JOHNSTON PRESS PLC 22 March 2016
JOHNSTON PRESS PLC
RESULTS FOR THE 52 WEEKS ENDED 2 JANUARY 2016
Adjusted profit before tax of £31.5m up 22.6%; Net debt down by £14.8m
Johnston Press plc ('the Group'), one of the leading local media groups in the UK, announces its results for the 52 weeks ended 2 January 2016.
We are pleased to confirm that the Group achieved Adjusted EBITDA for the period of £57.3m, in line with expectations. The Group traded well in the first quarter, while the second quarter was impacted by a sector-wide slowdown which continued through the second half and into 2016. Cost savings substantially mitigated revenue declines; and the benefit of reduced financing costs (down 34.1%) resulted in improved profit before tax and earnings per share. We continued to invest in our digital products and platforms. We reduced our pension obligations by £63m to a closing IAS19 deficit of £27m.
We are also pleased to confirm that the proposed acquisition of the i was approved at a general shareholder meeting held on 21 March 2016 achieving 99.85% of votes cast in favour. We look forward to completion on 10 April 2016 and the opportunities it brings to accelerate the transformation of the Group.
Key highlights:
Growing digital audiences
Digital audience grew by 40.7% year on year to 22.6m Unique Users in December 2015 (2014: 16.1m). Total monthly audience across print and online grew 19.8% to 31.9m in December 2015.
Growing digital revenues
Total digital revenues grew 12.4% to £30.6m for the period, representing 20.6% of advertising revenues (2014 FY: 16.9%) with revenue from the key strategic category of digital display advertising up 26.7%.
Continued cost reduction
Total operating costs were reduced by £13.6m (6.7%) after investment in digital of £6.0m. (2014 cost reduction: £13.8m)
Increased profit before tax
Adjusted profit before tax increased 22.6% to £31.5m (2014: £25.7m)
Increased EPS(fully diluted)
EPS increased by 30.1% to 21.2p
Continued debt reduction
Cash generated of £14.8m reduced net debt to £179.4m (2014: £194.2m)
Financing Costs
Interest cost reduced to £19.1m (2014: £29m)
Pensions
Pension deficit under IAS19 has reduced by £63m (70%) to £27m.
Acquisition of the i (to complete 10 April 2016)
Gained shareholder approval yesterday. The acquisition will be earnings enhancing.
Financial Highlights:
£'million | Continuing Operations - Adjusted | Continuing Operations - Statutory | ||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | |||||||
52 weeks | % | 52 weeks | 53 weeks | % | ||||||||
Revenue | 242.3 | 260.0 | (6.8) | 245.1 | 268.8 | (8.8) | ||||||
Operating profit | 50.6 | 54.7 | (7.5) | 1.0 | 10.7 | (90.7) | ||||||
Profit/(loss) before tax | 31.5 | 25.7 | 22.6 | 2.9 | (23.9) | 112.1 | ||||||
Net Debt | 179.4 | 194.2 | (7.6) | 146.1 | 184.6 | (20.9) | ||||||
EPS - fully diluted | 21.2p | 16.3p | 30.1 | 10.5p | (0.44)p | n/a | ||||||
Audience and revenues
Our digital audience grew by 40.7% to 22.6m in December 2015 (2014 16.1m) while our total audience (across print and digital) in the same month was 31.9m, up 19.8% year on year. The fourth quarter saw us launch redesigned websites for the Scotsman, Yorkshire Post, Sheffield Star and Portsmouth News, with significant audience uplift, with the rollout of the new design to other large brands happening during 2016.
Total revenues of £242.3m declined 6.8% for the period. Digital advertising was up 12.4% to £30.6m for the period, representing 20.6% of the total advertising revenues (2014 FY: 16.9%). Print publishing revenues (advertising and circulation) were down 9.7% to £193.9m including print advertising down 11.9%.
National display revenues (print and digital) were up 11.8% year on year driven by a 99% increase in revenue from 1XL, our digital advertising exchange partnership.
Digital display revenue, including 1XL was up 26.7% to £12.4m.
Operating profit, profit before tax and earnings per share
Operating profit was £50.6m (after a £6.0m investment in digital), a decrease of 7.5% (£4.1m) on the prior period. Operating costs of £191.7m were reduced by £19.6 million (net £13.6m or 6.7%) (2014 net reduction £13.8m). The operating margin remains strong at 20.9%. Profit before tax increased by 22.6% to £31.5m, benefiting in part from reduced finance charges of £9.9m. EPS (fully diluted) increased 30.1% to 21.2p.
Net debt
Net debt excluding mark-to-market and after £5m bond buy back, reduced by £14.8m to £179.4m (2014: £194.2m). Net debt has reduced from c. £300m at the start of 2013. The post refinancing debt structure has allowed us to significantly reduce the interest we pay, having reduced both the interest rate and the absolute amount of debt. Total adjusted financing costs reduced from £29.0m in 2014 to £19.1m in 2015 (down 34.1%). Net cash from operations before bond buy back was £14.8m.
Pensions
The IAS19 Pensions Deficit of £27m has reduced by £63m (70%) from the prior period end including £53m reflecting changes in demographic assumptions resulting from its pension study and the benefit of changes in the Scheme Rules entitling the Group to participate in any surplus when the scheme closes.
Ashley Highfield, Chief Executive, commented:
'The challenging trading conditions experienced in the second half of 2015 have continued into Q1 2016. We have reduced costs to maintain profitability, reset our portfolio and refocused on priority markets with attractive audiences that offer the best opportunity for growth. Success in driving our national display advertising business in 2015 and the rollout of our local display advertising Sales Force initiative gives me confidence for the future despite the fact that the market remains difficult.
'The acquisition of the i newspaper is also incredibly exciting for us. It gives us scale, with a combined JP plus i daily print circulation of over 600,000 papers making us the UK's 4 largest news publisher, and thus numerous revenue and cost synergy opportunities. Further, not only will the i contribute positively to earnings but it will allow us to accelerate growth in digital, and help stabilise our circulation revenues. In conjunction with the planned asset disposals this will enable us to continue to reduce debt levels and cut financing costs further.'
For further information please contact:
Johnston Press Ashley Highfield, Chief Executive Officer David King, Chief Financial Officer | 020 7612 2601 020 7612 2602 |
Bell Pottinger Dan de Belder Zoë Pocock | 020 3772 2561 |
Investor presentation and audio/webcast: A presentation for analysts and live audio/webcast will be held at 9.00am on Tuesday 22 March 2016 at Bell Pottinger, Holborn Gate, 330 High Holborn, London, WC1V 7QD.
Webcast link: https://secure.emincote.com/client/johnston_press/johnston003/
A replay will be available after 2.00pm on the Group websitewww.johnstonpress.co.uk
Please see the conference call dial in details below:
Number: +44 20 3059 8125 (no pin needed)
The announcement for the period ended 2 January 2016 will be available at www.johnstonpress.co.uk/investors.
Statutory and adjusted basis
In the Management Report, performance is stated on an adjusted basis to provide a more meaningful comparison of the Group's performance taking account of the closure of businesses, week 53 in 2014 and other non-trading items. The adjusted results aim to demonstrate the performance of the Group without the volatility created by non-recurring items, restructuring charges in respect of cost reduction measures and accounting items such as the impairment of intangible assets, pension finance and administrative expenses, the impact of fair value changes on the value of the bond and the impact of tax legislation changes. A reconciliation between the statutory and the adjusted results is provided under Non-GAAP measures within this financial information.
Forward-looking statements
The report contains forward looking statements. Although the Group believes that the expectation reflected in these forward- looking statements are reasonable, it can give no assurance that the expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
END OF FRONT PART OF PRESS RELEASE
Management Report - 52 week period ended 2 January 2015
Chairman's Statement
In 2015 the Group has delivered adjusted operating profit of £50.6 million, restructured its business and reduced its debt and pension liabilities.
The industry faced continued downward pressure on its print advertising revenue. The relentless pace of change continues and we have worked hard to remain at the forefront of digital development in our markets. We have restructured our business, removing a layer of regional management, and reshaped how our regional newsrooms operate to prepare them for the future in which digital will be ever-more prominent. We will now do the same to our sales operations.
Strategy
Digital growth (audiences and revenues) remains key to our long-term future. 2015 saw further growth in digital revenues, up 12.4% year-on-year, underpinned by a 99% increase in national digital revenues following the launch of 1XL, our national digital advertising network, operated in collaboration with other media owners. Our focus on audience growth has seen an 24% increase in our average unique browsers year-on-year - with particularly strong growth amongst mobile users. Our continued progress in driving the digital transformation has been achieved against a backdrop of a further shift (part structural, part economic) away from print advertising from spring 2015 onwards.
2016 will see us focus on and invest in our primary brands, operating in growth markets with attractive audiences, with an emphasis being put on national and local display advertising. The review and refocus of our portfolio has led us to close or merge some titles and exit low marginal digital products. Our 'Newsroom of the Future' project in 2015 saw the realignment of our newsrooms to better serve their communities and digital audiences, and we are currently undertaking a reorganisation of our sales organisation to improve customer service to key accounts and reduce cost to serve for low spending accounts.
Results
The Group saw improving revenue trends in 2014 and in quarter one of 2015. The run up to the General Election saw trading slow down and the anticipated post-election recovery did not materialise, with print revenues remaining soft through the year. Action was taken to cut costs and maintain profit as it became clear that the UK's economic performance remains uneven outside London.
Revenues were down 6.8% from £260.0 million in 2014, to £242.3 million. Total advertising revenue (combined print and digital) was down 7.8% to £148.7 million in 2015. Print advertising was down 11.9% from £134.1 million to £118.1 million, while digital revenues grew 12.4% year-on-year from £27.2 million to £30.6 million.
Newspaper sales revenue, was down 7.0% from £77.8 million to £72.4 million.
Once again the Group delivered an effective cost performance with operating costs (including depreciation and amortisation) reducing to £191.7 million from £205.3 million in 2014, reflecting our ongoing cost control while also making strategic investments, particularly in our digital business.
Operating profit was £50.6 million, a £4.1 million decrease on the prior year. EBITDA of £57.3 million was achieved in 2015, compared to £60.2 million in 2014. The Group's strong operating margin has been maintained, decreasing slightly from 21.0% to 20.9% year-on-year.
Proforma adjusted basic earnings per share, was 23.7 pence, compared to 18.2 pence in 2014 (refer to the Financial Review section).
Net debt, excluding bond mark-to-market, was £179.4 million, compared to £194.2 million at the end of 2014.
More information on the adjusted items can be found in the Financial Review section of this report and the reconciliation of statutory to adjusted items
Pensions Liabilities
The Group conducted a pension study to understand better its long-term pension liability. The study looked at the proportion of males and female members, the number of members with spouses and the age and health of the members surveyed. As a result of the study, at 2 January 2016, the IAS 19 accounting pension deficit stood at £27.0 million, a reduction of £63.0 million.
Dividend
The provisions of our bonds restrict the Company's ability to pay ordinary dividends until certain conditions are met. The Board wishes to resume ordinary dividend payments as soon as is appropriate, but no ordinary dividend is proposed for the year.
Industry Issues
The Independent Press Standards Organisation (IPSO), which we joined on launch in 2014, has operated throughout the year. We believe it has offered an effective and economic system to address complaints in our industry - accessible for complainants and proportionate to local newspapers. We are as yet unconvinced by proposals to extend IPSO's remit to the provision of arbitration services. 2015 has also seen the start of the process to renew the BBC's charter. Through the News Media Association we are making the case for a co-operative relationship which sees the local press recognised and rewarded for the quality local content that it is uniquely well placed to provide.
Board
During a period of enormous change it has been a great benefit to have the guidance of a stable and experienced Board and I would like to thank my Board colleagues for their work throughout the year. We have indicated previously that, following the Company's refinancing, we would look at the process of renewing Board membership and we are pursuing this process during 2016. Stephen van Rooyen will step down from the Board at the end of our forthcoming Annual General Meeting. He has made an enormous contribution to the Group over the past three years and, on behalf of the Board, I would like to thank him for this.
The Board has now recommenced the process for renewal of its membership and anticipates the appointment of at least one new Non-Executive Director during 2016 following the decision of Mr van Rooyen not to seek re-election at the forthcoming Annual General Meeting. In considering candidates to fill Board vacancies, the Nomination Committee has regard to the benefits of, and the need to encourage, diversity (including gender) within the Board's membership and this is a specific consideration of the recruitment process and is included in the Committee's terms of reference.
The Board regularly reviews both the balance of its membership and the issues it considers when it meets. The agenda for the Board's meetings continue to be structured in such a way as to scrutinise both strategic and operational matters in an atmosphere of constructive challenge and debate. I am satisfied that the Board remains effective.
Employees
We are exceptionally well served by our colleagues across the locations where we operate. 2015 has seen significant change and we are well aware of the commitment and hard work of our employees. Once again, the Board wishes to thank them for their efforts. They are essential to our future and to the central role that we wish to continue to play in communities across the country.
Outlook
The sector experienced tough trading conditions in the second half of 2015 and this has continued into the early part of 2016. The outlook for 2016 remains challenging, and we are maintaining our focus on those areas which can deliver the greatest benefits while continuing to innovate our product portfolio and our editorial and sales processes. Total revenues for the eight week period to 27 February 2016 were down 13% against strong year on year comparatives in the first quarter of 2015, which in line with the sector weakened substantially during the second half of 2015. We remain focused on driving increased audiences and providing creative solutions for our advertisers. We will also continue to explore opportunities for the disposal of assets, with a view to deleveraging the balance sheet and further cutting financing costs.
On 12 February 2016, we announced the proposed acquisition of the i newspaper, a business which has a growing circulation income and an attractive audience and customer base. The acquisition, which was approved by shareholders on 21 March 2016, will provide the Group with significantly increased scale, a national footprint, and add a major brand to its portfolio.
Ian Russell
Chairman
22 March 2016
Chief Executive Officer's Report
Johnston Press is now a very different business compared to the start of 2015.
Not only did we see significant change across the press and media industry but we implemented one of the biggest structural changes within our own business to allow us to be better positioned for growth heading into 2016.
Review of the Year
Throughout last year (and prior to adding the ito our portfolio) our core purpose and strategy remained on track in the challenging environment.
We sharpened our focus on our growth strategy and cost reduction programmes that, whilst delivering part benefit in 2015, will only be fully realised throughout 2016. We carefully managed costs, paid off more of our debt and invested in our key markets.
Signs of improving advertising trends in the early part of 2015 were halted by an unexpected downturn in spring - with property and jobs particularly affected.
However, certain business sectors are worthy of mention for delivering growth. The performance of 1XL - the digital advertising exchange partnership - is particularly pleasing. Our National display revenues (print and digital) were up 11.8% year-on-year driven by a 99% increase in revenue from 1XL, which has gained real traction in its first full year of trading. Overall, digital revenue grew by 12.4% following significant investment throughout 2015.
Our Media Sales Centre (MSC) delivered strong results in 2015 - achieving growth for the second growth in a row. The MSC covers the increasingly important tele-sales operations for the company, and includes such areas as Births, Marriages & Deaths announcements, Public Notices & other classified advertisements across print and online.
Against declining market trends, BMD and Public Notice revenue saw gains of 11% and 8% respectively. In Other Classified our commitment to engage customers with JP's growing digital portfolio saw year-on-year growth of almost 100% - with mobile and desktop display being the main drivers.
Underpinned by focused productivity and a real service level efficiency drive (introduced by the management team), both the Sheffield and Edinburgh MSC teams entered 2016 well placed to continue the success of the last two years. This will be further enhanced by the restructuring of the Digital Kitbag team and the absorption of transactional display business.
Our Printing Division continues to flourish, winning £12.8 million worth of new contracts to print the Daily Express, Daily Star, Daily Star Sunday and Sunday Express at Dinnington, near Sheffield.
In addition new business was secured with Tindle Newspapers to print their flagship title, The Farnham Herald, all of which contributed to growing external contract print revenues by 11.4% year-on-year.
