Derivative financial instruments

12

-

494

99

Short-term provisions


1,366

-

1,327



61,944

78,345

69,527

Non-current liabilities





Borrowings

13

328,200

346,728

334,220

Retirement benefit obligation

14

93,724

96,453

115,619

Deferred tax liabilities


103,991

171,527

160,584

Trade and other payables


139

145

142

Long-term provisions


3,714

5,063

4,269



529,768

619,916

614,834

Total liabilities


591,712

698,261

684,361

Net assets


104,252

298,798

273,917

Equity





Share capital

15

67,877

65,081

65,081

Share premium account


502,829

502,818

502,818

Share-based payments reserve

16

15,840

18,773

18,959

Revaluation reserve


1,777

2,117

1,783

Own shares


(5,709)

(5,632)

(5,589)

Hedging and translation reserve


9,985

8,805

9,267

Retained earnings


(488,347)

(293,164)

(318,402)

Total equity


104,252

298,798

273,917

 

 

 



Group Statement of Cash Flows (unaudited)

26 weeks to 29 June 2013

 


Notes

26 Weeks to 29.06.13

£'000

26 Weeks to 30.06.12

£'000

52 Weeks to 29.12.12

£'000

Cash flows from operating activities





Cash generated from operations

17

41,423

25,738

76,098

Income tax paid


(2,800)

(2,409)

(4,809)

Net cash inflow from operating activities


38,623

23,329

71,289

Investing activities





Interest received


6

55

120

Dividends received from available for sale investments


378

17

22

Proceeds on disposal of property, plant and equipment


2,631

892

8,936

Purchases of property, plant and equipment


(4,196)

(2,163)

(5,171)

Net cash (used in)/received from investing activities


(1,181)

(1,199)

3,907

Financing activities





Dividends paid


(76)

(76)

(152)

Interest paid


(18,246)

(13,627)

(17,243)

(Repayment)/drawdown of bank borrowings


(22,199)

13,357

(2,697)

Repayment of loan notes


(5,802)

(15,755)

(23,841)

Financing fees


-

(11,403)

(11,826)

Net cash flow from derivatives


-

198

198

Purchase of own shares


(120)

 (253)

(253)

Issue of share capital


2,807

-

-

Increase in bank overdrafts


-

2,151

-

Net cash used in financing activities


(43,636)

(25,408)

(55,814)

Net (decrease)/increase in cash and cash equivalents


(6,194)

(3,278)

19,382

Cash and cash equivalents at the beginning of period


32,789

13,407

13,407

Cash and cash equivalents at the end of the period

13

26,595

10,129

32,789

 

 

 



Notes to the Interim Financial Information (unaudited)

 

1. General Information

The condensed financial information for the 26 weeks to 29 June 2013 does not constitute statutory accounts for the purposes of Section 434 of the Companies Act 2006 and has not been audited. No statutory accounts for the period have been delivered to the Registrar of Companies. This half-yearly financial report constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules.

The condensed financial information in respect of the 52 weeks ended 29 December 2012 has been produced using extracts from the statutory accounts for this period. Consequently, this does not constitute the statutory information (as defined in section 434 of the Companies Act 2006) for the 52 weeks ended 29 December 2012, which was audited. The statutory accounts for this period have been filed with the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under Sections 498 (2) or 498 (3) of the Companies Act 2006.

The next annual financial statements of the Group for the 52 weeks to 28 December 2013 will be prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'. The financial information in this Interim Report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules. The auditors have reviewed the financial information in this Interim Report and their report is set out on page 12.

The Interim Report was approved by the Directors on 28 August 2013 and is being made available to shareholders on the same date on the Company's website at www.johnstonpress.co.uk.

2. Accounting Policies

Basis of Preparation

The interim financial information has been prepared on the historical cost basis, except for the revaluation of certain properties and financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Half Year Statement. This statement also includes a summary of the Group's financial position, its cash flows and borrowing facilities.

