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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Trinity Mirror | LSE:TNI | London | Ordinary Share | GB0009039941 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 85.70 | 85.00 | 86.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMTNI
RNS Number : 6459G
Trinity Mirror PLC
05 March 2018
5 March 2018
Trinity Mirror plc
Annual Results Announcement
For the 52 weeks ended 31 December 2017
Hot Features
Premium
Results Adjusted results Statutory results
(1)
2017 2016 2017 2016
52 Weeks 53 Weeks 52 Weeks 53 Weeks
GBPm GBPm GBPm GBPm
Revenue 623.2 713.0 623.2 713.0
Operating profit 124.7 137.5 97.9 93.5
Profit before tax 122.5 133.2 81.9 76.5
Earnings per share 36.1p 38.1p 23.0p 24.9p
Dividends per share - - 5.80p 5.45p
Key Highlights
-- Resilient performance in a difficult trading environment
Group revenue fell by 12.6% to GBP623.2 million. On a like for like (2) basis revenue fell by 8.8% impacted by the weak print trading environment. Strong management of the cost base enabled adjusted operating margin to increase by 0.7 percentage points to 20.0% delivering an adjusted operating profit of GBP124.7 million. Statutory operating profit increased by 4.7% to GBP97.9 million.
-- Continued growth in digital revenue
Like for like publishing digital revenue grew by 7.0% to GBP83.9 million with digital display and transactional revenue growing by 18.2% partially offset by digital classified revenue, which is substantially upsold from print, falling by 25.1%.
-- Structural cost savings of GBP20 million
We delivered structural cost savings of GBP20 million in the year, GBP5 million ahead of the initial GBP15 million target set for the year. For 2018, we have targeted a further GBP15 million of structural cost savings.
-- Pension deficit fell by GBP88.4 million
The IAS19 pension deficit fell by GBP88.4 million to GBP377.6 million (GBP311.4 million net of deferred tax). The Group paid GBP38.7 million into the defined benefit pension schemes in the year (including GBP2.5 million in relation to the share buyback programme).
-- Continued financial flexibility with net debt of only GBP9.0 million
The Group maintained financial flexibility with net debt (3) of only GBP9.0 million at the end of the year and adjusted EBITDA (4) for the year of GBP145.1 million. During the year, the Group fully repaid the outstanding GBP68.3 million on the private placement loan notes.
-- Historical legal issues
The provision for dealing with historical legal issues was increased by GBP10.5 million during the year. GBP10.7 million of the provision remains outstanding at the year end.
-- 6.0% increase in final dividend to 3.55 pence per share
A proposed final dividend of 3.55 pence per share for 2017, an increase of 6.0% per share, bringing the total dividend for 2017 to 5.80 pence per share, an increase of 6.4% per share. During November 2017, the Group completed the GBP10 million share repurchase programme announced in August 2016.
-- Strategy and outlook
We have made continued progress with our strategic initiatives to grow digital display and transactional revenue whilst tightly managing our cost base to support profits and cash flows. The acquisition of Northern & Shell's publishing assets (excluding Republic of Ireland which is expected to complete later this year) was completed on 28 February 2018. The Board remains confident that our strategy will meet our objective to deliver sustainable growth in revenue, profit and cash flow over the medium term.
Commenting on the annual results for 2017, Simon Fox, Chief Executive, Trinity Mirror plc, said:
"We once again delivered a strong financial performance in what remains a difficult trading environment for the industry. I am pleased with the acquisition of the publishing assets of Northern & Shell in line with our strategic focus on consolidation and I believe this presents significant opportunities to realise real value. Having made good progress with our strategy in 2017 we will build on this in the year ahead."
Strategic Highlights
-- Grow
- Average monthly page views grew by 7% to 682 million with two thirds of these page views now on mobile
- With 33.4 million unique UK browsers in December 2017, Trinity Mirror had more monthly unique browsers in the UK than any other commercial news brand
- We delivered marginally under 600 million video streams in the year, up 27% year on year - Like for like digital display and transactional revenue growth of 18.2% year on year -- Build
- Belfast Live, Dublin Live and Glasgow Live delivered 3.6 million monthly browsers and 16.5 million page views in December 2017
- Leeds Live launched in November 2017 with hundreds of thousands of people having visited the site already for the very latest in news from Leeds
- football.london was launched in January 2017 and achieved 2.0 million monthly browsers and 5.1 million page views in December 2017
- Insider.co.uk and InYourArea.co.uk launched in the year and we anticipate good traction on audience during 2018
- Since the investment in Brand Events in October 2016, the business has launched four new events, bringing the total to six in 2017
-- Protect - Secured a five year print and distribution contract for the Guardian and Observer newspapers - Renewed a five year print and distribution contract for the Racing Post
- Extended the print and distribution contract for the i as well as the Scotsman and Scotland on Sunday for a further three years
- Sport Media secured match day programme and tournament magazine publishing contract for FIFA 2018
- Structural cost savings (including synergy savings from the integration of Local World) of GBP20 million
- For 2018, we have targeted a further GBP15 million of structural cost savings -- Consolidate
- The acquisition of Northern & Shell's publishing assets was approved by shareholders at the General Meeting held on 27 February 2018 and the acquisition of the UK publishing assets completed on 28 February 2018 (further details are set out on page 5)
- We continue to evaluate a number of ongoing opportunities that drive value and see ourselves as a consolidator in the newspaper industry
Our progress on delivering the strategy is measured through five KPIs. In the year we achieved three out of the five KPI targets and anticipate an improved performance in 2018 (further details are set out on page 5).
Board Changes
David Grigson will step down from the Board of Directors at the Annual General Meeting. Nick Prettejohn will join as a non executive director on 6 March 2018 and will become Chairman at the Annual General Meeting on 3 May 2018.
Name Change
A resolution proposing that the Group changes its name to Reach plc to reflect the larger business will be put forward at the Annual General Meeting on 3 May 2018.
Enquiries Trinity Mirror Brunswick 020 7293 3553 020 7404 5959 Simon Fox, Chief Executive Nick Cosgrove, Partner Vijay Vaghela, Group Finance Will Medvei, Director Director
Notes
(1) Set out in note 17 is the reconciliation between the statutory and adjusted results. (2) Set out in note 18 is the reconciliation between the statutory and like for like revenue. (3) Borrowings (GBP25.0 million) less cash and cash equivalents (GBP16.0 million). (4) Adjusted operating profit (GBP124.7 million) plus depreciation (GBP20.4 million).
Investor presentation
A call for analysts and shareholders will be held today at 9.00 am (telephone number: 0800 358 6377 or 0330 336 9105; confirmation code: 1163905). The web-ex, which will display our presentation, can be accessed at the URL: https://edge.media-server.com/m6/p/53pz3uez. The presentation will also be live on our website: www.trinitymirror.com at 9.00 am and a playback will be available from 2.00 pm.
Annual Report
The Annual Report for the 52 weeks ended 31 December 2017 is available on the Company's website at www.trinitymirror.com and at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and will be sent to shareholders who have elected to receive a hard copy by the end of March 2018.
Alternative Performance Measures
The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like for like basis. The Company believes that the adjusted results and like for like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 17 and note 18 respectively sets out the reconciliation between the statutory and adjusted results and the reconciliation between the statutory and like for like revenue.
Forward looking statements
Statements contained in this Annual Results Announcement are based on the knowledge and information available to the Company's directors at the date it was prepared and therefore the facts stated and views expressed may change after that date. By their nature, the statements concerning the risks and uncertainties facing the Company in this Annual Results Announcement involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. To the extent that this Annual Results Announcement contains any statement dealing with any time after the date of its preparation such statement is merely predictive and speculative as it relates to events and circumstances which are yet to occur. The Company undertakes no obligation to update these forward-looking statements.
Management Report
Operational Performance
The Group delivered a resilient performance in 2017 despite the difficult trading environment. We continued to tightly manage the cost base and delivered good growth in our digital audience and the associated display and transactional revenue. Strong management of the cost base enabled adjusted operating margin to increase by 0.7 percentage points to 20.0% delivering an adjusted operating profit of GBP124.7 million. Statutory operating profit increased by 4.7% to GBP97.9 million.
Group revenue fell by 12.6% or GBP89.8 million to GBP623.2 million impacted by the weak print trading environment and pressure on digital classified revenues, which are substantially jointly sold with print. The fall in revenue includes the impact of an additional week of trading in 2016, the cessation of the Independent print and distribution contract in April 2016, the sale of Rippleffect in August 2016 and the impact of handing back four Metros to DMGT in December 2016 and other portfolio changes in 2016 and 2017. Digital revenue continued to grow with strong growth in like for like display and transactional revenue of 18.2% to GBP68.7 million driven by an increase in audience, engagement, video and digital marketing services partly offset by weaker classified revenue, primarily due to recruitment. On a like for like basis, Group revenue fell by 8.8% or GBP60.2 million.
Like for like Publishing revenue fell by 9.0% to GBP577.8 million. Publishing print revenue fell by 11.3% to GBP493.9 million and we continued to achieve growth in digital revenue of 7.0% to GBP83.9 million with digital display and transactional revenue growing by 18.2% partially offset by digital classified revenue falling by 25.1%.
Strong cost control limited the fall in Group adjusted operating profit to 9.3% to GBP124.7 million and Group adjusted EBITDA to 9.1% to GBP145.1 million. The Group delivered structural cost savings (including an incremental GBP5 million of synergy savings from the integration of Local World) of GBP20 million. Group adjusted profit before tax fell by 8.0% to GBP122.5 million and adjusted earnings per share fell by 5.2% to 36.1 pence reflecting the impact of the falling revenues partially offset by tight cost management.
Adjusted items impacting operating profit (note 5) were a charge of GBP26.8 million (2016: GBP44.0 million).
Statutory operating profit improved by 4.7% or GBP4.4 million to GBP97.9 million. Statutory financing costs were GBP16.0 million (2016: GBP17.0 million) and statutory profit before tax increased by 7.1 % or GBP5.4 million to GBP81.9 million. The statutory tax charge was GBP19.1 million (2016: GBP7.0 million) with the prior year benefitting from a GBP9.8 million deferred tax credit as a result of the future change in the rate of corporation tax. Statutory earnings per share fell by 7.6% or 1.9 pence reflecting the increased statutory tax charge more than offsetting the benefit of increased profit before tax and the share buyback.
Financial Flexibility
The Group maintained financial flexibility with net debt falling by GBP21.5 million to GBP9.0 million and adjusted EBITDA of GBP145.1 million. During the year, the Group fully repaid the outstanding GBP68.3 million on the private placement loan notes. Only GBP25 million is drawn on the Group's GBP100 million bank facility. The bank facility is committed until 2021 and the facility amortises over the term reducing to GBP50 million for the last year of the term. Following the repayment of the private placement loan notes net debt is the same on both a contracted and statutory basis. Net debt of GBP9.0 million at the period end comprised the GBP25.0 million drawn on the bank facility and cash balances of GBP16.0 million.
The strong cash flows generated by the Group provide resilience and financial flexibility to invest in the business, to grow dividends and over time meet pension obligations.
Historical Legal Issues
The costs associated with the settlement of civil claims in relation to phone hacking have been higher than expected, in particular the legal fees of the claimant's lawyers and the general court process. Therefore, we have increased the provision for settling these historical claims by GBP10.5 million during the year. GBP10.7 million of the provision remains outstanding at the year end.
Although there remains uncertainty as to how these matters will progress, the Board remains confident that the exposures arising from these historical events are manageable and do not undermine the delivery of the Group's strategy.
Pension Schemes
The IAS 19 accounting pension deficit fell by GBP88.4 million to GBP377.6 million (GBP311.4 million net of deferred tax) driven by strong asset returns and the benefit of a fall in future mortality improvements more than offsetting a further reduction in the discount rate. The fall in the accounting pension deficit does not have an immediate impact on the agreed funding commitments.
The Group reached agreement with the Trustees on the 2016 triennial valuations in December 2017 whereby annual contributions to the three pension schemes would be GBP43.8 million per annum for a period of 10 years commencing 2018. The increase in annual contributions reflects the increase in deficits since the last valuation which have been largely driven by the fall in long term interest rates. Additional contributions of GBP67.0 million over ten years were
Management Report continued
Dividends and Share Buyback
agreed in connection with the acquisition of Northern & Shell's UK publishing assets (further details are set out on page 5).
The Board proposes a final dividend of 3.55 pence per share for 2017, an increase of 6.0%, bringing the total dividend for 2017 to 5.80 pence per share, an increase of 6.4%. The final dividend which is subject to approval by shareholders at the Annual General Meeting on 3 May 2018 will be paid on 8 June 2018 to shareholders on the register on 11 May 2018.
The final dividend for 2016 of 3.35 pence per share was paid in June 2017 and the interim dividend for 2017 of 2.25 pence per share was paid in September 2017. Total dividend payments in 2017 amounted to GBP15.3 million.
During November 2017, the Group completed the GBP10 million share repurchase programme announced in August 2016. The Group acquired a total of 10,017,620 shares.
The Board continues to adopt a progressive dividend policy which is aligned to the free cash generation of the business. The free cash generation for the purposes of assessing the dividend is the net cash flow generated by the Group before the repayment of debt, dividend payments, other capital returns to shareholders and additional contributions made to the defined benefit pension schemes as a result of any substantial increase in dividends and/or capital returns to shareholders. When setting the level of dividends the Board will ensure that the Group maintains adequate headroom for investment and any unexpected cash flow requirements for historical events or to fund further restructuring. Based on the Board's expectation of future cash flows, the Board expects dividends to increase by at least 5% per annum.