The Company has also renegotiated a number of key contracts, including the outsourcing of its in-house advertising creation team and its advertising production and software development contract.
Digital Product Development
We launched a number of new digital products and repositioned some of our largest sites to respond to the growth of our mobile and social audiences.
We relaunched Scotsman.com, to coincide with a print redesign, on a responsive platform which automatically optimises for mobile, tablet and computer screens. At the same time, we launched new native apps for mobile and tablet devices, that offer advanced capabilities, targeting and messaging to our readers.
These new products have seen strong growth of users and revenue offered by these more modern and mobile-oriented products. The rollout of this platform and apps continues in 2016, with new sites introduced at The Star (Sheffield), The News (Portsmouth), The Yorkshire Post and a further 15 totally responsive sites and apps due to be in place by the end of April 2016, and a rollout that will continue to our titles with the best audience and commercial potential in 2016.
Across Johnston Press, we have also launched a number of new commercial products aimed at offering new opportunities for advertisers to reach their customers, including through VoiceLocal, a native advertising offering that leverages our content-creation capabilities and integrates commercial content into our offerings.
In Q4, we also launched an automated program, BoostLocal, which allows an advertiser to digitise its print advertising and publish it for local discovery on our sites, as well as to contribute to the business' search engine optimisation efforts.
Our WOW247 entertainment platform was re-developed and launched in May, now with more than 300 contributors across the UK in 13 city editions who created 7,500 articles, reached by 750,000 unique users in January 2016.
Business Change Projects
During 2015, we also saw significant change within our editorial function - following the implementation of our Newsroom of the Future initiative to help us to respond to the rapidly-changing audience demands for the information we provide them.
Our 'Salesforce of the Future' initiative is now also gaining traction, with deployment expected to start in the first half of 2016. We are restructuring the sales teams based on high and low value customer segments and transferring low value, highly infrequent transactional customers into a new team in the MSC to allow our sales teams to fully focus on the higher yield customers.
The pilot for the Salesforce of the Future project is currently underway and is testing:
· the performance benefits of aligning salespeople to the high and medium-value customer segments;
· the ability of the MSC to service the low value/infrequent transactional customer segment and the business performance benefit; and
· the performance benefit of creating a new customer acquisition team.
Employee Involvement
In January the introduction of our 'One JP' engagement initiative signalled a step-change in our culture and, throughout the first half of the year, every team member in every part of the business had the chance to share the Company values and vision through dozens of workshops.
I'm delighted to report that over 80% of our employees took part in these sessions and, as a result, we are working together like never before - putting quality, innovation, creativity and outstanding service at the heart of this business.
We simplified our leadership structure to ensure we work more effectively as one team with a single vision. These changes are helping us create and share content better across the organisation and speed up how we take advertising products to customers in a more consistent way, in order to deliver overall revenue growth.
Priorities for 2016
Our focus this year is to develop our primary news brands, stabilise circulation revenues and build both our national display advertising and our local display, features and entertainment revenue (LDFE) advertising revenue income, in integrated 'print plus online' offerings to our advertisers.
We will, therefore, concentrate on attractive geographies, serving more defined audience groups that represent the best opportunities for growth, both digitally and in print, and target higher value display advertising customers.
We intend to continue to invest in both digital and print products, though we will focus resources on brands and markets where we believe the best returns will be derived.
We have identified a number of newsbrands that are now considered non-core and such will be either divested or run with less costs, reflecting the medium-term outlook for the identified assets that fall into this category.
The Company will run a formal process, with advisers, to market defined asset groups for sale during 2016. Interest by third parties, enquiring about assets, has been encouraging so far.
i Acquisition
As this Annual Report went to press we were poised to take ownership of our first national newspaper the i - a transformational acquisition for Johnston Press and an important step towards delivering our long-term strategy. The acquisition of the iwas approved by shareholders, with 99.85% of those votes cast being in favour of the transaction, on 21 March 2016.
Thei is a highly regarded newspaper with a clear market position and a loyal readership. By joining with Johnston Press the combined circulation will be equal to 9% of national daily circulation, making us the fourth-largest player in the national newspaper market.
With our considerable digital experience, the combination of Johnston Press and thei will also allow us to grow digital audiences and revenues through the creation of inews.co.uk.
The acquisition will offer:
· Increased scale: Greater reach improves ability to gain greater share of national advertising market.
· Growing revenues:the ihas growing circulation revenues, and new opportunities arise from the proposed digital product, new geographic markets and from cross-selling JP to the i's advertiser base and vice-versa.
· Accelerated digital transformation: Leveraging JP's digital expertise to fully realise the ibrand across digital platforms; the extensive JP network enables cross-promotion to grow audiences at minimal cost; the regionally-oriented digital display network 1XL is enhanced by the addition of a national brand.
The key financial benefits:
· Immediately earnings enhancing.
· Strong cash generation.
· Cost savings and revenue synergies.
Summary
Four years ago, when I joined Johnston Press, I set out to create the right team and culture to transform this business and I truly believe that the Company is now where it needs to be, with attractive news brands and commercial products, loyal audiences across print and online, and structured in the right way to take market share and return to overall growth.
Ashley Highfield
Chief Executive Officer
22 March 2016
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which have been identified by the Company that could have a material impact on the Group's long-term performance.
The principal risks and uncertainties described are not a complete list of all those risks identified but those that the Directors feel could have a significant impact on the Group and the general economic conditions in the markets in which we operate. By including risks within this section, the Directors make no prediction as to the particular likelihood of any event or set of events occurring. The business could also be affected by other risks not currently identified or considered to be significant. Other risks that remain the most important in terms of the overall performance of the Group, but also relate to issues over which the Group has no control, namely:
· change in Gross Domestic Product;
· change in the unemployment rate;
· levels of property transactions;
· levels of new car sales;
· levels of consumer confidence;
· Facebook and other global digital market entrants;
· public sector spending; and
· impact of uncertainty surrounding the outcome of the Europe Referendum.
Description of Risk | Impact | Mitigation | ||
Further Reductions in Print Advertising | ||||
Print advertising revenues could decline at a faster rate due to further migration of customer spending to online media and weak consumer confidence in some of the markets in which we operate. KPI measure:Print Advertising Revenue | Consumer confidence remains low in some of the markets in which we operate, and both national and local businesses spend on advertising may remain constrained, while others may choose to move advertising spend into digital media. | The Group continues to develop its digital advertising offering through partnerships, mobile apps and products such as Digital Kitbag, The Smartlist and Voice Local, and the rollout of a new suite of websites It also continues to invest in its sales expertise to ensure both a more proactive and effective approach and that the sales offering is fully understood by sales staff and appropriate for customers' needs. | ||
Newsprint Price and Supply Risk | ||||
Although paper prices have fallen over the course of the past 12 months future price rises represent a risk to the Group in terms of both supply and pricing of newsprint that, after staff costs, is the largest single expense incurred by the business. KPI measure: Operating costs | In 2015 newsprint represented approximately 9% of the Group's cost base. A significant increase in price would impact the Group's profitability and a reduction in supply could impact the quantity of newspapers we distribute in the market, which could in turn have an impact on advertising revenues. | The Group carefully manages its consumption of newsprint through waste management, recycling, pagination and distribution of free titles. The Group also has some of the most efficient printing presses in the industry. Contracts are put in place with key suppliers to ensure security of supply and optimum pricing. | ||
Failure to Monetise Increased Readership of our News Websites | ||||
This is an industry issue. Online and mobile advertising rates are lower than print and it is difficult to charge for accessing news online because free alternatives exist. KPI measure:Digital Revenue | Readership continues to migrate to a digital environment where the advertising rates per reader are significantly lower. Much greater audiences are therefore needed to retain an equivalent level of income. | Our digital strategy focuses on building digital audiences and revenues through new platforms and enhancing the content available to readers and advertisers. There is considerable effort to maximise the advertising rates attained for digital inventory, and to sell more inventory at premium rates through services, such as1XL. | ||
Pension Deficit Funding | ||||
The Group's defined benefit pension scheme is currently in deficit, leaving the Group responsible for potential shortfalls, in particular, driven by sustained low interest rates. KPI measure: n/a | Cash contributions to the pension deficit reduce the Group's capacity to pay down debt and invest in growth. | The Group entered into a revised arrangement with the scheme trustees during 2014 with increased contribution levels which are designed to address the deficit over time. These were agreed with the trustees concurrently with the refinancing and take account of Group cashflow forecasts. The scheme is closed to future accrual and pension exchange exercises have taken place to limit the level of pension increases, reducing the liability further. The Group is also working with the trustees and actuarial advisors to manage all controllable items, most recently conducting a survey of scheme members with a view to reducing future contributions. | ||
Business Opportunities Constrained by Debt | ||||
The Group continues to operate with greater than optimal levels of gearing, hence reduction of debt over time remains a priority. However, this focus could lead to missed revenue opportunities if insufficient funds are left available for investment. KPI measure: Net debt Excluding Mark-to-Market | The Group may be unable to take advantage of opportunities to substantially invest in its core business or new revenue streams thus impacting its long-term growth prospects. | The refinancing completed in 2014 provided greater financial stability for the Group. Cash on balance sheet and access to revolving credit facilities to permit a degree of investment in its core business or new revenue streams. | ||
Business Change | ||||
The Group is implementing two major projects to revise the organisation of its sales and editorial models which may cause disruption during the transition. KPI measure: n/a | The implementation of this key change initiative could lead to disruption in our business which could affect quality of output and staff morale and industrial relations and impact advertising and circulation revenue. | The Group has developed a planned phased approach to implementing the changes including full communications with staff and unions. The business has also updated its business continuity plan to cater for the changes. | ||
Adequacy of Human Resources | ||||
As with most organisations, there is an element of dependency on certain key individuals in the Group. KPI measure: n/a | Should some of these key people leave the organisation there could be the loss of industry knowledge, supplier relationships, technical expertise and leadership. | The Group has put in place succession planning across the organisation and this is reviewed at least annually by the Executive Directors and by the Board | ||
Lifestyle and Technology Changes Affect Newspaper Circulations | ||||
Newspaper circulations continue to decline due to increased availability of news through alternative media channels and reductions in the regularity of purchase. This change is in part driven by demographic and societal change. KPI measure: Circulation Revenue | The reduction in circulations can lead to reduced newspaper sales revenues as well as reduced audience for our advertisers. | The Group continues to promote loyalty schemes to encourage increased frequency of newspaper purchase. In response to changing reader habits we are in the process of rolling out responsive news websites that auto adjust to the mobile device, while also increasing the frequency of content updates. | ||
Slowdown in Rate of Digital Growth and Reduction in Advertising Rates for Mobile | ||||
The Group has experienced strong growth in its digital income streams in recent years. The rate of growth could slow if customers seek alternative routes to audiences served. The industry as a whole has seen a shift towards accessing digital content through mobile devices which generally attract lower advertising rates than the rates achieved for desktop devices. In particular the Group has seen increased competition from Facebook in display and Indeed in Employment. KPI measures:Digital Revenue, Operating Profit, EBITDA | A slowdown in digital revenue growth and/or reduction in advertising rates achieved could impact profitability and the carrying value of assets. In addition, the Group adopts a long-term growth rate of 1% from year three in assessing the valuation of publishing titles. In order to achieve this growth rate continued levels of growth in digital is required for the foreseeable future. | The Group continues to invest in improving its understanding of its audience and in growing its overall audience, as well as developing new products to enable customers to reach their targeted audience and enable the Group to continue to participate in growth in digital advertising spend. | ||
Operational Review
Delivering Our Strategy
During 2015, despite challenging market conditions, we continued to simplify and transform our business in line with the strategic priorities initially set out in 2012. We deliver compelling content across our media portfolio, keeping pace with the changing needs of our audience and providing a range of new products to our advertisers. Our National platform has performed well and the addition of the i provides opportunities to accelerate the delivery of our strategy.
Audience Development
Our audience strategies concentrated on content improvement in print and improved digital engagement and differentiation, has led to overall average monthly audience growth of 10.0% from 26.8 million to 29.6 million. The 2015 average audience of 29.6 million comprises 20.8 million digital unique users (2014: 16.7 million), and 8.8 million print circulation (2014: 10.1 million).
Our digital audience grew by 40.7% to 22.6m unique users in December 2015 (2014 16.1m) while our total audience in December 2015 of 31.9m (across print and digital), up 19.8% year on year. The fourth quarter saw us launch redesigned websites for the Scotsman, Yorkshire Post, Sheffield Star and Portsmouth News, with significant audience uplift, with the rollout of the new design to other large brands happening during 2016.
Digital Product and Market Development
In 2015, we updated and upgraded our digital presence across all platforms in order to reach readers on all screens and to deliver the right customers to our advertisers. This took the form of a new responsive web platform beginning on our largest site, Scotsman.com, launching with new native apps across smartphones and tablets in Apple and Android platforms. The rollout of that platform, which is faster and a better experience for readers and advertisers, continues in 2016.
We also have implemented new underlying digital technology platforms to allow us to develop products more quickly, as the web moves more mobile and onto the social platforms. We have introduced new sources of data to inform our newsrooms and our product development. We have launched new content verticals in key markets to generate new digital revenue streams, including sections around food and drink in Yorkshire and Scotland, and a lifestyle site in Belfast.
With our commercial products, we have introduced innovative new solutions for local advertisers in Digital Kitbag (DKB) and introduced the UK's first local native advertising program to bring content-led marketing solutions to our advertisers.
Commercial Development
1XL was a big success in 2015, with year-on-year revenue growth of 99%, following its online advertising network launch in November 2014. Working with other regional media companies the Group was able to optimise the fast-growing online newsbrands audience. Year-on-year this helped provide growth overall in National Display advertising.
The Media Sales Centre, our high volume transaction business, continued to provide excellent levels of customer service to advertisers enabling the business to achieve year-on-year growth across its Public Notices, BMDs and Other Classified customer segments boosted by a strong performance in online mobile sales.
Our DKB marketing services group of products offered the SME businesses new opportunities to reach their customers, in their local markets. Following a very strong 2014 for employment, 2015 was a challenging year. The team responded through innovation and built out the SmartList proposition, created new affiliate and partnership opportunities and entered into the e-commerce by offering recruitment candidates training courses and other specialised services.
Operations and Production
The Group's printing business operates out of three sites in Portsmouth, Dinnington and Carn. The sites are well located to meet various publisher distribution requirements and can provide integrated logistics services. They are, therefore, well placed to play an integral part in the future consolidation of the print industry.
In 2015 the Group has strengthened its position in the contract print market by securing a significant long-term contract with the Express Group. Other major customers include News UK, Guardian Media Group, Local World and Tindle Newspapers, as well as many niche publications. Printing revenue rose, but were offset by reduction in newsprint supply revenue.
Property and Estate
We have continued to review our property portfolio to identify markets and centres that have an accommodation which no longer meets the requirements of the business. During 2015 we disposed of seven freehold properties and exited five leases (net of relocations). Overall we have reduced the total number of properties within the portfolio from 188 at the start of the review in 2012 to 125 at the end of 2015, with nearly half of all staff either having relocated or having seen investment in their work environment. Continued progress will be made during 2016 on rationalising the Group's property portfolio.
Financial Review
In 2015 we delivered adjusted operating profit of £50.6 million; EBITDA of £57.3 million and reduced net debt (excluding mark-to-market) to £179.4 million.
Introduction
This Financial Review provides commentary on the Group's adjusted performance during the 52-week period ended 2 January 2016 (adjusted 2014: 52 weeks). Unless otherwise stated, all figures and growth rates presented as adjusted. A reconciliation of statutory to adjusted figures is provided under Non-GAAP measures in this financial information.