The Group continues to adopt the going concern basis of accounting in preparing the unaudited condensed consolidated interim financial statements.

The Group's bank facilities and private placement loan notes contain three quarterly covenant tests, Consolidated EBITDA to Consolidated Net Borrowing Costs, Consolidated Net Borrowings to Consolidated EBITDA, and Consolidated Net Cash Flow to Total Debt Service, in addition to a Consolidated Net Worth covenant which is tested at the half year and year end. The covenants levels remain constant until September 2013, and when last tested at 29 June 2013, were all met. From December 2013 both EBITDA covenants levels contractually increase through to the maturity of the facilities in September 2015.

The Group's key strategic financial priority remains paying down of debt. Since the renegotiation of new facilities in May 2012, net debt has been reduced from a peak of £361.7 million to £306.4 million. This reduction was helped considerably by the Group successfully negotiating the buy-out of its print contract by News International in July 2012, following the closure of the News of the World.  This, along with the further buy-out of their remaining print contracts in March 2013, generated gross proceeds of £40m offset by an annualised reduction in pre-tax operating profit of £13.4m, before adjustments for subsequent actions undertaken to mitigate the lost income. We agreed with the lenders to accelerate the debt repayment profile using these net proceeds after tax and printing press consolidation costs.

While the Group continues to report strong and improving trends in like-for-like profitability, the negotiated exit of the News International print contracts means that the Group is operating closer to its financial covenants than was originally intended by both the Group and its lenders.

The Board has undertaken a recent and thorough review of its forecasts and associated risks. These forecasts extend for a period of 12 months from the date of approval of these unaudited condensed consolidated interim financial statements and demonstrate compliance with financial covenants over the period. The Directors are satisfied that it is reasonable to adopt the going concern basis of accounting following this review, further details of which are set out below.

The forecasts make key assumptions, based on information available to the Directors, on a number of items including in relation to:

·     External advertising  forecasts;

·     Current print advertising run rates;

·     Growth in digital revenues;

·     The impact of newspaper cover price increases on circulation revenues;

·     Existing and planned cost reduction measures;

·     Planned disposals of non-strategic assets; and

·     Projected debt service and interest costs over the next 12 months.

The Directors recognise that some of the assumptions referred to above are not within the Group's control, and around which therefore there remains some uncertainty. Good progress has been and continues to be made against all of the key assumptions: like for like trading is improving, digital revenues are growing strongly, circulation revenues have stabilised, cost savings targets have been exceeded, good progress has been made on planned asset disposals, and debt reduction is on schedule, as evidenced by like-for-like increases in operating profits and margins, and debt reduction.

The risks described are not new.  However, in the event that a number of the following were to happen concurrently - a deteriorating economic climate, a lack of successful execution of the strategy by the Group, the inability to continue to make cost savings, and a lack of success or delays in completing the sale of non-core property and other assets - and thus the Group were to breach its financial covenants, then this would give lenders, acting in their majority, the ability to demand repayment of the facilities.  Prior to such eventuality, however, the Group would seek to engage in further constructive discussion with its lenders. In light of the forthcoming scheduled tightening of covenants and in accordance with Accounting Standards and the UK Financial Reporting Council guidance for directors on going concern, it is appropriate for the directors to recognise a material uncertainty, which may give rise to significant doubt over the Group's  ability to continue as a going concern, and if the majority of lenders chose to exercise their rights in such an event, the Group  may be unable to realise assets and discharge its liabilities in the normal course of business.  The unaudited condensed consolidated interim financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

Nevertheless, after making enquiries and considering the uncertainties above, the Directors have a reasonable expectation that the Group will continue to trade within the terms of its existing financial arrangements and will have adequate resources to continue operating in the normal course of business for the foreseeable future. Thus the Group continues to adopt the going concern basis of accounting in preparing the unaudited condensed consolidated interim financial statements.