The Company will also continue to consider, if appropriate, the return of capital to shareholders through a share buyback if it has generated surplus cash and sees an opportunity to enhance earnings per share and therefore shareholder value. Prior to initiating a share buyback programme the Company will carefully consider the cash generation of the business, investment requirements and the Group's obligations to the Group's defined benefit pension schemes.
Acquisition of the publishing assets of Northern & Shell
The Group announced the proposed acquisition of Northern & Shell's publishing assets on 9 February 2018 which was subsequently approved at the General Meeting held on 27 February 2018.
On 28 February 2018, the Group completed the acquisition of 100% of the equity in Northern & Shell Network Limited (renamed Trinity Mirror Network Limited) and its subsidiaries for a cash consideration of GBP42.7 million and the issue of 25,826,746 shares at 77.44 pence per share and with deferred consideration of GBP59.0 million payable as GBP18.9 million, GBP16.0 million, GBP17.1 million and GBP7.0 million on the second, third, fourth and fifth anniversaries respectively of the acquisition. A new GBP75 million amortising term loan ('Acquisition Term Loan') was procured to partially fund the acquisition and GBP70 million has been drawn.
The acquisition of the 50% equity interest in Independent Star Limited for GBP4.5 million and 100% of the equity in International Distribution 2018 Limited for GBP0.5 million is subject to clearance by the competition authorities in the Republic of Ireland. The remaining GBP5 million under the Acquisition Term Loan will be drawn on completion of these acquisitions.
The Group has agreed to make an upfront payment of GBP41.2 million to the defined benefit pension schemes of subsidiaries of Trinity Mirror Network Limited and has entered into recovery plans amounting to GBP29.2 million over the period 2018 to 2027 (GBP1.9 million per annum 2018 to 2020, GBP4.1 million per annum 2021 to 2023, GBP3.3 million per annum 2024 to 2026 and GBP1.3 million in 2027). The Group also revised the schedule of contributions for the Group's existing defined benefit pension schemes amounting to an increase of GBP67.0 million over the period 2018 to 2027 (GBP3.2 million per annum 2018 to 2020 and GBP8.2 million per annum 2021 to 2027). In addition, the Group agreed to increase from 50% to 75%, the additional contributions that would be paid to the defined benefit pension schemes if dividends increased by more than 10% in 2018, 2019 and 2020.
On 1 March 2018, the Competition and Markets Authority launched a merger investigation and made an initial enforcement order (a "hold separate" order) under the Enterprise Act 2002, in relation to the acquisition. The Board continues to believe that there will be no reduction in media plurality as a result of the acquisition, as each newspaper brand will continue with its current editorial positioning, and that there will not be any detrimental impact on competition as a result of the acquisition.
Management Report continued
Current Trading and Outlook
Revenue in the first two months of 2018 fell by 9% on a like for like basis (excluding from the 2017 comparative the handing back of two Metros in December 2017 and other portfolio changes in 2017).
The acquisition of the publishing assets of Northern & Shell is expected to be earnings enhancing in 2018.At this early stage we anticipate performance for the year to be in line with our expectations.
Strategic Update
Our vision is "to be an essential part of people's daily lives by delivering quality content and services that inform, enlighten and enrich". To deliver this vision it is clear that quality content is and will remain at the heart of our business.
Our strategic objective remains to deliver sustainable growth in revenue, profit and cash flow over the medium term.
This will be delivered through four key areas of strategic focus:
-- Grow: Grow digital audience and revenue through deepening relationships with readers and optimising response for advertisers;
-- Build: Build a diversified product portfolio and sustainable mix of new revenue; -- Protect: Protect our print brands by efficiently delivering quality products; and -- Consolidate: Seek out strategic opportunities that drive value.
Growth from digital and new revenue streams will begin to outstrip print declines on an aggregate basis, leading to a stabilisation of Group revenue and then a return to top line growth. This, combined with our inbuilt and relentless focus on efficiencies, makes the Board confident that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future, for the benefit of all stakeholders.
Key highlights of progress on each area of strategic focus during 2017 are set out below:
Grow
Publishing digital display and transactional revenue, which is primarily driven by audience, grew on a like for like basis by 18.2% to GBP68.7 million, benefitting from the higher page views and an increase in higher yielding revenue categories such as video. Video streams in the year were marginally under 600 million, up 27% year on year. Digital classified revenue which is predominantly upsold from print fell on a like for like basis by 25.1% with the largest category, recruitment, falling by 35.8%.
Digital audience growth continues with average monthly page views in the year growing by 7% year on year to 682 million. Mobile page views were some two thirds of the page views and grew by 19% while desktop pages views fell by 15%. Three quarters of page views were UK page views which grew by 11% while non UK page views fell by 3%. Page view growth rates have been impacted by the removal of Streamo and Live Event page views as this functionality reduced the viewability of ads served due to the speed at which the pages were viewed by users. It is estimated to have reduced the reported growth in page views by over 8%.
We continue to simplify our digital portfolio to focus on brands which can deliver scale and significant daily local audience reach in their market places.
We completed the migration of the former Local World digital brands onto our Escenic content publishing platform and onto the fully responsive new Chameleon site. The brands are benefiting from the new look design, cleaner template and more powerful digital storytelling tools. The new sites provide greater emphasis on video and a much improved live blogging experience.
Build
We continue to explore new product ideas to leverage our portfolio of print and digital brands whilst seeking to diversify the revenue streams beyond advertising.
The three "Live" sites (Belfast, Glasgow and Dublin) delivered 3.6 million monthly browsers and 16.5 million page views in December 2017, up on the 3.0 million monthly browsers and 8.7 million page views in December 2016. The 'Live' sites are a digital one-stop shop for all things relating to the city featuring live breaking news, local sport, entertainment, events, local interest, traffic and travel and What's On.
Leeds Live launched in November 2017 promising to be a new voice in a growing and modern city. The site uses the latest digital storytelling techniques to bring the latest developments and incidents to those living and working in Leeds city centre. Across the live news channels readers are kept in the know about what's happening in Leeds bringing readers all the news they would expect, as well as challenging readers to see it, and Leeds, in a different way.
Management Report continued
Strategic Update continued
Build continued
We launched InYourArea, a hyperlocal news, information and local community product that aggregates in realtime the latest hyperlocal news, events, crime data, local issues, council updates, social media content and more, all using a postcode. It offers an easy to use self-service advertising tool to local advertisers.
We launched football.london in January 2017 which is a 24/7, fan-led, standalone digital site covering London football clubs with a focus on issues fans really care about, behind-the-scene, podcasts, interactive quizzes and games. The site has positive advocates on social media as a result of developing a particular tone of voice and authority. The site achieved 2.0 million monthly browsers and 5.1 million page views in December 2017.
We launched Insider.co.uk, a dynamic daily business news site, which operates alongside the market leading Business Insider magazine. The site provides Scottish businesses with a rich mix of live breaking city news, expert analysis and original economic data.
The Group acquired a 50% stake in Brand Events in October 2016. Brand Events is one of the UK's leading creators and operators of consumer event formats. The focus of the joint venture is to expand and create events in three main sectors: Sports, Crafts and Food. The target audience of the events are in line with our core audience and we are able to leverage our inhouse marketing expertise across print and digital to help promote events and our regional footprint allows the efficient marketing of a rollout of existing shows. Events will be centred on the main metropolitan cities which complements our regional and Scottish portfolios. Since the investment, Brand Events has continued to launch new events, holding six during 2017 and adding a further four to the schedule for 2018.
Protect
Protecting our print brands through understanding our print readers and delivering a quality product, whilst leveraging our brands, communities and advertisers to maximise our financial performance remains a key area of strategic focus.
Print markets remained challenging, particularly advertising, with display and other declining on a like for like basis by 14.8% and classified declining on a like for like basis by 23.5%. Circulation, the largest revenue category, performed better, falling on a like for like basis by 6.5% with cover price increases reducing the impact of volume declines.
In light of the challenging trading conditions across the regional titles, a number of changes to the commercial management structure were made during the year. There is now more clarity and accountability to roles and decision making is faster. The change aims to improve the regional commercial performance during the current and future years.
We also reorganised the senior editorial teams and further reorganised the regional newsrooms across the UK. The restructure followed a review of growth opportunities in each of the markets we operate, and a review of our editorial print production practices. The review identified opportunities for greater investment, particularly around digital and content creation, as we look to increase engagement and connect with digital audiences on a larger scale. The review of editorial print production identified examples of best practice that is increasingly being standardised across the regions.
We continue to rationalise the portfolio and handed back a further two Metro franchises at the end of 2017 and have announced the closure of a small number of regional titles.
Sport Media continues to consolidate its position as the UK's leading sports publishing business working with the best in the Premier League and World football, from clubs to international organisations and some of the top individuals in sport. It has been awarded the 2018 FIFA World Cup matchday programme and tournament magazine contract and this builds on the Rugby World Cup matchday programme in 2015. Sport Media helped Tottenham Hotspur deliver a hugely successful souvenir programme and record-breaking sales operation for the historic last game at White Hart Lane. Internationally, in addition to the Confederations Cup in Russia last Summer, it also produced official tournament programmes for the 2017 Women's Euros in the Netherlands working with UEFA, and for the International Champions Cup tournament in USA featuring the 'El Clasico' contest between Real Madrid and Barcelona in Miami, and, in Texas, the first ever Manchester United and Manchester City derby played away from British soil. It also had 2017 successes in the book market delivering the second-highest selling football autobiography in the UK in 2017 (Peter Reid) and the top-selling football autobiography in Ireland (Shay Given).
During the year, the Group secured a five year print and distribution contract for the Guardian and Observer newspapers from early 2018, renewed a five year print and distribution contract for the Racing Post and secured an extension to our print and distribution contract with Johnston Press, to continue printing the i newspaper as well as the Scotsman and Scotland on Sunday for a further three years.
The Group delivered structural cost savings (including synergy savings from the integration of Local World) of GBP20 million in the year, GBP5 million ahead of the initial GBP15 million target set for the year. Restructuring charges in respect of cost reduction measures were GBP12.6 million. For 2018, we have targeted a further GBP15 million of structural cost savings.
Management Report continued
Strategic Update continued
Consolidate
We continue to seek out strategic opportunities that drive value. We will continue to exercise rigorous discipline in considering any acquisition opportunities that enhance our strategy or brings new diversified revenue streams. We see ourselves as a consolidator in the newspaper industry and will continue to do so subject to tight financial returns.
The acquisition of Northern & Shell's publishing assets was approved by shareholders at the General Meeting held on 27 February 2018 and the acquisition of the UK publishing assets completed on 28 February 2018 (further details are on page 5).
Key Performance Indicators
To track delivery of our strategy, the following KPIs are reported on at each reporting date:
FINANCIAL MEASURE GROUP KPIs PERFORMANCE IN THE PERIOD Publishing digital revenue growth At least 15% pa û Circulation revenue Single digit declines ü Print advertising revenue At least in line with national market trends û Operating margin Grow operating margin to support profits ü Dividend growth At least 5% pa ü ---------------------------------- --------------------------------------------- -------------------------
Publishing digital revenue like for like growth of 7.0% for the period is below the target due to the material decline of 25.1% in classified advertising revenue with the audience related display and transactional revenue continuing to grow strongly by 18.2%.
Circulation revenue like for like decline of 6.5% is in line with the target with cover price increases partially mitigating volume declines.
Print advertising revenue is being impacted by volume declines which have been worse than the national market trends.
Continued focus on costs has resulted in adjusted operating margin increasing by 0.7 percentage points from 19.3% to 20.0%.
The total dividend for the year of 5.8 pence per share is an increase of 6.4% on the 2016 total dividend.
2018 Targets
For 2018, the publishing digital revenue target will relate to digital display and transactional revenue with a target of at least 20% growth which compares to growth of 18.2% in 2017. All other targets remain the same as those set for 2017.
People
Management changes
In January 2017, the Group appointed Andy Atkinson as the Chief Revenue Officer for Trinity Mirror Solutions. Andy joined the Group in 2014 as Sales Director of Trinity Mirror Solutions, with responsibility for leading the sales teams in London and Manchester. Prior to joining the Group, Andy was Head of Trading at Google, and has also held senior roles at IDS and Channel 5.
In July 2017, Mike Pennington was appointed as Regionals Revenue Director being promoted from his role as Regional Managing Director for the North East Region. Mike joined the Group in September 2011 as Publisher for the Hull Daily Mail, he soon became Managing Director and took on the responsibility for several more regions within the UK prior to his promotion, including Grimsby, Scunthorpe, Lincoln and Newcastle.
We would like to thank all our colleagues for their contribution to the full year performance.
Board changes
On 1 June 2017, David Kelly was appointed Chairman of the Remuneration Committee, replacing Helen Stevenson, who continues as Senior Independent Director. Both Helen and David joined the Board in 2014 as independent non-executive directors and will remain as members of the Audit & Risk, Remuneration and Nomination Committees.
David Grigson will step down from the Board of Directors at the Annual General Meeting. Nick Prettejohn will join as a non executive director on 6 March 2018 and will become Chairman at the Annual General Meeting on 3 May 2018.
