Reach plc Half-Yearly Financial Report For the 30 July Results Adjusted results (1) Statutory results Revenue 353.8 320.0 353.8 320.0 Operating profit/(loss) 66.5 62.6 (107.3) 47.3 Profit/(loss) before tax 64.7 61.3 (113.5) 38.2 Earnings/(loss) per share 18.2p 17.9p (39.4)p 10.6p Dividends per share - - 2.37p 2.25p Key Highlights Positive profit performance which benefited from the acquisition of Express & Star Group revenue increased by 10.6% to 353.8 million reflecting the acquisition of Express & Star on 28 February. On a like for like (2) basis revenue fell by 7.2%. Although like for like Publishing print revenue fell by 9.3% we delivered growth in like for like Publishing digital revenue of 6.0% with digital display and transactional revenue growing by 11.5% partially offset by a fall in digital classified revenue of 19.8%. Adjusted operating profit increased by 6.2% to 66.5 million. Statutory performance impacted by non-cash impairment charge Statutory operating loss of 107.3 million reflects the impact of a non-cash impairment charge of 150.0 million as a result of more challenging than expected outlook for our regional businesses. Structural cost savings of 9 million and synergy cost savings remain on track We delivered structural cost savings of 9 million in the period and expect to deliver 18 million for the full year, 3 million ahead of the target of 15 million. Following regulatory clearance we have commenced delivery of the synergy savings from the acquisition of Express & Star and anticipate 2 million of savings in with further savings being achieved in 2019 and are on track to deliver annualised savings of 20 million by 2020. Pension deficit fell by 80.6 million to 297.0 million The IAS 19 pension deficit fell by 80.6 million to 297.0 million ( 242.3 million net of deferred tax). This is net of an accounting surplus of 5.9 million for the Express & Star pension schemes at the period end. Low leverage with net debt (3) of 81.0 million After payments of 90.1 (4) million in the period in relation to the acquisition of Express & Star, net debt at the period end was 81.0 million, an increase of 72.0 million. Historical legal issues The provision for dealing with historical legal issues was increased by 7.5 million during the period as costs associated with the settlement of civil claims, in particular the claimants legal costs, have been higher than expected. After utilising 6.6 million, 11.6 million of the provision remains outstanding at the period end. Interim dividend of 2.37 pence per share An interim dividend of 2.37 pence per share for represents an increase of 5.3% from the interim dividend of 2.25 pence per share. Strategy and outlook We have a clear strategy and this will ensure we crystallise the benefits of scale whilst driving growth in digital audience and revenue. The Board has confidence in our strategy and anticipates trading for the year to be in line with market expectations (5).
Commenting on the interim results for, Simon Fox, Chief Executive, Reach plc, said: We have delivered a positive financial performance in what remains a difficult trading environment for the industry, in particular the regional businesses. The benefit of improved performance from national print advertising coupled with further cost mitigation will support profits over the year despite a further increase in newsprint prices for the second half. We have started the process of integrating Express & Star in order to accelerate the benefits that our combined scale will deliver and have a clear strategy which fully reflects the changing shape of the Group. Enquiries Reach Simon Fox, Chief Executive Vijay Vaghela, Group Finance Director 020 7293 3553 Brunswick Nick Cosgrove, Partner 020 7404 5959 Will Medvei, 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. The like for like revenue trend for estimates the impact of owning Express & Star from the beginning of and they exclude from the comparatives the portfolio changes made in. (3) Bank borrowings ( 105.0 million) less cash and cash equivalents ( 24.0 million). (4) The 90.1 million paid in the period in relation to the acquisition of Express & Star comprises an initial cash consideration of 42.7 million, transaction costs of 6.3 million and the initial pension contribution of 41.2 million less a net working capital adjustment of 0.1 million. (5) The market consensus range for adjusted PBT for the 30 December is 131.7 million to 133.9 million. This range only includes estimates from analysts that have updated forecasts since our annual results announcement on 5 March. Investor presentation A presentation for analysts will be held at 9.30am on Monday 30 July. The presentation will be live on our website: www.reachplc.com at 9.30am and a playback will be available from 2.00pm. 