Basis of Accounting

In the current financial year, the Group has adopted the amendments to IAS 1 "Presentation of Items of Other Comprehensive Income". Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements.

The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect that change. The effect of these changes is evident from the Condensed Consolidated Statement of Comprehensive Income.

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Non-recurring items

Non-recurring items include significant exceptional transactions, the restructuring of businesses and material one-off items such as revenue received on the termination of significant print contracts, the disposal of a significant property and impairment of intangible and tangible assets together with the associated tax impact. The Company considers such items are material to the Income Statement and their separate disclosure is necessary for an appropriate understanding of the Group's financial performance.

Valuation of publishing titles on acquisition

The Group's policies require that a fair value at the date of acquisition be attributed to the publishing titles owned by each acquired entity. The Group's management uses its judgement to determine the fair value attributable to each acquired publishing title taking into account the consideration paid, the earnings history and potential of the title, any recent similar transactions, industry statistics such as average earnings multiples and any other relevant factors.

The publishing titles are considered to have indefinite economic lives due to the historic longevity of the brands and the ability to evolve the brands in the changing media environment.

Assets held for sale

Where a property or a significant item of equipment (such as a print press) is marketed for sale, management is highly committed to the sale and the asset is available for immediate sale, the Group classifies that asset as held for sale. If the asset is expected to be sold within twelve months, the asset is classed as a current asset. The value of the asset is held at the lower of the net book value or the expected realisable sale value. The Directors' have estimated the sale values based on the current price that the asset is being marketed at and advice from independent property agents. The actual sale proceeds may differ from the estimate.

Provisions for onerous leases and dilapidations

Where the Group exits a rented property, an estimate of the anticipated total future cost payable under the terms of the operating lease, including rentals, rates and other related expenses, is charged to the Income Statement at the point of exit as an onerous lease. Where there is a break clause in the contract, rentals are provided for up to that point. In addition, an estimate is made of the likelihood of sub-letting the premises and any rentals that would be receivable from a sub tenant. Where receipt of sub-lease rentals is considered reasonable, these amounts are deducted from the rentals payable by the Group under the lease and provision charged for the net amount.

Under the terms of a number of property leases, the Group is required to return the property to its original condition at the lease expiry date. The Group has estimated the expected costs of these dilapidations and charged these costs to the Income Statement. The costs have been discounted to the net present value given the length of some of the leases.

Key sources of estimation uncertainty

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

Impairment of publishing titles

Determining whether publishing titles are impaired requires an estimation of the value in use of the cash generating units (CGUs) to which these assets are allocated. Key areas of judgement in the value in use calculation include the identification of appropriate CGUs, estimation of future cash flows expected to arise from each CGU, the long-term growth rates and a suitable discount rate to apply to cash flows in order to calculate present value. The Group has identified its CGUs based on the seven geographic regions in which it operates. This is considered to be the lowest level at which cash inflows generated are largely independent of the cash inflows from other groups of assets and has been consistently applied in the current and prior periods. An impairment charge has been recognised in the period of £194,472,000 (30 June 2012: £nil). The carrying value of publishing titles at 29 June 2013 was £548,806,000 (30 June 2012: £741,820,000).  Details of the impairment reviews that the Group performs are provided in Note 10.

Valuation of pension liabilities

The Group records in its Statement of Financial Position a liability equivalent to the deficit on the Group's defined benefit pension schemes. This liability is determined with advice from the Group's actuarial advisers each year and can fluctuate based on a number of factors, some of which are outwith the control of management. The main factors that can impact the valuation include:

·     the discount rate used to discount future liabilities back to the present date, determined each year from the yield on corporate bonds;

·     the actual returns on investments experienced as compared to the expected rates used in the previous valuation;

·     the actual rates of salary and pension increase as compared to the expected rates used in the previous valuation;

·     the forecast inflation rate experienced as compared to the expected rates used in the previous valuation; and

·     mortality assumptions.