Management Report continued
Group Review
Income statement Statutory results Adjusted results
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
-------------------- --------------- -------------- -------------- --------------
Publishing 578.5 660.0 578.5 660.0
-------------------- --------------- -------------- -------------- --------------
Print 494.6 581.0 494.6 581.0
Digital 83.9 79.0 83.9 79.0
-------------------- --------------- -------------- -------------- --------------
Printing 31.6 36.2 31.6 36.2
Specialist Digital 9.6 12.9 9.6 12.9
Central 3.5 3.9 3.5 3.9
-------------------- --------------- -------------- -------------- --------------
Revenue 623.2 713.0 623.2 713.0
Costs (525.7) (620.2) (499.3) (576.6)
Associates 0.4 0.7 0.8 1.1
-------------------- --------------- -------------- -------------- --------------
Operating profit 97.9 93.5 124.7 137.5
Financing (16.0) (17.0) (2.2) (4.3)
-------------------- --------------- -------------- -------------- --------------
Profit before tax 81.9 76.5 122.5 133.2
Tax (19.1) (7.0) (24.0) (27.0)
-------------------- --------------- -------------- -------------- --------------
Profit after tax 62.8 69.5 98.5 106.2
-------------------- --------------- -------------- -------------- --------------
Earnings per share 23.0p 24.9p 36.1p 38.1p
-------------------- --------------- -------------- -------------- --------------
The results have been prepared for the 52 weeks ended 31 December 2017 (2017) and the comparative period has been prepared for the 53 weeks ended 1 January 2017 (2016). The results are presented on a statutory and adjusted basis and revenue trends are presented on a statutory and like for like basis. Note 17 sets out the reconciliation between the statutory and adjusted results and note 18 sets out the reconciliation between the statutory and like for like revenue.
Group revenue fell by 12.6% or GBP89.8 million to GBP623.2 million. The fall in revenue includes the impact of an additional week of trading in 2016, the cessation of the Independent print and distribution contract in April 2016, the sale of Rippleffect in August 2016 and the impact of handing back four Metros to DMGT in December 2016 and other portfolio changes in 2016 and 2017. On a like for like basis, Group revenue fell by 8.8% or GBP60.2 million.
Further details on the revenue trends for each division are shown in the Divisional Review.
Statutory
results Adjusted results
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
-------------------------- ----------- ----------- -------------- --------------
Labour (217.6) (239.4) (217.6) (239.4)
Newsprint (56.5) (67.4) (56.5) (67.4)
Depreciation (20.4) (22.2) (20.4) (22.2)
Other (231.2) (291.2) (204.8) (247.6)
----------- ----------- -------------- --------------
Operating adjusted items (26.4) (43.6) - -
Other (204.8) (247.6) (204.8) (247.6)
-------------------------- ----------- ----------- -------------- --------------
Costs (525.7) (620.2) (499.3) (576.6)
-------------------------- ----------- ----------- -------------- --------------
Statutory operating costs fell by GBP94.5 million or 15.2% to GBP525.7 million reflecting reduced adjusted operating costs and the benefit of a lower charge in respect of adjusted items compared to 2016 which together more than mitigated the challenging revenue environment.
Adjusted items included in 2017 operating costs related to restructuring charges in respect of cost reduction measures of GBP12.6 million (2016: GBP15.1 million), a GBP10.5 million increase in the provision for dealing with and resolving civil claims arising from phone hacking (2016: GBP11.5 million), pension administrative expenses of GBP1.0 million (2016: GBP2.2 million), amortisation of intangible assets of GBP0.3 million (2016: GBP0.3 million) and transaction costs relating to the acquisition of Northern & Shell's publishing assets of GBP2.2 million (2016: nil) partially offset by a gain on the sale of a property in Teesside of GBP0.2 million (2016: GBP0.2 million gain on sale of properties in Cardiff and Coventry). In 2016, adjusted items included in operating costs also included a GBP2.0 million charge against the carrying value of goodwill in our Specialist Digital division, a break fee of GBP2.0 million paid to Iliffe Print Cambridge Limited and GBP10.7 million of costs associated with closure of the printing site in Cardiff and a press line in Scotland (Cardonald) including the write off of fixed assets of GBP9.1 million.
Management Report continued
Group Review continued
Adjusted operating costs fell by GBP77.3 million or 13.4% to GBP499.3 million reflecting the benefit of the impact of an additional week of trading in 2016, the cessation of the Independent print and distribution contract in April 2016, the sale of Rippleffect in August 2016 and the impact of handing back four Metros to DMGT in December 2016 and other portfolio changes in 2016 and 2017 together with the benefit of structural cost savings and ongoing cost mitigation.
Statutory
results Adjusted results
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
--------------------------------- ------------ ----------- --------------- --------------
Operating profit pre associates 97.5 92.8 123.9 136.4
Associates 0.4 0.7 0.8 1.1
--------------------------------- ------------ ----------- --------------- --------------
Operating profit 97.9 93.5 124.7 137.5
--------------------------------- ------------ ----------- --------------- --------------
Statutory operating profit pre associates increased by GBP4.7 million or 5.1% to GBP97.5 million while adjusted operating profit pre associates fell by GBP12.5 million or 9.2% to GBP123.9 million.
Statutory operating profit increased by GBP4.4 million or 4.7% to GBP97.9 million while adjusted operating profit fell by GBP12.8 million or 9.3% to GBP124.7 million.
Statutory operating margin increased by 2.6 percentage points from 13.1% to 15.7% while adjusted operating margin increased by 0.7 percentage points from 19.3% to 20.0%.
The Group has a 21.53% investment in PA Group Limited and a 50% investment in Brand Events TM Limited, accounted for as associated undertakings.
Statutory
results Adjusted results
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
---------------------------------- ------------ ----------- --------------- --------------
Result before operating adjusted
items 0.8 1.1 0.8 1.1
Operating adjusted items (0.4) (0.4) - -
----------------------------------
Share of results of associates 0.4 0.7 0.8 1.1
---------------------------------- ------------ ----------- --------------- --------------
The statutory and adjusted result for associates both fell by GBP0.3 million due to investment costs in Brand Events.
Financing costs include investment revenues, the pension finance charge, interest on bank overdrafts and borrowings, the change in derivative financial instruments and the changes on retranslation of foreign currency borrowings.
Statutory
results Adjusted results
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
----------------------------------- ----------- ----------- --------------- ---------------
Investment revenues 0.1 0.6 0.1 0.6
Pension finance charge (11.9) (10.4) - -
Finance costs (4.2) (7.2) (2.3) (4.9)
Interest on bank overdrafts
and borrowings (2.3) (4.9) (2.3) (4.9)
Fair value (loss)/gain on
derivative financial instruments (3.8) 11.3 - -
Foreign exchange gain/(loss)
on retranslation of borrowings 1.9 (13.6) - -
----------------------------------- ----------- ----------- --------------- ---------------
Financing costs (16.0) (17.0) (2.2) (4.3)
----------------------------------- ----------- ----------- --------------- ---------------
Statutory financing costs fell by GBP1.0 million to GBP16.0 million reflecting a fall in adjusted financing costs and a lower cost in relation to the derivative financial instruments and the foreign exchange changes on retranslation of foreign currency borrowings partially offset by a higher pension finance charge. In June 2017, the Group fully repaid the outstanding GBP68.3 million on the private placement loan notes and the associated cross-currency interest rate swaps matured. The Group's only outstanding borrowings are the drawings on the bank facility and the Group has no derivative financial instruments. Adjusted financing costs fell by GBP2.1 million to GBP2.2 million reflecting the benefit of the repayment of borrowings in 2017 and 2016.
The statutory tax charge of GBP19.1 million (2016: GBP7.0 million) comprises a current tax charge of GBP17.8 million (2016: GBP19.2 million) and a deferred tax charge of GBP1.3 million (2016: GBP12.2 million credit).
Management Report continued
Group Review continued
The statutory effective tax rate is higher (2016: lower) than the standard rate of corporation tax for the reasons set out in the reconciliation below:
Reconciliation of tax charge 2017 2016
% %
------------------------------------------------- ------- -------
Standard rate of corporation tax (19.3) (20.0)
Items not deductible in determining taxable
profit (non qualifying depreciation/costs) (3.6) (5.4)
Tax effect of items that are not taxable
in determining taxable profit (property
disposal/utilised losses) - 1.1
Prior period adjustment (current and deferred
tax) (0.5) 2.3
Deferred tax rate change (from future reduction
in corporation tax rate) - 12.6
Tax effect of share of results of associates
(brought in post tax) 0.1 0.2
Tax charge rate (23.3) (9.2)
------------------------------------------------- ------- -------
The adjusted tax charge of GBP24.0 million (2016: GBP27.0 million) represents 19.6% (2016: 20.3%) of adjusted profit before tax. The rate is less than the statutory effective tax rate as the main items not deductible in determining taxable profit relate to certain adjusted items. In 2016, the rate was higher than the statutory effective tax rate due to the impact of the rate change.
Statutory
results Adjusted results
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
---------------------------- ------------ ----------- -------------- --------------
Profit after tax 62.8 69.5 98.5 106.2
------------ ----------- -------------- --------------
Weighted average number of
shares (000's) 272,730 278,895 272,730 278,895
---------------------------- ------------ ----------- -------------- --------------
Earnings per share 23.0p 24.9p 36.1p 38.1p
---------------------------- ------------ ----------- -------------- --------------
Statutory profit after tax fell by GBP6.7 million or 9.6% to GBP62.8 million due to the higher statutory tax charge while adjusted profit after tax fell by GBP7.7 million or 7.3% to GBP98.5 million.
The fall in the weighted average number of shares year on year reflects the shares bought back as part of the share buyback programme.
Statutory earnings per share fell by 1.9 pence or 7.6% to 23.0 pence reflecting the increased statutory tax charge more than offsetting the benefit of the share buyback. Adjusted earnings per share fell by 2.0 pence or 5.2% to 36.1 pence reflecting the impact of the falling revenues partially offset by tight cost management.
Divisional Review
The Group has four operating segments, each of which is a division, that are regularly reviewed for the purposes of allocating resources and assessing performance. The divisional review that follows is presented on an adjusted basis and there is no difference between the operating profit by division and the segment result of each operating segment that is shown in note 3.
The operating segments are: Publishing which includes all of our newspapers and associated digital publishing; Printing which provides printing services to the Publishing segment and to third parties; Specialist Digital which includes our acquired digital classified recruitment and digital marketing services businesses; and Central which includes revenue and costs not allocated to the operational divisions and our share of results of associates.
The revenue and adjusted operating profit by operating segment is presented below:
2017 2016 Variance Variance
GBPm GBPm GBPm %
--------------------------- ------- ------- --------- ---------
Publishing 578.5 660.0 (81.5) (12.3%)
Printing 31.6 36.2 (4.6) (12.7%)
Specialist Digital 9.6 12.9 (3.3) (25.6%)
Central 3.5 3.9 (0.4) (10.3%)
Revenue 623.2 713.0 (89.8) (12.6%)
--------------------------- ------- ------- --------- ---------
Publishing 133.2 148.4 (15.2) (10.2%)
Printing - - - -
Specialist Digital 2.7 2.4 0.3 12.5%
Central (11.2) (13.3) 2.1 15.8%
Adjusted operating profit 124.7 137.5 (12.8) (9.3%)
--------------------------- ------- ------- --------- ---------
Management Report continued
Divisional Review continued
Revenue trends are impacted by a number of items in 2016 and 2017. In the divisional analysis revenue trends are presented on actual and a like for like basis. Operating profit is only marginally impacted by the like for like items.
The like for like revenue trends for 2017 exclude from 2017 the portfolio changes made in the year and excludes from the 2016 comparative: the extra week of trading in 2016, the Independent print and distribution contract which ceased in April 2016, Rippleffect which was sold in August 2016, the four Metros handed back to DMGT in December 2016 and other portfolio changes in 2016 and 2017. Note 18 sets out the reconciliation between the statutory and like for like revenue.
Publishing
The revenue and adjusted operating profit for the Publishing division is as follows:
2017 2016 Variance Variance
GBPm GBPm GBPm %
----------------------------- -------- -------- --------- ---------
Print 494.6 581.0 (86.4) (14.9%)
Circulation 284.7 310.6 (25.9) (8.3%)
Advertising 177.6 236.6 (59.0) (24.9%)
Other 32.3 33.8 (1.5) (4.4%)
----------------------------- -------- -------- --------- ---------
Digital 83.9 79.0 4.9 6.2%
Display and transactional 68.7 58.4 10.3 17.6%
Classified 15.2 20.6 (5.4) (26.2%)
----------------------------- -------- -------- --------- ---------
Revenue 578.5 660.0 (81.5) (12.3%)
----------------------------- -------- -------- --------- ---------
Costs (445.3) (511.6) 66.3 13.0%
----------------------------- -------- -------- --------- ---------
Adjusted operating profit 133.2 148.4 (15.2) (10.2%)
----------------------------- -------- -------- --------- ---------
Adjusted operating margin 23.0% 22.5% - 0.5%
----------------------------- -------- -------- --------- ---------
Revenue fell by 12.3% or GBP81.5 million to GBP578.5 million with print revenue falling by 14.9% and digital revenue growing by 6.2%. On a like for like basis revenue fell by 9.0% with print revenue declining by 11.3% and digital revenue growing by 7.0%.
Costs fell by 13.0% or GBP66.3 million to GBP445.3 million. This includes the benefit of the impact of an additional week of trading in 2016, the cessation of the Independent distribution contract in April 2016 and the impact of handing back four Metros to DMGT in December 2016 and other portfolio changes in 2016 and 2017 together with the benefit of structural cost savings and ongoing cost mitigation actions.
Operating profit fell by GBP15.2 million or 10.2% to GBP133.2 million with operating margin increasing by 0.5 percentage points from 22.5% to 23.0%.
Print revenue
Print revenue fell by 14.9%. On a like for like basis print revenue fell by 11.3%.
Circulation revenue fell by 8.3%. On a like for like basis circulation revenues fell by 6.5% with volume declines partially mitigated by cover price increases. The circulation revenue decline has also been impacted by a change to how Spanish sales are made. In July 2017, these changed from a net sales basis to a royalty basis. This reduced circulation revenue by GBP1.1 million with a greater reduction achieved in costs. The circulation volume trends in the market have been impacted by cover price differentials, cover price discounting and increased sampling.