Adjusted¹ | ||||
2015 £m | 2014 £m | change £m | change³ % | |
Advertising revenue | ||||
Print advertising | 118.1 | 134.1 | (16.0) | (11.9%) |
Digital advertising | 30.6 | 27.2 | 3.4 | 12.4% |
Total advertising revenue | 148.7 | 161.3 | (12.6) | (7.8%) |
Non-advertising revenue | ||||
Newspaper sales | 72.4 | 77.8 | (5.4) | (7.0%) |
Contract printing | 12.6 | 12.6 | 0.0 | 0.1% |
Leaflet, sundry and other revenue | 8.6 | 8.3 | 0.3 | 3.8% |
Total other revenues | 93.6 | 98.7 | (5.1) | (5.2%) |
Total continuing revenues | 242.3 | 260.0 | (17.7) | (6.8%) |
Operating costs¹ | (185.0) | (199.8) | 14.8 | 7.4% |
EBITDA² | 57.3 | 60.2 | (2.9) | (4.8%) |
Depreciation and amortisation | (6.7) | (5.5) | (1.2) | (22.1%) |
Operating profit | 50.6 | 54.7 | (4.1) | (7.5%) |
Operating profit margin | 20.9% | 21.0% | ||
¹Operating costs include cost of sales and are stated before depreciation and amortisation.
²EBITDA is earnings before interest, tax, depreciation and amortisation.
³The % change variance has been calculated based on unrounded numbers.
Revenue
Following a relatively positive first half of the year, with advertising down 4.4% year-on-year, the second half of the year saw significant year-on-year deterioration across former classified categories (property, motors and employment) contributing to an 11.6% decline overall.
Both motors and employment grew in the second half of 2014, making the period on period comparison more challenging. Entering 2016 off the back of difficult trading in the second half of 2015 and against a relatively strong first half (and in particular first quarter performance) in 2015, will see challenging trading comparatives during the first half of 2016.
Print and Digital Advertising Revenue Analysis
Full year | Digital | ||||||||
2015 £m | 2014 £m | % change¹ | 2015 £m | 2014 £m | % change¹ | 2015 £m | 2014 £m | % change¹ | |
Display² | 62.8 | 66.5 | (5.6%) | 50.4 | 56.7 | (11.0%) | 12.4 | 9.8 | 26.7% |
Property | 18.5 | 22.0 | (16.4%) | 17.2 | 20.7 | (16.9%) | 1.3 | 1.3 | (1.4%) |
Employment | 17.7 | 20.3 | (12.5%) | 9.5 | 11.8 | (19.4%) | 8.2 | 8.5 | (4.0%) |
Motors | 12.7 | 14.2 | (10.6%) | 10.8 | 12.5 | (13.4%) | 1.9 | 1.7 | 9.5% |
Other ³, | 37.0 | 38.3 | (3.3%) | 30.2 | 32.4 | (6.7%) | 6.8 | 5.9 | 17.1% |
Total advertising revenue | 148.7 | 161.3 | (7.8%) | 118.1 | 134.1 | (11.9%) | 30.6 | 27.2 | 12.4% |
¹The % change variance has been calculated based on unrounded numbers.
²Display includes National, Local and Features revenue
³Other print revenue includes Birth, Marriage, Deaths, Public Notices, Other classified and entertainment.
Other digital revenue includes iannounce, Digital Kitbag, Enterprise, public notices, entertainment, other paid content and other internet.
Advertising Revenue
Total advertising revenues in 2015 were £148.7 million, a decline of 7.8% from the previous year (2014: £161.3 million) with continued growth in the digital business.
Display
Display advertising remains our core advertising category and helps to build brand awareness for our local and national advertisers. Overall display advertising generated £62.8 million in 2015, an annual decline of 5.6%.This category benefited from the launch of 1XL our national advertising network with other local media businesses. 1XL offers advertisers access to one of the largest networks of quality audience and saw revenue growth of 99% year-on-year, offsetting decline in print.
Property
2015 remained a difficult year for our property category. Property prices grew in most of the regions in which we operate, however, transaction volumes meant the market remained challenging for Estate Agents, our core advertising base, with volumes and sales commissions not matching the pace of price rises. The property category decline was 16.4% year-on-year in 2015.
Employment
Following growth in this category in 2014, with digital growth exceeding print decline, 2015 saw increased competition from Indeed, a new entrant, causing digital growth to slow, while a fall in inbound calls, particularly in Scotland, saw print revenues fall sharply ending the year 12.5% down.
Motors
Following growth in the second half of 2014 in motors category, 2015 saw a decline of 10.6% on prior year despite growth of 9.5% in digital.
Other
The 'Other' category includes Digital Kitbag, Entertainment, Public Notices, Birth, Marriages and Deaths (BMDs), Other Classified and other digital income. This combined category generated £37.0 million in revenue, with print declining 6.7% and digital growing by 17.1%.
Revenue streams | Full year | ||
2015 £m | 2014 £m | % change¹ | |
Print revenues | |||
Circulation | 72.4 | 77.8 | (7.0%) |
Advertising (JP owned titles) | 114.0 | 129.2 | (11.8%) |
Leaflets, syndication & other print related revenues | 7.6 | 7.7 | (1.3%) |
Total Print Revenues | 194.0 | 214.7 | (9.6%) |
Digital | 30.6 | 27.2 | 12.4% |
Contract revenues | |||
Printing | 9.8 | 8.8 | 11.4% |
Newsprint supply | 2.8 | 3.8 | (26.3%) |
Rent & other services | 1.0 | 0.6 | 66.6% |
Advertising (third party titles) | 4.1 | 4.9 | (16.3%) |
Total contract revenues | 17.7 | 18.1 | (2.2%) |
Total revenues | 242.3 | 260.0 | (6.8%) |
Print and Digital Advertising Half-Yearly Revenue Analysis
Full year | First half | Second half | |||||||
2015 £m | 2014 £m | % change¹ | 2015 £m | 2014 £m | % change¹ | 2015 £m | 2014 £m | % change¹ | |
Display | 62.8 | 66.5 | (5.6%) | 32.0 | 33.4 | (4.4%) | 30.8 | 33.1 | (6.9%) |
Property | 18.5 | 22.0 | (16.4%) | 10.7 | 11.8 | (9.7%) | 7.8 | 10.2 | (24.2%) |
Employment | 17.7 | 20.3 | (12.5%) | 10.2 | 10.8 | (5.5%) | 7.5 | 9.5 | (21.8%) |
Motors | 12.7 | 14.2 | (10.6%) | 6.8 | 7.2 | (6.1%) | 5.9 | 7.0 | (15.7%) |
Other | 37.0 | 38.3 | (3.3%) | 19.3 | 19.3 | 0.0% | 17.7 | 19.0 | (6.7%) |
Total | 148.7 | 161.3 | (7.8%) | 79.0 | 82.5 | (4.4%) | 69.7 | 78.8 | (11.6%) |
¹The % change variance has been calculated based on unrounded numbers.
Audience Growth
Our aggregate audiences have continued to grow year-on-year, our average monthly audience for the year was 29.6 million up from 26.8 million in 2014, a growth of 10.0%. A key driver for this growth was our digital audience which grew by 24.3% with average monthly audiences growing from 16.7 million in 2014 to 20.8 million in 2015.
Non-Advertising Revenue
Newspaper sales generated adjusted revenues of £72.4 million in the year against £77.8 million in 2014, a decline of 7.0%. Circulation volumes were down 13.0%. Daily titles in economically challenged markets continued to see volume declines above Group averages, and above weekly titles, reflecting local conditions.
Contract printing revenue of £12.6 million was flat year-on-year. Printing revenue grew year-on-year to £9.8m while newspaper supply fell to £2.9m as a result of price and volume reduction of customer titles.
Operating Costs
Operating costs (including depreciation and amortisation) were reduced to £191.7 million from £205.3 million in 2014, a £13.6 million year-on-year reduction, net of £6.0m investment in digital. The depreciation charge rose by £1.2 million to £6.7 million in 2015 off the back of digital investment in 2013 and onwards, having reached the low point in the depreciation cycle in 2014. Savings were made across all parts of the business including production, editorial, sales and overheads.
Operating Profit
In 2015 the Group operating profit was £50.6 million, a 7.5% decline on the prior year. The trading environment was challenging in 2015. Total Group revenues were down £17.7 million to £242.3 million, a decline of 6.8%, largely mitigated by cost reductions, with operating costs reducing to £191.7 million from £205.3 million, a year-on-year reduction of £13.6 million. Operating margin remains flat at 20.9% compared to 21.0% in the prior year.
Finance Income and Costs
Net finance costs were £19.1 million², a decrease of £9.9 million year-on-year. The reduction in finance costs of £11.2 million is due to the lower interest rate on the bond following the May 2014 refinancing which also saw gross debt fall from £323 million to £220 million. Investment income includes dividends received from the Press Association.
Refer to Note 13 Borrowings for further information.
Net financing costs² | Adjusted | |||
Full year 2015 £m | Full year 2014 £m | Change £m | ||
Interest on bond | (19.3) | (12.3) | (7.0) | |
Interest on bank overdrafts, loans (PIK), RCF¹ | (0.4) | (16.5) | 16.1 | |
Amortisation of term debt issue costs/RCF | (0.3) | (2.4) | 2.1 | |
Total operating finance costs | (20.0) | (31.2) | 11.2 | |
Investment income | 0.9 | 2.2 | (1.3) | |
Total net financing costs | (19.1) | (29.0) | 9.9 | |
¹ 2014 includes interest on bank overdrafts and loans of £11.6 million, PIK interest of £5.3 million, RCF interest fee £0.2 million partially offset by overpayment refund £0.6 million.
² Adjusted net financing costs exclude the mark-to-market fair value gain on the bond of £23.0 million (2014: £5.0 million gain), pension finance expense and change in fair value of hedges and foreign borrowings.
Profit Before Tax
The Group's profit before tax was £31.5 million (2014: £25.7 million). Operating cost savings and reduced finance costs compared to the prior year have mitigated the decline in total revenues, to deliver an improved year-on-year profit before tax for the Group.
Tax Rate
The statutory tax credit of £8.5 million (2014: £8.6 million tax credit) comprises a current tax credit of £0.5 million (2014: £0.7 million credit) and a deferred tax credit of £8.1 million (2014: £7.9 million tax credit).
The tax credit of £8.5 million for the period was primarily attributable to the change in deferred tax rate of £9.2 million, recognition of the tax benefit arising on the impairment write down on intangible publishing title assets of £7.0 million, deferred tax liability of £6.0 million on the bond (including the £1.0 million adjustment in respect of prior periods) and the deferred tax liability of £1.2 million arising on the pension deficit reduction.
The Group's effective tax rate was 295.2% for the 2015 financial year (2014: 35.9%). The effective rate in the period is significantly affected by the corporate tax rate change and adjustment in respect of prior year bond accounting. The 20.25% basic tax rate applied for the 2015 period was a blended rate due to the tax rate of 21.0% in effect for the first quarter of 2015, changing to 20.0% from 1 April 2015 under section 6 of the Finance Act 2013. Refer to Note 8 for further detail.
Earnings Per Share and Dividends
Statutory Basic earnings per share (EPS) was 10.71 pence, compared with a loss per share of 0.44 pence in 2014.
In the prior year, the rights issue and subsequent share consolidation have distorted the EPS metrics. A table presenting the adjusted and proforma earnings per share calculations are presented below.
Proforma underlying earnings equate to net underlying profit of £25.1 million (3 January 2015: £19.2 million) less preference share dividends of £0.15 million (2014: £0.15 million).
Proforma Basic EPS has been calculated based on the closing number of shares in issue of 105.9 million (refer to Note 11) and deducting the number of shares held by the Company's Employee Benefit Trust of 0.6 million. Proforma fully diluted EPS assumes the maximum potential dilutive impact and the maximum number of shares the Group could be called upon to issue to satisfy the full vesting of VCP and employee share and deferred bonus schemes. The proforma position has been included for prior year figures to provide a comparable basis to see how the earning potential has moved.
Earnings per share | Adjusted | Proforma | ||||
Basic EPS | Basic EPS | Fully diluted | ||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
Earnings (£m) less preference dividend | 25.0 | 19.1 | 25.0 | 19.1 | 25.0 | 19.1 |
Number of ordinary shares (m) | 105.3 | 3,519.3 | 105.3 | 105.3 | 117.5 | 117.5 |
EPS (pence) | 23.7 | 0.5 | 23.7 | 18.2 | 21.2 | 16.3 |
No interim dividend was paid on the Company's ordinary shares and the Directors recommend no final dividend for the period. The 13.75% preference share dividend was paid in June 2015 and December 2015 following the completion of the Court approved share premium conversion and creation of distributable reserves (the 'Capital Reduction').
Share capital reduction
At the Company's Annual General Meeting on 27 June 2014, a special resolution was approved to initiate a process to reduce the Company's share premium account by £275 million. The completion of the capital reduction was confirmed by an Order of the Court of Session, Scotland on 29 April 2015 and registered at Companies House on 5 May 2015. The capital reduction eliminates the opening accumulated deficit of £179.9 million on the Company's profit and loss account. This will enable the Company to make distributions and provide loans to the Johnston Press plc Employee Share Trust ('JP EST') to satisfy options under the Group's share ownership schemes.
Reconciliation of Statutory and Adjusted Results
Adjusted operating profit of £50.6 million (2014: £54.7 million) has been calculated after adjusting for revenue and cost of sales for closed titles and digital brands. Adjustments made to operating costs include restructuring, impairment and other non-trading related costs. The prior year includes adjustments to remove Week 53 trading and Letterbox which was outsourced in the prior year.
Revenue | EBITDA | Operating profit | ||||
Full year 2015 £m | Full year 2014 £m | Full year 2015 £m | Full year 2014 £m | Full year 2015 £m | Full year 2014 £m | |
Statutory | 245.1 | 268.8 | 9.4 | 16.2 | 1.0 | 10.7 |
Adjustments | ||||||
Closed titles | (1.8) | (3.1) | 0.1 | (0.8) | 0.1 | (0.8) |
Closure of digital products | (1.1) | (1.6) | 0.0 | (0.1) | 1.7 | (0.1) |
Week 53 | - | (2.9) | - | (1.4) | - | (1.4) |
Outsourcing of Letterbox Direct | - | (1.3) | - | - | - | - |
Pensions | - | - | 1.5 | 4.1 | 1.5 | 4.1 |
Restructuring | - | - | 9.4 | 10.9 | 9.4 | 10.9 |
Impairment | - | - | 35.2 | 24.5 | 35.2 | 24.5 |
Other | - | - | 1.7 | 6.7 | 1.7 | 6.7 |
Adjusted | 242.3 | 260.0 | 57.3 | 60.2 | 50.6 | 54.7 |
Cashflow and Net Debt
Net cash flow generated from operating activities was £40.0 million (2014: £7.8 million), after £6.5 million of annual pension contribution, a £2.4 million one-off pension contribution, as a result of successfully reducing the pension levy contribution from £3.2 million to £0.7 million, and careful management of working capital. Refer to Note 17 for further details.
Investment in capital expenditure was £7.8 million (refer to the Financial Review - Capital expenditure section for further details) while proceeds received from the disposal of surplus assets (primarily property sales, surplus press equipment) were £2.3 million.
The Group's net debt was £179.4 million at 2 January 2016 (2014: £194.2 million), excluding the mark-to-market on the bond and bond discounts (totalling £33.4 million (including £29.0 million mark-to-market on Bond and £4.4 million Bond discount). The principal £5.0 million bond buy back in August 2015 was purchased at 98% (£4.9 million cash).
Reconciliation of statutory net debt to net debt excluding mark-to-market | Net debt | |
Full year 2015 £m | Full year 2014 £m | |
Gross bond debt | 225.0 | 225.0 |
Bond repurchase | (5.0) | - |
Cash and cash equivalents | (40.6) | (30.8) |
Net debt excluding mark-to-market | 179.4 | 194.2 |
Mark-to-market on Bond | (29.0) | (5.1) |
Bond discount (net) | (4.4) | (4.5) |
Statutory net debt² | 146.1 | 184.6 |
Mark-to-market on bond represents from inception
²Statutory net debt calculated on unrounded numbers.