Details of the assumptions used to determine the liability at 29 June 2013 are set out in Note 14.

 

 

 

 

 

3. Business Segments

Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance is focused on the two operating segments of Publishing (in print and online) and Contract Printing. These are the only two operating segments of the Group.

a) Segment Revenues and Results


Publishing 26 weeks to 29.06.13

£'000

Contract printing
26 weeks to 29.06.13

£'000

Eliminations 26 weeks to 29.06.13

£'000

Group

26 weeks to 29.06.13

£'000

Revenue (before non-recurring items)





External sales

143,036

6,891

-

149,927

Inter-segment sales

-

20,204

(20,204)

-

Total revenue

143,036

27,095

(20,204)

149,927

Result





Segment result before non-recurring items

26,941

1,697

-

28,638

Non-recurring items

(204,305)

(49,699)

-

(254,004)

Net segment result

(177,364)

(48,002)

-

(225,366)

Investment income




384

Net finance expense on pension liabilities/assets




(814)

Net finance costs




(20,059)

Net IAS 21/39 adjustments




(2,832)

Share of results of associates




2

Loss before tax




(248,685)

Tax




60,440

Loss after tax for the period




(188,245)

 

Inter-segment sales are charged on an arm's length basis.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in the Group's annual consolidated financial statements for the 52 weeks to 29 December 2012. Segment result represents the profit earned by each segment without allocation of the share of results of associates, investment income, finance costs (including in relation to pension assets and liabilities) and income tax expense. This is the measure reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance.

The Group, in common with the rest of the publishing industry, is subject to the main holiday periods of Easter, summer and Christmas. Since these fall across both half years, the Group's financial results are not usually subject to significant seasonal variations.

 


Publishing 26 weeks to 30.06.12

£'000

Contract printing
26 weeks to 30.06.12

£'000

Eliminations 26 weeks to 30.06.12

£'000

Group
26 weeks to 30.06.12

£'000

Publishing

52 weeks to 29.12.12

£'000

Contract printing
52 weeks to 29.12.12

£'000

Eliminations 52 weeks to 29.12.12 £'000

Group
52 weeks to 29.12.12 £'000

Revenue (before non-recurring items)









External sales

162,387

13,679

-

176,066

308,438

20,253

-

328,691

Inter-segment sales

-

28,530

(28,530)

-

-

53,019

(53,019)

-

Total revenue

162,387

42,209

(28,530)

176,066

308,438

73,272

(53,019)

328,691

Result









Segment result before non- recurring items

24,870

5,571

-

30,441

51,554

5,491

-

57,045

Non-recurring items

(6,247)

13,631

-

7,384

(22,667)

6,063

-

(16,604)

Net segment result

18,623

19,202

-

37,825

28,887

11,554

-

40,441

Investment income




75




148

Net finance expense on pension liabilities/assets




(1,230)




(2,471)

Net finance costs




(21,229)




(2,760)

Net IAS 21/39 adjustments




(1,875)




(42,129)

Share of results of associates




3




6

Profit/(loss) before tax




13,569




(6,765)

Tax




915




12,376

Profit after tax for the period




14,484




5,611

 

 

 

 

 

b) Segment Assets

 


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Assets




Publishing

650,610

874,557

855,372

Contract printing

38,763

114,813

99,039

Total segment assets

689,373

989,370

954,411

Unallocated assets

6,591

7,689

3,867

Consolidated total assets

695,964

997,059

958,278

 

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of available-for-sale investments and derivative financial instruments.