Excluding the impact of sampling, the Daily Mirror volume fell by 12.9% compared to a 9.7% fall for the UK national daily tabloid market and the Daily Record fell by 10.8% against an overall Scottish daily tabloid market decline of 10.0%. The Sunday Mirror and Sunday People volumes declined by 16.4% and 17.2% respectively in a UK national Sunday tabloid market that fell by 11.5% and the Sunday Mail declined by 13.3% against an overall Scottish Sunday tabloid market decline of 11.1%. The market for our regional titles remained challenging with declines of 12.9% for paid for dailies, 14.7% for paid for weeklies and 14.6% for paid for Sundays.
Print advertising revenue fell by 24.9% with display and other down by 23.6% and classified down by 26.2%. Like for like print advertising revenues fell by 19.3% with display and other down 14.8% and classified down 23.5%. Increased challenges in print advertising markets saw declines in display advertising across a number of sectors. The year on year trends have also been adversely impact by the strong advertising performance during June 2016 from the European Football Championship and in December from a stronger finish to 2016 than experienced in 2017. Most classified advertising categories also came under pressure, in particular recruitment and property, which experienced like for like declines of 38.4% and 33.1% respectively.
Management Report continued
Divisional Review continued
Publishing continued
The Daily Mirror print advertising volume market share in the UK national daily tabloid market fell from 17.4% to 16.2%. The Sunday Mirror share fell from 16.2% to 14.8% and the Sunday People share fell from 10.9% to 10.0%. The Daily Record share improved from 16.8% to 19.5% and the Sunday Mail share fell from 30.5% to 28.4%.
Our regional titles continue to experience difficult advertising markets, particularly display advertising in our metropolitan titles and classified across all titles.
Other print revenue fell by 4.4%. Like for like other revenue fell by 1.8% with declines in rental income and business enterprise revenue offset by improvements in Sport Media and syndication.
Digital revenue
Digital revenue grew by 6.2% with display and transactional revenue growing by 17.6% and classified revenue declining by 26.2%. Like for like digital revenue grew by 7.0% with strong growth from display and transactional revenue of 18.2% driven by an increase in audience, engagement, video and digital marketing services partly offset by classified revenue, which is predominantly upsold from print, which declined by 25.1%, primarily due to recruitment which fell by 35.8%.
Digital audience growth continues with average monthly page views in the period growing by 7% year on year to 682 million. Mobile page views were some two thirds of the page views and grew by 19% while desktop pages views fell by 15%. Three quarters of page views were UK page views which grew by 11% while non UK page views fell by 3%. Page view growth rates have been impacted by the removal of Streamo and Live Event page views as this functionality reduced the viewability of ads served due to the speed at which the pages were viewed by users. It is estimated to have impacted the reported growth in page views by over 8%.
Printing
The revenue and adjusted operating result of the Printing division is as follows:
2017 2016 Variance Variance
GBPm GBPm GBPm %
------------------------------ -------- -------- --------- ---------
Contract printing 21.3 25.4 (4.1) (16.1%)
Newsprint supply 7.6 8.5 (0.9) (10.6%)
Other revenue 2.7 2.3 0.4 17.4%
Revenue 31.6 36.2 (4.6) (12.7%)
------------------------------ -------- -------- --------- ---------
External costs (131.2) (147.9) 16.7 11.3%
Publishing division recharge 99.6 111.7 (12.1) (10.8%)
------------------------------ -------- -------- --------- ---------
Adjusted operating result - - -
------------------------------ -------- -------- --------- ---------
Revenue fell by GBP4.6 million or 12.7% to GBP31.6 million. The fall in revenue includes the GBP1.3 million impact of the cessation of the Independent print contract in April 2016 and the GBP0.6 million impact of one week less of trading. On a like for like basis revenue fell by GBP2.7 million or 7.9% reflecting the impact of lower third party volumes and newsprint supply partially offset by an increase in newsprint and plate waste sales due to increased prices. External costs fell by GBP16.7 million or 11.3% to GBP131.2 million with the benefit of one week less of trading, cost reduction initiatives and the reduction in costs associated with falling volumes. The net cost recharged to the Publishing division was GBP99.6 million compared to GBP111.7 million in the prior year due to cost reductions exceeding the revenue decline.
Specialist Digital
The revenue and adjusted operating profit of the Specialist Digital division is as follows:
2017 2016 Variance Variance
GBPm GBPm GBPm %
--------------------------- ------ ------- --------- ---------
Advertising 4.7 4.8 (0.1) (2.1%)
Other 4.9 8.1 (3.2) (39.5%)
Revenue 9.6 12.9 (3.3) (25.6%)
--------------------------- ------ ------- --------- ---------
Costs (6.9) (10.5) 3.6 34.3%
--------------------------- ------ ------- --------- ---------
Adjusted operating profit 2.7 2.4 0.3 12.5%
--------------------------- ------ ------- --------- ---------
The Specialist Digital division includes Trinity Mirror Digital Recruitment, our digital classified recruitment business and Communicator Corp, our digital marketing services business.
Rippleffect which was sold in August 2016 had revenues of GBP3.4 million and an operating loss of GBP0.1 million up to the date of disposal. Excluding the disposal, revenue grew by GBP0.1 million and operating profit grew by GBP0.2 million.
Management Report continued
Divisional Review continued
Specialist Digital continued
Trinity Mirror Digital Recruitment advertising revenue fell by GBP0.1 million and operating profit fell by GBP0.1 million while Communicator Corp revenue increased by GBP0.2 million and operating profit improved by GBP0.3 million.
Central
The revenue and adjusted operating loss of the Central division is as follows:
2017 2016 Variance Variance
GBPm GBPm GBPm %
------------------------- ------- ------- --------- ---------
Revenue 3.5 3.9 (0.4) (10.3%)
------------------------- ------- ------- --------- ---------
Costs (15.5) (18.3) 2.8 15.3%
Associates 0.8 1.1 (0.3) (27.3%)
Adjusted operating loss (11.2) (13.3) 2.1 15.8%
------------------------- ------- ------- --------- ---------
The Central division includes revenue and costs not allocated to the operational divisions and the share of results of associates. The result for the year was a loss of GBP11.2 million compared to a loss of GBP13.3 million in the prior year.
Revenue primarily relates to rental income from surplus office space at the Group's main office at Canary Wharf. Costs fell by GBP2.8 million from GBP18.3 million to GBP15.5 million reflecting the ongoing tight management of costs. Share of results from associates fell by GBP0.3 million from GBP1.1 million to GBP0.8 million.
Other Items
Principal risks and uncertainties
There is an ongoing robust process for the identification, evaluation and management of the principal risks and uncertainties faced by the Group. Appropriate management actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process.
The Strategy and Revenue Loss risks have been merged into a single Strategy risk due to our strategy being the key risk management action we are taking to deal with the structural challenges, including revenue loss, our business continues to face meaning its successful implementation is essential. Pensions and Historical legal issues are the same as last year. The principal risks and uncertainties are:
-- Strategy - The overall strategy or elements of the strategy are inappropriate and the delivery of the strategy is badly executed. This results in accelerated revenue loss for existing products (print advertising/newspaper sales) and a failure to attract new revenues quickly enough;
-- Pensions - pension deficits grow at such a rate so as to affect the viability of the Group itself or so that the annual funding costs consume a disproportionate level of cash flow; and
-- Historical legal issues - damage to our reputation arising from historical events, direct financial impact from legal claims and distraction of senior management time from delivering the strategy.
There continues to be macroeconomic uncertainty created by the process of Britain exiting the European Union and political uncertainty following the General Election. The Group's pension deficit continues to be impacted by the reduction in gilt and bond yields and the weakening of sterling has increased newsprint costs. Considerations in relation to the uncertainty and these immediate impacts are included in the principal risks above. Whilst the impact of the uncertainty is hard to assess there is a risk that our revenues could be lower than expectations.
These principal risks and uncertainties, the risk appetite in relation to these and the progress made during the year are set out in the Trinity Mirror plc 2017 Annual Report.
Assessment of the Group's prospects
The directors have assessed the Group's prospects, both as a going concern and its longer term viability.
Going concern statement
The directors consider it appropriate to adopt the going concern basis of accounting in the preparation of the Group's annual consolidated financial statements.
In accordance with LR 9.8.6(3) of the Listing Rules, and in determining whether the Group's annual consolidated financial statements can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the principal risks and uncertainties relating to its business activities.
Management Report continued
Other Items continued
Assessment of the Group's prospects continued
Having considered all the factors impacting the Group's businesses, including downside sensitivities (relating to trading and cash flows), the directors are satisfied that the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.
Going concern statement (continued)
The directors have reasonable expectations that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Group's annual consolidated financial statements.
Viability statement
The directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
The directors assessed the prospects of the Group over a three year period which reflects the budget and planning cycle adopted by the Group. A three year period is adopted as it enables the directors to consider the impact of declining print revenues, the investment required to drive growth in digital and to identify the extent to which costs need to be minimised to support profits and cash flows. The assessment takes into account the Group's current position and the principal risks and uncertainties facing the Group including those that would threaten the business model, future performance, solvency or liquidity.
Sensitivity analysis is applied to the projections to model the potential effects should principal risks and uncertainties actually occur, individually or in combination. The Board also assessed the likely effectiveness of any proposed mitigating actions.
It is understood that such future assessments are subject to a level of uncertainty that increases with time and, therefore, future outcomes cannot be guaranteed or predicted with certainty. Also, this assessment was made recognising the principal risks and uncertainties that could have an impact on the future performance of the Group and also the financial risks described in the notes to the Group's annual consolidated financial statements.
Further information concerning the review of going concern and viability are set out in the Trinity Mirror plc 2017 Annual Report.
Related party transactions
There were no material non trading transactions during the year.
Statement of directors' responsibilities
The directors are responsible for preparing the Annual Results Announcement in accordance with applicable laws and regulations. The responsibility statement below has been prepared in connection with the Company's full Annual Report for the 52 weeks ended 31 December 2017. Certain points thereof are not included within this Annual Results Announcement.
The directors confirm to the best of their knowledge:
a) the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole; and
b) the Management 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 they face.
By order of the Board of directors
Simon Fox Vijay Vaghela Chief Executive Group Finance Director
Consolidated income statement
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
2017 2016
notes GBPm GBPm
------------------------------------ -------- -------- --------
Revenue 3,4 623.2 713.0
Cost of sales (308.2) (342.1)
------------------------------------- -------- -------- --------
Gross profit 315.0 370.9
Distribution costs (63.7) (76.0)
Administrative expenses:
Operating adjusted items 5 (26.4) (43.6)
Other administrative expenses (127.4) (158.5)
Share of results of associates:
Results before operating adjusted
items 0.8 1.1
Operating adjusted items 5 (0.4) (0.4)
Operating profit 3 97.9 93.5
Investment revenues 6 0.1 0.6
Pension finance charge 14 (11.9) (10.4)
Finance costs 7 (4.2) (7.2)
------------------------------------- -------- -------- --------
Profit before tax 81.9 76.5
Tax charge 8 (19.1) (7.0)
------------------------------------- -------- -------- --------
Profit for the period attributable
to equity holders of the parent 62.8 69.5
2017 2016
Statutory earnings per share Pence Pence
------------------------------------ -------- -------- --------
Earnings per share - basic 10 23.0 24.9
Earnings per share - diluted 10 22.9 24.8
------------------------------------- -------- -------- --------
2017 2016
Adjusted* earnings per share Pence Pence
------------------------------------ -------- -------- --------
Earnings per share - basic 10 36.1 38.1
Earnings per share - diluted 10 35.9 37.8
------------------------------------- -------- -------- --------
* Set out in note 17 is the reconciliation between the statutory and adjusted results.
