Consolidated balance sheet

at 27 December 2020 (at 29 December 2019)

	notes	2020 £m	Restated 2019 £m
Non-current assets
Goodwill	12	35.9	42.0
Other intangible assets	12	818.7	810.0
Property, plant and equipment		168.4	224.9
Right-of-use assets		25.3	-
Investment in associates		18.1	21.9
Retirement benefit assets	13	50.4	31.2
Deferred tax assets		60.5	55.9
		1,177.3	1,185.9
Current assets
Inventories		4.6	5.9
Trade and other receivables		110.5	116.4
Cash and cash equivalents	14	42.0	20.4
		157.1	142.7
Total assets		1,334.4	1,328.6
Non-current liabilities
Deferred consideration	14	(24.1)	(40.1)
Lease liabilities	14	(35.5)	-
Retirement benefit obligations	13	(364.8)	(327.1)
Deferred tax liabilities		(172.4)	(159.3)
Provisions	15	(25.2)	(20.5)
		(622.0)	(547.0)
Current liabilities
Trade and other payables		(92.1)	(103.3)
Deferred consideration	14	(16.0)	(18.9)
Lease liabilities	14	(6.1)	-
Current tax liabilities	8	-	(8.7)
Provisions	15	(31.5)	(15.5)
		(145.7)	(146.4)
Total liabilities		(767.7)	(693.4)
Net assets		566.7	635.2
Equity
Share capital	16	(32.2)	(30.9)
Share premium account	16	(605.4)	(606.7)
Merger reserve	16	(17.4)	(17.4)
Capital redemption reserve	16	(4.4)	(4.4)
Retained earnings and other reserves	16	92.7	24.2
Total equity attributable to equity holders of the parent		(566.7)	(635.2)

 

The 2019 consolidated balance sheet has been restated to show deferred consideration separately on the face of the consolidated balance sheet.

The Group has applied IFRS 16 'Leases' at 30 December 2019 using the modified retrospective approach. Under this approach comparative information is not restated (see note 2).

 

Notes to the consolidated financial statements

for the 52 weeks ended 27 December 2020 (52 weeks ended 29 December 2019)

1.            General information

The financial information, which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated cash flow statement, the Consolidated statement of changes in equity and the Consolidated balance sheet and related notes ('Consolidated Financial Information') in the Preliminary Audited Results announcement is derived from but does not represent the full statutory accounts of Reach plc. The statutory accounts for the 52 weeks ended 29 December 2019 have been filed with the Registrar of Companies and those for the 52 weeks ended 27 December 2020 will be filed following the Annual General Meeting on 6 May 2021. The auditors' reports on the statutory accounts for the 52 weeks ended 29 December 2019 and for the 52 weeks ended 27 December 2020 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 Consolidated Financial Information included in this Preliminary Audited 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 Preliminary Audited 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 27 December 2020 will be available on the Company's website at www.reachplc.com and at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP before the end of March 2021 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 6 May 2021.

 

The Consolidated Financial Information has been prepared for the 52 weeks ended 27 December 2020 and the comparative period has been prepared for the 52 weeks ended 29 December 2019. Throughout this report, the Consolidated Financial Information for the 52 weeks ended 27 December 2020 is referred to and headed 2020 and for the 52 weeks ended 29 December 2019 is referred to and headed 2019. The presentational and functional currency of the Group is Sterling. The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis as described in note 2.

 

2.            Accounting policies

Basis of preparation

The Consolidated Financial Information has been prepared in accordance with IFRS as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These standards are subject to ongoing amendment by the International Accounting Standards Board and are therefore subject to change. As a result, the Consolidated Financial Information contained herein will need to be updated for any subsequent amendment to IFRS or any new standards that are issued. The Consolidated Financial Information has been prepared under the historical cost convention.

 

The accounting policies used in the preparation of the Consolidated Financial Information for the 52 weeks ended 27 December 2020 and for the 52 weeks ended 29 December 2019 have been consistently applied to all the periods presented except for the changes in accounting policy noted below. These Consolidated Financial Statements have been prepared on a going concern basis.

 

Going concern basis

The directors have made appropriate enquires and consider that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, which comprises the period of at least 12 months from the date of approval of the 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.

 

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 Company and the Group will be able to operate within the terms and conditions of the Group's financing facilities for the foreseeable future.

 

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.

 

Changes in accounting policy

Other than the adoption of IFRS 16 'Leases' the same accounting policies, presentation and methods of computation are followed in the Consolidated Financial Information as applied in the Group's latest annual consolidated financial statements for the 52 weeks ended 29 December 2019.

 

IFRS 16 has been applied by the Group in the 52 weeks ending 27 December 2020 and supersedes the lease guidance including IAS 17 and the related interpretation.

 

Nature of change

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on balance sheet model as the distinction between operating and finance leases is removed. The only exceptions are short-term and low-value leases. At the commencement date of a lease, a lessee will recognise a lease liability for the future lease payments and an asset representing the right to use the underlying asset during the lease term (right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of use asset.

 

Impact on the Group

The standard has impacted the accounting for the Group's operating leases relating to leased properties and leased vehicles. The Group has applied the simplified transition approach (modified retrospective approach) and recognised the lease liability on transition at the present value of the remaining lease payments, discounted using its incremental borrowing rate of 3.3% at the date of transition. On initial adoption, right-of-use assets have been measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. Lease incentives (eg rent-free periods) are recognised as part of the measurement of the right-of-use assets and lease liabilities, whereas under IAS 17, a lease incentive liability was recognised and amortised as a rental expense on a straight-line basis. Short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense to the income statement.

 

Practical Expedients applied on adoption

In its initial application of IFRS 16, the Group has used the following practical expedients allowed by the standard:

·          Applied a single discount rate to a portfolio of leases with similar characteristics;

·          Relied on its assessment of whether a lease is onerous by applying IAS 37 immediately before the date of initial application;

·          Not recognised leases whose lease term ends within 12 months of the adoption date of 30 December 2019;

·          Excluded initial direct costs from the measurement of right-of-use assets at the date of initial application; and

·          Used hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

 

The following table reconciles the minimum lease commitments for the 52 weeks ended 29 December 2019 to the amount of lease liabilities recognised on initial adoption at 30 December 2019.

		£m
Operating lease commitment at 29 December 2019 as shown in the consolidated financial statements		52.2
Discount using the incremental borrowing rate		(7.1)
Discounted using the incremental borrowing rate		45.1
Less: short-term leases of one year or less from the date of application		(0.7)
Add: adjustments as a result of a different treatment of termination options		4.3
Lease liability recognised at 30 December 2019 (classified as current £6.4m and non-current £42.3m)		48.7

 

Impact on the primary statements

Impact on the consolidated income statement

As a result of applying IFRS 16, the Group has recognised depreciation and interest costs, rather than rental expenses for leases that are within the scope of IFRS 16 and which were classified previously as operating leases. In the 52 weeks ended 27 December 2020, the Group recognised £7.2m of additional depreciation charges and £1.5m of interest costs in respect of these leases instead of recognising the rental expense of £7.9m. This resulted in a £0.7m positive impact to adjusted and statutory operating profit and £0.8m negative impact on adjusted and statutory profit before tax.

 

Impact on consolidated cash flow statement

As a result of applying IFRS 16, in the 52 weeks ended 27 December 2020, the Group has increased net cash flow from operating activities by £9.2m and reduced its net cash from financing activities by £9.2m. There is no impact on the net cash flow.