 

c) Other Segment Information

 


Publishing 29.06.13

£'000

Contract

printing

29.06.13

£'000

Group

29.06.13

£'000

Publishing

30.06.12

£'000

Contract printing

30.06.12

£'000

Group

30.06.12

£'000

Publishing

29.12.12

£'000

Contract printing

29.12.12

£'000

Group

29.12.12

£'000

Additions to property, plant and equipment

4,130

-

4,130

2,081

16

2,097

4,912

180

5,092

Depreciation expense (inc. non-recurring items)

3,687

62,577

66,264

2,657

17,793

20,450

5,077

24,877

29,954

Net impairment of intangibles

194,472

-

194,472

-

-

-

-

-

-

 

4. Non-Recurring Items

Non-recurring items included with the Group Income Statement are:


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Revenue




Termination of printing contract

10,000

30,000

30,000

Operating expenses




Impairment of intangible assets (note 10)

(194,472)

-

-

Gain on sale of assets

166

-

986

Cost from the termination of print contract

(4)

-

(92)

Return on previously written down available for sale investments

-

-

145

Restructuring costs of existing businesses including redundancy costs

(5,202)

(10,806)

(24,403)

Write down in value of assets held for sale

(3,522)

-

(7,541)

Write down of value of presses in existing businesses

(57,907)

(13,350)

(17,239)

IAS 19 past service gain (note 14)

-

1,540

1,540

Pension protection fund contribution

(3,063)

-

-


(264,004)

(22,616)

(46,604)

Total non-recurring items

(254,004)

7,384

(16,604)

 

 

The Group has recognised revenue of £10.0 million (30 June 2012: £30.0 million; 29 December 2012: £30.0 million) during the period from News International for the termination of a long-term contract to provide printing facilities.

Following a review of the value-in-use of our print assets their value has been written down by £57.9 million.

 

5. Investment Income


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Interest receivable

3

55

126

Income from available-for-sale investments

381

20

22


384

75

148

 

 

 

 

 

 

 

 

6. Finance Costs

a) Net Finance Income on Pension Liabilities/Assets


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Interest on pension liabilities (note 14)

11,092

11,466

22,708

Expected return on pension assets (note 14)

(10,278)

(10,236)

(20,237)

Net finance expense on pension liabilities/assets

814

1,230

2,471

 

 

b) Finance Costs


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Interest on bank overdrafts and loans

12,352

13,676

26,944

Payment-in-kind interest accrual

5,735

5,100

11,048

Amortisation of term debt issue costs

1,972

2,453

4,137

Total finance costs

20,059

21,229

42,129

 

7. Tax

The tax credit comprises:


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Corporation tax

819

9,025

3,671

Deferred tax

(61,259)

(9,940)

(16,047)

Total tax credit

(60,440)

(915)

(12,376)

Reconciliation of tax credit




Standard rate of corporation tax

23.25%

24.5%

24.5%

(Loss)/profit before tax at standard corporation tax rate

(57,819)

3,324

(1,657)

Tax effect of items that are not deductible or not taxable in determining taxable profit

543

2,707

1,337

Tax effect of share of results of associate

-

(1)

-

Tax effect of investment income

(88)

(5)

(5)

Effect of different tax rates on subsidiaries

(1,127)

(115)

(302)

Other items

-

(42)

-

Effect of reduction in deferred tax rate

-

(6,739)

(12,070)

Adjustment in respect of prior years

(1,949)

(44)

321

Total tax credit

(60,440)

(915)

(12,376)

 

The basic rate tax applied for the 2013 period of 23.25% was a blended rate due to the tax rate of 24% in effect for the first quarter of 2013, changing to 23% from 1 April 2013 under the 2012 Finance Act.

Corporation tax for the interim period is credited at 24.3% (30 June 2012: credited at 6.8%), including deferred tax.

The Group estimates that the future rate changes to 20% would reduce its UK actual deferred tax liability provided at 29 June 2013 by £13.1 million, however the impact will be dependent on our deferred tax position at that time.