Net Asset Position
At the period end, the Group had net assets of £259.1 million, an increase of £59.1 million on the prior year. The movement in the net asset position from the prior year includes: £63.0 million reduction in the pension deficit, £28.8 million reduction in borrowings and impairment write-down of £35.2 million on intangible assets (discussed further below). The reduction in the pension deficit is attributed to the pension study conducted in the period (discussed further below). The £28.8 million reduction in borrowings is due to the fair value gain of £23.9 million recorded in the period and bond repurchase of £5.0 million.
Asset Impairment
The Group conducts a review of the carrying value of assets every six months. In light of the tough trading conditions in the second half of 2015, running into 2016, and the resulting fall in operating profit of £4.1million, the Group has determined that it is prudent to write-down the carrying value of certain assets by £35.2 million, reducing the asset carrying value by 6.9%. Refer to Note 12 in the financial statements.
Pensions
At 2 January 2016, the Group's defined benefit pension scheme had a deficit of £27.0 million as measured under IAS19 Employee Benefits (Revised). This compares to a deficit of £90.0 million as at 3 January 2015 (including £3.0 million IFRIC 14 liability).
The Rules of the Plan were revised such that the Company has an unconditional right to any surplus on the eventual wind up of the Plan. As such the additional IFRIC 14 liability has been reversed.
During the period the Group commissioned a review of the IAS19 assumptions used in determining the closing liability of the Johnston Press Pension Plan specifically focusing on demographic assumptions.A medically underwritten study was carried out by KPMG to identify the current health of a statistical sample group of existing Plan members, assessed via telephone interviews targeted towards members with the most significant liabilities in the Plan. The output was interpreted by underwriters and then analysed alongside the results from a postcode analysis performed in the prior year. This was then used in calculating the IAS19 scheme liabilities.The methodology used was compliant with the applicable Technical Actuarial Standards in force published by the Financial Reporting Council.
This study of current mortality gives an age rating of +3.0 years to the standard Self-Administered Pension Scheme (SAPS) tables used for the IAS19 disclosure (previously this assumption had been set in line with 104% of SAPS tables). The futures Improvement model has been updated to reflect the most recent Continuous Mortality Investigation (CMI) 2015 projections and the allowance long-term rates of improvement of 1.25% p.a. for males and 1.0% p.a. for females remains unchanged. This is equivalent to a life expectancy at 65 of 19.7 years (3 January 2015: 22.0 years) for males and 21.3 years (3 January 2015: 23.9 years) for females. The reduction in assumed life expectancy is equivalent to a reduction in liabilities of £53.0 million.
Agreed cash contributions based on the 2012 triennial valuation, £6.5 million in 2015 and £10.0 million in 2016 increasing by 3% per annum with a final payment of £12.7 million in 2024. Refer to Note 14 'Retirement Benefit Obligation' for further details. The triennial valuation at 2 January 2016 has now commenced and outcome will be known later in 2016.
The Group is also subject to the Pension Protection Fund Levy (PPF). The levy is charged annually and runs from 1 April to 31 March. The amount payable for 2015/2016 is £0.7 million (2014/2015: £2.7 million). The Group entered into a flexible apportionment arrangement with the agreement of the Plan Trustees which resulted in the decrease in the 2015/2016 PPF levy charge. The Group expects to see the full benefit of reduced levy charges in 2016/2017, when the increased pension contributions commence.
Capital Expenditure
The Group capitalised £7.8 million of assets in the period (2014: £8.7 million). Of this, £4.5 million was spent on developing the digital platforms (2014: £3.5 million) and £3.3 million on infrastructure, including £0.5 million on leasehold improvements (2014: £5.2 million of infrastructure spend including £1.9 million leasehold improvements).
Financial Reporting
The IFRS standard changes applicable in 2016 are not expected to have a material impact on the financial statements of the Group in future periods. Additional details on changes in the standards are included in Note 3 to the financial statements.
Factors Affecting Future Group Performance
The performance of the Group will continue to be affected by the economic conditions in our markets, cyclical conditions, structural and business-specific circumstances and trends in employment, property transactions, new car sales and the levels of consumer and SME confidence. However, the outlook for the Group will also depend on a number of other factors, including:
· growing new digital revenues in the Group's existing market segments;
· ability to adapt to customer requirements through new sales propositions and advertising channels;
· continually improving existing efficient operations through technology infrastructure and improved processes;
· the impact of new entrants and competitors to the market;
· further re-engineering of the cost base of the business
· the implementation of salesforce initiatives; and
· acquisition of the i.
Assessment of the Group's prospects
Liquidity and Going Concern
Following the bond buy-back in August 2015, the Group now has gross debt of £220.0 million (refer to the Financial Review - cash flow and net debt for a reconciliation between gross debt and net debt). Cash on balance sheet at 2 January 2016 was £40.6 million, and the Group has access to a £25.0 million revolving credit facility (RCF) which remains undrawn. The bond (senior secured notes) has a five-year maturity due 2019, and the Group's RCF matures on 23 December 2018.
Subject to shareholder approval, the Group committed to pay £22.0 million for the i newspaper on 10 April 2016 from cash reserves, with a further £2.0 million in April 2017.
The Group's policy is to ensure it has committed funding in place sufficient to meet foreseeable peak borrowing requirements.
Based on its review, and after considering reasonably possible downside sensitivities, the Board is of the opinion that the Group has adequate financial resources to meet operational needs for the foreseeable future, and have concluded that it is appropriate to prepare the financial statements on a going concern basis.
Viability Statement
In accordance with provision C.2.2. of the Code, the directors have assessed the prospects of the Group over a longer period than the 12 months required to determine the going concern basis for the preparation of the Group's financial statements.
The directors have reasonable expectations that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year time period of their assessment.
The directors have determined that the period of three years from the balance sheet date is appropriate for the purposes of conducting this review. This period was selected with reference to: the Group's strategy and planning cycle. The Board formally reviews strategy twice a year in May and September, with a view to informing the subsequent annual budget setting. The budget forms year one the of the three year plan, with projections for years two and three.
The annual budget provides a more detailed reflection of the groups immediate plans and is reviewed and approved by the Board before the start of the financial year.
In setting the annual budget and three year plan the Board considers the current trading position and the principal risks and opportunities identified by the Group. In particular:
o The opportunity to invest and grow it's audiences and its digital revenue streams;
o The ability of the Group to continue to reduce costs, to mitigate the continuing decline in print based circulation and advertising revenues;
o The level of capital expenditure required to support investment in growth, and the level of restructuring costs needed to support further cost reduction initiatives;
o The funding required to support the recovery plan of the historic closed defined benefit pension scheme obligations and
o The cash generated to meet bond interest commitments as they fall due.
The Group operates in an industry which is undergoing a sustained period of significant structural change. This is driven in part by new competitors and new methods of accessing content which are provided by rapidly-changing technology and which are in turn facilitating very significant and ongoing changes in consumer behaviour. The Group's ability to adapt to this constantly changing environment will determine its prospects over the three year period.
In reviewing its plan the Group conducts sensitivity analysis, to understand the impact of continued or accelerated decline in revenues, as well as considering what actions the Group might take to mitigate those risks. The future assessments and plans adopted by the Board are subject to change and a level of market uncertainty. As a result of the risks and uncertainties faced by the business (including those outlined in the Principal Risks & Uncertainties section) the outcomes reflected in its plan cannot be guaranteed. In the event of sustained decline in print revenues that cannot be matched or mitigated through digital revenue growth, or cost reduction, then the Group's ability to secure new sources of debt capital will be adversely affected. The Board will continue to oversee the development of the strategy, the market and the performance of the business, across the three year period, and the business's preparation for the replacement of the £220m high yield bond, due no later than June 2019.
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union and applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's and the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the financial and corporate governance information included on the Company's website (www.johnstonpress.co.uk). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
In accordance with Section 418 of the Companies Act 2006, each Director in office at the date the Directors' Report is approved, confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and
• he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
We confirm that to the best of our knowledge the:
1. financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;
2. strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
3. Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
By order of the Board:
Ashley Highfield David King
Chief Executive Officer Chief Financial Officer
22 March 2016 22 March 2016
Group Income Statement
For the 52 week period ended 2 January 2016
Notes | 52 weeks ended 2 January 2016 £'000 | 53 weeks ended 3 January 2015 £'000 | |
Continuing operations | |||
Revenue | 5 | 245,089 | 268,823 |
Cost of sales | (140,612) | (151,759) | |
Gross profit | 104,477 | 117,064 | |
Operating expenses | (68,216) | (81,816) | |
Impairment and write downs | (35,234) | (24,535) | |
Total operating expenses | (103,450) | (106,351) | |
Operating profit | 5, 6 | 1,027 | 10,713 |
Financing | |||
Investment income | 854 | 2,209 | |
Net finance expense on pension liabilities/assets | 7a | (2,933) | (3,330) |
Change in fair value of borrowings | 7b | 23,918 | 5,063 |
Other | - | 1,662 | |
Finance costs | 7c | (19,973) | (40,233) |
Total net financing costs | 1,866 | (34,629) | |
Profit/(Loss) before tax | 2,893 | (23,916) | |
Tax | 8 | 8,538 | 8,580 |
Profit/(Loss) from continuing operations | 11,431 | (15,336) | |
Net profit from discontinued operations | - | 236 | |
Consolidated profit/(loss) for the period | 11,431 | (15,100) | |
The accompanying notes are an integral part of these financial statements. The comparative period is for the 53 week period ended 3 January 2015.
Notes | 52 weeks ended 2 January 2016 | 53 weeks ended 3 January 2015 | |
From continuing and discontinued operations | |||
Earnings per share (p) | |||
Earnings (£m) | 11 | 11.3 | (15.3) |
Weighted average number of shares (m) | 11 | 105.3 | 3,519.3 |
Basic | 10.71 | (0.43) | |
Diluted | 10.71 | (0.43) | |
From continuing operations | |||
Earnings per share (p) | |||
Earnings (£m) | 11 | 11.3 | (15.5) |
Weighted average number of shares (m) | 11 | 105.3 | 3,519.3 |
Basic | 10.71 | (0.44) | |
Diluted | 10.71 | (0.44) | |
Group Statement of Comprehensive Income
For the 52 week period ended 2 January 2016
Revaluation reserve £'000 | Translation reserve £'000 | Retained earnings £'000 | Total £'000 | |
Profit for the period | - | - | 11,431 | 11,431 |
Other items of comprehensive income Items that will not be reclassified subsequently to profit or loss | ||||
Actuarial gain on defined benefit pension schemes (net of tax) | - | - | 57,648 | 57,648 |
Total items that will not be reclassified subsequently to profit or loss | - | - | 57,648 | 57,648 |
Items that may be reclassified subsequently to profit or loss | ||||
Revaluation adjustment | (2) | - | - | (2) |
Exchange differences on translation of foreign operations | - | (245) | - | (245) |
Deferred tax on pension balances | - | - | (10,956) | (10,956) |
Total items that may be reclassified subsequently to profit or loss | (2) | (245) | (10,956) | (11,203) |
Total other comprehensive (loss)/gain for the period | (2) | (245) | 46,692 | 46,445 |
Total comprehensive (loss)/gain for the period | (2) | (245) | 58,123 | 57,876 |
For the 53 week period ended 3 January 2015
Revaluation reserve £'000 | Translation reserve £'000 | Retained earnings £'000 | Total £'000 | |
Loss for the period | - | - | (15,100) | (15,100) |
Other items of comprehensive loss Items that will not be reclassified subsequently to profit or loss | ||||
Actuarial (loss) on defined benefit pension schemes (net of tax) | - | - | (17,591) | (17,591) |
Total items that will not be reclassified subsequently to profit or loss | - | - | (17,591) | (17,591) |
Items that may be reclassified subsequently to profit or loss | ||||
Revaluation adjustment | (4) | - | 4 | - |
Exchange differences on translation of foreign operations | - | (21) | - | (21) |
Deferred tax on exchange differences | - | 7 | - | 7 |
Total items that may be reclassified subsequently to profit or loss | (4) | (14) | 4 | (14) |
Total other comprehensive loss for the period | (4) | (14) | (17,587) | (17,605) |
Total comprehensive loss for the period | (4) | (14) | (32,687) | (32,705) |
¹ Relates to actuarial gain of £57,021,000 (3 January 2015: loss of £17,560,000) for the Johnston Press Pension Plan (refer to Note 14), and a net actuarial gain of £627,000 (3 January 2015: loss of £31,000). For other pension related liabilities, the obligations are shown in provisions.
Group Statement of Changes in Equity
For the 52 week period ended 2 January 2016
Share capital £'000 | Share premium £'000 | Share-based payments reserve £'000 | Revaluation reserve £'000 | Own shares £'000 | Translation reserve £'000 | Retained earnings £'000 | Total £'000 | |
Opening balances | 116,171 | 587,702 | 13,780 | 1,733 | (5,206) | 9,565 | (523,764) | 199,981 |
Total comprehensive (loss)/profit for the period | - | - | - | (2) | - | (245) | 58,123 | 57,876 |
Recognised directly in equity: | ||||||||
Preference share dividends (Note 10) | - | - | - | - | - | - | (152) | (152) |
Share-based payments charge | - | - | 2,188 | - | - | - | - | 2,188 |
Deferred tax on share-based payment transactions | - | - | - | - | - | - | - | - |
Share capital reduction (Note 15) | - | (275,000) | - | - | - | - | 275,000 | - |
Performance share plan exercised | - | - | (321) | - | 321 | - | - | - |
Company share option plan exercised | - | - | - | - | 17 | - | - | 17 |
Deferred bonus plan exercised | - | - | (18) | - | 18 | - | - | - |
Purchase of own shares | - | - | - | - | (895) | - | - | (895) |
Release of SBP reserve for expired share schemes | - | - | (8,666) | - | - | - | 8,666 | - |
Release of own shares | - | - | - | - | 2,163 | - | (2,163) | - |
Net changes directly in equity | - | (275,000) | (6,817) | - | 1,624 | - | 281,351 | 1,158 |
Total movements | - | (275,000) | (6,817) | (2) | 1,624 | (245) | 339,474 | 59,034 |
Equity at the end of the period | 116,171 | 312,702 | 6,963 | 1,731 | (3,582) | 9,320 | (184,290) | 259,015 |
On lapse of schemes balances held are released to distributable reserves.
Revaluation of own shares reserve to reflect the weighted average price of shares purchased.
During 2015 the Group reduced its share premium by £275,000,000 increasing distributable reserves, see Note 6 for full details.
For the 53 week period ended 3 January 2015
Opening balances | 69,541 | 502,829 | 13,576 | 1,737 | (5,312) | 9,579 | (491,526) | 100,424 |
Total comprehensive loss for the period | - | - | - | (4) | - | (14) | (32,687) | (32,705) |
Recognised directly in equity: | ||||||||
Preference share dividends paid (Note 10) | - | - | - | - | - | - | (152) | (152) |
Share-based payments charge | - | - | 907 | - | - | - | - | 907 |
Deferred tax on share-based payment transactions | - | - | (25) | - | - | - | - | (25) |
Share capital issued (Note 15) | 46,630 | - | - | - | - | - | - | 46,630 |
Share premium arising (Note 16) | - | 84,873 | - | - | - | - | - | 84,873 |
Performance share plan exercised | - | - | (77) | - | 77 | - | - | - |
Company share option plan exercised | - | - | - | - | 29 | - | - | 29 |
Release on exercise of warrants | - | - | (601) | - | - | - | 601 | - |
Net changes directly in equity | 46,630 | 84,873 | 204 | - | 106 | - | 449 | 132,262 |
Total movements | 46,630 | 84,873 | 204 | (4) | 106 | (14) | (32,238) | 99,557 |
Equity at the end of the period | 116,171 | 587,702 | 13,780 | 1,733 | (5,206) | 9,565 | (523,764) | 199,981 |
The accompanying notes are an integral part of these financial statements.