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 int 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 Half-Yearly Financial Report 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 Half- Yearly Financial Report involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. To the extent that this Half-Yearly Financial Report 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 Acquisition of the Publishing Assets of Northern & Shell On 28 February, the Group completed the acquisition of 100% of the equity in Northern & Shell Network Limited and its subsidiaries ( Express & Star ) for 121.7 million. The share purchase payment comprises an initial cash consideration of 42.7 million and an equity consideration of 20.0 million (issue of 25,826,746 shares at 77.44 pence per share) both on completion and deferred consideration of 59.0 million (payable as 18.9 million, 16.0 million, 17.1 million and 7.0 million on the second, third, fourth and fifth anniversaries respectively of the acquisition). Post completion, a merger review was instigated by the Competition and Markets Authority (CMA) and the transaction was also reviewed by the Secretary of State for Digital, Culture, Media and Sport for public interest considerations. On 20 June the acquisition was cleared by the Secretary of State and the CMA. The acquisition of the 50% equity interest in Independent Star Limited for 4.5 million and 100% of the equity in International Distribution Limited for 0.5 million is subject to clearance by the competition authorities in the Republic of Ireland. This review is ongoing and we anticipate this to be cleared during the second half of. Transaction costs (including costs relating to the competition and public interest reviews) amounted to 8.5 million ( 2.2 million expensed in the second half of and 6.3 million expensed in the first half of ). Costs have been higher than the 7.0 million estimated at the time of the acquisition due to higher than expected costs in relation to the regulatory reviews by the CMA and the Secretary of State for the Department of Culture, Media and Sport. In connection with the acquisition, the Group agreed to make an initial pension contribution of 41.2 million to the three defined benefit pension schemes of Express & Star and entered into a schedule of contributions amounting to 29.2 million over the period to 2027 ( 1.9 million per annum from to 2020, 4.1 million per annum from 2021 to 2023, 3.3 million per annum from 2024 to 2026 and 1.3 million in 2027). The initial pension contribution was made on 2 March. In the period, the Group finalised with the Trustees the most recent triennial valuations of the three schemes confirming the schedule of contributions. Also in connection with the acquisition, the Group agreed to revise the schedule of contributions for the other three defined benefit pension schemes of the Group amounting to an increase of 67.0 million over the period to 2027 ( 3.2 million per annum from to 2020 and 8.2 million per annum from 2021 to 2027). The revised schedule of contributions were finalised with the Trustees on 1 March. 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 paid in 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. A new 75 million Acquisition Term Loan was procured and 70 million was drawn to partially fund the initial cash consideration to the seller and the initial pension contribution to the defined benefit pension schemes. The remaining 5m will only be drawn on the completion of the acquisition of the assets in the Republic of Ireland. The balance of funds was satisfied by drawing on the Revolving Credit Facility and cash balances. Operational Performance The Group delivered a positive performance in the period even though the trading environment remained challenging. Group revenue increased by 10.6% or 33.8 million to 353.8 million reflecting the benefit of the acquisition of Express & Star which was completed on 28 February. Since completion, Express & Star contributed revenue of 64.8 million. The fall in revenue of 31.0 million, excluding Express & Star, includes the 4.5 million impact of handing back two Metros to DMGT in December and other portfolio changes in. On a like for like basis, Group revenue fell by 7.2%, with Publishing revenue falling by 7.4%. Publishing print revenue fell by 9.3% and we continued to achieve growth in digital revenue which grew by 6.0%, with digital display and transactional revenue growing by 11.5% partially offset by digital classified revenue falling by 19.8%. Total Publishing digital revenue in the period was 48.4 million including revenue from Express & Star of 6.6 million. Tight management of the cost base and the completion of the acquisition of Express & Star enabled adjusted operating profit to increase by 6.2% to 66.5 million. We delivered structural cost savings of 9 million in the period and expect to deliver 18 million for the full year, 3 million ahead of the target of 15 million. Following regulatory clearance we have commenced delivery of the synergy savings from the acquisition of Express & Star and anticipate 2 million of savings in with further savings being achieved in 2019 and are on track to deliver annualised savings of 20 million by 2020. Adjusted financing costs were 1.8 million (: 1.3 million) and adjusted profit before tax increased by 5.5% to 64.7 million. Adjusted earnings per share increased by 1.7% to 18.2 pence per share. Statutory operating loss for the period amounts to 107.3 million compared to statutory operating profit of 47.3 million in the prior period due to the impact of an impairment charge of 150.0 million reflecting a more challenging outlook for our regional businesses. The total impact of the items excluded from adjusted operating profit (note 5) was a charge of 173.8 million (: 15.3 million). Statutory financing costs were 6.2 million (: 9.1 million) and statutory loss before tax of 113.5 million compared to a statutory profit before tax of 38.2 million. Statutory loss per share for the period of 39.4 pence compares to a statutory profit per share of 10.6 pence in the prior period.