 

Impact on consolidated balance sheet

		29 December 2019 (audited) £m	IFRS 16 adjustment 2019 £m	30 December 2019 (unaudited) £m
Non-current assets
Goodwill		42.0	-	42.0
Other intangible assets		810.0	-	810.0
Property, plant and equipment		224.9	-	224.9
Right-of-use assets		-	45.61	45.6
Investment in associates		21.9	-	21.9
Retirement benefit assets		31.2	-	31.2
Deferred tax assets		55.9	-	55.9
		1,185.9	45.6	1,231.5
Current assets
Inventories		5.9	-	5.9
Trade and other receivables		116.4	(0.6)2	115.8
Cash and cash equivalents		20.4	-	20.4
		142.7	(0.6)	142.1
Total assets		1,328.6	45.0	1,373.6
Non-current liabilities
Trade and other payables		(40.1)	-	(40.1)
Lease liabilities		-	(42.3)3	(42.3)
Retirement benefit obligations		(327.1)	-	(327.1)
Deferred tax liabilities		(159.3)	-	(159.3)
Provisions		(20.5)	-	(20.5)
		(547.0)	(42.3)	(589.3)
Current liabilities
Trade and other payables		(122.2)	3.34	(118.9)
Lease liabilities		-	(6.4)5	(6.4)
Current tax liabilities		(8.7)	-	(8.7)
Provisions		(15.5)	0.46	(15.1)
		(146.4)	(2.7)	(149.1)
Total liabilities		(693.4)	(45.0)	(738.4)
Net assets		635.2	-	635.2
Total equity attributable to equity holders of the parent		(635.2)	-	(635.2)

¹ Right-of-use assets recognised representing the right to use the assets over the lease term.

² Adjustment mainly in respect of prepaid rent.

³ Non-current element of the lease liability recognised.

⁴ Adjustment in respect of accruals related to leases.

⁵ Current element of the lease liability recognised.

⁶ Adjustment in respect of the onerous lease provision.

 

 

 

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 basis 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, it is not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. Revenue trends on an actual and like-for-like basis are the same for 2020. 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 18 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flow.

 

Adjusting items

Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. All operating adjusting items are recognised within administrative expenses. Details of adjusting items are set out in note 18 with additional information in notes 5, 8 and 13.

 

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 17)

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. In particular, we note that there is uncertainty in relation to the size and length of the property related restructuring provisions.

 

Retirement benefits (note 13)

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. These result in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.

 

Impairment review (note 12)

There is uncertainty in the value-in-use calculation. The most significant area of uncertainty relates to expected future cash flows for each cash-generating unit. Determining whether the carrying values of assets in a cash-generating unit are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Projections are based on both internal and external market information and reflect past experience. The discount rate reflects the weighted average cost of capital of the Group.

 

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:

 

Indefinite life assumption in respect of publishing rights and titles (note 12)

There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. At each reporting date management review the suitability of this assumption. 

 

Identification of cash-generating units (note 12)

There is judgement required in determining the cash-generating unit relating to our Publishing brands. At each reporting date management review the interdependency of revenues across our portfolio of Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.

 

3.            Segments

The performance of the Group is presented as a single reporting segment as this is the basis of internal reports regularly reviewed by the Board and chief operating decision maker (executive directors) to allocate resources and to assess performance. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.

 

 

4.            Revenue

	2020 £m	2019 £m
Print	479.3	591.3
Circulation	319.7	361.7
Advertising	108.4	152.5
Printing	25.2	38.5
Other	26.0	38.6
Digital	118.3	107.0
Other	2.6	4.2
Total revenue	600.2	702.5

 

The Group's operations are located primarily in the UK.

 

5.            Operating adjusted items

	2020 £m	2019 £m
Restructuring charges in respect of cost reduction measures (note 15)	(36.4)	(10.7)
Impairment of property, plant and equipment	(34.7)	(2.7)
Impairment of right-of-use assets	(13.7)	-
Impairment of goodwill (note 12)	(6.1)	-
Pension administrative expenses and past service costs for GMP equalisation (note 13)	(6.1)	(2.9)
Provision for historical legal issues (note 15)	(12.5)	(11.0)
Provision for historical property development (note 15)	(15.5)	-
Operating adjusted items included in administrative expenses	(125.0)	(27.3)
Operating adjusted items included in share of results of associates	(1.2)	5.6
Total operating adjusted items	(126.2)	(21.7)

 

Operating adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Set out in note 18 is the reconciliation between the statutory and adjusted results which includes descriptions of the items included in adjusted items.

 

The Group has recorded significant operating adjusted items relating to the transformation programmes undertaken during the year and from historical matters.

 

The Group announced in July 2020 a transformation programme to reshape the Group into a streamlined, more efficient organisation across editorial, advertising and central operations which was implemented in the year and in September 2020 a review of print capacity requirements which concluded with the closure of two print plants at the end of the year. Restructuring charges in respect of cost reduction measures of £36.4m comprises £16.5m for the transformation programme, £16.9m for the print plant closures and £3.0m relating to other cost saving initiatives. The closure of the two print plants resulted in an impairment to property, plant and equipment of £34.7m and right-of-use assets of £13.7m.

 

The Group has recorded a £12.5m increase in the provision for historical legal issues relating to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering (note 15) and a £15.5m charge reflecting a historic property development, which as a result of COVID-19 became onerous, resulting in the Group making a payment to the joint venture party to resolve the matter (note 15).

 

6.            Interest income

	2020 £m	2019 £m
Interest income on bank deposits	0.1	0.1

 

7.            Finance costs

	2020 £m	2019 £m
Interest on bank overdrafts and borrowings	(1.1)	(2.9)
Interest on lease liabilities	(1.5)	-
Finance costs	(2.6)	(2.9)

 

 

 

8.            Tax

	2020 £m	2019 £m
Corporation tax charge for the period	(2.7)	(15.9)
Current tax charge	(2.7)	(15.9)
Deferred tax charge for the period	(5.7)	(9.9)
Prior period adjustment	0.3	(0.8)
Deferred tax rate change	(19.0)	-
Deferred tax charge	(24.4)	(10.7)
Tax charge	(27.1)	(26.6)
Reconciliation of tax charge	£m	£m
Profit before tax	0.4	120.9
Standard rate of corporation tax	(0.1)	(23.0)
Tax effect of items that are not deductible in determining taxable profit	(6.1)	(4.2)
Change in rate of deferred tax	(19.0)	-
Release of deferred tax on losses no longer expected to be recoverable	(2.5)	-
Prior period adjustment	0.3	(0.8)
Tax effect of share of results of associates	0.3	1.4
Tax charge	(27.1)	(26.6)

 

 

The standard rate of corporation tax for the period is 19% (2019: 19%). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax recoverable amounted to £2.8m (2019: current tax liabilities £8.7m) at the reporting date. Tax overpayments are in excess of provisions relating to uncertain tax items (2019: net provisions of £2.7m). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £6m (2019: £5m).

 

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 reversal of the change in rate from 19% to 17% in 2020 has been accounted for in the current year resulting in a £19.0m debit in the consolidated income statement and a £5.9m credit in the consolidated statement of comprehensive income.

 

The tax on actuarial losses (2019: gains) on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a deferred tax credit of £11.7m (2019: charge of £2.8m).

 

The amount taken to the consolidated income statement as a result of pension contributions was £11.7m (2019: £8.7m).