Group Statement of Financial Position
At 2 January 2016
Notes | 2 January 2016 £'000 | 3 January 2015 £'000 | |
Non-current assets | |||
Intangible assets | 12 | 479,047 | 514,324 |
Property, plant and equipment | 52,713 | 53,334 | |
Available for sale investments | 970 | 970 | |
Interests in associates | - | 22 | |
Trade and other receivables | 2 | 2 | |
532,732 | 568,652 | ||
Current assets | |||
Assets classified as held for sale | 82 | 1,301 | |
Inventories | 2,383 | 2,543 | |
Trade and other receivables | 31,628 | 37,262 | |
Current tax asset | 247 | - | |
Cash and cash equivalents | 40,564 | 30,817 | |
74,904 | 71,923 | ||
Total assets | 5 | 607,636 | 640,575 |
Current liabilities | |||
Trade and other payables | 44,549 | 45,560 | |
Current tax liabilities | - | 1,032 | |
Retirement benefit obligation | 14 | 10,016 | 6,489 |
Short-term provisions | 1,835 | 2,087 | |
56,400 | 55,168 | ||
Non-current liabilities | |||
Borrowings | 13 | 186,619 | 215,437 |
Retirement benefit obligation | 14 | 16,946 | 83,512 |
Deferred tax liabilities | 84,196 | 81,352 | |
Trade and other payables | 819 | 935 | |
Long-term provisions | 3,641 | 4,190 | |
292,221 | 385,426 | ||
Total liabilities | 348,621 | 440,594 | |
Net assets | 259,015 | 199,981 | |
Equity | |||
Share capital | 15 | 116,171 | 116,171 |
Share premium account | 16 | 312,702 | 587,702 |
Share-based payments reserve | 6,963 | 13,780 | |
Revaluation reserve | 1,731 | 1,733 | |
Own shares | (3,582) | (5,206) | |
Translation reserve | 9,320 | 9,565 | |
Retained earnings | (184,290) | (523,764) | |
Total equity | 259,015 | 199,981 |
The financial statements of Johnston Press plc, registered in Scotland (number 15382), were approved by the Board of Directors and authorised for issue on 22 March 2016.
They were signed on its behalf by:
Ashley Highfield David King
Chief Executive Officer Chief Financial Officer
The accompanying notes are an integral part of these financial statements.
Group Cash Flow Statement
For the 52 week period ended 2 January 2016
Notes | 52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
Cash flow from operating activities | |||
Cash generated from operations | 17 | 41,025 | 6,318 |
Income tax (paid)/received | (816) | 918 | |
Cash generated from discontinued operations | - | 571 | |
Net cash inflow from operating activities | 40,209 | 7,807 | |
Investing activities | |||
Interest received | 148 | 49 | |
Dividends received | 706 | 2,160 | |
Proceeds on disposal of property, plant and equipment | 200 | 484 | |
Proceeds on disposal of assets held for sale | 2,139 | 7,612 | |
Proceeds on disposal of investments in associates | 10 | - | |
Expenditure on digital intangible assets | (1,772) | (1,513) | |
Purchases of property, plant and equipment | (6,084) | (7,149) | |
Disposal proceeds and investing activities of discontinued operations | - | 5,882 | |
Expenditure incurred on disposal of discontinued operations | (46) | - | |
Net cash (used in)/provided by investing activities | (4,699) | 7,525 | |
Financing activities | |||
Issuance of bonds | 13 | - | 220,500 |
Placing and Rights Issue | - | 140,022 | |
Share exercises - option schemes, warrants | - | 662 | |
Purchase of own shares | (895) | - | |
Dividends paid | 10 | (304) | - |
Interest paid | (19,658) | (27,008) | |
Repayment of Bond | (4,900) | - | |
Repayment of bank borrowings | - | (204,738) | |
Repayment of loan notes | - | (121,798) | |
Refinancing fees (equity and debt issuance costs) | - | (21,100) | |
Purchase of foreign currency options | - | (159) | |
Cash movement relating to own shares held | - | 29 | |
Financing fees | (25) | ||
Settlement of share schemes | 19 | - | |
Net cash used in financing activities | (25,763) | (13,590) | |
Net increase in cash and cash equivalents | 9,747 | 1,742 | |
Cash and cash equivalents at the beginning of period | 30,817 | 29,075 | |
Cash and cash equivalents at the end of the period | 40,564 | 30,817 |
In 2015 the Group settled preference dividends relating to 2014 and 2015, 2014 dividends were accrued at the end of 2014.
The comparative period is for the 53 week period ended 3 January 2015.
The accompanying notes are an integral part of these financial statements.
Notes to the Condensed Consolidated Financial Statements
For the 52 week period ended 2 January 2016
1. General information
The financial information in the Preliminary Results Announcement is derived from but does not represent the full statutory accounts of Johnston Press plc. The statutory accounts for the 53 week period ended 3 January 2015 have been filed with the Registrar of Companies and those for the 52 week period ended 2 January 2016 will be filed following the Company's Annual General Meeting in 2016. The auditor's reports on the statutory accounts for the 53 and 52 week periods ended 3 January 2015 and 2 January 2016 were unqualified. Neither report contained a statement under Sections 498 (2) or (3) of the Companies Act 2006.
The condensed consolidated financial statements of Johnston Press Plc have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost convention, except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period. The accounting policies adopted in the preparation of this condensed consolidated financial statement are consistent with those applied by the Group in its audited consolidated financial statements for the period ended 2 January 2016.
Whilst the financial information included in this Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The 2015 Annual Report and Accounts for the 52 weeks ended 2 January 2016 will be made available on the Company's website at www.johnstonpress.co.uk, at the Company's registered office at Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS and sent to shareholders in April 2016.
2. Basis of Preparation
Johnston Press plc ('Johnston Press' or 'the Group') is a public limited liability company incorporated in Scotland under the Companies Act 2006 and listed on the London Stock Exchange. The registered office is Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4 2HS. The principal activities of the Group are described in the Operational Review and Financial Review sections of the Strategic Report.
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS') issued by the International Accounting Standards Board as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS.
These financial statements have been prepared for the 52 week period ended 2 January 2016 (2014: 53 week period ended 3 January 2015).
These financial statements have been prepared in accordance with the accounting policies set out in the 2014 Annual Report. The financial statements have also been adjusted, where appropriate, by new or amended IFRS described below.
These financial statements have been prepared on a going concern basis (discussed further in the Financial Review) and under the historical cost basis except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period.
3. Significant Accounting Policies
Adoption of new or amended standards and interpretations in the current year
The following new and amended IFRSs have been adopted for the 52 week period which commenced 4 January 2015 and ended 2 January 2016.
Accounting standard | Requirements | Impact on financial statements |
IFRS 10 Consolidated Financial Statements | Establishes a single basis - control - to determine whether an entity (including a structured or special purpose entity) should be included in the consolidated financial statements. Provides additional guidance to assist in the determination of control in circumstances in which this is difficult to assess, such as control with less than 50% of voting rights, potential voting rights and agency relationships (e.g., investment managers). | None; additional disclosure requirements included within accounting policies under header 'Accounting for subsidiaries'. |
IFRS 12 Disclosure of Interests in Other Entities | Sets out new and comprehensive disclosure requirements for all forms of interests in other entities including subsidiaries, joint arrangements, associates, structured or special purpose entities and off-balance sheet entities. | None. |
IAS 27 Separate Financial Statements | Contains the accounting and disclosure requirements for investment in subsidiaries, joint arrangements and associates when an entity prepares separate financial statements. The requirements in respect of consolidated financial statements are superseded by IFRS 10. | None. |
IAS 28 Investments in Associates and Joint Ventures | Prescribes the equity method for investments in associates and joint ventures, and slightly modifies the accounting required when a portion of an investment in an associate or joint venture is held for sale. | None. |
Amendments to IFRS 10, IFRS 11 and IFRS 12 - Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance | Provides additional transition relief in IFRSs 10, 11 and 12 by limiting the requirement to provide adjusted comparative information to only the preceding comparative period. | None. |
Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities | Defines an investment entity and introduces an exception to consolidating particular subsidiaries for investment entities. | None. |
Amendments to IAS 32 - Offsetting Financial Assets and Financial Liabilities | Addresses inconsistencies in current practice when applying the offsetting criteria in IAS 32. The amended standard clarifies that the right of set-off must be legally enforceable not only in the normal course of business but also in the event of default or insolvency or bankruptcy of either the entity or all of the counterparties and that it must not be contingent on a future event. | None. |
Amendments to IAS 36 - Recoverable Amount Disclosures for Non-Financial Assets | Clarifies the scope of certain disclosures about the recoverable amount of impaired assets. Additional disclosures are required when the recoverable amount of impaired assets is based on fair value less costs of disposal. | None; refer Note 12 to the condensed financial statements - Intangible Assets where the recoverable amount is based on value in use instead of fair value less costs of disposal. |
IFRIC 21 Levies | Clarifies how an entity should account for liabilities to pay levies imposed by governments. | None; refer Note 14 to the condensed financial statements in relation to PPF levies recognised in the income statement. |
Amendments to IAS 19 - Defined Benefit Plans: Employee Contributions | Introduces a narrow-scope amendment to simplify the accounting for contributions that are independent of the number of years of employee service, e.g., employee contributions that are calculated according to a fixed percentage of salary. | None; refer Note 14 to the condensed financial statements. |
Annual improvements to IFRSs 2010-2012 cycle | Minor amendments to IFRS 2, 3, 8, 13 and IAS 16 and 38 and IAS 24. | None; minor revisions taken into consideration when applying standards. |
Annual improvements to IFRSs 2011-2013 cycle | Minor amendments to IFRS 1, 3, 13 and IAS 40. | None; minor revisions taken into consideration when applying standards. |
New and amended IFRS issued by the IASB but not yet effective for the 52 week period ended 2 January 2016
The following standards and interpretations are applicable to companies with periods beginning after 2015. These will be mandatory for Johnston Press plc in the 52 weeks ended 1 January 2017.
Accounting standard | Requirements | Impact on financial statements |
Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation | Prohibits revenue-based depreciation methods and generally presumes that such methods are an inappropriate basis for amortising intangible assets. | None; refer Note 12 - Intangible Assets to the condensed financial statements |
Amendments to IAS 27 - Equity Method in Separate Financial Statements | Allows entities to use the equity method to account for investment in subsidiaries, joint ventures and associates in their separate financial statements. | None. |
Amendments to IAS 1 - Disclosure Initiative | Encourages companies to apply professional judgement in determining what information to disclose in their financial statements. | None. |
Annual improvements to IFRSs 2012-2014 cycle | Minor amendments to IFRS 5 and 7, IAS 19 IAS 34. | None; minor revisions taken into consideration when applying standards. |
* Not yet EU endorsed.
New standards applicable to accounting periods beginning after 2016
Accounting standard | Requirements | Effective date |
IFRS 15 Revenue from Contracts with Customers | IFRS 15 (which replaces IAS 11 and 18 and SIC 31, IFRIC 13, 15 and 18) provides a single, principles-based five-step model that should be applied to determine how and when to recognise revenue from contracts with customers. IFRS 15's core principle is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. A five-step approach to revenue recognition is required: · Identify the contract(s) with a customer. · Identify the performance obligations in the contract. · Determine the transaction price. · Allocate the transaction price to the performance obligations in the contract. · Recognise revenue when (or as) performance obligations are satisfied. IFRS 15 also includes requirements for accounting for costs related to a contract with a customer. These are recognised as an asset if certain criteria are met. The standard requires qualitative and quantitative disclosures in respect of revenue, contract balances, performance obligations, significant judgements and assets recognised from costs to obtain or fulfil a contract. | Effective for annual periods beginning 1 January 2018. A detailed assessment of the implications of the standard on the business will be undertaken particularly as it relates to digital marketing services contracts and longer term advertising agreements delivered across multiple platforms. |
IFRS 9 Financial Instruments (Issued 24 July 2014) | IFRS 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. IFRS 9 will supersede IAS 39 Financial Instruments: Recognition and Measurement. | Effective for annual periods beginning 1 January 2018; the impact is yet to be assessed. |
IFRS 16 (Issued) Leases | IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated interpretative guidance and applies a control model to the identification of leases, distinguishing between leases and service contracts on the basis of whether there is an identified asset controlled by the customer - | Effective for annual periods beginning 1 January 2019; the impact is yet to be assessed. |
* Not yet EU endorsed.
4. Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).
The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
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. No discounting has been applied to the provision as the effect of the discounting is not considered material.
Valuation of share-based payments
The Group estimates the expected value of equity-settled share-based payments and this is charged through the Income Statement over the vesting periods of the relevant awards. The cost is estimated using a Black-Scholes valuation model. The Black-Scholes calculations are based on a number of assumptions and are amended to take account of estimated levels of share vesting and exercise.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the period end date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Impairment of publishing titles, print presses and other intangible assets
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. £35.2 million impairment loss has been recognised for the period ended 2 January 2016 (3 January 2015: £21.6 million) in relation to publishing titles. A future change in the composition of CGUs may result in a different outcome. The carrying value of publishing titles at 2 January 2016 was £476.4 million (3 January 2015: £511.6 million).
Determining whether print presses are impaired requires an estimation of the value in use of each print site. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the print sites and a suitable discount rate in order to calculate present value (Note 12).
£1.6 million accelerated depreciation/amortisation has been taken in relation to digital intangible assets. Details of the impairment reviews that the Group performs are provided in Note 12 to the condensed financial statements.
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. The pension 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 outside the control of management. The main factors that can impact the valuation include:
· the discount rate used to discount future liabilities back to the present date, determined each year from the yield on corporate bonds;
· the actual returns on investments experienced as compared to the expected rates used in the previous valuation;
· the actual rates of 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 based on standard base table adjusted to reflect specific conclusions and conditions based on a study of the actual scheme members.
Details of the assumptions used to determine the liability at 2 January 2016 are set out in Note 14 to the condensed financial statements.
5. Segment Information
Business segments
Information reported to the Chief Executive Officer for the purpose of resource allocation and assessment of segment performance is focused on the two areas of Publishing (in print and online) and Contract Printing. Geographical segments are not presented as the primary segment is the UK which is greater than 90% of Group activities.
a) Segment revenues and results
The following is an analysis of the Group's revenue and results by reportable segment:
52 week period ended 2 January 2016 | 53 week period ended 3 January 2015 | |||||||
Publishing £'000 | Contract printing £'000 | Eliminations £'000 | Group £'000 | Publishing £'000 | Contract printing £'000 | Eliminations £'000 | Group £'000 | |
Revenue | ||||||||
Print advertising | 119,607 | - | - | 119,607 | 138,087 | - | - | 138,087 |
Digital advertising | 31,719 | - | - | 31,719 | 29,116 | - | - | 29,116 |
Newspaper sales | 72,461 | - | - | 72,461 | 79,144 | - | - | 79,144 |
Contract printing | - | 12,627 | - | 12,627 | - | 12,804 | - | 12,804 |
Other | 7,568 | 1,107 | - | 8,675 | 8,177 | 1,495 | - | 9,672 |
Total external sales | 231,355 | 13,734 | - | 245,089 | 254,524 | 14,299 | - | 268,823 |
Inter-segment sales | - | 30,182 | (30,182) | - | - | 36,727 | (36,727) | - |
Total revenue | 231,355 | 43,916 | (30,182) | 245,089 | 254,524 | 51,026 | (36,727) | 268,823 |
Operating profit/(loss) | ||||||||
Segment result | (1,829) | 2,856 | - | 1,027 | 6,443 | 4,270 | - | 10,713 |
Investment income | 854 | 2,209 | ||||||
Net finance expense on pension assets/liabilities | (2,933) | (3,330) | ||||||
Net IAS 21/39 adjustments | 23,918 | 6,725 | ||||||
Net finance costs | (19,973) | (40,233) | ||||||
Profit/(Loss) before tax | 2,893 | (23,916) | ||||||
Taxation (expense)/credit | 8,538 | 8,580 | ||||||
Profit/(Loss) after tax for the period - continuing operations | 11, 431 | (15,336) | ||||||
Profit after tax for the period - discontinued operations | - | 236 | ||||||
Consolidated profit/(loss) after tax for the period | 11,431 | (15,100) | ||||||
¹ Inter-segment sales are charged at standard internal charging rates.