Low Leverage with continued Financial Flexibility The Group continues to have a strong balance sheet with net debt of 81.0 million, an increase of 72.0 million during the period after expenditure in the period of 90.1 million (initial cash consideration 42.7 million, transaction costs 6.3 million and initial pension contribution 41.2 million less a net working capital adjustment of 0.1 million) in relation to the acquisition of Express & Star. Net debt at the period end comprised 105.0 million of bank borrowings less cash balances of 24.0 million. Bank borrowings were 35.0 million drawn on the Revolving Credit Facility and 70.0 million drawn on the Acquisition Term Loan. The Revolving Credit Facility is committed until December 2021 and amortises over the term. The facility at the period end was 91.7 million and amortises by 8.3 million every six months from December to December 2020 down to 50.0 million for the last year of the term. On 27 July, the Group prepaid the 10.0 million repayment due under the Acquisition Term Loan in December. Assuming the remaining 5.0 million is drawn on the Acquisition Term Loan and having already paid 10.0 million, the remainder of the facility is now repayable in three instalments of 21.0 million, 21.0 million and 23.0 million in December 2019, 2020 and 2021 respectively. Leverage is below one times full year adjusted EBITDA (adjusted operating profit plus depreciation) and the strong cash flows generated by the Group provide resilience and financial flexibility to invest in the business, meet pension funding obligations and pay dividends. 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, which contributed to the provision for settling these historical claims being increased by 7.5 million during the period bringing the total amount provided to 70.5 million. At the period end, 11.6 million of the provision remains outstanding and this represents the Board s best estimate of the amount required to settle the expected claims. This estimate is based on historical trends and experience of claims and costs, and in some cases, proposed offers to settle claims. There remains uncertainty as to how these matters will progress. Whilst the Board notes that the increase is predominantly due to increased legal fees for the claimants lawyers as the number of new claims has slowed, the Group has recorded an increase in the provision in each of the last three years which highlights the challenges in making a best estimate. Certain cases are subject to court proceedings and the outcome of these cases is likely to have an impact on how much is required to settle the remaining claims. Individual court rulings can affect multiple cases and therefore the Group s current ability to settle and so mitigate further legal costs. 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 pension deficit fell by 80.6 million to 297.0 million ( 242.3 million net of deferred tax). This is net of an accounting surplus of 5.9 million for the Express & Star pension schemes at the period end. The deficit in the Express & Star schemes at the date of acquisition was 38.3 million and this has moved to a surplus of 5.9 million. Excluding the Express & Star pension schemes, the IAS 19 pension deficit fell by 74.7 million to 302.9 million during the period. The movement in the deficits reflects Group contributions of 65.6 million ( 23.5 million to existing schemes and 42.1 million, including an initial pension contribution of 41.2 million, paid to the Express & Star schemes), strong asset returns and the benefit of a favourable movement in assumptions (an increase in the discount rate and a reduction in future inflation). Contributions in the second half of the year are agreed at 24.5 million and have been agreed for 2019 and 2020 at 48.9 million per annum. The fall in the accounting pension deficit does not have an immediate impact on the agreed funding commitments. The next valuation for funding of all six defined benefit pension schemes will be as at 2019 and this is required to be completed by 31 March 2021, although we anticipate this to be completed by 2020. Dividends and Share Buyback An interim dividend of 2.37 pence per share for, an increase of 5.3% will be paid on 28 September to shareholders on the register on 7 September. The Board continues to adopt a progressive dividend policy which is aligned to the free cash generation of the Group. 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 Board 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 Board will carefully consider the cash generation of the business, investment requirements and the Group s obligations to the Group s defined benefit pension schemes.