 

9.            Dividends

	2020 Pence per share	2019 Pence per share
Dividends paid per share and recognised as distributions to equity holders in the period	-	6.27
Dividend proposed per share but not paid nor included in the accounting records	4.26	4.05

 

On 10 May 2019, the final dividend proposed for 2018 of 3.77 pence per share was approved by shareholders at the Annual General Meeting and was paid on 7 June 2019. An interim dividend for 2019 of 2.50 pence per share was paid on 27 September 2019. Total dividend payment in 2019 amounted to £18.6m (2018 final dividend payment of £11.2m and 2019 interim dividend payment of £7.4m).

 

On 6 April 2020, the final dividend proposed for 2019 of 4.05 pence per share was withdrawn by the directors as a result of the COVID-19 pandemic.

 

On 28 September 2020, the Board recommended a non-cash bonus issue of shares to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share, which was subsequently approved by shareholders.

 

The Board has proposed a final dividend for 2020 of 4.26 pence per share. The 2020 final dividend payment is expected to amount to £13.3m.

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.

 

	2020 Thousand	Restated     2019 Thousand
Weighted average number of ordinary shares for basic earnings per share	309,430	308,839
Effect of potential dilutive ordinary shares in respect of share awards	6,818	3,457
Weighted average number of ordinary shares for diluted earnings per share	316,248	312,296

 

The weighted average number of potentially dilutive ordinary shares not currently dilutive was 2,542,234 (2019: 3,526,324).

 

 

Statutory (loss)/earnings per share	2020 Pence	Restated     2019 Pence
(Loss)/earnings per share - basic	(8.6)	30.5
(Loss)/earnings per share - diluted	(8.6)	30.2

 

Adjusted earnings per share	2020 Pence	Restated     2019 Pence
Earnings per share - basic	34.4	39.4
Earnings per share - diluted	33.6	39.0

 

Earnings per share for 2019 has been restated following the bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share.

 

Set out in note 18 is the reconciliation between the statutory and adjusted results.

 

11.          Cash flows from operating activities

	2020 £m	2019 £m
Operating profit	7.6	131.7
Depreciation of property, plant and equipment	20.2	21.5
Depreciation of right-of-use assets	7.2	-
Impairment of goodwill	6.1	-
Share of results of associates	(1.4)	(7.4)
Charge for share-based payments	3.6	1.1
Loss on disposal of land and buildings	-	0.3
Impairment of right-of-use assets	13.7	-
Impairment of property, plant and equipment	36.5	2.7
Write-off of property, plant and equipment	1.4	0.2
Pension administrative expenses	4.6	2.9
Pension past service costs	1.5	-
Operating cash flows before movements in working capital	101.0	153.0
Decrease in inventories	1.3	0.4
Decrease/(increase) in receivables	8.9	(7.8)
Increase in payables	10.1	1.8
Cash flows from operating activities	121.3	147.4

 

12.          Goodwill and other intangible assets

The carrying value of goodwill and other intangible assets is:

 

	Goodwill £m	Publishing rights and titles £m	Intangible assets £m
Opening carrying value	42.0	810.0	852.0
Acquisition of subsidiary undertaking	-	8.7	8.7
Impairment	(6.1)	-	(6.1)
Opening and closing carrying value	35.9	818.7	854.6

 

The Group has two cash-generating units (Publishing and Digital Classified Recruitment). All intangible assets at the reporting date relate to Publishing. The addition in the year relates to the acquisition of Independent Star Ireland which is included in Publishing. The Goodwill relating to Digital Classified Recruitment was impaired reflecting the adverse trading environment in recruitment advertising in the year.

 

There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. The Group has grown digital revenue in recent years and is focused on investing to continue the growth for the coming years. The directors believe growth from digital and new revenue streams will offset print declines on an aggregate basis, leading to a future stabilisation of revenue. This, combined with our inbuilt and relentless focus on maximising efficiency, gives the Board confidence that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future.

 

There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.

 

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

 

The impairment review in respect of the Publishing cash-generating unit concluded that no impairment charge was required.

 

For the impairment review of the Publishing cash-generating unit, cash flows have been prepared using the approved Budget for 2021 and projections for a further nine years as this is the period over which the transformation to digital can be assessed. The projections for 2022 to 2030 are internal projections based on continued decline in print revenues and growth in digital revenues and the associated change in the cost base as a result of the changing revenue mix. The Group's medium term internal projections are that growth in digital revenue will be sufficient to offset the decline in print revenue and that overall revenue will stabilise. The long-term growth rates beyond the 10-year period have been assessed at 0% based on the Board's view of the market position and maturity of the relevant market. We continue to believe that there are significant longer term benefits of our scale national and local digital audiences and there are opportunities to grow revenue and profit in the longer term.

 

The discount rate reflects the weighted average cost of capital of the Group. The current post-tax and equivalent pre-tax discount rate used is 10.9% and 13.4% respectively.

 

The impairment review in respect of the Publishing cash-generating unit is highly sensitive to reasonably possible changes in key assumptions used in the value-in-use calculations. There is increased uncertainty due to COVID-19. A combination of reasonably possible changes in key assumptions such as print revenue declining at a faster rate than projected, digital revenue growth being significantly lower than projected or the associated change in the cost base being different than projected, could lead to an impairment in the Publishing cash-generating unit. If these sensitivities led to a 28% reduction in cash flows in each of the years in the 10 year period this would lead to the removal of the headroom. Alternatively an increase in the discount rate by 4.5 percentage points would lead to the removal of the headroom.

 

13.          Retirement benefit schemes

Defined contribution pension schemes

The Group operates a defined contribution pension scheme for qualifying employees: The Reach Pension Plan (the 'RPP'). The assets of the RPP scheme where employees have an individual account at Fidelity are held separately from those of the Group in funds under the control of Trustees.

 

The current service cost charged to the consolidated income statement for the year of £17.4m (2019: £17.7m) represents contributions paid by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.

 

Defined benefit pension schemes

Background

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

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

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

 

Characteristics

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

 

Maturity profile and cash flow

Across all of the schemes, the uninsured liabilities related 60% to current pensioners and their spouses or dependants and 40% related to deferred pensioners. The average term from the period end to payment of the remaining uninsured benefits is expected to be around 16 years. Uninsured pension payments in 2020, excluding lump sums and transfer value payments, were £71m and these are projected to rise to an annual peak in 2033 of £103m and reducing thereafter.

 

Funding arrangements

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

 

The funding valuations of the schemes: at 31 December 2016 for the MGN Scheme showed a deficit of £476.0m, for the Trinity Scheme showed a deficit of £78.0m and for the MIN Scheme showed a deficit of £68.2m; at 5 April 2017 for the EN88 Scheme showed a deficit of £69.8m and for the ENSM Scheme showed a deficit of £3.2m; and at 31 December 2017 for the WF Scheme showed a deficit of £6.5m. The triennial valuation for funding of the defined benefit pension schemes as at 31 December 2019 would usually be completed by 31 March 2021. We have agreed the funding of the WF Scheme (see below) and the discussions with the remaining five schemes are ongoing. There is no direct link to the IAS 19 valuations which use different actuarial assumption derivation methodologies (although a number of assumptions are consistent) and are updated at each reporting date.

 

Group contributions in respect of the defined benefit pension schemes in the year were £53.9m (2019: £48.9m). As part of the key mitigation actions resulting from COVID-19 pandemic, the Group agreed with the Trustees a deferment of its pension contributions for April, May and June amounting to £12.2m. Of this amount 80% (£9.8m) was paid over to an escrow account and 20% (£2.4m) was retained in the business. The Group could have drawn on the amounts in escrow if certain conditions were met up to 28 June 2020. None of the conditions were met and the 80% was released to the pension schemes in July 2020. The 20% of the deferment (£2.4m) was paid over to the schemes in September 2020.