Consolidated statement of comprehensive income
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
2017 2016
notes GBPm GBPm
------------------------------------- -------- ------- --------
Profit for the period 62.8 69.5
-------------------------------------- -------- ------- --------
Items that will not be reclassified
to profit and loss:
Actuarial gain/(losses) on defined
benefit pension schemes 14 62.6 (188.9)
Tax on actuarial gain/(losses)
on defined benefit pension schemes 8 (10.5) 32.1
Deferred tax credit/(charge)
including the future change
in tax rate 8 0.4 (0.6)
Share of items recognised by
associates (5.4) 1.1
-------------------------------------- -------- ------- --------
Other comprehensive income/(costs)
for the period 47.1 (156.3)
Total comprehensive income/(costs)
for the period 109.9 (86.8)
-------------------------------------- -------- ------- --------
Consolidated cash flow statement
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
2017 2016
notes GBPm GBPm
------------------------------------------- -------- ------- --------
Cash flows from operating activities
Cash generated from operations 11 68.1 91.5
Income tax paid (13.9) (12.2)
------------------------------------------- -------- ------- --------
Net cash inflow from operating
activities 54.2 79.3
------------------------------------------- -------- ------- --------
Investing activities
Interest received 0.1 0.6
Proceeds on disposal of property,
plant and equipment 1.2 10.6
Purchases of property, plant and
equipment (8.9) (4.3)
Proceeds on disposal of subsidiary
undertaking - 1.8
Acquisition of associate undertaking - (0.8)
Net cash (used in)/received from
investing activities (7.6) 7.9
Financing activities
Dividends paid (15.3) (14.6)
Interest paid on borrowings (2.1) (5.9)
Repayment of borrowings (68.3) (80.0)
Purchase of own shares (7.7) (2.3)
Purchase of shares for LTIP - (2.0)
Draw down on bank facility 25.0 -
Net cash used in financing activities (68.4) (104.8)
------------------------------------------- -------- ------- --------
Net decrease in cash and cash equivalents (21.8) (17.6)
------------------------------------------- -------- ------- --------
Cash and cash equivalents at the
beginning of the period 13 37.8 55.4
------------------------------------------- -------- ------- --------
Cash and cash equivalents at the
end of the period 13 16.0 37.8
------------------------------------------- -------- ------- --------
Consolidated statement of changes in equity
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
Retained
Share Capital earnings
Share premium Merger redemption and
capital account reserve reserve other Total
GBPm GBPm GBPm GBPm reserves GBPm
GBPm
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
At 27 December 2015 (28.3) (606.7) (37.9) (4.4) (6.3) (683.6)
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Profit for the period - - - - (69.5) (69.5)
Other comprehensive
costs for the period - - - - 156.3 156.3
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Total comprehensive
costs for the period - - - - 86.8 86.8
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Credit to equity for
equity-settled share-based
payments - - - - (1.5) (1.5)
Purchase of shares for
LTIP - - - - 2.0 2.0
Purchase of own shares - - - - 2.3 2.3
Dividends paid - - - - 14.6 14.6
At 1 January 2017 (28.3) (606.7) (37.9) (4.4) 97.9 (579.4)
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Profit for the period - - - - (62.8) (62.8)
Other comprehensive
income for the period - - - - (47.1) (47.1)
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Total comprehensive
income for the period - - - - (109.9) (109.9)
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Credit to equity for
equity-settled share-based
payments - - - - (0.5) (0.5)
Purchase of own shares - - - - 7.7 7.7
Dividends paid - - - - 15.3 15.3
--------
At 31 December 2017 (28.3) (606.7) (37.9) (4.4) 10.5 (666.8)
----------------------------- ---------- ---------- ---------- ------------- ---------- --------
Consolidated balance sheet
at 31 December 2017 (at 1 January 2017)
2017 2016
notes GBPm GBPm
-------------------------------------- -------- -------- --------
Non-current assets
Goodwill 12 102.0 102.0
Other intangible assets 12 799.2 799.5
Property, plant and equipment 247.7 262.1
Investment in associates 16.8 21.8
Deferred tax assets 66.4 81.5
1,232.1 1,266.9
-------------------------------------- -------- -------- --------
Current assets
Inventories 4.9 5.8
Trade and other receivables 89.9 89.8
Derivative financial instruments 13 - 14.8
Cash and cash equivalents 13 16.0 37.8
--------------------------------------- -------- -------- --------
110.8 148.2
-------------------------------------- -------- -------- --------
Total assets 1,342.9 1,415.1
--------------------------------------- -------- -------- --------
Non-current liabilities
Retirement benefit obligations 14 (377.6) (466.0)
Deferred tax liabilities (165.4) (164.1)
Provisions 15 (3.7) (3.6)
(546.7) (633.7)
-------------------------------------- -------- -------- --------
Current liabilities
Trade and other payables (80.1) (83.1)
Borrowings 13 (25.0) (81.2)
Current tax liabilities (7.7) (9.8)
Provisions 15 (16.6) (27.9)
(129.4) (202.0)
-------------------------------------- -------- -------- --------
Total liabilities (676.1) (835.7)
--------------------------------------- -------- -------- --------
Net assets 666.8 579.4
--------------------------------------- -------- -------- --------
Equity
Share capital 16 (28.3) (28.3)
Share premium account 16 (606.7) (606.7)
Merger reserve 16 (37.9) (37.9)
Capital redemption reserve 16 (4.4) (4.4)
Retained earnings and other reserves 16 10.5 97.9
--------------------------------------- -------- -------- --------
Total equity attributable to
equity holders of the parent (666.8) (579.4)
--------------------------------------- -------- -------- --------
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
1. General information
The financial information in the Annual Results Announcement is derived from but does not represent the full statutory accounts of Trinity Mirror plc. The statutory accounts for the 53 weeks ended 1 January 2017 have been filed with the Registrar of Companies and those for the 52 weeks ended 31 December 2017 will be filed following the Annual General Meeting on 3 May 2018. The auditors' reports on the statutory accounts for the 53 weeks ended 1 January 2017 and for the 52 weeks ended 31 December 2017 were unqualified, do not include reference to any matters to which the auditors drew attention by way of emphasis of matter without qualifying the reports and do not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
Whilst the financial information included in this Annual Results Announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. This Annual Results Announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules (DTR). The Annual Report for the 52 weeks ended 31 December 2017 is available on the Company's website at www.trinitymirror.com and at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and will be sent to shareholders who have elected to receive a hard copy with the documents for the Annual General Meeting to be held on 3 May 2018.
The financial information has been prepared for the 52 weeks ended 31 December 2017 and the comparative period has been prepared for the 53 weeks ended 1 January 2017. Throughout this report, the financial information for the 52 weeks ended 31 December 2017 is referred to and headed 2017 and for the 53 weeks ended 1 January 2017 is referred to and headed 2016. The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like for like basis as described on page 3.
2. Accounting polices
Basis of preparation
The financial information has been prepared in accordance with IFRS as adopted by the European Union. These are subject to ongoing amendment by the International Accounting Standards Board and by the European Union and are therefore subject to change. As a result, the financial information contained herein will need to be updated for any subsequent amendment to IFRS or any new standards that are issued. The financial information has been prepared under the historical cost convention as modified by the revaluation of freehold properties which on transition to IFRS were deemed to be the cost of the asset and for derivative financial instruments and shared-based payments that have been measured at fair value.
The accounting policies used in the preparation of the consolidated financial statements for the 52 weeks ended 31 December 2017 have been consistently applied to all the periods presented except for the changes in accounting policy noted below and are set out in the Trinity Mirror plc 2017 Annual Report. These consolidated financial statements have been prepared on a going concern basis as set out in the Management Report in this Annual Results Announcement.
Changes in accounting policy
The same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial statements as applied in the Group's latest annual consolidated financial statements.
The Group has adopted the following standards during the current financial period which have had no material impact on the Group:
-- IAS 7 (Amended) 'Statement of Cash Flows' -- IAS 12 (Amended) 'Income taxes' -- Annual improvements 2012 - 2014 cycle
The following standards and interpretations (*denotes not yet endorsed for use in the EU), which have not been applied and when adopted are not expected to have a material impact on the Group, were in issue and will be effective for periods beginning on or after 1 January 2018 unless stated below:
-- IFRS 4 (Amended) 'Applying Insurance Contracts' -- IFRS 17 'Insurance contracts' -- IFRS 10 and IAS 28 (Amended) 'Investments in associates and joint ventures' -- IFRS 2 (Amended) 'Share-based Payment'* -- IAS 40 (Amended) 'Investment Property'* -- IFRIC 22 (New) 'Foreign Currency Transaction and Advance Consideration'*
-- IFRIC 23 (New) 'Uncertainty over Income Tax Treatments' - effective for periods beginning on or after 1 January 2019*
The assessment of the impact of IFRS 9 (Amended) 'Financial Instruments' and IFRS 15 (Issued) 'Revenue from Contracts with Customers' (both effective for periods beginning on or after 1 January 2018) revealed that, when adopted, these standards will have no material impact on the Group. The initial assessment of the impact of IFRS 16 (Issued) 'Leases' (effective for periods beginning on or after 1 January 2019) revealed that, when adopted based on the operating leases at the reporting date, fixed assets and lease obligations of around GBP20 million would be recognised on the consolidated balance sheet with no material impact on operating profit as operating lease costs would be replaced with an equivalent depreciation charge in the income statement.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
2. Accounting polices (continued)
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
Provisions (notes 8, 15 and 19)
There is uncertainty as to liabilities arising from the outcome or resolution of the ongoing historical legal issues and in addition there is uncertainty as to the amount of expenditure that may be tax deductible and additional tax liabilities may fall due in relation to earlier years. Provisions are measured at the best estimate of the expenditure required to settle the obligation based on the assessment of the related facts and circumstances at each reporting date.
Retirement benefits (note 14)
Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.
Impairment of goodwill and other intangible assets (note 12)
There is uncertainty in the value in use calculation. The most significant area of uncertainty relates to expected future cash flows for each cash-generating unit. Determining whether goodwill and other intangible assets are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. It also requires assessment of the appropriateness of the cash-generating unit at each reporting date. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Projections are based on both internal and external market information and reflect past experience. The discount rate reflects a long-term equity and debt mix based on the period end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times.
3. Operating segments
Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board and chief operating decision maker (Executive directors) to allocate resources to the segments and to assess their performance. The accounting policies used in the preparation of each segment's revenue and results are the same as the Group's accounting policies. The Board and chief operating decision maker are not provided with an amount for total assets by segment. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.
The Group has four operating segments that are regularly reviewed by the Board and chief operating decision maker. The operating segments are: Publishing which includes all of our newspapers and associated digital publishing; Printing which provides printing services to the Publishing segment and to third parties; Specialist Digital which includes our acquired digital classified recruitment and our digital marketing services businesses; and Central which includes revenue and costs not allocated to the operational divisions and our share of results of associates.
Segment revenue and results
52 weeks ended 31 December Publishing
2017 2017 Specialist
GBPm Printing Digital Central Total
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
---------------------------- ------------ ----------- ------------- ---------- --------
Revenue
Segment sales 578.5 131.2 10.0 3.5 723.2
Inter-segment sales - (99.6) (0.4) - (100.0)
---------------------------- ------------ ----------- ------------- ---------- --------
Total revenue 578.5 31.6 9.6 3.5 623.2
---------------------------- ------------ ----------- ------------- ---------- --------
Segment result 133.2 - 2.7 (11.2) 124.7
------------ ----------- ------------- ----------
Operating adjusted items (26.8)
Operating profit 97.9
Investment revenues 0.1
Pension finance charge (11.9)
Finance costs (4.2)
---------------------------- ------------ ----------- ------------- ---------- --------
Profit before tax 81.9
Tax charge (19.1)
---------------------------- ------------ ----------- ------------- ---------- --------
Profit for the period 62.8
---------------------------- ------------ ----------- ------------- ---------- --------
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
3. Operating segments (continued)
Segment revenue and results (continued)
53 weeks ended 1 January Publishing Specialist
2017 2016 Printing Digital Central Total
GBPm 2016 2016 2016 2016
GBPm GBPm GBPm GBPm
-------------------------- ------------ ----------- ----------- ---------- --------
Revenue
Segment sales 660.0 147.9 13.3 3.9 825.1
Inter-segment sales - (111.7) (0.4) - (112.1)
-------------------------- ------------ ----------- ----------- ---------- --------
Total revenue 660.0 36.2 12.9 3.9 713.0
-------------------------- ------------ ----------- ----------- ---------- --------
Segment result 148.4 - 2.4 (13.3) 137.5
------------ ----------- ----------- ----------
Operating adjusted items (44.0)
Operating profit 93.5
Investment revenues 0.6
Pension finance charge (10.4)
Finance costs (7.2)
-------------------------- ------------ ----------- ----------- ---------- --------
Profit before tax 76.5
Tax charge (7.0)
-------------------------- ------------ ----------- ----------- ---------- --------
Profit for the period 69.5
-------------------------- ------------ ----------- ----------- ---------- --------
4. Revenue
2017 2016
GBPm GBPm
----------------------------- ------ ------
Publishing Print 494.6 581.0
----------------------------- ------ ------
Circulation 284.7 310.6
Advertising 177.6 236.6
Other 32.3 33.8
----------------------------- ------ ------
Publishing Digital 83.9 79.0
----------------------------- ------ ------
Display and transactional 68.7 58.4
Classified 15.2 20.6
----------------------------- ------ ------
Printing 31.6 36.2
Specialist Digital 9.6 12.9
Central 3.5 3.9
Total revenue 623.2 713.0
----------------------------- ------ ------
The Group's operations are located primarily in the UK. The Group's revenue by location of customers is set out below:
2017 2016
GBPm GBPm
---------------------------- ------ ------
UK and Republic of Ireland 621.5 709.9
Continental Europe 1.6 2.8
Rest of World 0.1 0.3
----------------------------- ------ ------
Total revenue 623.2 713.0
----------------------------- ------ ------
5. Operating adjusted items
2017 2016
GBPm GBPm
------------------------------------------ ------- -------
Restructuring charges in respect
of cost reduction measures (note
15) (12.6) (15.1)
Provision for historical legal issues
(note 15) (10.5) (11.5)
Pension administrative expenses
(note 14) (1.0) (2.2)
Amortisation of intangible assets
(note 12) (0.3) (0.3)
Profit on disposal of land and buildings
(a) 0.2 0.2
Transaction costs (b) (2.2) -
Impairment of goodwill (c) - (2.0)
Contract termination fee (d) - (2.0)
Closure of print sites and press
line (e) - (10.7)
Operating adjusted items included
in administrative expenses (26.4) (43.6)
Operating adjusted items included
in share of results of associates
(f) (0.4) (0.4)
Total operating adjusted items (26.8) (44.0)
------------------------------------------- ------- -------
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
5. Operating adjusted items (continued)
(a) Profit on disposal of Teesside property with net proceeds of GBP1.2 million less carrying value of GBP1.0 million (2016: profit on disposal of Cardiff and Coventry properties with net proceeds of GBP10.6 million less carrying value of GBP10.4 million).
(b) Transaction costs incurred in the year relating to the acquisition of Northern & Shell's publishing assets.
(c) In 2016, a GBP2.0 million charge against the carrying value of goodwill in our Specialist Digital division was required.
(d) In 2016, a break fee of GBP2.0 million was paid to Iliffe Print Cambridge Limited.
(e) In 2016, costs associated with closure of the printing site in Cardiff and a press line in Scotland (Cardonald) of GBP10.7 million including the write off of fixed assets of GBP9.1 million.
(f) Group's share of restructuring costs and amortisation incurred by PA Group.