Impairment of Regionals Goodwill and Publishing Rights and Titles During the period, a non-cash impairment charge of 150.0 million ( 140.2 million net of deferred tax) has been made against the carrying value of the goodwill and publishing rights and titles in respect of the regional businesses. This reflects the more challenging than expected trading environment for local advertising and, as a result, greater uncertainty over the medium term outlook as well as the requirements of accounting standards to take into account the Group s latest forecasts and projections. However, we continue to believe there are significant benefits in the scale of our local digital audiences and there are opportunities to grow revenue and profit in the longer term. Current Trading and Outlook Revenue in July is expected to fall by 7% on a like for like basis. The Board anticipates trading for the year to be in line with market expectations with a further significant increase in newsprint prices in the second half of the year mitigated by further cost savings and synergies from the acquisition of Express & Star. Strategic Update Having completed the acquisition of the Express & Star business, we changed the name of the group to Reach to better reflect our audience scale across both print and digital. We have a clear strategy and have refreshed our areas of strategic focus to recognise the opportunity we have to optimise the quality and profitability of our print brands and to accelerate our digital audience and revenue performance. Our strategic objective remains to deliver sustainable growth in revenue, profit and cash flow over the medium term. This will be delivered through three key areas of strategic focus: Optimise: Enhance our print brands and improve their longevity through quality journalism and content delivered as efficiently as possible; Grow: Using technology, data and content from across all of our brands to grow our digital reach; and Commercialise: Improve our revenue performance and seek new opportunities to commercialise our growing digital audience. We will consider M&A opportunities which accelerate progress on all three pillars our strategy and where the financial and business case meets our requirements. 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 the period are set out below: Optimise Although print circulation volumes and print advertising are in structural decline, we will seek to maximise the returns on our print brands so long as they remain viable by delivering quality journalism and content as efficiently as possible. The quality of our titles is evident in the numerous journalism awards that our titles have won during the period. These included three awards at the National Press Awards, MEN winning Daily Newspaper of the Year at the Regional Press Awards and Cornwall Live winning Gold in Regional Media Brand of the Year at the British Media Awards, amongst many others. Whilst maintaining quality journalism we continue to drive efficiencies which have delivered structural cost savings of 9 million in the period and we expect savings for the full year of 18 million, 3 million ahead of the target of 15 million. These savings have been achieved by a series of initiatives across the business, including editorial, commercial, printing, senior management structures and all back office functions. We have also been driving longer term infrastructure and operational benefits by reducing office space, moving one of our two data centres to the cloud and investing in new and improved finance systems. In addition to delivery of the structural cost savings and of the annualised 20 million of synergies from the integration of Express & Star by 2020, we will drive further optimisation initiatives through: Annual cover price increases, where appropriate; and Constantly review the profitability of our titles and close titles where there is no path to profitability.
Grow The growth in display and transactional revenue was impacted in the period by algorithm changes made by Facebook and Google which adversely impacted our audience. Average monthly page views in the period grew by 9.3% year on year to over 1 billion. Mobile page views grew by 16% while desktop pages views fell by 5%. To deliver continued growth in audience we will: Roll-out new and rebrand our existing regional websites with the Live format; Develop and implement an appropriate digital editorial strategy for our national brands; Improve our digital performance and user experience across all platforms and interfaces; Search engine optimisation improvement programme across the network; Build a personalised article experience using the entire Reach content network; and Continue to invest in developing new products such as InYourArea and Football.London. Commercialise We also strive to be best in class at commercialising the audiences that we reach. We will continue to maximise print revenues and optimise our digital advertising yields, both nationally and regionally, using the best technology and people. In addition, we will seek other ways to monetise our audience and reach by: Market launch of a new integrated digital sales proposition for our portfolio of digital sites underpinned by a unified advertising stack; Local standalone commercial sales trials in new markets; and Leveraging affiliate partnerships. Key Performance Indicators To track delivery of our strategy, the following KPIs are reported on and were reset for this period: FINANCIAL MEASURE GROUP KPIs PERFORMANCE IN THE PERIOD Publishing digital display and transactional revenue growth At least 20% pa Circulation revenue Single digit declines Print advertising revenue At least in line with national market trends Operating margin Grow operating margin to support profits Dividend growth At least 5% pa Publishing digital display and transactional revenue growth: like for like growth of 11.5% for the period is below the target due to our digital audience being negatively impacted by the changes in algorithms undertaken by Facebook and Google during the period. Circulation revenue: like for like decline of 5.6% is in line with the target with cover price increases partially mitigating volume declines. Print advertising revenue: we have seen national advertising trends at least in line with market trends with an increase in volume market share for our national titles during the period. Operating margin: Adjusted operating profit fell by 0.8 percentage points from 19.6% in the first half of to 18.8% in the first half of due to the more challenging print trading environment for our regional businesses, the slowdown in digital revenue growth and significantly lower margins for the acquired Express & Star business. Dividend growth: interim dividend for of 2.37 pence per share is an increase of 5.3% on the interim dividend. People We would like to welcome our new colleagues at Express & Star and to thank all our colleagues for their contribution to the half year performance. At the Annual General Meeting on 3 May, David Grigson stepped down from the Board of Directors and Nick Prettejohn having joined as a Non Executive Director on 6 March, became Chairman. On 18 June, Vijay Vaghela, Group Finance Director and Company Secretary, informed the Board of his decision to pursue other career opportunities, having worked in the business for almost 24 years. On 23 July, the Group announced that Simon Fuller, currently Chief Financial Officer of McColl s Retail Group plc has been appointed as Chief Financial Officer and a start date will be confirmed in due course. Vijay will step down from the Board when Simon joins the Board and the specific date for this change will be announced as soon as it has been agreed.