² Relates to changes in fair value of borrowings, changes in fair value of hedges, retranslation of US dollars and retranslation of euro-denominated debt.
The accounting policies of the reportable segments are the same as the Group's accounting policies. The segment result represents the (loss)/profit earned by each segment without allocation of the share of results of associates, investment income, finance costs (including in relation to pension assets and liabilities) and income tax expense. This is the measure reported to the Group's Chief Executive Officer for the purpose of resource allocation and assessment of segment performance.
b) Segment assets
2 January 2016 £'000 | 3 January 2015 £'000 | |
Assets | ||
Publishing | 574,975 | 609,452 |
Contract printing | 32,661 | 31,538 |
Total segment assets | 607,636 | 640,990 |
Unallocated assets | - | - |
Consolidated total assets | 607,636 | 640,990 |
For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments.
c) Other segment information
52 weeks to 2 January 2016 | 53 weeks to 3 January 2015 | |||||
Publishing £'000 | Contract printing £'000 | Group £'000 | Publishing £'000 | Contract printing £'000 | Group £'000 | |
Additions to property, plant and equipment | 5,837 | 247 | 6,084 | 7,044 | 105 | 7,149 |
Depreciation and amortisation expense (continuing) | 6,403 | 1,965 | 8,368 | 3,869 | 1,638 | 5,507 |
Impairment of property, plant and equipment | - | - | - | 2,667 | - | 2,667 |
Net impairment of intangibles | 35,234 | - | 35,234 | 21,568 | - | 21,568 |
6. Operating Profit
Notes | 52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
Operating profit is shown after charging/(crediting): | |||
Depreciation of property, plant and equipment | 6,553 | 5,313 | |
Amortisation of intangible fixed assets | 12 | 1,815 | 194 |
Impairment of publishing titles | 12 | 35,234 | 21,568 |
Write down in value of fixed assets | - | 2,667 | |
Write down of assets classified as held for sale | 4 | - | 300 |
Profit on disposal of property, plant and equipment: | |||
Profit on disposal of plant and equipment | 187 | 1,968 | |
Profit on disposal of property | 783 | 1,739 | |
Cost of inventories recognised as expense | 21,382 | 27,027 | |
Movement in allowance for doubtful debts | 17 | (695) | |
Staff costs excluding redundancy costs | 93,090 | 100,703 | |
Redundancy costs | 4,474 | 7,320 | |
Long Term Incentive Plans | - | 4,321 | |
Share-based payments | 596 | 676 | |
Value Creation Plan | 993 | 231 | |
Operating lease charges: | |||
Property | 4,617 | 4,938 | |
Vehicles | 1,395 | 1,752 | |
Rentals received on sub-let property | 77 | 91 | |
Net foreign exchange gains | (9) | (39) | |
Pension Protection Fund levy | 14 | 1,221 | 2,038 |
Auditor's remuneration: | |||
Company and Group accounts | 230 | 159 | |
Subsidiaries | 200 | 240 |
¹ 2014 includes £1,500,000 relating to the Sheffield property which has a redundant press hall in its basement and £1,167,000 of redundant assets in Score Press Limited.
Profit on disposal of property
The Group operates a large portfolio of properties, and regularly exits and renews leases, as well as sale and leaseback of freehold properties. Profits of £0.8 million for the period ended 2 January 2016 (3 January 2015: £2.0 million) from property sales were included in operating profit/(loss). There were seven such sales for the period ended 2 January 2016 (2014: 21).
Staff costs shown above include £1,293,000 (3 January 2015: £2,566,000) relating to remuneration of Directors. In addition to the auditor's remuneration shown above, the auditor received the following fees for non-audit services.
52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
Audit-related assurance services | 55 | 55 |
Taxation compliance services | 60 | 55 |
Other taxation advisory services | 84 | 37 |
Other services related to refinancing | - | 305 |
199 | 452 |
All non-audit services were approved by the Audit Committee. The Audit Committee considers that these non-audit services have not impacted the independence of the audit process. In addition, an amount of £15,500 (3 January 2015: £19,000) was paid to the external auditor for the audit of the Group's pension scheme.
7. Finance Costs
52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
a) Net finance expense on pension liabilities/assets | ||
Interest on assets | 16,771 | 19,376 |
Interest on liabilities | (19,704) | (22,706) |
Net finance expense on pension liabilities/assets | (2,933) | (3,330) |
b) IAS 21/39 items
The fair value movement on the 8.625% Senior Secured Bonds due 2019 resulted in a gain of £23.9 million (2014: £5.1 million) and was based on quoted market fair value. Refer to Note 13 to the condensed financial statements. The fair value movements on the bond are not taxable as it is accounted for under amortised cost within Johnston Press Bond plc.
All movements in the fair value of derivative financial instruments are recorded in the Income Statement. There are no longer derivative financial instruments held by the Group. When held in 2014 there was a £1.3 million net charge. The retranslation of foreign denominated debt resulted in £nil movement (2014: net gain £2.9 million). In the current period no debt was held in foreign currencies. All euro denominated publishing titles were disposed of in 2014 as such there was no retranslation required in the current period.
52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
c) Finance costs | ||
Interest on bond | (19,296) | (12,290) |
Interest on bank overdrafts and loans | (374) | (11,163) |
Payment-in-kind interest | - | (5,345) |
Amortisation of term debt issue costs | (194) | (2,389) |
Financing fees | (109) | - |
Total operational finance costs | (19,973) | (31,187) |
Payment-in-kind interest accrual release | - | 9,181 |
Term debt issue costs written off on previous repaid loan services | - | (7,145) |
Gain on debt extinguishment | - | 2,036 |
Refinancing fees on new capital raising | - | (11,082) |
Total exceptional finance costs | - | (9,046) |
Total finance costs | (19,973) | (40,233) |
¹ The 2014 interest accrual release of £9.2 million includes a release of the PIK accrual of £25.7 million less £6.4 million PIK payment and £10.1 million Make-Whole interest paid due to early debt repayment. The term debt issue costs write off of £7.1 million represents the remaining term debt issue costs after amortisation at the date of repayment. There was no such amount in the current year.
² The 2014 £11.1 million refinancing fees relates to legal and professional fees associated with the refinancing that were attributable to the equity and bond issue, the revolving credit facility, the repayment of lending banks and noteholders and the new pension framework agreement. These have been recorded in the Income Statement. There was no such amount in the current year.
8. Tax
52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
Current tax | ||
Charge for the period | 200 | - |
Adjustment in respect of prior periods | (626) | (665) |
(426) | (665) | |
Deferred tax | ||
Charge / (credit) for the period | 6,983 | (1,874) |
Deferred tax adjustment in respect of prior periods relating to the bond | 1,104 | - |
Deferred tax adjustment relating to the impairment of publishing titles in the period | (7,033) | (6,041) |
Credit relating to reduction in deferred tax rate to 18%/19% (2014: 20.0%) | (9,166) | - |
(8,112) | (7,915) | |
Total tax credit for the period | (8,538) | (8,580) |
UK corporation tax is calculated at 20.25% (3 January 2015: 21.5%) of the estimated assessable profit for the period. The 21.5% basic tax rate applied for the 2015 period was a blended rate due to the tax rate of 21.0% in effect for the first quarter of 2015, changing to 20.0% from 1 April 2015 under the 2013 Finance Act. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdiction.
The change in rate from 20% to 18% or 19% has been accounted for in the current year resulting in a £9.2 million tax credit in the consolidated income statement and £0.6 million credit in the Statement of Comprehensive Income as a result of the change to the standard rate of corporation tax substantively enacted by parliament. £9.5 million of the tax credit has arisen on recognising the publishing title intangible assets deferred tax balance at the reduced corporate tax rate of 18%.
A deferred tax adjustment relating to the bond accounting treatment has been charged in the period, in respect of the prior year. The accounting treatment of the bond differs in the Group, compared to the subsidiary, which gives rise to the deferred tax liability. Within the Group accounts the bond is marked-to-market. At a subsidiary reporting level the bond is accounted for under the amortised cost method (FRS 102 - section 10).
The tax credit for the period can be reconciled to the profit/(loss) per the Income Statement as follows:
52 weeks to 2 January 2016 £'000 | % | 53 weeks to 3 January 2015 £'000 | % | |
Profit/(Loss) before tax | 2,893 | 100.0 | (23,916) | 100.0 |
Tax at 20.25% (3 January 2015: 21.50%) | 586 | 20.3 | (5,142) | 21.5 |
Tax effect of items that are not deductible or not taxable in determining taxable profit | (169) | (5.8) | (2,729) | 11.4 |
Tax effect of investment income | (142) | (4.9) | (321) | 1.3 |
Effect of other tax rates | (122) | (4.2) | (81) | 0.3 |
Unrecognised deferred tax assets | (3) | (0.1) | 358 | (1.5) |
Effect of reduction in deferred tax rate | (9,166) | (316.9) | - | - |
Adjustment in respect of prior year bond accounting | 1,104 | 38.2 | - | - |
Adjustment in respect of prior years | (626) | (21.6) | (665) | 2.8 |
Total tax credit | (8,538) | (295.2) | (8,580) | 35.9 |
9. Discontinued Operations
There were no significant discontinued operations in the period.
In the Prior year the Group disposed of the Republic of Ireland titles to Iconic Newspapers, part of Mediaforce Limited. In accordance with IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations', the results and cash flows of this 'disposal group' were reported separately from the performance of continuing operations. The net profit from discontinued operations for the period ended 2 January 2016 was nil (2014: £0.3 million).
10. Dividends
52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
Amounts recognised as distributions to equity holders in the period: | ||
Preference dividends | ||
13.75% Cumulative preference shares (13.75p per share) | 104 | 104 |
13.75% 'A' preference shares (13.75p per share) | 48 | 48 |
152 | 152 |
Under the provisions of the Bond, the Company's ability to pay dividends in respect of ordinary shares is restricted until certain conditions, including that the net leverage is below 2.25% EBITDA, are met. No ordinary dividend is proposed for the period ended 2 January 2016 (3 January 2015: £nil).
Following the completion of the £275 million capital reduction in May 2015 the Group has paid preference dividends relating to 2014 and resumed the regular June and December payments on each class of preference share.
11. Earnings Per Share
The calculation of earnings per share is based on the following profit/(loss) and weighted average number of shares:
Continuing and discontinued operations
52 weeks to 2 January 2016 £'000 | 53 weeks to 3 January 2015 £'000 | |
Earnings | ||
Profit/(loss) for the period | 11,431 | (15,100) |
Preference dividend | (152) | (152) |
Earnings for the purposes of diluted earnings per share | 11,279 | (15,252) |
000's | 000's | |
Number of shares | ||
Weighted average number of ordinary shares for the purposes of basic earnings per share | 105,281 | 3,519,319 |
Effect of dilutive potential ordinary shares | ||
- warrants and employee share options | - | - |
- PSP and deferred bonus shares | - | - |
Number of shares for the purposes of diluted earnings per share | 105,281 | 3,519,924 |
Earnings per share (p) | ||
Basic | 10.71 | (0.43) |
Diluted | 10.71 | (0.43) |
¹ In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of earnings per share.
The weighted average number of ordinary shares are shown excluding treasury shares.
Diluted earnings per share are presented when a company could be called upon to issue shares that would decrease net profit or increase loss per share.
Continuing operations
2 January 2016 £'000 | 3 January 2015 £'000 | |
Earnings | ||
Profit/(Loss) for the period | 11,431 | (15,336) |
Preference dividend | (152) | (152) |
Earnings for the purposes of diluted earnings per share | 11,279 | (15,488) |
000's | 000's | |
Number of shares | ||
Weighted average number of ordinary shares for the purposes of basic earnings per share | 105,281 | 3,519,319 |
Effect of dilutive potential ordinary shares | ||
- warrants and employee share options | - | - |
- PSP and deferred bonus shares | - | - |
Number of shares for the purposes of diluted earnings per share | 105,281 | 3,519,319 |
Earnings per share (p) | ||
Basic | 10.71 | (0.44) |
Diluted | 10.71 | (0.44) |
In line with IAS 33, the preference dividend and the number of preference shares are excluded from the calculation of earnings per share.
The weighted average number of ordinary shares are shown excluding treasury shares.
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.
12. Intangible Assets
Publishing titles £'000 | Digital intangible assets £'000 | Total £'000 | ||
Cost | ||||
Opening balance | 1,149,123 | 3,013 | 1,152,136 | |
Additions | 67 | 1,705 | 1,772 | |
Closing balance | 1,149,190 | 4,718 | 1,153,908 | |
Accumulated impairment losses and amortisation | ||||
Opening balance | 637,561 | 251 | 637,812 | |
Amortisation for the period | - | 1,815 | 1,815 | |
Impairment losses for the period | 35,234 | - | 35,234 | |
Closing balance | 672,795 | 2,066 | 674,861 | |
Carrying amount | ||||
Opening balance | 511,562 | 2,762 | 514,324 | |
Closing balance | 476,395 | 2,652 | 479,047 |
Publishing titles
The carrying amount of publishing titles by cash generating unit (CGU) is as follows:
3 January 2015 £'000 | Impairment £'000 | Addition £'000 | 2 January 2016 £'000 | |
Scotland | 52,127 | - | - | 52,127 |
North | 217,231 | (22,273) | - | 194,958 |
Northwest | 47,860 | (1,560) | - | 46,300 |
Midlands | 120,082 | (10,973) | - | 109,109 |
South | 38,375 | - | 67 | 38,442 |
Northern Ireland | 35,887 | (428) | - | 35,459 |
Total carrying amount of publishing titles | 511,562 | (35,234) | 67 | 476,395 |
The addition in the period, relates to the acquisition of Love News Media Limited the publisher of the Brighton & Hove Independent which was acquired on 3rd July 2015. The title, including its popular associated website: www.brightonandhoveindependent.co.uk and @BrightonIndy twitter following complements the South portfolio of assets. This title now allows the Group to serve customers along the Sussex coast.
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:
· expected changes in underlying revenues and direct costs during the period;
· growth rates; and
· the discount rate.
The Group prepares discounted cash flow forecasts using:
· the Board approved budget for 2016 and the projections for 2017 and 2018, which reflect management's current experience and future expectations of the markets the CGUs operate in. Changes in underlying revenue and direct costs are based on past practices and expectations of future changes in the market. These include changes in demand for print and digital, circulation, cover prices, advertising rates as well as movement in newsprint and production costs and inflation;
· capital expenditure cash flows to reflect the cycle of capital investment required;
· net cash inflows for future years are extrapolated beyond 2018 based on the Board's view of the estimated annual long-term growth rate of 1.0%; and
· management estimate discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The post-tax discount rate applied to the future cash flows for the period ended 2 January 2016 was 10.0% (2015 pre-tax discount rate of 12.1%, 2014: 12.0%). The post-tax discount rate reflects management's view of the current risk profile of the underlying assets being valued with regard to the current economic environment and the risks that the regional media industry is facing.The present value of the cash flows is then compared to the carrying value of the asset to determine if there is any impairment loss.
The total impairment charge recognised for the period ended 2 January 2016 was £35.2 million (3 January 2015: £21.6 million). The impairment charge in the period relates to the North of England, Midlands and Northern Ireland.
The Group has conducted sensitivity analysis on the impairment test of each CGUs carrying value. A decrease in the long-term growth rate of 0.5%, beyond 2018, would result in a further Group impairment of £17.7 million and an increase in the discount rate of 0.5% would result in an additional impairment of £20.1 million.