 

As part of the decision to close the Luton print plant the Group reached agreement with the Trustees of the WF Scheme to make additional contributions of £5.0m in 2020 (included in the £53.9m of Group contributions) and a further payment of up to £15.0m by the end of June 2021 to enable the Trustees to purchase a bulk annuity policy which would match the remaining liabilities in the scheme in full. In February 2021 a payment of £9.6m was made and the Trustees purchased the bulk annuity policy. No further contributions are expected to the WF Scheme.

 

At the reporting date, the funding deficits in all schemes are expected to be removed before or in 2027 by a combination of the contributions and asset returns. Contributions (which include funding for pension administrative expenses) are payable monthly. Contributions per the current schedule of contributions (excluding the WF Scheme) are for £55.1m pa in 2021 to 2023, £54.9m pa in 2024 to 2026 and £52.9m in 2027.

 

The Group agreed that in respect of dividend payments in 2018, 2019 and 2020 that additional contributions would be paid at 75% of the excess if dividends paid in 2018 were above 6.16 pence per share. For 2019 and 2020 the threshold increased in line with the increase in dividends capped at 10% pa. No payments were made in respect of this agreement.

 

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

 

The calculation of Guaranteed Minimum Pension ('GMP') is set out in legislation and members of pension schemes that were contracted out of the State Earnings-Related Pension Scheme ('SERPS') between 6 April 1978 and 5 April 1997 will have built up an entitlement to a GMP. GMPs were intended to broadly replicate the SERPS pension benefits but due to their design they give rise to inequalities between men and women, in particular, the GMP for a male comes into payment at age 65 whereas for a female it comes into payment at the age of 60 and GMPs typically receive different levels of increase to non GMP benefits. On 26 October 2018, the High Court handed down its judgement in the Lloyds Trustees vs Lloyds Bank plc and Others case relating to the equalisation of member benefits for the gender effects of GMP equalisation. This judgement creates a precedent for other UK defined benefit schemes with GMPs. The judgement confirmed that GMP equalisation was required for the period 17 May 1990 to 5 April 1997 and provided some clarification on legally acceptable methods for achieving equalisation. An allowance for GMP equalisation was first included within liabilities at 30 December 2018 and was recognised as a charge for past service costs in the income statement. In 2020 further clarification was issued relating to GMP equalisation in respect of transfers out of schemes. A further allowance for GMP equalisation has been included within liabilities at 27 December 2020 and has been recognised as a charge for past service costs in the income statement. The estimate is subject to change as we undertake more detailed member calculations, as guidance is issued and/or as a result of future legal judgements.

 

Risks

Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in the 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 11% of total liabilities;

·         Investing a proportion of assets in other classes such as government and corporate bonds and in liability driven investments: changes in the values of the assets aim to broadly match changes in the values of the uninsured liabilities, reducing the investment risk, however some risk remains as the durations of the bonds are typically shorter than that of the liabilities and so the values may still move differently. At the reporting date non-equity assets amounted to 81% of assets excluding the insured annuity policies;

·         Investing a proportion of assets in equities: with the aim of achieving outperformance and so reducing the deficits over the long term. At the reporting date this amounted to 19% 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 E&S Schemes and the Trinity Scheme have an accounting surplus at the reporting date, before allowing for the IFRIC 14 asset ceiling. Across the MGN Scheme and the MIN Scheme, the invested assets are expected to be sufficient to pay the uninsured benefits due up to 2044, based on the reporting date assumptions. The remaining uninsured benefit payments, payable from 2045, are due to be funded by a combination of asset outperformance and the deficit contributions currently scheduled to be paid up to 2027. Actuarial projections at the year-end reporting date show removal of the combined accounting deficit by the end of 2027 due to scheduled contributions and asset returns at the current target rate. From this point, the assets are projected to be sufficient to fully fund the liabilities on the accounting basis. The Group is not exposed to any unusual, entity specific or scheme specific risks. Other than the impact of GMP equalisation, there were no plan amendments, settlements or curtailments in 2020 or 2019 which resulted in a pension cost.

 

Results

For the purposes of the Group's consolidated financial statements, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at 27 December 2020.

 

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

 

	2020	2019
Financial assumptions (nominal % pa)
Discount rate	1.49	1.94
Retail price inflation rate	2.86	2.96
Consumer price inflation rate	2.26	2.01
Rate of pension increase in deferment	2.36	2.17
Rate of pension increases in payment (weighted average across the schemes)	3.25	3.31
Mortality assumptions - future life expectancies from age 65 (years)
Male currently aged 65	21.9	21.7
Female currently aged 65	24.2	24.0
Male currently aged 55	21.6	21.5
Female currently aged 55	24.2	24.0

 

The discount rate should be chosen to be equal to the yield available on 'high quality' corporate bonds of appropriate term and currency. The yields available on corporate bonds fell by around 0.6% pa over the year. The Group has taken actuarial advice and has updated the approach to determining the bond constituents for the calculation of the discount rate. The bond constituents used for the 2020 disclosures have been taken from a new Bloomberg classification system which counteracted the fall in the discount rate by around 0.1% pa. The discount rate for 2019 was derived from a classification system called BICS, provided by Bloomberg. Over 2020, Bloomberg made changes to BICS so that it provides a single classification to each bond issuer rather than each bond, and is therefore no longer appropriate. Bloomberg have recently offered an alternative classification system called BCLASS, which provides classification information on each individual security and which Bloomberg describes as the "fixed income standard". BCLASS also enables the inclusion of bonds issued by corporate special purpose vehicles, thereby increasing the size of the universe used to determine the discount rate. Our actuaries have determined an appropriate market bond yield based on a BCLASS extract from Bloomberg which excludes bonds which have a 'corporate' BCLASS assignment but which have actual or implied government backing, such as bonds issued by universities or public transportations systems.

 

The inflation assumptions are based on market expectations over the period of the liabilities. The RPI assumption is set based on a margin deducted from a single equivalent of the break-even RPI inflation curve. This margin, called an inflation risk premium reflects the fact that the RPI market implied inflation curve can be affected by market distortions and as a result it is thought to overstate the underlying market expectations for future RPI inflation. On 25 November 2020, the Government and UK Statistics Authority responded to their consultation on RPI reform and confirmed their intent to align RPI with CPIH (CPI allowing for housing costs) from February 2030. Our actuaries have advised that broadly this is expected to result in RPI inflation being 1.0% pa lower in the longer term than under the existing methodology but that RPI swaps data shows a fall in forward rates from 2030 of only 0.6%. A reasonable explanation for this disparity is that the market is reflecting a higher premium being placed on inflation projection after 2030 suggesting an increase of 0.2% in the assumed inflation risk premium applying from 2030. Allowing for the extent of RPI linkage on the schemes benefits pre and post 2030, the average inflation risk premium has been increased from 0.2% to 0.3% (to broadly reflect 0.2% to 2030 and 0.4% thereafter). This change decreased RPI and CPI by 0.1% and decreased the deficit by £16m. The CPI assumption is set based on a margin deducted from the RPI assumption, due to lack of market data on CPI expectations. Our actuaries have advised that considering the features and liabilities of the schemes that the expected future differential has reduced following the consultation on amending RPI in the long term. Historic inflation data indicates that CPI moves broadly in line with CPIH, which supports an assumed RPI/CPI margin of 1.0% up to 2030 and 0.00% beyond 2030. Based on an analysis of the CPI-linkage of the cashflow profile of the schemes this is estimated to be equivalent to a single margin of 0.6% resulting in the RPI/CPI margin being reduced from 0.95% pa to 0.60% pa. This change increased CPI by 0.35% and increased the deficit by £32m.