Group Review Income statement Statutory results Adjusted results Publishing 330.4 296.4 330.4 296.4 Print 282.0 255.0 282.0 255.0 Digital 48.4 41.4 48.4 41.4 Printing 17.5 16.9 17.5 16.9 Specialist Digital 4.7 4.8 4.7 4.8 Central 1.2 1.9 1.2 1.9 Revenue 353.8 320.0 353.8 320.0 Costs (461.6) (273.0) (288.1) (257.9) Associates 0.5 0.3 0.8 0.5 Operating (loss)/profit (107.3) 47.3 66.5 62.6 Financing (6.2) (9.1) (1.8) (1.3) (Loss)/profit before tax (113.5) 38.2 64.7 61.3 Tax 0.4 (9.1) (12.4) (12.0) (Loss)/profit after tax (113.1) 29.1 52.3 49.3 (Loss)/earnings per share (39.4) p 10.6p 18.2p 17.9p The results have been prepared for the () and the comparative period is for the 26 weeks (). 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 increased by 10.6% or 33.8 million to 353.8 million. The increase in revenue reflects the benefit of the acquisition of Express & Star on 28 February. On a like for like basis, Group revenue fell by 7.2% or 29.6 million. Further details on the revenue trends for each division are shown in the Divisional Review. Statutory results Adjusted results Labour (120.4) (111.4) (120.4) (111.4) Newsprint (37.8) (30.8) (37.8) (30.8) Depreciation (11.1) (10.3) (11.1) (10.3) Other (292.3) (120.5) (118.8) (105.4) Operating adjusted items (173.5) (15.1) - - Other (118.8) (105.4) (118.8) (105.4) Costs (461.6) (273.0) (288.1) (257.9) Statutory operating costs increased by 188.6 million to 461.6 million due to the impact of an impairment charge of 150.0 million and the acquisition of Express & Star. The total impact of the items excluded from adjusted operating profit (note 5) was a charge of 173.5 million (: 15.1 million). Adjusted operating costs increased by 30.2 million to 288.1 million. Operating adjusted items included in statutory operating costs related to an impairment of goodwill and other intangibles assets of 150.0 million (: nil), restructuring charges in respect of cost reduction measures of 7.9 million (: 6.4 million), a 7.5 million increase in the provision for dealing with and resolving civil claims arising from phone hacking (: 7.5 million), pension administrative expenses of 1.6 million (: 1.2 million), amortisation of intangible assets of 0.2 million (: 0.2 million) and transaction costs relating to the acquisition of Express & Star of 6.3 million (: nil). In, charges were partially offset by a gain on the sale of a property in Teesside of 0.2 million.