6. Investment revenues
2017 2016
GBPm GBPm
---------------------------------- ------ ------
Interest income on bank deposits
and other interest receipts 0.1 0.6
----------------------------------- ------ ------
7. Finance costs
2017 2016
GBPm GBPm
-------------------------------------- ------ -------
Interest on bank overdrafts and
borrowings (2.3) (4.9)
--------------------------------------- ------ -------
Total interest expense (2.3) (4.9)
Fair value (loss)/gain on derivative
financial instruments (3.8) 11.3
Foreign exchange gain/(loss) on
retranslation of borrowings 1.9 (13.6)
--------------------------------------- ------ -------
Finance costs (4.2) (7.2)
--------------------------------------- ------ -------
8. Tax
2017 2016
GBPm GBPm
---------------------------------------- ------- -------
Corporation tax charge for the period (17.4) (20.4)
Prior period adjustment (0.4) 1.2
----------------------------------------- ------- -------
Current tax charge (17.8) (19.2)
----------------------------------------- ------- -------
Deferred tax (charge)/credit for
the period (1.2) 1.8
Prior period adjustment (0.1) 0.6
Deferred tax rate change - 9.8
----------------------------------------- ------- -------
Deferred tax (charge)/credit (1.3) 12.2
----------------------------------------- ------- -------
Tax charge (19.1) (7.0)
----------------------------------------- ------- -------
Reconciliation of tax charge % %
Standard rate of corporation tax (19.3) (20.0)
Tax effect of items that are not
deductible in determining taxable
profit (3.6) (5.4)
Tax effect of items that are not
taxable in determining taxable profit - 1.1
Prior period adjustment (0.5) 2.3
Deferred tax rate change - 12.6
Tax effect of share of results of
associates 0.1 0.2
Tax charge rate (23.3) (9.2)
----------------------------------------- ------- -------
The standard rate of corporation tax reduced from 20% to 19% on 1 April 2017. The blended rate for the accounting year is 19.25% being a mix of 20% up to 31 March 2017 and 19% from 1 April 2017 (2016: 20%). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax liabilities amounted to GBP7.7 million (2016: GBP9.8 million) at the reporting date and include net provisions of GBP3.2 million (2016: GBP3.4 million). At the reporting date the maximum tax exposure relating to uncertain tax items is some GBP7 million.
The opening deferred tax position is recalculated in the period in which a change in the standard rate of corporation tax has been enacted or substantively enacted by parliament. The change in rate from 18% to 17% in 2020 was accounted for in the prior year resulting in GBP9.8 million credit in the consolidated income statement and a GBP4.4 million charge in the consolidated statement of comprehensive income.
The tax on actuarial gains/(losses) on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a charge of GBP10.5 million comprising a deferred tax charge of GBP15.5 million and a current tax credit of GBP5.0 million (2016: credit of GBP32.1 million comprising a deferred tax credit of GBP26.5 million and a current tax credit of GBP5.6 million). The deferred tax credit resulting from the future change in tax rate of GBP0.4 million (2016: charge of GBP0.6 million) comprised a credit of GBP0.4 million (2016: GBP3.8 million) from a change in the expected reversal of timing differences and nil (2016: charge of GBP4.4 million) from the change in future tax rates.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
9. Dividends
2017 2016
Pence Pence
per share per share
------------------------------------------ ----------- -----------
Dividends paid per share and recognised
as distributions to equity holders
in the period 5.60 5.25
------------------------------------------- ----------- -----------
Dividend proposed per share but
not paid nor included in the accounting
records 3.55 3.35
------------------------------------------- ----------- -----------
The Board proposes a final dividend for 2017 of 3.55 pence per share. An interim dividend for 2017 of 2.25 pence per share was paid on 29 September 2017 bringing the total dividend in respect of 2017 to 5.80 pence per share. The 2017 final dividend payment is expected to amount to GBP10.5 million. The 2017 interim dividend payment amounted to GBP6.1 million.
On 4 May 2017 the final dividend proposed for 2016 of 3.35 pence per share was approved by shareholders at the Annual General Meeting and was paid on 9 June 2017. The 2016 final dividend payment amounted to GBP9.2 million.
10. Earnings per share
Basic earnings per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period and diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.
2017 2016
Thousand Thousand
--------------------------------------- ---------- ----------
Weighted average number of ordinary
shares for basic earnings per share 272,730 278,895
Effect of potential dilutive ordinary
shares in respect of share awards 1,481 1,864
Weighted average number of ordinary
shares for diluted earnings per
share 274,211 280,759
---------------------------------------- ---------- ----------
The weighted average number of potentially dilutive ordinary shares not currently dilutive was 3,201,611 (2016: 2,805,385).
2017 2016
Statutory earnings per share Pence Pence
Earnings per share - basic 23.0 24.9
Earnings per share - diluted 22.9 24.8
--------------------------------- ------- -------
2017 2016
Adjusted* earnings per share Pence Pence
-------------------------------- ------- -------
Earnings per share - basic 36.1 38.1
Earnings per share - diluted 35.9 37.8
--------------------------------- ------- -------
* Set out in note 17 is the reconciliation between the statutory and adjusted results.
On 28 February 2018, the Company issued 25,826,746 ordinary shares in connection with the acquisition of Northern & Shell's UK publishing assets (note 20).
11. Notes to the consolidated cash flow statement
2017 2016
GBPm GBPm
------------------------------------------- ------ ------
Operating profit 97.9 93.5
Depreciation of property, plant and
equipment 20.4 22.2
Amortisation of intangible assets 0.3 0.3
Impairment of goodwill - 2.0
Share of results of associates (0.4) (0.7)
Charge for share-based payments 0.5 1.5
Profit on disposal of land and buildings (0.2) (0.2)
Research and development tax credit (1.0) -
Write-off of fixed assets 1.9 9.6
Pension administrative expenses 1.0 2.2
Pension deficit funding payments (38.7) (40.7)
-------------------------------------------- ------ ------
Operating cash flows before movements
in working capital 81.7 89.7
Decrease in inventories 0.9 0.4
Decrease in receivables - 29.7
Decrease in payables (14.5) (28.3)
-------------------------------------------- ------ ------
Cash flows from operating activities 68.1 91.5
-------------------------------------------- ------ ------
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
12. Intangible assets
The Group has four cash-generating units (Nationals and Regionals in Publishing and TMDR and Communicator in Specialist Digital). Goodwill of GBP102.0 million comprises Regionals GBP92.5 million, TMDR GBP6.1 million and Communicator GBP3.4 million. Other intangible assets comprises publishing rights and titles (Nationals GBP544.3 million and Regionals GBP254.6 million) and customer relationships and domain names (Communicator GBP0.3 million). The movement in the year relates to amortisation of GBP0.3 million (2016: GBP0.3 million) of the customer relationships and domain names.
The impairment review of the carrying value of intangible assets performed at the reporting date resulted in no impairment (2016: GBP2.0 million).
The directors consider publishing rights and titles have indefinite economic lives due to the longevity of the brands and the ability to evolve the brands in an ever changing media landscape. It is not practicable to review individual publishing rights and titles due to the interdependencies of revenues and cash inflow within the cash-generating units. The customer relationships and domain names have estimated useful lives of between four and ten years.
The Group tests the carrying value of assets at the cash-generating unit level for impairment at each reporting date or more frequently if there are indications that assets might be impaired. The review is undertaken by assessing whether the carrying value of assets is supported by their value in use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount.
The Group prepared cash flow projections for a cash-generating unit using the Board approved budget for 2018 and the projections for 2019 and 2020. The growth rates for the three-year period are internal projections based on both internal and external market information and reflect past experience of and the risk associated with each asset. Cash flow projections beyond 2020 are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates for the relevant markets. The growth rates for Publishing are Nationals 0% (2016: 0%) and Regionals -1% (2016: 0%) and for Specialist Digital are TMDR 0% (2016: 0%) and Communicator 0% (2016: 0%). These are based on the Board's view of the cash-generating unit's market position and maturity of the relevant market. The post-tax discount rate used at the period end reporting date in respect of all cash-generating units was 10.5% (2016: 10.0%) reflecting a long-term equity and debt mix based on the period end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times. The equivalent pre-tax discount rate is 12.8% (2016: 12.2%).
In the impairment review of the carrying value of assets performed at the reporting date relating to the Publishing cash-generating units, there has been a reduction in the headroom of value in use over the carrying value of assets from the impairment review performed at the prior year reporting date. This reflects the 2017 performance and latest projections together with the current assessment of the medium to long-term forecasts and the discount rate. The headroom of value in use over the carrying value of assets is GBP11.7 million or 4% for the Regionals cash-generating unit and GBP60.2 million or 9% for the Nationals cash-generating unit.
The impairment review is therefore highly sensitive to reasonably possible changes in key assumptions used in the value in use calculations:
-- In the short-term, assuming that revenue declines are materially in line with our projections, the key assumption driving the value in use calculated is the ability to deliver cost savings targets to protect profitability. The Group has a strong track record in delivering these savings. Notwithstanding this, if EBITDA in 2020 (being the final year before the perpetuity factor) was GBP2 million lower in the Regionals cash-generating unit and GBP9 million lower in the Nationals cash-generating unit, this would eliminate the headroom in these cash-generating units.
-- In the medium to long-term, the key assumption that drives value in use is the ability to generate digital revenue growth as the structural change in the industry continues. If digital revenue in 2020 (being the final year before the perpetuity factor) was to be GBP2 million or 2% below forecast in the Regionals cash-generating unit and GBP9 million or 22% below forecast in the Nationals cash-generating unit, this would eliminate the headroom in these cash-generating units.
-- The structural challenges faced are currently more acute in the Regionals business than the Nationals business. The Regionals business is more reliant on classified revenue which continues to decline at significant rates across both print and digital and on digital revenue upsold from print which is impacted by declining print revenues. With the uncertainty in the pace of decline of print advertising and of growth in digital revenue, we have applied a long-term decline of 1% per annum in the Regionals cash-generating unit. An increase in the long-term decline to 1.4% would eradicate the headroom of value in use over the carrying value of assets. In the Nationals cash-generating unit, we have continued to apply a long-term rate of 0% per annum. A change in this long-term rate to a decline of 1.2% would eradicate the headroom of value in use over the carrying value of assets.
-- An increase of 0.5 percentage points in the discount rate would remove the headroom in the Regionals cash-generating unit and an increase of 1.1 percentage points in the discount rate would remove the headroom in the Nationals cash-generating unit.
A combination of reasonably possible changes in key assumptions relating to the Publishing cash-generating units, such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected, or the scale of cost saving initiatives being delivered in the short-term being lower than forecast, could lead to a future impairment.
For the Specialist Digital cash-generating units the change to remove the headroom is an increase of 25 percentage points in the discount rate or a decrease of 25 percentage points in the growth rate.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
13. Net debt
The Group repaid the final private placement loan notes in June 2017. The associated cross-currency interest rate swap matured on the same date.
The statutory net debt for the Group is as follows:
Derivative
1 January Cash financial Foreign Loan Loan 31 December
2017 flow instruments* exchange* repaid drawn 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ ------- --------------- ------------ --------- -------- --------------
Current liabilities
Loan notes (81.2) - - 1.9 79.3 - -
Bank facility - - - - - (25.0) (25.0)
------------------------ ------------ ------- --------------- ------------ --------- -------- --------------
(81.2) - - 1.9 79.3 (25.0) (25.0)
Current assets
Derivative
financial instruments 14.8 - (3.8) - (11.0) - -
Cash and cash
equivalents 37.8 21.5 - - (68.3) 25.0 16.0
------------------------ ------------ ------- --------------- ------------ --------- -------- --------------
52.6 21.5 (3.8) - (79.3) 25.0 16.0
------------------------ ------------ ------- --------------- ------------ --------- -------- --------------
Net debt (28.6) 21.5 (3.8) 1.9 - - (9.0)
------------------------ ------------ ------- --------------- ------------ --------- -------- --------------
* The impact on the loan notes of translation into sterling at the settlement date and the impact on the derivative financial instruments of being stated at fair value at the settlement date are included in the consolidated income statement within finance costs as set out in note 7.
The Group had a cross-currency interest rate swap to manage its exposure to foreign exchange movements and interest rate movements on the private placement loan notes. Fair value was calculated using discounted cash flows based upon forward rates available to the Group. The cross-currency interest rate swap was classed in level two of the financial instruments hierarchy. Level two fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
The contracted net debt for the Group, assuming at 1 January 2017 that the private placement loan notes and the cross-currency interest rate swaps were not terminated prior to maturity, is as follows:
1 January Cash Loan Loan 31 December
2017 flow repaid drawn 2017
GBPm GBPm GBPm GBPm GBPm
--------------------------- ---------- ------ -------- ------- ------------
Current liabilities
Loan notes (68.3) - 68.3 - -
Bank facility - - - (25.0) (25.0)
--------------------------- ---------- ------ -------- ------- ------------
(68.3) - 68.3 (25.0) (25.0)
--------------------------- ---------- ------ -------- ------- ------------
Current assets
Cash and cash equivalents 37.8 21.5 (68.3) 25.0 16.0
--------------------------- ---------- ------ -------- ------- ------------
37.8 21.5 (68.3) 25.0 16.0
--------------------------- ---------- ------ -------- ------- ------------
Net debt (30.5) 21.5 - - (9.0)
--------------------------- ---------- ------ -------- ------- ------------
The statutory net debt reconciles to the contracted net debt as follows:
2017 2016
GBPm GBPm
---------------------------------------- ------ -------
Statutory net debt (9.0) (28.6)
Loan notes at period end exchange rate - 81.2
Loan notes at swapped exchange rate - (68.3)
Cross-currency interest rate swap - (14.8)
Contracted net debt (9.0) (30.5)
---------------------------------------- ------ -------
Following repayment of the private placement loan notes and maturity of the associated cross-currency interest rate swaps on 20 June 2017, net debt is the same on a statutory and contracted basis.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
14. Retirement benefit schemes
Defined contribution pension schemes
The Group operates the Trinity Mirror Pension Plan (the 'TMPP Scheme'), which is a defined contribution pension scheme for qualifying employees. The assets of the TMPP Scheme are held separately from those of the Group in funds under the control of Trustees. The Local World Group Personal Pension Plan (the 'LW Plan'), which was a defined contribution pension scheme for qualifying employees where employees held a personal pension policy directly with Scottish Widows, was closed to future contribution from 30 June 2017.