Growth rate sensitivity £'000 | Discount rate sensitivity £'000 | |
Scotland | 0 | 0 |
North | (8,955) | (10,197) |
Northwest | (2,128) | (2,424) |
Midlands | (4,904) | (5,584) |
South | 0 | 0 |
Northern Ireland | (1,684) | (1,918) |
Total potential impairment from sensitivity analysis | (17,671) | (20,123) |
While the value in use of the North, Northwest, Midlands and Northern Ireland CGUs have decreased during the period, the values in use of Scotland and South CGUs have increased. After applying the sensitivities, no impairment would arise in the Scotland and South CGUs as their values in use would continue to remain higher than their respective carrying values.
Digital intangible assets
Digital intangible assets primarily relate to the new design, additional functionality and ongoing commercial enhancements to the Group's local websites and the development of a Customer Relationship Management (CRM) capability. The websites form the core platform for the Group's digital revenue activities whereas the CRM capability will enable the Group to accelerate the growth of its subscriber base. These assets are being amortised over a period of two to five years. Amortisation for the year has been charged through cost of sales.
13. Borrowings
The borrowings at 2 January 2016 are recorded at quoted market fair value and classified as Level 1 according to IFRS 13. As the borrowings are shown at fair value the associated issue costs against the 8.625%. Senior secured notes 2019 have been charged to the Income Statement (refer to Note 7c to the condensed financial statements).
As disclosed in the 2015 interim report it was the Company's intention to buy back £5 million of the Bond. This was completed in August 2015 when funds became available at 98%.
2 January 2016 £'000 | 3 January 2015 £'000 | |
Bank loans | - | - |
Private placement loan notes | - | - |
Payment-in-kind interest accrual | - | - |
8.625% Senior secured notes 2019 | 186,619 | 215,437 |
Total borrowings excluding term debt issue costs | 186,619 | 215,437 |
Term debt issue costs | - | - |
Total borrowings | 186,619 | 215,437 |
¹ 8.625% Senior secured notes 2019 breakdown.
2 January 2016 £'000 | 3 January 2015 £'000 | |
Outstanding principal amount | 220,000 | 225,000 |
Bond discount (net) | (4,400) | (4,500) |
Fair value gain | (28,981) | (5,063) |
Total | 186,619 | 215,437 |
The borrowings are disclosed in the financial statements as:
2 January 2016 £'000 | 3 January 2015 £'000 | |
Current borrowings | - | - |
Non-current borrowings | 186,619 | 215,437 |
Total borrowings | 186,619 | 215,437 |
The Group's net debt is:
2 January 2016 £'000 | 3 January 2015 £'000 | |
Gross borrowings as above | 186,619 | 215,437 |
Cash and cash equivalents | (40,564) | (30,817) |
Net debt including currency hedge instruments | 146,055 | 184,620 |
Term debt issue costs | - | - |
Net debt excluding term debt issue costs | 146,055 | 184,620 |
² Net debt is a non-statutory term presented to show the Group's borrowings net of cash equivalents, fair value of foreign exchange options and term debt issue costs.
14. Retirement Benefit Obligation
Characteristics of the Group's pension related liabilities
The Johnston Press Retirement Savings Plan
The Johnston Press Retirement Savings Plan is a defined contribution Master Trust arrangement for current employees, operated by Zurich. Contributions by the Group are a percentage of basic salary. Employer contributions range from 1% of basic salary, for employees statutorily enrolled, through to 12% of basic salary for Senior Executives. Employees who were active members of the Money Purchase section of the Johnston Press Pension Plan on 31 August 2013 transferred from the Johnston Press Pension Plan to the Johnston Press Retirement Savings Plan from 1 September 2013.
The Johnston Press Pension Plan
The Johnston Press Pension Plan is a defined benefit pension plan closed to new members and closed to future accrual. There was formerly a defined contribution section of the Johnston Press Pension Plan which was closed in August 2013 and members' defined contribution benefits were transferred to the Johnston Press Retirement Savings Plan. The assets of the Plan are held separately from those of the Group. The contributions are determined by a qualified actuary on the basis of a triennial valuation using the projected unit method and are set out in a Schedule of Contributions and Recovery Plan dated 29 July 2014.
A valuation of the Johnston Press Pension Plan as at 31 December 2012 was commissioned by the Trustees and takes account of the Capital Refinancing Plan. A new triennial valuation is due as at 31 December 2015 and this is to be carried out in 2016.
In conjunction with the 2014 Capital Refinancing Plan, the Plan Trustees and the Group entered into a Pension Framework Agreement, agreeing, inter alia to the following:
· On implementation of the Capital Refinancing Plan in June 2014, the secured guarantee provided in favour of the Plan Trustees by the Group and certain of its subsidiaries in relation to any default on a payment obligation under the Johnston Press Pension Plan has been removed. In return for the removal of this security and the aforementioned guarantee, an unsecured cross-guarantee has been provided on implementation of the Capital Refinancing Plan by the Group and certain of its subsidiaries in favour of the Plan Trustees in relation to any default on a payment obligation under the Johnston Press Pension Plan. Each claim made under the unsecured cross-guarantee is capped at an amount equal to the aggregate Section 75 (s75) debt of the Johnston Press Pension Plan at the date any claim made by the Plan Trustees falls due.
· The deficit as at the 31 December 2012 valuation date will be sought to be addressed by 31 December 2024 by entry into a recovery plan providing for contributions starting at £6.3 million in 2014, £6.5 million in 2015 and £10.0 million in 2016 increasing by 3% per annum with a final payment of £12.7 million in 2024.
· Settlement of previously incurred PPF levies and s75 debts.
· The Johnston Press Pension Plan will be entitled to receive 25% of net proceeds from business or asset disposals up to and including 31 August 2015 exceeding £1 million in a single transaction or £2.5 million over the course of a financial year, subject to certain permitted disposals, conditions in relation to financial leverage and other exceptions set out in the Framework Agreement.
· The Group will also pay additional contributions to the Johnston Press Pension Plan in the event that the 2014/2015 PPF levy and/or the 2015/2016 PPF levy is less than £3.2 million, equal to the amount the levy falls below £3.2 million, up to a maximum of £2.5 million.
· Additional contributions will also be payable to the Johnston Press Pension Plan in the event that the Group satisfies certain conditions in relation to financial leverage.
As part of the 31 December 2012 triennial valuation, this Pension Framework Agreement was reflected in the valuation documentation of the Johnston Press Pension Plan, and subsequently it was submitted to the Pensions Regulator. The Agreement and the required level of contributions are subject to review as part of the 31 December 2015 triennial valuation currently on-going.
Irish Pension Schemes
In addition, the Group maintained a liability for two defined benefit schemes providing benefits for a small number of former employees in Limerick and Leinster. Both schemes are in the process of being wound up and no further Employer funding contributions are payable.
Amounts arising from pensions related liabilities in the Group's financial statements
The following tables identify the amounts in the Group's financial statements arising from its pension related liabilities:
Income statement - pensions and other pension related liabilities costs
Notes | 2 January 2016 £'000 | 3 January 2015 £'000 | |
Employment costs: | |||
Defined contribution scheme | (3,880) | (4,425) | |
Defined benefit scheme | |||
Plan expenses (IAS19R) | (632) | (1,217) | |
Pension protection fund | (1,221) | (2,038) | |
Net finance cost on Johnston Press Pension Plan (IAS19R) | 7a | (2,933) | (3,330) |
Total defined benefit scheme | (4,786) | (6,585) | |
Total pension costs | (8,666) | (11,010) |
¹ Relates to administrative expenses incurred in managing the pension fund.
² Relates to the payment of £722,000 to the Pension Protection Fund for the period April 15 to March 16 (April 2014 to March 2015: £2,718,000). Of this £180,000 has been recognised as a prepayment (2014: £380,000).
Other comprehensive income - (loss)/gain on pension
2 January 2016 £'000 | 3 January 2015 £'000 | |
(Losses)/Gains on plan assets in excess of interest | (7,610) | 48,120 |
Gains/(Losses) from changes to financial assumptions | 8,456 | (66,797) |
Gains from changes to demographic assumptions | 53,204 | 1,536 |
Experience gains and losses arising on the benefit obligation | - | (1,838) |
Additional defined benefit obligation under IFRIC 14 | 2,971 | (2,971) |
Actuarial gain/(loss) recognised in the statement of comprehensive income | 57,021 | (21,950) |
Deferred tax | 10,842 | 4,390 |
Actuarial gain/(loss) recognised in the statement of comprehensive income net of tax | 67,863 | (17,560) |
Deferred tax adjustment in the period arises due to the reduction in corporate tax rate and reduction in pension deficit. A 19% deferred tax rate has been applied.
During the period the Group commissioned a review of the IAS19 assumptions used in determining the closing liability of the Johnston Press Pension Plan specifically focusing on demographic assumptions.A medically underwritten study was carried out by KPMG to identify the current health of a statistical sample group of existing Plan members, assessed via telephone interviews targeted towards members with the most significant liabilities in the Plan. The output was interpreted by underwriters and then analysed alongside the results from a postcode analysis performed in the prior year. This was translated into mortality assumptions for use in calculating the IAS19 scheme liabilities.The methodology used was compliant with the applicable Technical Actuarial Standards in force published by the Financial Reporting Council.
The study of current mortality gives an age rating of +3.0 years to the standard SAPS tables used for the IAS19 disclosure (previously this assumption had been set in line with 104% of Self-Administered Pension Scheme (SAPS) tables). The futures Improvement model has been updated to reflect the most recent Continuous Mortality Investigation (CMI) 2015 projections and the allowance for long term rates of improvement of 1.25% p.a. for males and 1.0% p.a. for females remains unchanged. This is equivalent to a life expectancy at 65 of 19.7 years (3 January 2015: 22.0 years) for males and 21.3 years (3 January 2015: 23.9 years) for females. The reduction in assumed life expectancy is equivalent to a reduction in liabilities of £51.0 million.
The Rules of the Plan were revised such that the Company has an unconditional right to any surplus on the eventual wind up of the Plan. As such the additional IFRIC 14 liability has been reversed.
Statement of financial position - net defined benefit pension deficit
2 January 2016 £'000 | 3 January 2015 £'000 | |
Amounts included in the Group Statement of Financial Position: | ||
Fair value of scheme assets | 473,413 | 480,479 |
Present value of defined benefit obligations | (500,375) | (567,509) |
Additional defined benefit obligation under IFRIC 14 | - | (2,971) |
Total liability recognised | (26,962) | (90,001) |
Amount included in current liabilities | 10,016 | 6,489 |
Amount included in non-current liabilities | (16,946) | (83,512) |
Analysis of amounts recognised of the net defined benefit pension deficit
2 January 2016 £'000 | 3 January 2015 £'000 | |
Net defined benefit pension deficit at beginning of period | (90,001) | (78,334) |
Defined benefit obligation at beginning of period | (567,509) | (498,640) |
Income statement: | ||
Interest cost | (19,704) | (22,706) |
Other comprehensive income: | ||
Experience (gains) and losses | - | (1,838) |
Remeasurements of defined benefit obligation: | ||
Arising from changes in demographic assumptions | 53,204 | 1,536 |
Arising from changes in financial assumptions | 8,456 | (66,797) |
Cash flows: | ||
Benefits paid (by fund and Group) | 25,178 | 20,936 |
Defined benefit obligation at end of the period | (500,375) | (567,509) |
Fair value of plan assets at beginning of period | 480,479 | 420,306 |
Income statement: | ||
Interest income on plan assets | 16,771 | 19,376 |
Administration costs | - | (837) |
Other comprehensive income: | ||
Return on plan assets less gain | (7,610) | 48,120 |
Cash flows: | ||
Company contributions | 8,951 | 14,450 |
Benefits paid (by fund and Group) | (25,178) | (20,936) |
Fair value of plan assets at end of period | 473,413 | 480,479 |
Additional defined benefit obligation under IFRIC 14 | - | (2,971) |
Net defined benefit pension deficit at end of period | (26,962) | (90,001) |
¹ Comprises annual employer contributions of £8,908,000 (3 January 2015: £6,300,000), contributions in respect of property disposals of £nil (3 January 2015: £456,000), contributions in respect of Irish title disposals of £nil (3 January 2015: £1,280,000), plan expenses of £43,000 (3 January 2015: £907,000), pension protection fund contributions of £nil (3 January 2015: £4,239,000) and s.75 debt contributions of £nil (3 January 2015: £1,268,000).
Analysis of fair value of plan assets
2 January 2016 £'000 | 3 January 2015 £'000 | |
Equities | 76,162 | 67,283 |
Multi-asset credit | 110,464 | 99,678 |
Diversified growth funds | 167,124 | 152,231 |
Liability-driven investments | 115,625 | 148,075 |
Other | 4,038 | 13,212 |
Total fair value of plan assets | 473,413 | 480,479 |
¹ Other mainly includes cash and Protected Rights Funds.
Analysis of financial assumptions
2 January 2016 £'000 | 3 January 2015 £'000 | |
Discount rate | 3.75% | 3.55% |
Future pension increases | ||
Deferred revaluations (where linked to inflation (CPI)) | 2.00% | 1.75% |
Pensions in payment (where linked to inflation (RPI)) | 2.95% | 2.85% |
Future life expectancy | ||
Male currently aged 65 | 19.7 years | 22.0 years |
Female currently aged 65 | 21.3 years | 23.9 years |
Sensitivity analysis of significant assumptions
The following tables present a sensitivity analysis for each significant actuarial assumption showing how the defined benefit obligation would have been affected, by changes in the relevant actuarial assumptions that were reasonably possible at the reporting date:
Changes in defined benefit obligation £m | |
Discount rate | |
+0.10% discount rate | 7,395 |
Inflation rate | |
+0.10% inflation rate | (4,808) |
Mortality | |
+10.0% to base table mortality rates | 16,060 |
Pension increase exchange | |
Allowance for 25% take up for sections where automatically offered | 380 |
The sensitivity analysis is based on a change in one assumption while holding all other assumptions constant, therefore interdependencies between assumptions are excluded. The methodology applied is consistent to that used to determine the recognised pension liability.
Other pension related obligations
The Group has agreed to pay the expenses of the Johnston Press Pension Plan and the Pension Protection Fund (PPF) levy as they fall due.
The Group entered into flexible apportionment arrangements in March 2014 and again in March 2015 with the agreement of the Plan Trustees, which resulted in a decrease in the 2014/15 and 2015/2016 PPF levy charges. The Group expects to see the full benefit of reduced levy charges in 2016/2017, when the increased pension contributions commence. The Company was required to pay a levy in relation to 2014/15 amounting to £2.7 million and 2015/16 of £0.7 million. The reduction in both of these levies from the 2013/14 level of £3.2 million resulted in payments of £0.5 million and £2.5 million being made to the Plan in September 2014 and September 2015 respectively, in accordance with the Pension Framework Agreement. Current expectations for the 2016/17 PPF levy is that it will be lower again than the 2015/16 PPF levy which will benefit the Group in full given the top-up payments to the Plan in relation to the PPF levy have now ceased.
The Johnston Press Pension Plan (the 'Plan') is subject to a potential increase in its liabilities in the event that historic benefit equalisation has not taken effect for a specific group of members. The Group's lawyers have advised that an application to court should be made for a declaration that normal retirement dates for these members were validly equalised as intended, and currently anticipate a successful outcome in the case. A court application has been made and the hearing is due to take place in May 2016. No provision has been made in the financial statements. Based on advice to the Trustees of the Plan, the Group anticipates the maximum obligation in relation to this matter (in the event that the court application is not successful) is expected to be in the region of £8 million.