 



8. Earnings Per Share

The calculation of earnings per share is based on the following (losses) /profits and weighted average number of shares:


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Earnings




(Loss)/profit for the period

(188,245)

14,484

5,611

Preference dividend

(76)

(76)

(152)

Earnings for purposes of basic and diluted earnings per share

(188,321)

14,408

5,459

Non-recurring and IAS 21/39 items (after tax) (note 4)

196,834

(1,577)

15,813

Earnings for the purposes of underlying earnings per share

8,513

12,831

21,272






000's

000's

000's

Number of shares




Weighted average number of ordinary shares for the purpose of basic earnings per share

632,980

621,753

621,759

Effect of dilutive potential ordinary shares:




- warrants and employee share options

-

-

2,594

- deferred bonus shares

-

-

1,789

Number of shares for the purposes of diluted earnings per share

632,980

621,753

626,142

 


Pence

Pence

Pence

Earnings per share (p)




Basic

(29.75)

2.34

0.88

Underlying

1.34

2.09

3.42

Diluted - see below

(29.75)

2.34

0.87

 

The weighted average number of ordinary shares above are shown excluding treasury shares.

Underlying figures are presented to show the effect of excluding non-recurring and IAS 21/39 items from earnings per share.

Diluted earnings per share are presented when a company could be called upon to issue shares that would decrease net profit or increase loss per share.

The basic and diluted earnings per share for the period were adversely affected by the non-recurring items in note 4. This had no impact on the underlying earnings per share calculation.

In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of earnings per share.

 

9. Dividends


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Amounts recognised as distributions in the period




Preference dividends paid

76

76

152


76

76

152






Pence

Pence

Pence

Dividend paid per share




Preference

6.875

6.875

13.75

 

No interim dividend has been proposed in line with the terms of the banking arrangements. There were no dividends proposed but not paid or included in the accounting records in either of the comparative periods shown.

 

10. Intangible Assets


Publishing

Titles

£'000

Cost


At 29 December 2012

1,308,677

Exchange movements

984

At 29 June 2013

1,309,661

Accumulated impairment losses


At 29 December 2012

(566,383)

Net losses for the period

(194,472)

At 29 June 2013

(760,855)

Carrying amount


At 29 December 2012

742,294

At 29 June 2013

548,806

 

The exchange movement is recorded in reserves and is partially offset by a movement in euro borrowings which acts as a partial economic hedge.

The carrying amount of publishing titles by cash generating unit (CGU) is as follows:


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Scotland

25,870

58,575

56,013

North

237,215

279,223

272,190

Northwest

63,019

104,561

93,201

Midlands

132,451

168,731

168,190

South

26,343

45,267

60,602

Northern Ireland

53,645

63,042

73,422

Republic of Ireland

10,263

22,421

18,676

Total carrying amount of publishing titles

548,806

741,820

742,294

 

 

The Group tests the carrying value of publishing titles held within the publishing operating segment for impairment annually or more frequently if there are indications that they might be impaired. The publishing titles are grouped by CGUs, being the lowest levels for which there are separately identifiable cash flows independent of the cash inflows from other groups of assets.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are:

·      the discount rate;

·      expected changes to selling prices and direct costs during the period; and

·      growth rates.

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The discount rate applied to future cash flows in 2013 was 12.0% (2012: 11.0%) for the CGUs in the United Kingdom and 15.9% (2012: 11%) for the CGU in the Republic of Ireland. The discount rate reflects management's view of the current risk profile of the underlying assets being valued with regard to the current economic environment and the risks that the regional media industry is facing.

Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. These include changes in cover prices and advertising rates as well as movement in newsprint and production costs and inflation.

Discounted cash flow forecasts are prepared using:

·      the most recent financial projections approved by management for 2013 - 2014 which reflect management's current experience and future expectations of the markets the CGUs operate in;

·      cash flows for 2015 to 2032 that are extrapolated based on an estimated annual long-term growth rate of 1.0%;

·      a discounted residual value of 5 times the final year's cash flow; and

·      capital expenditure cash flows to reflect the cycle of capital investment required.

The present value of the cash flows are then compared to the carrying value of the asset to determine if there is any impairment loss.

The total net impairment charge recognised in 2013 was £194.5 million (2012: £nil).