The TMPP Scheme has five sections. Three of the sections are closed to new members: one for members who elected to join prior to 1 May 2013, one for members who elect to join from 1 May 2013 to 30 June 2017 and one for members who were previously members of the LW Plan. Two of the sections are open to new members: one for members who elect to join from 1 July 2017 and one for members who from 1 July 2013 are auto enrolled. The Group first implemented the Auto Enrolment legislation from 1 July 2013 and from 1 July 2017 this now includes Local World.
The current service cost charged to the consolidated income statement of GBP13.6 million (2016: GBP13.6 million) represents contributions of GBP13.0 million (2016: GBP12.3 million) paid to the TMPP Scheme by the Group at rates specified in the scheme rules and contributions of GBP0.6 million (2016: GBP1.3 million) paid into the LW Plan by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.
Defined benefit pension schemes
Background
The defined benefit pension schemes operated by the Group were closed to future accrual in 2010. The Group has three defined benefit pension schemes: the MGN Pension Scheme (the 'MGN Scheme'), the Trinity Retirement Benefit Scheme (the 'Trinity Scheme') and the Midland Independent Newspapers Pension Scheme (the 'MIN Scheme'). On 30 December 2016, the Mirror Group Pension Scheme and the MGN Past Service Pension Scheme were merged into the MGN Pension Scheme (collectively referred to as the Mirror Schemes). Following the merger the bulk annuity policy held by the Mirror Group Pension Scheme was shattered with individual policies issued to members and both the Mirror Group Pension Scheme and the MGN Past Service Pension Scheme were wound up.
Characteristics
The defined benefit pension schemes provide pensions to members, which are based on the final salary pension payable, normally from age 65 plus surviving spouses or dependents benefits following a member's death. Benefits increase both before and after retirement either in line with statutory requirements or in accordance with the scheme rules. Such increases are either at fixed rates or in line with retail or consumer prices but subject to upper and lower limits. All of the schemes are independent of the Group with assets held independently of the Group. They are governed by Trustees who administer benefits in accordance with the scheme rules and appropriate UK legislation. The schemes each have a professional independent trustee as their chairman with generally half of the remaining Trustees nominated by the members and half by the Group.
Maturity profile and cash flow
Across the schemes the invested assets are expected to be sufficient to pay the uninsured benefits due up to 2048, based on the reporting data assumptions. The remaining uninsured benefit payments, payable from 2049, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid by 2027. The liabilities related 55% to current pensioners and their spouses or dependants and 45% related to deferred pensioners. The average term from the period end to payment of the remaining uninsured benefits is expected to be around 20 years. Uninsured pension payments in 2017, excluding lump sums and transfer value payments, were GBP43 million and these are projected to rise to an annual peak in 2039 of GBP73 million and reducing thereafter.
Funding arrangements
The funding of the Group's schemes is subject to UK pension legislation as well as the guidance and codes of practice issued by the Pensions Regulator. Funding targets are agreed between the Trustees and the Group and are reviewed and revised usually every three years. The funding targets must include a margin for prudence above the expected cost of paying the benefits and so are different to the liability value for IAS 19 purposes. The funding deficits revealed by these triennial valuations are removed over time in accordance with an agreed recovery plan and schedule of contributions for each scheme.
The valuations of the schemes as at 31 December 2016 were agreed in December 2017 and finalised in January 2018. The valuations showed deficits of GBP476.0 million for the MGN Scheme, GBP78.0 million for the Trinity Scheme and GBP68.2 million for the MIN Scheme.
As part of the agreement of the valuations, deficit funding contributions were agreed at GBP43.8 million for 2018 to 2027 after which contributions are due to cease. The deficits are expected to be eradicated by 2027 by a combination of the contributions and asset returns. In addition, the Group agreed that in respect of dividend payments in 2018, 2019 and 2020 that additional contributions would be paid at 50% of the excess if dividends in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold increases in line with the increase in dividends capped at 10% per annum. As set out in note 20, in connection with the acquisition of Northern & Shell's UK publishing assets, the schedule of contributions and the dividend sharing arrangements have been revised.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
14. Retirement benefit schemes (continued)
Defined benefit pension schemes (continued)
Funding arrangements (continued)
Payments in the year were GBP38.7 million (2016: GBP40.7 million) comprising GBP36.2 million (2016: GBP35.7 million) of deficit funding and GBP2.5 million (2016: GBP5.0 million) in connection with the share buyback. Payments were GBP27.8 million (2016: GBP29.6 million) to the Mirror Schemes, GBP6.6 million (2016: GBP7.0 million) to the Trinity Scheme and GBP4.3 million (2016: GBP4.1 million) to the MIN Scheme.
The future deficit funding commitments are linked to the three-yearly actuarial valuations. There is no link to the IAS 19 valuations which use different actuarial assumptions and are updated at each reporting date. The next funding valuation of the schemes has an effective date of 31 December 2019 and these valuations are required to be completed by 31 March 2021.
Although the funding commitments do not generally impact the IAS 19 position, IFRIC 14 guides companies to consider for IAS 19 disclosures whether any surplus can be recognised as a balance sheet asset and whether any future funding commitments in excess of the IAS 19 liability should be provisioned for. Based on the interpretation of the rules for each of the defined benefit pension schemes, the Group considers that it has an unconditional right to any potential surplus on the ultimate wind-up of each scheme after all benefits to members have been paid. Under IFRIC 14 it is therefore appropriate to recognise any IAS 19 surpluses which may emerge in future, and not to recognise any potential additional liabilities in respect of future funding commitments. This conclusion was reconsidered and reconfirmed during 2016 following the issuance of an Exposure Draft of changes to IFRIC14 which provided more detailed guidance on this area.
Risks
Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value.
The main sources of risk are:
-- Investment risk: a reduction in asset returns (or assumed future asset returns); -- Inflation risk: an increase in benefit increases (or assumed future increases); and -- Longevity risk: an increase in average life spans (or assumed life expectancy).
These risks are managed by:
-- Investing in insured annuity policies: the income from these policies exactly matches the benefit payments for the members covered, removing all of the above risks. At the reporting date the insured annuity policies covered around 10% of total liabilities;
-- Investing a proportion of assets in government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the reporting date this amounted to around 40% of assets excluding the insured annuity policies;
-- Investing a proportion in equities: with the aim of achieving outperformance and so reducing the deficits over the long term. At the reporting date this amounted to around 40% of assets excluding the insured annuity policies; and
-- The gradual sale of equities over time to purchase additional annuity policies or liability matching investments: to further reduce risk as the schemes, which are closed to future accrual, mature.
Pension scheme accounting deficits are snapshots at moments in time and are not used by either the Group or Trustees to frame funding policy. The Group and Trustees are aligned in focusing on the long-term sustainability of the funding policy which aims to balance the interests of the Group's shareholders and members of the schemes. The Group and Trustees are also aligned in reducing pensions risk over the long term and at a pace which is affordable to the Group.
The Group is not exposed to any unusual, entity specific or scheme specific risks. There were no plan amendments, settlements or curtailments in 2017 or 2016 which resulted in a pension cost. The annuity policy held by the Mirror Group Pension Scheme was shattered on 30 March 2017 which led to an equal reduction to the assets and liabilities of GBP173.3 million.
Actuarial projections at the reporting date show removal of the accounting deficit by 2024 due to scheduled contributions and asset returns at the current target rate based on the schemes' current expected asset allocations.
Results
For the purposes of the Group's consolidated financial statements, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at 31 December 2017.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
14. Retirement benefit schemes (continued)
Defined benefit pension schemes (continued)
Results (continued)
The assets and liabilities of the schemes as at the reporting date are:
Trinity
MGN Scheme Scheme MIN Scheme Total
GBPm GBPm GBPm GBPm
------------------------------ ---------- ------- ---------- ---------
Present value of uninsured
scheme liabilities (1,236.7) (378.4) (132.0) (1,747.1)
Present value of insured
scheme liabilities - (76.7) (105.4) (182.1)
------------------------------ ---------- ------- ---------- ---------
Total present value
of scheme liabilities (1,236.7) (455.1) (237.4) (1,929.2)
------------------------------ ---------- ------- ---------- ---------
Invested and cash assets
at fair value 914.1 370.9 84.5 1,369.5
Value of liability matching
insurance contracts - 76.7 105.4 182.1
------------------------------ ---------- ------- ---------- ---------
Total fair value of
scheme assets 914.1 447.6 189.9 1,551.6
------------------------------ ---------- ------- ---------- ---------
Net scheme deficit (322.6) (7.5) (47.5) (377.6)
------------------------------ ---------- ------- ---------- ---------
Based on actuarial advice, the assumptions used in calculating the scheme liabilities and the actuarial value of those liabilities are:
2017 2016
----------------------------------------- ----- -----
Financial assumptions (nominal % pa)
Discount rate 2.50 2.65
Retail price inflation rate 3.15 3.20
Consumer price inflation rate 1.95 2.00
Rate of pension increase in deferment 1.95 2.00
Rate of pension increases in payment
(weighted average across the scheme's) 3.70 3.85
----------------------------------------- ----- -----
Mortality assumptions - future life
expectancies from age 65 (years)
Male currently aged 65 21.7 21.8
Female currently aged 65 23.6 23.9
Male currently aged 55 22.4 22.7
Female currently aged 55 24.4 24.8
----------------------------------------- ----- -----
The estimated impact on the IAS 19 liabilities and on the IAS 19 deficit at the reporting date, due to a reasonably possible change in key assumptions over the next year, are set out in the table below:
Effect on Effect
liabilities on
GBPm deficit
GBPm
------------------------------------------ ------------ ---------
Discount rate +/- 0.5% pa -170/+188 -160/+177
Retail price inflation rate +/- 0.5%
pa +32/-30 +24/-23
Consumer price inflation rate +/- 0.5%
pa +45/-43 +45/-43
Life expectancy at age 65 +/- 1 year +78/-76 +75/-73
------------------------------------------ ------------ ---------
The RPI sensitivity impacts the rate of increases in payment for the Trinity Scheme and the MIN Scheme. The CPI sensitivity impacts the rate of increases in deferment for all three schemes and the rate of increases in payment for post-1997 benefits in the MGN Scheme.
The effect on the deficit is usually lower than the effect on the liabilities due to the matching impact on the value of the insurance contracts held in respect of some of the liabilities. Each assumption variation represents a reasonably possible change in the assumption over the next year but might not represent the actual effect because assumption changes are unlikely to happen in isolation.
The estimated impact of the assumption variations make no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.
The amount included in the consolidated income statement, consolidated statement of comprehensive income and consolidated balance sheet arising from the Group's obligations in respect of its defined benefit pension schemes is as follows:
2017 2016
Consolidated income statement GBPm GBPm
--------------------------------- ------- -------
Pension administrative expenses (1.0) (2.2)
Pension finance charge (11.9) (10.4)
---------------------------------- ------- -------
Defined benefit cost recognised
in income statement (12.9) (12.6)
---------------------------------- ------- -------
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
14. Retirement benefit schemes (continued)
Defined benefit pension schemes (continued)
Results (continued)
Consolidated statement of comprehensive 2017 2016
income GBPm GBPm
Actuarial (loss)/gain due to
liability experience (6.0) 14.0
Actuarial loss due to liability
assumption changes (12.6) (340.7)
------------------------------------------ ------ -------
Total liability actuarial loss (18.6) (326.7)
Returns on scheme assets greater
than discount rate 81.2 137.8
------------------------------------------ ------ -------
Total gain/(loss) recognised
in statement of comprehensive
income 62.6 (188.9)
------------------------------------------ ------ -------
Consolidated balance sheet 2017 2016
GBPm GBPm
--------------------------------------- ---------- ----------
Present value of uninsured scheme
liabilities (1,747.1) (1,764.3)
Present value of insured scheme
liabilities (182.1) (363.3)
---------------------------------------- ---------- ----------
Total present value of scheme
liabilities (1,929.2) (2,127.6)
---------------------------------------- ---------- ----------
Invested and cash assets at fair
value 1,369.5 1,298.3
Value of liability matching insurance
contracts 182.1 363.3
---------------------------------------- ---------- ----------
Total fair value of scheme assets 1,551.6 1,661.6
---------------------------------------- ---------- ----------
Net scheme deficit (377.6) (466.0)
---------------------------------------- ---------- ----------
Non-current assets - retirement
benefit assets - -
Non-current liabilities - retirement
benefit obligations (377.6) (466.0)
---------------------------------------- ---------- ----------
Net scheme deficit (377.6) (466.0)
---------------------------------------- ---------- ----------
Net scheme deficit included in
consolidated balance sheet (377.6) (466.0)
Deferred tax included in consolidated
balance sheet 66.2 80.9
---------------------------------------- ---------- ----------
Net scheme deficit after deferred
tax (311.4) (385.1)
---------------------------------------- ---------- ----------
Movement in net scheme deficit 2017 2016
GBPm GBPm
----------------------------------------- -------- --------
Opening net scheme deficit (466.0) (305.2)
Contributions 38.7 40.7
Consolidated income statement (12.9) (12.6)
Consolidated statement of comprehensive
income 62.6 (188.9)
------------------------------------------ -------- --------
Closing net scheme deficit (377.6) (466.0)
------------------------------------------ -------- --------
Changes in the present value of 2017 2016
scheme liabilities GBPm GBPm
----------------------------------------- --------- ---------
Opening present value of scheme
liabilities (2,127.6) (1,833.6)
Interest cost (51.8) (65.3)
Actuarial (loss)/gain - experience (6.0) 14.0
Actuarial gain - change to demographic
assumptions 26.7 30.0
Actuarial loss - change to financial
assumptions (39.3) (370.7)
Benefits paid 95.5 98.0
Bulk transfer due to buyout 173.3 -
Closing present value of scheme
liabilities (1,929.2) (2,127.6)
------------------------------------------ --------- ---------
Changes in the fair value of scheme 2017 2016
assets GBPm GBPm
-------------------------------------- ------- -------
Opening fair value of scheme assets 1,661.6 1,528.4
Interest income 39.9 54.9
Actual return on assets greater
than discount rate 81.2 137.8
Contributions by employer 38.7 40.7
Benefits paid (95.5) (98.0)
Administrative expenses (1.0) (2.2)
Bulk transfer due to buyout (173.3) -
--------------------------------------- ------- -------
Closing fair value of scheme assets 1,551.6 1,661.6
--------------------------------------- ------- -------
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
14. Retirement benefit schemes (continued)
Defined benefit pension schemes (continued)
Results (continued)
Fair value of scheme assets 2017 2016
GBPm GBPm
----------------------------------- ------- -------
UK equities 66.1 208.2
US equities 218.3 217.2
Other overseas equities 279.1 235.7
Property 24.6 26.9
Corporate bonds 240.5 220.0
Fixed interest gilts 60.0 77.5
Index linked gilts 24.8 30.2
Liability driven investment 148.9 71.2
Cash and other 307.2 211.4
------------------------------------ ------- -------
Invested and cash assets at fair
value 1,369.5 1,298.3
Value of insurance contracts 182.1 363.3
------------------------------------ ------- -------
Fair value of scheme assets 1,551.6 1,661.6
------------------------------------ ------- -------
On 30 March 2017, the Trustees of the Mirror Schemes converted the insurance policy held by the Mirror Group Pension Scheme to a buyout policy. This reduced assets and liabilities by GBP173.3 million on that date. As there was an equal reduction to the assets and liabilities there was no effect on the deficit.