 

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

	Effect on liabilities £m	Effect on deficit £m
Discount rate +/- 0.5% pa	-215/+235	-200/+215
Retail price inflation rate +/- 0.5% pa	+41/-40	+32/-31
Consumer price inflation rate +/- 0.5% pa	+50/-48	+50/-48
Life expectancy at age 65 +/- 1 year	+175/-170	+150/-150

 

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

 

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

 

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

 

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

 

Consolidated income statement	2020 £m	2019 £m
Pension administrative expenses	(4.6)	(2.9)
Past service costs	(1.5)	-
Pension finance charge	(4.7)	(8.0)
Defined benefit cost recognised in income statement	(10.8)	(10.9)

 

Consolidated statement of comprehensive income	2020 £m	2019 £m
Actuarial gain due to liability experience	48.2	24.9
Actuarial loss due to liability assumption changes	(304.6)	(271.8)
Total liability actuarial loss	(256.4)	(246.9)
Returns on scheme assets greater than discount rate	209.6	261.9
Impact of IFRIC 14	(14.8)	(0.3)
Total (loss)/gain recognised in statement of comprehensive income	(61.6)	14.7

 

Consolidated balance sheet	2020 £m	2019 £m
Present value of uninsured scheme liabilities	(2,545.5)	(2,337.9)
Present value of insured scheme liabilities	(318.6)	(326.0)
Total present value of scheme liabilities	(2,864.1)	(2,663.9)
Invested and cash assets at fair value	2,278.7	2,074.8
Value of liability matching insurance contracts	318.6	326.0
Total fair value of scheme assets	2,597.3	2,400.8
Funded deficit	(266.8)	(263.1)
Impact of IFRIC 14	(47.6)	(32.8)
Net scheme deficit	(314.4)	(295.9)
Non-current assets - retirement benefit assets	50.4	31.2
Non-current liabilities - retirement benefit obligations	(364.8)	(327.1)
Net scheme deficit	(314.4)	(295.9)
Net scheme deficit included in consolidated balance sheet	(314.4)	(295.9)
Deferred tax included in consolidated balance sheet	58.9	53.0
Net scheme deficit after deferred tax	(255.5)	(242.9)

 

 

Movement in net scheme deficit	2020 £m	2019 £m
Opening net scheme deficit	(295.9)	(348.6)
Contributions	53.9	48.9
Consolidated income statement	(10.8)	(10.9)
Consolidated statement of comprehensive income	(61.6)	14.7
Closing net scheme deficit	(314.4)	(295.9)

 

Changes in the present value of scheme liabilities	2020 £m	2019 £m
Opening present value of scheme liabilities	(2,663.9)	(2,462.8)
Past service costs	(1.5)	-
Interest cost	(50.5)	(66.3)
Actuarial gain - experience	48.2	24.9
Actuarial gain - change to demographic assumptions	(93.5)	42.7
Actuarial loss - change to financial assumptions	(211.1)	(314.5)
Benefits paid	108.2	112.1
Closing present value of scheme liabilities	(2,864.1)	(2,663.9)

 

Impact of IFRIC 14	2020 £m	2019 £m
Opening impact of IFRIC 14	(32.8)	(32.5)
Increase in impact of IFRIC 14	(14.8)	(0.3)
Closing impact of IFRIC 14	(47.6)	(32.8)

 

Changes in the fair value of scheme assets	2020 £m	2019 £m
Opening fair value of scheme assets	2,400.8	2,146.7
Interest income	45.8	58.3
Actual return on assets greater than discount rate	209.6	261.9
Contributions by employer	53.9	48.9
Benefits paid	(108.2)	(112.1)
Administrative expenses	(4.6)	(2.9)
Closing fair value of scheme assets	2,597.3	2,400.8

 

Fair value of scheme assets	2020 £m	2019 £m
UK equities	70.6	49.2
US equities	180.4	128.6
Other overseas equities	182.6	191.1
Property	40.2	24.4
Corporate bonds	320.6	242.1
Fixed interest gilts	99.0	184.2
Index linked gilts	72.7	71.9
Liability driven investment	819.8	773.9
Cash and other	492.8	409.4
Invested and cash assets at fair value	2,278.7	2,074.8
Value of insurance contracts	318.6	326.0
Fair value of scheme assets	2,597.3	2,400.8

 

The assets of the schemes are primarily held in pooled investment vehicles which are unquoted. The pooled investment vehicles hold both quoted and unquoted investments. Scheme assets include neither direct investments in the Company's ordinary shares nor any property assets occupied nor other assets used by the Group.

 

14.          Net cash

The net cash for the Group is as follows:

	29 December 2019   £m	Cash flow   £m	IFRS 16 opening adjustment   £m	IRFS 16 movement   £m	27 December  2020     £m
Current assets
Cash and cash equivalents	20.4	21.6	-	-	42.0
Net cash	20.4	21.6	-	-	42.0
Non-current liabilities
Lease liabilities	-	-	(42.3)	6.8	(35.5)
Current liabilities
Lease liabilities	-	-	(6.4)	0.3	(6.1)
Net cash less lease liabilities	20.4	21.6	(48.7)	7.1	0.4

 

The Group has a revolving credit facility of £65m until December 2023 reducing to £55m until December 2024. The Group had no drawings at the reporting date and the facility is subject to four covenants: Net Worth, Interest Cover, Net Debt to EBITDA and Cash Flow all of which were met at the reporting date.

 

The Group has implemented IFRS 16 'Leases' with effect from 30 December 2019 using the modified retrospective approach to transition and has accordingly not restated prior periods. The impact of the implementation has been to recognise the Group's previous operating lease commitments in relation to properties and vehicles as lease liabilities on the balance sheet at the initial date of application at 30 December 2019 (see note 2). Total lease liabilities at 27 December 2020 are £41.6m.

 

Acquisition deferred consideration

Deferred consideration (which is shown separately on the face of the consolidated balance sheet in 2020) is in respect of the acquisition of Express & Star. Payment of the first instalment of £18.9m was made on 28 February 2020. Of the remaining amount of £40.1m, £16.0m is classified as current liabilities (payable on 28 February 2021) and £24.1m is classified as non-current liabilities (£17.1m on 28 February 2022 and £7.0m on 28 February 2023). There are no conditions attached to the payment of the deferred consideration and the transaction was structured such that no interest accrues on these payments. However, under the sale and purchase agreement the Group has the right to offset agreed claims arising from a breach of warranties and indemnities and can also offset any shortfalls on the contracted advertising from the Health Lottery. The deferred consideration has not been discounted as we do not believe that the impact of such discounting is material.