The Group has conducted sensitivity analysis on the impairment test of each CGU's carrying value. A decreasein the long term growth rate of 0.5% would result in an additional impairment for the Group of £20.5 million and an increase in the discount rate of 0.5% would result in an additional impairment of £21.1 million.

 

 


Growth rate

sensitivity

£'000

Discount rate

sensitivity

£'000

Scotland

864

886

North

8,530

8,746

Northwest

2,137

2,191

Midlands

4,491

4,604

South

2,394

2,455

Northern Ireland

1,850

1,897

Republic of Ireland

271

275

Total potential impairment from sensitivity analysis

20,537

21,054

 

11. Property, Plant & Equipment

During the period, the Group wrote down the value of its print assets by £57.9 million, following a review of their value-in-use.

Assets with a net book value of £10.8m were reclassified as assets held for sale given the Group's intention to sell these properties within one year. As necessary, these assets were written down to expected realisable value (note 4).

 

12. Derivative Financial Instruments


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Interest rate swaps - current liability

-

(494)

(99)

Foreign exchange options - non-current asset

4,915

6,082

2,699

Foreign exchange options - current asset

630

399

155

Interest rate caps - non-current asset

76

238

43

Total derivative financial instruments

5,621

6,225

2,798

 

 

13. Borrowings

Borrowings shown at amortised cost at the period end were:


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Bank loans

205,682

245,529

227,316

Private placement loan notes

118,086

130,380

119,162

Term debt issue costs

(10,338)

 (13,482)

(12,273)

Payment-in-kind interest accrual

14,770

2,402

8,535

Total borrowings

328,200

364,829

342,740

 

The borrowings are disclosed in the financial statements as:


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Current borrowings

-

18,101

8,520

Non-current borrowings

328,200

346,728

334,220

Total borrowings

328,200

364,829

342,740

 

The Group's net debt is:


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Gross borrowings as above

328,200

364,829

342,740

Cash and cash equivalents

(26,595)

(10,129)

(32,789)

Impact of foreign currency hedge instruments

(5,545)

(6,481)

(2,854)

Net debt including foreign currency hedge instruments

296,060

348,219

307,097

Term debt issue costs

10,338

13,482

12,273

Net debt excluding term debt issue costs

306,398

361,701

319,370

 

Repayments of bank loans and private placement loan notes amounting to £27.9 million were made during the period in line with previously disclosed repayment terms.

Payment-in-kind interest has continued to accrue as previously disclosed.

As previously disclosed, the Group's debt facilities are provided by a syndicate of banks and private placement loan note holders and expire in September 2015.

14. Retirement Benefit Obligation

The valuation of the Group's pension scheme is updated at the end of each accounting year and at the half-year. Full details of the valuation at 29 December 2012 are outlined in the financial statements to that date. The major assumptions and disclosures for the 26 weeks to 29 June 2013, the 26 weeks to 30 June 2012 and the 52 weeks to 29 December 2012 are as follows:


Valuation at 29.06.13

Valuation at 30.06.12

Valuation at 29.12.12

Discount rate

4.8%

4.85%

4.5%

Expected return on scheme assets

5.5%

5.5%

5.6%

Future pension increases




Deferred revaluations (CPI)

2.3%

1.8%

1.9%

Pensions in payment (RPI)

3.3%

2.7%

2.8%

Life expectancy




Male

23.1 years

23.1 years

23.1 years

Female

23.1 years

23.3 years

23.1 years

 


26 weeks to 29.06.13

£'000

26 weeks to 30.06.12

£'000

52 weeks to 29.12.12

£'000

Amounts recognised in the Group Income Statement

in respect of defined benefit schemes:




Interest on pension liabilities

11,092

11,466

22,708

Expected return on scheme assets

(10,278)

(10,236)

(20,237)

Past service gain

-

(1,540)

(1,540)


814

(310)

931

 