Five year history:
2 January 2016 £'000 | 3 January 2015 £'000 | 28 December 2013 £'000 | 29 December 2012 £'000 | 31 December 2011 £'000 | |
Fair value of scheme assets | 473,413 | 480,479 | 420,306 | 382,792 | 368,718 |
Present value of defined benefit obligations | (500,375) | (567,509) | (498,640) | (504,111) | (472,708) |
Additional obligation under IFRIC 14 | - | (2,971) | - | - | - |
Deficit in the plan | (26,962) | (90,001) | (78,334) | (121,319) | (103,990) |
Experience adjustments on scheme liabilities | |||||
Amount (£'000) | 61,660 | (67,099) | 7,357 | (29,332) | (22,524) |
Percentage of plan liabilities (%) | 12.3% | (11.8%) | 1.5% | (5.8%) | (4.8%) |
Experience adjustments on scheme assets | |||||
Amounts (£'000) | (7,610) | 48,120 | 39,055 | 8,257 | (27,060) |
Percentage of plan assets (%) | (1.6%) | 10.0% | 9.3% | 2.2% | (7.3%) |
News Media Association Pension Scheme
The Group is a member of the News Media Association (NMA) (formerly Newspaper Society), an unincorporated body representing the interests of local newspaper publishers. During 2014 the Newspaper Society incorporated itself as a company limited by guarantee and entered into a merger with the Newspaper Publishers' Association (a body representing the interests of publishers of national newspapers). As part of the merger, existing members entered into a deed of covenant in respect of the deficit to the Society's defined benefit pension scheme. The members agreed to make contributions over a period of 25 years or until such time as the deficit has been addressed. Applying a discount rate of 12%, the Group's best estimate of this at present value is £783k.
The first payment of £90k was made in 2015 and the discount unwound resulting in an £82k movement, the closing liability having reduced to £775k.
News Media Association Pension Scheme liabilities have been included within provisions.
Other pension related liabilities
The closing provision relating to unfunded pensions for senior employees was £0.8 million (2 January 2015: £1.4 million). The unfunded pension provision is assessed by a qualified actuary at each period end.
Post-retirement medical benefit pension related liabilities for former Portsmouth and Sunderland members of £0.1 million (2 January 2015: £0.2 million). The post retirement medical benefits represent management's best estimate of the liability concerned.
On 6 January 2015, the Trustees of the Limerick Leader Plan accepted the offer of additional funding to the Plan in consideration for the Trustees agreeing to proceed to wind up the Plan. The total amount of this additional funding was EUR320,000. At the end of the period there was £nil liability (3 January 2015: £0.2 million).
Other pension related liabilities have been included within provisions.
15. Share Capital
In summary:
2 January 2016 £'000 | 3 January 2015 £'000 | |
Issued | ||
Ordinary shares | ||
105,877,777 ordinary shares of 1p each (3 January 2015 and 2 January 2016) | 1,059 | 1,059 |
Total ordinary shares | 1,059 | 1,059 |
Deferred shares | ||
690,294,608 deferred shares of 9p each | 62,126 | 62,126 |
Second class deferred shares | ||
5,293,888,850 deferred shares of 0.98p each | 51,880 | 51,880 |
Total deferred shares and second class deferred shares | 114,006 | 114,006 |
Preference shares | ||
756,000 13.75% cumulative preference shares of £1 each | 756 | 756 |
349,600 13.75% 'A' preference shares of £1 each | 350 | 350 |
Total preference shares | 1,106 | 1,106 |
Total issued share capital | 116,171 | 116,171 |
The Group has only one class of ordinary shares which has no right to fixed income. All the preference shares carry the right, subject to the discretion and ability of the Group to distribute profits, to a fixed dividend of 13.75% and rank in priority to the ordinary shares. Given the discretionary nature of the dividend right, the preference shares are considered to be equity under IAS 32.
Share warrants
The Company has issued share warrants over a total of 12.5% of its issued share capital to former lenders (with 5.0% issued 28 August 2009, 2.5% issued 24 April 2012 and 5.0% issued 21 September 2012). Each of the share warrants have the right to subscribe for 0.1533799 ordinary shares at an exercise price of £1.9745 per share and expire on 30 September 2017. The warrant instruments will be settled by the Company delivering a fixed number of ordinary shares and receiving a fixed amount of cash in return and so qualify as equity under IAS 39. The Binomial Option pricing model was used to assess the fair value of the share warrants issued in the financial year that they were issued. At the balance sheet date 30,359,979 warrants were outstanding.
During the period, no ordinary shares of 1 pence each were issued following the exercise of share warrants (2014: 4,833,738), generating no cash for the Group (2014: £483,374).
16. Share Premium
2 January 2016 £'000 | 3 January 2015 £'000 | |
Opening balance 3 January 2015 | 587,702 | 502,829 |
Share premium generated under the Group savings related share option scheme | - | 64 |
Placing shares | - | 2,188 |
Rights issue | - | 91,798 |
Capitalised costs associated with raising new capital | - | (9,181) |
Fractional shares | - | 4 |
Share capital reduction | (275,000) | - |
Closing balance 2 January 2016 | 312,702 | 587,702 |
At the Group's Annual General Meeting on 27 June 2014, a special resolution was approved to initiate a process to reduce the Group's share premium account by £275 million. The completion of the capital reduction was confirmed by an Order of the Court of Session, Scotland on 29 April 2015 and registered at Companies House on 5 May 2015.
17. Notes to the Cash Flow Statement
Notes | 2 January 2016 £'000 | 3 January 2015 £'000 | |
Operating profit | 1,027 | 10,713 | |
Adjustments for non cash items: | |||
Impairment of publishing titles | 35,234 | 21,568 | |
Write-down of print presses | - | 2,667 | |
Write-down in carrying value of assets held for sale | - | 300 | |
36,261 | 35,248 | ||
Amortisation of intangible assets | 1,815 | 194 | |
Depreciation charges | 6,553 | 5,306 | |
Charge for share-based payments | 2,188 | 907 | |
Profit on disposal of property, plant and equipment | (968) | (1,979) | |
Pensions administrative expenses | - | 837 | |
Disposal of interest in associates | 12 | - | |
Currency differences | (249) | (34) | |
45,612 | 40,479 | ||
Operating items before working capital changes: | |||
Net pension funding contributions - cash | 14 | (8,928) | (14,450) |
Movement in long-term provisions | (29) | 613 | |
Cash generated from operations before workings capital changes | 36,655 | 26,642 | |
Working capital changes: | |||
Decrease in inventories | 160 | 2 | |
Decrease/(Increase) in receivables | 2,905 | (2,528) | |
Increase/(Decrease) in payables/ including restructuring payables and redundancy accruals | 1,305 | (17,798) | |
Cash generated from operations | 41,025 | 6,318 |
1 A reconciliation of statutory to adjusted figures is provided under Non-GAAP measures in the financial information.
Cash and cash equivalents (which are presented as a single class of assets on the face of the Statement of Financial Position) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
18. Related Party Transactions
Associated parties
The Group did not undertake any related party transactions during the current or preceding period.
Transactions with Directors
There were no material transactions with Directors of the Company during the year, except for those relating to remuneration and shareholdings, disclosed in the Directors' Remuneration Report.
For the purposes of IAS 24, Related Party Disclosures, management below the level of the Company's Board are not regarded as related parties.
The remuneration of the Directors at the year-end, who are the key management personnel of the Group, is set out in aggregate in the audited part of the Directors' Remuneration Report.
19. Post Balance Sheet Events
On 12 February 2016 the Group announced its intention to purchase i, part on the Independent Group, for a total consideration of £24 million, £22 million payable on completion and £2 million payable in April 2017. The purchase was approved by shareholders on 21 March 2016 and is expected to complete on 10 April 2016.
There have been no other post-balance sheet events requiring disclosure.
Non-GAAP measures
Adjusting Items - Other Supplementary Information
Consolidated Income Statement - Reconciliation of Statutory and Adjusted Numbers
52 weeks ended 2 January 2016 | 53 weeks ended 3 January 2015 | ||||||
Notes | Statutory £'000s | Adjusting items £'000s | Adjusted £'000s | Statutory £'000s | Adjusting items £'000s | Adjusted £'000s | |
Advertising revenue | |||||||
Print advertising | A | 119,607 | (1,553) | 118,054 | 138,087 | (4,042) | 134,045 |
Digital advertising | A | 31,719 | (1,091) | 30,628 | 29,116 | (1,869) | 27,247 |
Total advertising revenue | 151,326 | (2,644) | 148,682 | 167,203 | (5,911) | 161,292 | |
Non advertising revenue | |||||||
Newspaper sales | A | 72,461 | (78) | 72,383 | 79,100 | (1,308) | 77,792 |
Contract printing | A | 12,627 | - | 12,627 | 12,820 | (200) | 12,620 |
Leaflet, sundry and other | A | 8,675 | (103) | 8,572 | 9,700 | (1,441) | 8,259 |
Total other revenue | 93,763 | (181) | 93,582 | 101,620 | (2,949) | 98,671 | |
Total continuing revenues | 245,089 | (2,825) | 242,264 | 268,823 | (8,860) | 259,963 | |
Cost of sales | B | (132,243) | 2,616 | (129,627) | (146,259) | 5,874 | (140,385) |
Operating costs | (103,450) | (103,450) | (106,351) | (106,351) | |||
Restructuring costs | C | 9,362 | 10,896 | ||||
Impairment of publishing titles | D | 35,234 | 24,535 | ||||
Other | E | 3,484 | 11,495 | ||||
Total adjustments | 48,080 | 48,080 | 46,926 | 46,926 | |||
Total operating costs | (103,450) | 48,080 | (55,370) | (106,351) | 46,926 | (59,425) | |
Total costs | (235,693) | 50,696 | (184,997) | (252,610) | 52,800 | (199,810) | |
EBITDA | 9,396 | 47,871 | 57,267 | 16,213 | 43,940 | 60,153 | |
Depreciation and amortisation | F | (8,369) | 1,668 | (6,701) | (5,500) | 11 | (5,489) |
Operating profit/(loss) | 1,027 | 49,539 | 50,566 | 10,713 | 43,951 | 54,664 | |
Investment income | 854 | - | 854 | 2,209 | - | 2,209 | |
Net finance expense on pension assets/liabilities | G | (2,933) | 2,933 | - | (3,330) | 3,330 | - |
Fair value gain on borrowings | H | 23,918 | (23,918) | - | 5,063 | (5,063) | - |
Other | - | - | - | 1,662 | (1,662) | - | |
Finance cost | I | (19,973) | 84 | (19,889) | (40,233) | 9,046 | (31,187) |
Finance costs | 1,866 | (20,901) | (19,035) | (34,629) | 5,651 | (28,978) | |
Profit/(Loss) before tax | 2,893 | 28,638 | 31,531 | (23,916) | 49,602 | 25,686 | |
Tax | 8,538 | (14,959) | (6,421) | 8,580 | (14,978) | (6,398) | |
Profit/(Loss) from continuing operations | 11,431 | 13,679 | 25,110 | (15,336) | 34,624 | 19,288 | |
Net profit/(Loss) from discontinued operations | - | - | - | 236 | - | 236 | |
Consolidated profit/(Loss) for the period | 11,431 | 13,679 | 25,110 | (15,100) | 34,624 | 19,524 | |
A Revenue
Revenue adjustment split for 52 weeks ending 2 January 2016
Statutory £'000s | Week 53 £'000s A1 | Closed titles £'000s A2 | Digital brands £'000s A3 | Letterbox £'000s A4 | Total adjusting £'000s | Adjusted £'000s | ||
Advertising revenue | ||||||||
Print advertising | 119,607 | - | (1,553) | - | - | (1,553) | 118,054 | |
Digital advertising | 31,719 | - | (16) | (1,075) | - | (1,091) | 30,628 | |
Total advertising revenue | 151,326 | - | (1,569) | (1,075) | - | (2,644) | 148,682 | |
Non advertising revenue | ||||||||
Newspaper sales | 72,461 | - | (78) | - | - | (78) | 72,383 | |
Contract printing | 12,627 | - | - | - | - | - | 12,627 | |
Other | 8,675 | - | (103) | - | - | (103) | 8,572 | |
Total other revenue | 93,763 | - | (181) | - | - | (181) | 93,582 | |
Total continuing revenues | 245,089 | - | (1,750) | (1,075) | - | (2,825) | 242,264 |
Revenue adjustment split for 53 weeks ending 3 January 2015
Statutory £'000s | Week 53 £'000s A1 | Closed titles £'000s A2 | Digital brands £'000s A3 | Letterbox £'000s A4 | Total adjusting £'000s | Adjusted £'000s | ||
Advertising revenue | ||||||||
Print advertising | 138,087 | (1,200) | (2,842) | - | - | (4,042) | 134,045 | |
Digital advertising | 29,116 | (300) | (4) | (1,565) | - | (1,869) | 27,247 | |
Total advertising revenue | 167,203 | (1,500) | (2,846) | (1,565) | - | (5,911) | 161,292 | |
Non advertising revenue | ||||||||
Newspaper sales | 79,100 | (1,200) | (108) | - | - | (1,308) | 77,792 | |
Contract printing | 12,820 | (200) | - | - | - | (200) | 12,620 | |
Other | 9,700 | - | (166) | - | (1,275) | (1,441) | 8,259 | |
Total other revenue | 101,620 | (1,400) | (274) | - | (1,275) | (2,949) | 98,671 | |
Total continuing revenues | 268,823 | (2,900) | (3,120) | (1,565) | (1,275) | (8,860) | 259,963 |
A1 Week 53
In the comparative figure there are revenue adjustments for week 53 of £2,900k, 2014 was a 53-week period and as such an additional weeks' worth revenue and cost will have been recognised.
A2 Closed titles
As part of the review of the Group's portfolio, 17 small titles were closed or merged in the second half of the year. Total revenue of £1,750k (2014: £3,119k) has been adjusted.
A3 Digital brands
Revenue of £641k (2014:£774k) for DealMonster and £434k (2014: £792k) for Business Directory has been adjusted for the closure of these businesses in the second half of the period.
A4 Letterbox direct
In the comparative period £1,275k for Letterbox Direct (LD). The leaflet delivery section of LD was outsourced to Mediaforce in October 2014.
B Cost of sales
Cost of sales associated with Closed Titles of £1,893k (2014: £2,300k), DealMonster £633k (2014: £681k), Business Directory £90k (2014: £117k) have been adjusted for. In the comparative figure £1,500k and £1,275k have been adjusted for week 53 and the outsourcing of LD respectively.
C Restructuring costs
In order to transform the Group from a traditional print-based business into a digital content provider serving local audiences significant cost reduction activities have been required. Restructuring largely includes £4.5 million relating to reorganisations announced in Q4 of 2015, this continues into 2016. Other restructuring costs include early lease termination costs, empty property costs, dilapidations and dual-running office cost of £0.8 million (2014: £1.3 million), and other associated legal and consulting fees of £4.0 million (2014: £2.3 million).
Full year business restructuring cash cost amounted to £3,999k (2014: £2,294k) and redundancy cash cost amounted to £8,469k (2014: £17,210k).
D Impairment of publishing titles
An impairment of £35,234k has been recognised in relation to publishing titles. In 2014 £24,535k was recognised for the impairment of publishing titles.
E Other
Other cost include Pension Protection Fund Levy costs of £1,221k (2014: £2,038k). During 2015 the pension regulators requested cash payment for the Pension Protection Fund Levy of £0.7 million. The pension levy was charged at the capped rate, reflecting historic high gearing. The charge has fallen and is expected to reduce as reduced gearing and flexible apportionment is reflected in the levy assessment.
Long-term incentive plans of senior management totalling £1,589k (2014:£5,228k).
Other costs include pension administration for closed defined benefit pension scheme, one-off legal costs and disposal gains.
F Depreciation and amortisation
Accelerated depreciation and amortisation largely relating to the consumer database.
G Net finance expense on pension assets/liabilities
Net pension interest expense of £2,933k (2014: £3,330k) required under IAS 19 has been adjusted (see Note 14 to the condensed financial statements).
H Fair value gain on borrowings
Fair value adjustments on external bonds held of £23,918k (2014: £5,063k) required under IAS 39 were adjusted for.
I Finance cost
Cost of terminating financing arrangements on refinancing in 2014 were adjusted for.
Johnston Press plc issued this content on 22 March 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 22 March 2016 07:40:20 UTC
Original Document: http://www.johnstonpress.co.uk/regulatory_news_article/11054