 

15.          Provisions

	Share-based payments £m	Property £m	Restructuring £m	Historical legal issues £m	Other £m	Total £m
At 29 December 2019	(0.7)	(5.7)	(1.4)	(21.1)	(7.1)	(36.0)
IFRS 16 adjustment	-	0.4	-	-	-	0.4
Restated at 30 December 2019	(0.7)	(5.3)	(1.4)	(21.1)	(7.1)	(35.6)
Acquisition of subsidiary undertaking	-	-	-	-	(0.7)	(0.7)
Charged to income statement	(0.9)	(0.9)	(36.4)	(12.5)	(17.6)	(68.3)
Utilisation of provision	-	1.1	18.0	10.6	18.2	47.9
At 27 December 2020	(1.6)	(5.1)	(19.8)	(23.0)	(7.2)	(56.7)

 

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

	2020 £m	2019 £m
Current	(31.5)	(15.5)
Non-current	(25.2)	(20.5)
	(56.7)	(36.0)

 

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 property related onerous contracts and future committed costs related to occupied, let and vacant properties. The 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. The balance at the period end comprises severance costs of £9.3m and closure costs relating to the closure of two print plants of £10.5m. The severance costs provision is expected to be utilised within the next year. The closure costs provision includes £3.7m expected to be utilised within the next year and £6.8m expected to be utilised over the remaining term of the long term lease relating to one of the print plants that were closed.

 

The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. There are three parts to the provision: known claims, potential future claims and common court costs with estimates based on historical trends and experience of claims and costs. Certain cases and other matters relating to the issue can be subject to court proceedings, the outcome of which can impact on how much is required to settle the remaining claims and on the number of claims. The Group has recorded an increase in the provision every year since 2014 which highlights the challenges in making a best estimate and the time taken to resolve this historical matter. It is not possible to provide a range of potential outcomes in respect of this provision and due to this uncertainty, a contingent liability has been highlighted in note 17. The Group accelerated the settlement of claims in the second half of the year resulting in payments of £9.7m in this period compared to £0.9m in the first half. In light of the payments made and based on additional claims received the provision has been increased by £12.5m in the year. At the period end, a provision of £23.0m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The provision is expected to be utilised over the next few years.

 

Other provisions include a charge and utilisation of £15.5m reflecting a historic property development, which as a result of COVID-19 became onerous. In 2018 the Group sold part of its freehold property in Liverpool and also entered into an agreement to develop the property into a hotel and retail/office space. As a result of COVID-19 the development incurred significant time delays and cost overruns, with no certainty as to the amount that could be incurred on completion of the development and insufficient contractual protections based on the historical agreement. A new agreement was reached to limit the exposure to the Group to £15.5m. A one-off provision of £15.5m has been charged and this amount was paid in September 2020. The Group has no further exposure in respect of this development. The other provision balance of £7.2m at the period end relates to libel and other matters and is expected to be utilised over the next two years.

 

16.          Share capital and reserves

The share capital comprises 322,085,269 allotted, called-up and fully paid ordinary shares of 10p each. On 28 September 2020, the Board recommended a bonus issue to shareholders, in lieu of and with a value equivalent to an interim dividend of 2.63 pence per share, which was subsequently approved by shareholders. On 23 October 2020, 12,798,952 ordinary shares were issued in respect of the bonus issue of shares with the issue being made out of the share premium account in accordance with the Companies Act 2006.

 

The share premium reflects the premium on issued ordinary shares. The merger reserve comprises the premium on the shares allotted in relation to the acquisition of Express & Star. The capital redemption reserve represents the nominal value of the shares purchased and subsequently cancelled under share buy-back programmes.

 

The Company holds 10,017,620 shares as Treasury shares. Cumulative goodwill written off to retained earnings and other reserves in respect of continuing businesses acquired prior to 1998 is £25.9m (2019: £25.9m). 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 Reach Employee Benefit Trust are included in retained earnings and other reserves at £2.7m (2019: £3.7m). During the year, 778,658 were released relating to grants made in prior years (2019: 522,572).

 

During the year, awards relating to 1,218,530 shares were granted to executive directors on a discretionary basis under the Long Term Incentive Plan (2019: 2,970,531). The exercise price of each award is £1. 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 year, awards relating to 2,358,715 shares were granted to senior managers on a discretionary basis under the Senior Management Incentive Plan (2019: 2,593,910). The exercise price of each award is £1. The awards vest after three years, subject to the continued employment of the participant and satisfaction of certain performance conditions.

 

During the year, awards relating to 50,618 shares were granted to executive directors under the Restricted Share Plan (2019: 77,399). The awards vest after three years.

 

17.          Contingent liabilities

There is the potential for further liabilities to arise from the outcome or resolution of the ongoing historical legal issues (note 15).

 

18.          Reconciliation of statutory to adjusted results

   52 weeks ended 27 December 2020

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Tax (c) £m	Adjusted results £m
Revenue	600.2	-	-	-	600.2
Operating profit	7.6	126.2	-	-	133.8
Profit before tax	0.4	126.2	4.7	-	131.3
(Loss)/profit after tax	(26.7)	110.3	3.8	19.0	106.4
Basic (loss)/earnings per share (p)	(8.6)	35.7	1.2	6.1	34.4

   52 weeks ended 29 December 2019

	Statutory results £m	Operating adjusted items (a) £m	Pension finance charge (b) £m	Tax (c) £m	Adjusted results £m
Revenue	702.5	-	-	-	702.5
Operating profit	131.7	21.7	-	-	153.4
Profit before tax	120.9	21.7	8.0	-	150.6
Profit after tax	94.3	20.9	6.5	-	121.7
Basic earnings per share (p) restated (d)	30.5	6.8	2.1	-	39.4

    

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

(b)       Pension finance charge relating to the defined benefit pension schemes as set out in note 13.

(c)        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 as set out in note 8.

(d)       Basic earnings per share for 2019 has been restated as set out in note 10.

 

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

 

Restructuring charges and closure costs incurred to deliver cost reduction measures relate to the transformation of the business from print to digital, together with costs to deliver synergies. These costs are principally severance related, but may also include system integration costs and print plant closure costs. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.

 

Provision for historical legal issues relates to the cost associated with dealing with and resolving civil claims for historical phone hacking and unlawful information gathering. This is included in adjusted items as the amounts are material, it relates to historical matters and movements in the provision can vary year to year.

 

Impairments to non-current assets arise following impairment reviews or where a decision is made to close or retire printing assets. These non-cash items are included in adjusted items on the basis that they are material and vary considerably each year, distorting the underlying performance of the business.

 

The Group's defined benefit pension schemes are all closed to new members and to future accrual and are therefore not related to the current business. The pension administration expenses, the past service costs for GMP equalisation and the pension finance charge are included in adjusted items as the amounts are significant and they relate to the historical pension commitment.

 

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 or when a decision is reversed. The impact of the change in rates are included in adjusted items, on the basis that when they occur they are material, distorting the underlying performance of the business.

 

Other items may be included in adjusted items if they are material, such as transaction costs incurred on significant acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings or liabilities arising from historical contractual issues. They are included in adjusted items on the basis that they are material and can vary considerably each year, distorting the underlying performance of the business.