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Amounts included in the Group Statement of Financial Position:




Present value of defined benefit obligations

502,576

470,715

504,111

Fair value of scheme assets

(403,152)

(368,562)

(382,792)

Total liability recognised

99,424

102,153

121,319

Amount included in current liabilities

(5,700)

(5,700)

(5,700)

Amount included in non-current liabilities

93,724

96,453

115,619

 

The Pension Fund Trustees are currently seeking professional advice, including actuarial input, to determine whether any employer debt is payable to the Plan following the previous cessation of five participating employers. No provision has been recognised in the financial statements as the advice has still to be received. The Group believes the maximum potential exposure is approximately £1 million.

The levy payable by the Pension Fund to the Pension Protection Fund for the year to 31 March 2013 is £3.1 million. The Group has committed to the Pension Fund to underwrite any annual charge in excess of £0.65 million. The Group has accrued £2.45 million of costs in connection with the year to 31 March 2013 and a further £0.65 million has been provided for the three month period to 29 June 2013 within trade and other payables. The fair value of scheme assets reflects the £3.1 million cash payment already made by the Pension Fund to the Pension Protection Fund but does not reflect the £2.45 million recoverable from the Group.

Since the end of the period the Pension Regulator has instructed the Pension Fund Trustees to carry out a formal actuarial valuation at 31 December 2012 effective as at one year ahead of the next planned valuation date of 31 December 2013.

 

15. Share Capital

Share capital as at 29 June 2013 amounted to £67.9 million. During the period, the Group issued 27,779,900 ordinary shares of 10p each at par following the exercise of share warrants and 177,776 ordinary shares of 10p each following the exercise of employee share options.

 

16. Share-Based Payments

The Group issues share-based benefits to employees. These share-based payments have been measured at their fair value at the date of grant and the fair value of expected shares is being expensed to the Income Statement on a straight-line basis over the vesting period. Fair value has been measured using the Black Scholes model and adjusted to reflect the most likely share vesting and exercise pattern. The impact on the accounting periods has been:


29.06.13

£'000

30.06.12

£'000

29.12.12

£'000

Included in operating expenses

347

377

606

 

In the prior period, a cost of £551,000 was recognised within the share based payments reserve for the issue of 7.5% share warrants under the new refinancing arrangements agreed in April 2012 and the extension of 5.0% warrants issued in 2009. No such cost has arisen in the current period.

The cumulative provision for share-based payments of £15,840,000 (30 June 2012: £18,773,000; 29 December 2012: £18,959,000) is shown as a reserve in the Group Statement of Financial Position.

17. Notes to the Cash Flow Statement


26 weeks to 29.06.13 £'000

26 weeks to 30.06.12 £'000

52 weeks to 29.12.12 £'000

Operating (loss)/profit

(225,366)

37,825

40,441

Adjustment for:




Impairment of intangibles - non-recurring

194,472

-

-

IAS19 past service gain

-

(1,540)

(1,540)

Depreciation of property, plant and equipment (including write downs)

62,742

20,450

29,954

Write down in carrying value of assets held for sale

3,522

-

7,817

Movement in long-term provisions

(516)

(904)

119

Charge for share-based payments

347

377

606

Profit on disposal of property, plant and equipment

(660)

(18)

(2,047)

Currency differences

(84)

(3)

(59)

Net pension funding contributions

(3,353)

(1,100)

(4,668)

Operating cash flows before movements in working capital

31,104

55,087

70,623

Decrease in inventories

503

142

1,859

Decrease/(increase) in receivables

921

(29,786)

6,769

Increase/(decrease) in payables

8,895

295

(3,153)

Cash generated from operations

41,423

25,738

76,098

 

 

18. Related Party Transactions

There have been no related party transactions that have occurred during the first six months of the financial year that have materially affected the financial position or performance of the Group during that period and there have been no changes in the related party transactions described in the 2012 Annual Report and Accounts that could do so.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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