All of the scheme assets have quoted prices in active markets. Scheme assets include neither direct investments in the Company's ordinary shares nor any property assets occupied nor other assets used by the Group.
Pension schemes relating to Northern & Shell's UK publishing assets
The acquired entities operate two defined contribution pension schemes where employees hold a personal pension policy directly with Legal and General.
The entities have three defined benefit pension schemes where the assets of the schemes are held separately from those of the entities in funds under the control of Trustees, which were closed to future accrual in 2008 (two schemes) and 2010 (one scheme). The net deficit of the schemes at the last valuations was GBP63.6 million and the latest available IAS19 deficit at 31 December 2016 was GBP31.3 million. Set out in note 20 are the agreed future payments and dividend sharing arrangements in relation to these defined benefit pension schemes and to the Group's existing defined benefit pension schemes.
15. Provisions
Share-based
payments Property Restructuring Other Total
GBPm GBPm GBPm GBPm GBPm
------------------- ------------ ----------- ---------------- -------- --------
At 1 January 2017 (0.3) (8.1) (3.4) (19.7) (31.5)
Charged to income
statement - (1.0) (12.6) (11.6) (25.2)
Utilisation of
provision 0.1 2.9 13.6 19.8 36.4
At 31 December
2017 (0.2) (6.2) (2.4) (11.5) (20.3)
------------------- ------------ ----------- ---------------- -------- --------
The provisions have been analysed between current and non-current as follows:
2017 2016
GBPm GBPm
------------- ------- -------
Current (16.6) (27.9)
Non-current (3.7) (3.6)
-------------- ------- -------
(20.3) (31.5)
------------- ------- -------
The share-based payments provision relates to National Insurance obligations attached to the future crystallisation of awards. This provision will be utilised over the next three years.
The property provision relates to onerous property leases and future committed costs related to occupied, let and vacant properties. This provision will be utilised over the remaining term of the leases or expected period of vacancy.
The restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. This provision is expected to be utilised within the next year.
The other provision relates to legal and other costs relating to historical litigation and is expected to be utilised within the next year. The costs associated with the settlement of civil claims in relation to phone hacking have been higher than expected, in particular the legal fees of the claimant's lawyers and the general court process. Therefore, the provision for settling these historical claims was increased by GBP10.5 million during the year. GBP10.7 million of the provision remains outstanding at the year end. It remains uncertain as to how these matters will progress, whether further allegations or claims will be made, and their financial impact. Due to this uncertainty a contingent liability has been highlighted in note 19.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
16. Share capital and reserves
The share capital comprises 283,459,571 allotted, called-up and fully paid ordinary shares of 10p each. The share premium account reflects the premium on issued ordinary shares. The merger reserve comprises the premium on the shares allotted in relation to the acquisition of Local World net of GBP0.8 million of issue costs. The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buy-back programmes.
Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is GBP25.9 million (2016: GBP25.9 million). On transition to IFRS, the revalued amounts of freehold properties were deemed to be the cost of the asset and the revaluation reserve has been transferred to retained earnings and other reserves.
Shares purchased by the Trinity Mirror Employee Benefit Trust (the 'Trust') are included in retained earnings and other reserves at GBP4.9 million (2016: GBP5.5 million). During the period, 447,096 shares were released relating to grants made in prior years (2016: 138,634). During the prior year, the Trust purchased 1,600,000 shares for a cash consideration of GBP2.0 million and received a payment of GBP2.0 million from the Company to purchase these shares.
During the period, 1,219,327 awards were granted to Executive Directors on a discretionary basis under the Long Term Incentive Plan (2016: 859,794). The exercise price of the granted awards is GBP1 for each block of awards granted. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions and are required to be held for a further two years.
During the period, 1,242,316 awards were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (2016: 1,494,019). The exercise price of the granted awards is GBP1 for each block of awards granted. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.
During the period, 111,792 awards were granted to Executive Directors under the Restricted Share Plan (2016: 82,699). The awards vest after three years.
The Board approved a share buyback programme of up to GBP10 million which commenced in August 2016. The share buyback was completed in November 2017. At the year end, the Company had acquired 10,017,620 shares (2016: 2,505,366) for GBP10.0 million (2016: GBP2.3 million). The shares are held as Treasury shares.
On 28 February 2018, the Company issued 25,826,746 ordinary shares in connection with the acquisition of Northern & Shell's UK publishing assets (note 20).
17. Reconciliation of statutory to adjusted results
52 weeks ended 31 December 2017
Operating Pension
adjusted Finance finance Tax
Statutory items costs charge items Adjusted
results (a) (b) (c) (d) results
GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------------- -------------- ---------- ------------ -------- -------------
Revenue 623.2 - - - - 623.2
Operating
profit 97.9 26.8 - - - 124.7
Profit
before
tax 81.9 26.8 1.9 11.9 - 122.5
Profit
after tax 62.8 24.1 1.5 9.6 0.5 98.5
Basic EPS
(p) 23.0 8.9 0.5 3.5 0.2 36.1
------------ -------------- -------------- ---------- ------------ -------- -------------
53 weeks ended 1 January 2017
Operating Pension
adjusted Finance finance Tax
Statutory items costs charge items Adjusted
results (a) (b) (c) (d) results
GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------------- -------------- ---------- ------------ --------- -------------
Revenue 713.0 - - - - 713.0
Operating
profit 93.5 44.0 - - - 137.5
Profit
before
tax 76.5 44.0 2.3 10.4 - 133.2
Profit
after tax 69.5 38.2 1.8 8.3 (11.6) 106.2
Basic EPS (p) 24.9 13.8 0.6 3.0 (4.2) 38.1 ------------ -------------- -------------- ---------- ------------ --------- -------------
(a) Operating adjusted items relate to the items charged or credited to operating profit as set out in note 5.
(b) Impact of the translation of foreign currency borrowings and fair value changes on derivative financial instruments as set out in note 7.
(c) Pension finance charge relating to the defined benefit pension schemes as set out in note 14.Tax items relate to the impact of tax legislation changes due to the change in the future corporation tax rate on the opening deferred tax position and prior year tax adjustments included in the taxation credit or charge as set out in note 8.
Notes to the consolidated financial statements
for the 52 weeks ended 31 December 2017 (53 weeks ended 1 January 2017)
18. Reconciliation of statutory to like for like revenue
52 weeks 52 weeks
52 weeks ended 53 weeks ended
ended 31 December ended 1 January
31 December 2017 1 January 2017
2017 (a) (like 2017 (c) (a) (b) (like
GBPm GBPm for like) GBPm GBPm GBPm GBPm for like)
GBPm GBPm
---------------------- -------------- ------- ------------- ------------ ------- ------- ------- -----------
Publishing
Print 494.6 (0.7) 493.9 581.0 (15.4) (8.9) (0.1) 556.6
---------------------- -------------- ------- ------------- ------------ ------- ------- ------- -----------
Circulation 284.7 - 284.7 310.6 (0.4) (5.8) - 304.4
Advertising 177.6 (0.7) 176.9 236.6 (14.7) (2.6) - 219.3
Other 32.3 - 32.3 33.8 (0.3) (0.5) (0.1) 32.9
---------------------- -------------- ------- ------------- ------------ ------- ------- ------- -----------
Publishing
Digital 83.9 - 83.9 79.0 - (0.6) - 78.4
---------------------- -------------- ------- ------------- ------------ ------- ------- ------- -----------
Display
and transactional 68.7 - 68.7 58.4 - (0.3) - 58.1
Classified 15.2 - 15.2 20.6 - (0.3) - 20.3
---------------------- -------------- ------- ------------- ------------ ------- ------- ------- -----------
Printing 31.6 - 31.6 36.2 - (0.6) (1.3) 34.3
Specialist
Digital 9.6 - 9.6 12.9 - - (3.4) 9.5
Central 3.5 - 3.5 3.9 - - - 3.9
Total revenue 623.2 (0.7) 622.5 713.0 (15.4) (10.1) (4.8) 682.7
---------------------- -------------- ------- ------------- ------------ ------- ------- ------- -----------
(a) Metros handed back to DMGT in December 2016 and other portfolio changes in 2016 and 2017.
(b) Extra week of trading in 2016.
(c) Independent print and distribution contract which ceased in April 2016 and Rippleffect which was sold in August 2016.
19. Contingent liabilities
There is potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues. Due to the present uncertainty in respect of the nature, timing or measurement of any such liabilities it is too soon to be able to reliably estimate how these matters will proceed and their financial impact.
20. Subsequent events
The Group announced the proposed acquisition of Northern & Shell's publishing assets on 9 February 2018 which was subsequently approved at the General Meeting held on 27 February 2018.
On 28 February 2018, the Group completed the acquisition of 100% of the equity in Northern & Shell Network Limited (renamed Trinity Mirror Network Limited) and its subsidiaries for a cash consideration of GBP42.7 million and the issue of 25,826,746 shares at 77.44 pence per share and with deferred consideration of GBP59.0 million payable as GBP18.9 million, GBP16.0 million, GBP17.1 million and GBP7.0 million on the second, third, fourth and fifth anniversaries respectively of the acquisition. A new GBP75 million amortising term loan ('Acquisition Term Loan') was procured to partially fund the acquisition and GBP70 million has been drawn.
The acquisition of the 50% equity interest in Independent Star Limited for GBP4.5 million and 100% of the equity in International Distribution 2018 Limited for GBP0.5 million is subject to clearance by the competition authorities in the Republic of Ireland. The remaining GBP5 million under the Acquisition Term Loan will be drawn on completion of these acquisitions.
The Group has agreed to make an upfront payment of GBP41.2 million to the defined benefit pension schemes of subsidiaries of Trinity Mirror Network Limited and has entered into recovery plans amounting to GBP29.2 million over the period 2018 to 2027 (GBP1.9 million per annum 2018 to 2020, GBP4.1 million per annum 2021 to 2023, GBP3.3 million per annum 2024 to 2026 and GBP1.3 million in 2027). The Group also revised the schedule of contributions for the Group's existing defined benefit pension schemes amounting to an increase of GBP67.0 million over the period 2018 to 2027 (GBP3.2 million per annum 2018 to 2020 and GBP8.2 million per annum 2021 to 2027). In addition, the Group agreed to increase from 50% to 75%, the additional contributions that would be paid to the defined benefit pension schemes if dividends increased by more than 10% in 2018, 2019 and 2020.
Northern & Shell's publishing assets comprise national newspapers and magazines together with associated websites and a print plant in Luton. The acquisition is consistent with the Group's fourth area of strategic focus: "Consolidate - seek out strategic opportunities that drive value". As well as driving value for shareholders the increased scale of the enlarged Group is anticipated to provide increased financial flexibility in the medium term for investment and meeting the enlarged Group's pension obligations.
The initial accounting for the acquisition which completed on 28 February 2018 is incomplete at the date of approval of the consolidated financial statements as the acquisition only completed on 28 February 2018 and the completion accounts as at the date of acquisition have yet to be prepared. The fair value of the consideration is estimated to be GBP121.7 million. Estimated transactions costs are GBP7 million of which GBP2.2 million has been recognised in the consolidated income statement at the reporting date. The acquired balance sheet will contain fixed assets, working capital and defined benefit pension scheme obligations and the acquisition is on a debt free and cash free basis. The fair value of assets acquired and liabilities assumed will be calculated at the same time as the preparation of the completion balance sheet. This exercise will also identify any goodwill or bargain purchase and any intangible assets that do not qualify for separate recognition. No contingent liabilities are expected to be identified.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UGUGWWUPRUQA
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