 

19.          Adjusted cash flow

	2020	2019
	£m	£m
Adjusted operating profit	133.8	153.4
Depreciation	27.4	21.5
Adjusted EBITDA	161.2	174.9
Net interest paid on bank borrowings	(1.1)	(3.2)
Income tax paid	(14.2)	(11.7)
Restructuring payments	(18.0)	(13.6)
Net capital expenditure	(1.6)	(3.4)
Interest paid on leases	(1.5)	-
Repayment of obligation under leases	(7.7)	-
Working capital and other	4.7	(9.9)
Adjusted operating cash flow	121.8	133.1
Historical legal issues payments	(10.6)	(3.5)
Historical contract issues payments	(15.5)	-
Dividends paid	-	(18.6)
Pension funding payments	(53.9)	(48.9)
Adjusted net cash flow	41.8	62.1
Bank facility drawdown	25.0	-
Bank facility repayment	(25.0)	(60.0)
Acquisition related cash flow	(20.2)	(0.9)
Net increase in cash and cash equivalents	21.6	1.2

 

20.          Reconciliation of statutory to adjusted cash flow

52 weeks ended 27 December 2020	2020			2020
	Statutory	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	121.3	(25.6)	26.1	121.8	Adjusted operating cash flow
Pension deficit funding payments	(53.9)	-	-	(53.9)	Pension funding payments
	-	-	(15.5)	(15.5)	Historical contract issues payments
	-	-	(10.6)	(10.6)	Historical legal issues payments
Income tax paid	(14.2)	14.2	-	-
Net cash inflow from operating activities	53.2
Investing activities
Interest received	0.1	(0.1)	-	-
Dividends received from associated undertakings	0.5	(0.5)	-	-
Proceeds on disposal of property, plant and equipment	0.3	(0.3)	-	-
Purchases of property, plant and equipment	(1.9)	1.9	-	-
Deferred consideration payment	(18.9)	-	-	(18.9)	Acquisition related cash flow
Acquisition of associate undertaking	(0.2)	-	-	(0.2)	Acquisition related cash flow
Acquisition of subsidiary undertaking	(3.4)	-	-	(3.4)	Acquisition related cash flow
Cash acquired on acquisition of subsidiary undertaking	2.3	-	-	2.3	Acquisition related cash flow
Net cash used in investing activities	(21.2)
Financing activities
Interest paid on bank borrowings	(1.2)	1.2	-	-
Drawdown of borrowings	25.0	-	-	25.0	Bank facility drawdown
Repayment of borrowings	(25.0)	-	-	(25.0)	Bank facility repayment
Interest paid on leases	(1.5)	1.5	-	-
Repayment of obligations under leases	(7.7)	7.7	-	-
Net cash used in financing activities	(10.4)
Net increase in cash and cash equivalents	21.6	-	-	21.6

 

52 weeks ended 29 December 2019	2019			2019
	Statutory	(a)	(b)	Adjusted
	£m	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	147.4	(17.8)	3.5	133.1	Adjusted operating cash flow
Pension deficit funding payments	(48.9)	-	-	(48.9)	Pension funding payments
	-	-	(3.5)	(3.5)	Historical legal issues payments
Income tax paid	(11.7)	11.7	-	-
Net cash inflow from operating activities	86.8
Investing activities				-
Interest received	0.1	(0.1)	-	-
Dividends received from associated undertakings	0.5	(0.5)	-	-
Proceeds on disposal of property, plant and equipment	0.5	(0.5)	-	-
Purchases of property, plant and equipment	(3.9)	3.9	-	-
Acquisition of associate undertaking	(0.9)	-	-	(0.9)	Acquisition related cash flow
Net cash used in investing activities	(3.7)
Financing activities
Dividends paid	(18.6)	-	-	(18.6)	Dividends paid
Interest paid on bank borrowings	(3.3)	3.3	-	-
Repayment of bank borrowings	(60.0)	-	-	(60.0)	Bank facility repayment
Net cash received from financing activities	(81.9)
Net increase in cash and cash equivalents	1.2	-	-	1.2

(a)         Items included in the statutory cash flow on separate lines which for the adjusted cash flow are included in adjusted operating cash flow.

(b)        Payments in respect of historical legal issues and historical contract issues are shown separately in the adjusted cash flow.

 

 

Principal Risks and Uncertainties

 

The Group recognises the importance of the effective understanding and management of risk in enabling us to identify factors, both externally and internally that may materially affect our ability to achieve our goals. There is an ongoing process for the identification, evaluation and management of the principal risks faced by the Group, including emerging risks. Appropriate mitigating actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process. All risks are considered in the context of our strategic objectives, the changing regulatory and compliance landscape and enabling the continuity of our operations. 2020 has been a very challenging year for the Group against the backdrop of the economic  uncertainty caused by the ongoing COVID-19 pandemic and, for much of the year, the possibility of the UK leaving the European Union without a deal. Specific pandemic impacts, such as those related to new working practices, has compounded levels of risk across all areas and we acknowledge that we are not yet able to fully evaluate the impact in all areas. However, the Board have undertaken a robust risk assessment and the principal risks felt facing the Group at this time are shown below, including a description of each risk, the current positioning and key mitigating actions.

 

Principal risks and uncertainties

Risk	Description	Mitigation	Update
Macro-economic deterioration   (encompasses the impact of the COVID-19 pandemic and the UK's departure from the EU)	Macro-economic factors may have a negative impact on several areas of our business which may restrict our ability to protect profit levels.   This risk encompasses the economic impact of the COVID-19 pandemic.	We are in the midst of the global COVID-19 pandemic which has had a significant impact on our business and operations. This has resulted in the need for major mitigating action to be taken by the Executive Committee due to larger than expected revenue declines caused by the sharp decline of advertising and circulation (print advertising generally falls in line with circulation declines).   We previously undertook a detailed 'Brexit' risk assessment and continue to review these risks and keep a watching brief on wider developments to ensure the business continues to operate effectively.   We do have a strong record of delivering additional cost savings when faced with unexpected revenue declines, as demonstrated by our response as a business to the COVID-19 pandemic.	Increase.   We remain in the storm of the COVID-19 pandemic crisis and will continue to take necessary actions as required.   There remains the monitoring and assessment of other macro-economic factors which may affect the risk exposure of our business.   There has been little impact arising to date from the UK's exit from the EU. This will continue to be kept under review.
Print revenue decline  acceleration	Structural changes in the traditional publishing industry have led to ongoing decline in print advertising and circulation revenues.   Macro-economic factors may contribute to a larger than expected decline. A lack of appropriate strategic focus results in accelerated revenue loss for existing products.	Strategic development led by an experienced Board and Executive Committee.   Investment Committee established to approve business plans when reviewed against strategic KPIs.   Re-energised strategic focus to develop digital revenue streams through taking a more customer centric focus (the Customer Value Strategy).   Continued tactical measures to minimise print revenue declines, such as promotional circulation activity, and to maintain profits by taking appropriate cash mitigation or pricing measures.   Governance structures enable ongoing review of performance against targets and strategic KPIs including a weekly structured trading meeting.   Acquisition, joint venture and other corporate development opportunities, which are aligned to our Customer Value Strategy, continue to be considered (including industry consolidation and non-organic digital opportunities) such as the Irish Daily Star	Increase.   Renewed strategic focus offset by continued revenue challenges. This risk has been amplified by COVID-19 pandemic resulting in the acceleration of plans and the Group-wide transformation project.   The key strategic focus for the Executive Management team remains unlocking customer value which is seen as integral to the future success of the company and moving to overall revenue stability and then growth.   The impact of COVID-19 enforced lockdowns continues to be closely monitored.
Insufficient digital revenue growth	A failure to grow digital revenues quickly enough to offset print declines.
Cyber security breach	A cyber security incident which leads to a serious data breach or the loss of systems/data and reputational damage.	All business-critical systems are well established and are supported by appropriate disaster recovery plans.   Regular reviews assess our vulnerability and our ability to re-establish operations in the event of a failure.   The technical infrastructure supporting the websites is within the cloud and the sites have been designed effectively providing adequate resilience and continued performance in the event of a significant failure.   Further investment to be made to enhance cyber security infrastructure and training.	Increase.   We continue to recognise the need for continued cyber security investment against an ever changing technological landscape.   Our Customer Value Strategy, with an increased focus on customer data, increases the impact of a cyber security breach.   Information security in a remote working environment provides new challenges which are being worked through.
Data protection	Reach collects, processes and stores personal data (eg about its customers and colleagues) to operate its business and deliver its commercial strategy.   A contravention of the General Data Protection Regulation (GDPR) could lead to monetary penalties, reputational damage and a loss of customer trust and ultimately result in reduced revenues.	Data protection governance structures have been established to direct and oversee the data protection strategy.   A Chief Customer Data Officer and Senior Data Team have been appointed to improve group-wide oversight of how customer data is utilised.   A Data Protection Officer and Data Protection Team have been appointed to promote and advise on data protection compliance, provide oversight and help mitigate the risk of compliance breaches.   Data protection policies and processes have been implemented to govern how colleagues carry out day-to-day activities involving the handling of personal data and compulsory awareness training has been implemented for all colleagues.   Steps are being taken to ensure the organisation adopts a 'data protection by design' approach when developing new products and services that involve the collection and use of personal data, to ensure output deliverables are legally compliant.	Increase.   The ongoing focus and challenge remains on embedding data protection controls and processes and ensuring that data protection forms part of 'business as usual' thinking. Our Customer Value Strategy brings the risk into even sharper focus, particularly given the acceleration of plans due to the COVID-19 pandemic.   The effect on data protection law arising from the UK's exit from the European Union is unclear at present and will continue to be monitored. Necessary short term steps are being taken where appropriate.
Supply chain failure	Our print products rely on a small number of key suppliers (for example newsprint, wholesalers and distributors) and may be adversely affected operationally and financially by changes to supplier dynamics.   Specifically, from an IT and Digital perspective, We depend on the reliability and capability of key information systems and technology supplied by third party providers.   A major failure, a breach, or prolonged performance issues could have an adverse impact on the business.   This risk encompasses the general business continuity risk.	Well established long-term relationships with trusted suppliers.   Strong ongoing management and/or monitoring of providers including: - IT providers; - Outsourced ad production and planning; - Wholesalers and distributors; - Newsprint suppliers; - Manufacturing maintenance and parts providers; and - Global digital partners.   Business continuity/disaster recovery plans in place, including at our key partners. Our own plans were successfully invoked as a result of the COVID-19 pandemic requiring the majority of the workforce to work remotely.   Industry wide response likely should key common elements of the publishing supply chain be compromised.   Ongoing review of the operating model, including the assessment of alternative options.   In IT, governance oversight arrangements and committee structures are in place covering areas such as risk management, change control, security and service delivery.   Measures to reduce the reliance on key staff at IT providers.   Appropriate contractual protections in place.	Increase.   A decreasing number of key suppliers and an increasing number of outsourced arrangements in place means it becomes increasingly important to stabilise and optimise arrangements and ensure appropriate contingency plans are in place.   The COVID-19 pandemic means businesses - such as news outlets - are under increasing pressure and some may struggle to survive which may have a supply chain impact on our operations.   From an IT perspective, an issue with the supply chain could potentially have a greater impact at this time due to current remote working practices.   This risk will continue to be considered in the context of wider business disruption.   Recent transformation activity in manufacturing further increases our business disruption exposure.
Health and safety issue	A health and safety incident within one of our sites which results in death or injury to an employee or others.   An incident which has an adverse impact on the safety and security of our employees.   During the current public health crisis, there is an amplified strategic or operational risk should key employees, or their family members, be directly affected by the pandemic.	Clear health and safety policies and procedures consistently applied across the Group.   All parts of the group are serviced by professionally qualified and experienced Health and Safety Managers and Occupational Health service providers.   All printing plants have been externally assessed and certified as compliant with relevant standards.   Internal and external auditing to ensure continuing compliance across our print and publishing sites.   The health and safety focus in recent months have been on ensuring employees are properly set up to work remotely and making sure our sites and working practices are in line with Government guidelines.   Review of existing healthcare arrangements due to the pandemic.   Wellbeing, including the mental health, of our staff continues to be a key area of focus.	Increase.   Due to the health implications of COVID-19, health, safety and wellbeing in relation to our employees has been in sharp focus and continues to be taken very seriously. Several actions have been taken and risk assessments updated to ensure our employees are safe including those working at home, in the field and, on occasion in the case of journalists, travelling overseas.   Latest Government guidance advises office workers to remain home working if they can and we are working in line with these guidelines.
Lack of funding capability	The main financial risk is the lack of funding capability to meet business needs. This may be caused by a lack of working capital, unexpected increases in interest rates or increased liabilities, in particular:   Pension deficits may grow at such a rate that annual funding costs consume a disproportionate level of profit; and   Volume and level of claims may continue to have significant cost implications.	Financing   Strong cash generating business.   Committed loan facilities are in place to deliver our strategy.   Ongoing constructive relationships and regular dialogue with syndicate banks.   Regular cash flow forecasting, monitoring through Treasury reporting processes.   Limited foreign exchange fluctuation exposure.   Appropriate bad debt insurance protection.   Pensions   Regular reporting to the Board.   Collaborative relationship and regular meetings with Trustees.   Ongoing review of options to de-risk pension liabilities.   Historical Legal Issues   Ongoing historic legal issues claim level monitoring and management.   Standing item on Board agenda.   Working with external lawyers on civil claims and related investigations.	No change.   We recognise that the current global pandemic has amplified the risk and so quickly took mitigating action to conserve cash.   Financing   Facility with banking syndicate in place.   Pensions   We remain committed to addressing our historical pension deficits and continue to make significant payments to the schemes though these were temporarily deferred.   Historical legal issues   We continue to deal with the historical legal issues in a professional and efficient manner although the final outcome of the civil claims remains uncertain.
Inability to recruit and retain talent	The inability to recruit, develop and retain talent with the appropriate skills, knowledge and experience compromises our ability to deliver strategic business plans.	Ongoing considerations of:   - Digital capabilities of workforce; - Turnover levels; - Pay and benefits; - Opportunities to expand talent pool (for example, outside London); - Recruitment channels used; and - Diversity and inclusion.	No Change.   Retention and recruitment of appropriately skilled staff will remain an ongoing challenge.   Our Diversity and Inclusion strategy, to be defined and implemented in 2021, will enable us to ensure we are recruiting and developing staff from the widest possible pool of talent. A Head of Diversity and Inclusion has been appointed to lead this work.
Brand reputation damage	Damage to reputation arising from employee actions or behaviours, including breaches of regulations or best practice guidelines.   Editorial errors, behaviours or tone leads to loss of readership, damaged reputation and legal proceedings.   An incident which has an adverse impact on environment.	Recruitment of highly experienced and capable people into key senior management roles.   Governance structures provide clear accountability for compliance with all laws and regulations.   Policies and procedures are designed to meet all relevant requirements.   Employees trained to comply with all relevant legislation.   Ongoing consideration of upcoming legislative changes and emerging trends.   Crisis management procedure developed and communicated.	No Change.   There remains awareness that an indiscretion could lead to significant financial and reputational damage.   In editorial, we are aware of the heightened risk created in a digital led environment due to the 24/7 nature of operation and the need to move with pace.   Operationally, we have had to react very quickly to the current situation with stretched resources at times so it is important to recognise that an increased risk of error or oversight may exist at this time.