Statutory results Adjusted results Operating (loss)/profit pre associates (107.8) 47.0 65.7 62.1 Associates 0.5 0.3 0.8 0.5 Operating (loss)/profit (107.3) 47.3 66.5 62.6 Statutory operating loss for the period of 107.3 million compares to a statutory operating profit in the prior period of 47.3 million due to the impact of an impairment charge of 150.0 million while adjusted operating profit increased by 3.9 million or 6.2% to 66.5 million. Adjusted operating margin fell by 0.8 percentage points from 19.6% in the first half of to 18.8% in the first half of due to the more challenging print trading environment for regional businesses, the slowdown in digital revenue growth and significantly lower margins for the acquired Express & Star business. The Group has a 21.53% investment in PA Group Limited and a 50% investment in Brand Events TM Limited, accounted for as associates. Statutory results Adjusted results Result before operating adjusted items 0.8 0.5 0.8 0.5 Operating adjusted items (0.3) (0.2) - - Share of results of associates 0.5 0.3 0.8 0.5 The statutory share of results of associates increased by 0.2 million with both PA Group and Brand Events increasing by 0.1 million. The adjusted share of results of associates increased by 0.3 million with 0.2 million relating to PA Group and 0.1 million to Brand Events. Financing costs on a statutory and adjusted basis are: Statutory results Adjusted results Investment revenues - 0.1-0.1 Pension finance charge (4.4) (5.9) - - Finance costs (1.8) (3.3) (1.8) (1.4) Interest on bank overdrafts and borrowings (1.8) (1.4) (1.8) (1.4) Fair value loss on derivative financial instruments - (3.8) - - Foreign exchange gain on retranslation of borrowings - 1.9 - - Financing costs (6.2) (9.1) (1.8) (1.3) Statutory financing costs fell by 2.9 million to 6.2 million reflecting the reduction in the pension finance charge on a lower opening pension deficit and no net cost in relation to derivative financial instruments and the foreign exchange changes on retranslation of foreign currency borrowings following the repayment in June of the 68.3 million of private placement loan notes and the maturing of the associated cross-currency interest rate swaps. Adjusted financing costs increased by 0.5 million to 1.8 million reflecting the interest on debt procured for the acquisition of Express & Star. The statutory tax credit of 0.4 million (: charge of 9.1 million) comprises a current tax charge of 10.6 million (: 8.3 million) and a deferred tax credit of 11.0 million (: charge of 0.8 million). The statutory effective tax rate is lower (: higher) than the standard rate of corporation tax for the reasons set out in the reconciliation below: Reconciliation of tax credit/(charge) % % Standard rate of corporation tax 19.0 (19.3) Items not deductible in determining taxable profit (non qualifying depreciation/costs/impairment) (18.7) (4.7) Tax effect of items that are not taxable in determining taxable profit (property disposal/utilised losses) - 0.1 Tax effect of share of results of associates (brought in post tax) 0.1 0.1 Tax credit/(charge) rate 0.4 (23.8)
The adjusted tax charge of 12.4 million (: 12.0 million) represents 19.2% (: 19.6%) of adjusted profit before tax. The rate is higher than the statutory effective tax rate due to the impact of the impairment charge noted above (: less than the statutory effective tax rate as certain items are not deductible in determining taxable profit). Statutory results Adjusted results (Loss)/profit after tax (113.1) 29.1 52.3 49.3 Weighted average number of shares (000 s) 287,174 274,699 287,174 274,699 (Loss)/earnings per share (39.4)p 10.6p 18.2p 17.9p Statutory loss after tax amounts to 113.1 million compared to a profit after tax of 29.1 million in the prior period due to the impact of an impairment charge of 150.0 million while adjusted profit after tax increased by 3.0 million or 6.1% to 52.3 million. The increase in the weighted average number of shares year on year reflects the shares issued as part of the purchase of Express & Star more the offsetting the full year impact of the share buyback started in August 2016 and completed in November. Statutory loss per share of 39.4 pence compared to earnings per share of 10.6 pence in the prior period due to the impact of the impairment charge while adjusted earnings per share increased by 0.3 pence or 1.7% to 18.2 pence. 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 magazines together with 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. Express & Star (note 20) has been included in the Publishing and Printing segments from 1 March. The revenue and adjusted operating profit by operating segment is presented below: Variance Variance % Publishing 330.4 296.4 34.0 11.5% Printing 17.5 16.9 0.6 3.6% Specialist Digital 4.7 4.8 (0.1) (2.1%) Central 1.2 1.9 (0.7) (36.8%) Revenue 353.8 320.0 33.8 10.6% Publishing 70.5 66.8 3.7 5.5% Printing - - - - Specialist Digital 1.0 1.3 (0.3) (23.1%) Central (5.0) (5.5) 0.5 9.1% Adjusted operating profit 66.5 62.6 3.9 6.2% The results are impacted by the acquisition of Express & Star and portfolio changes relating to the two Metros handed back to DMGT in December and other portfolio changes in. Revenues in the first half of the prior year relating to the portfolio changes were 4.5 million while the impact on adjusted operating profit is minimal. The results for the six months include revenue of 64.8 million (Publishing 63.6 million and Printing 1.2 million) and adjusted operating profit of 10.8 million (Publishing 10.8 million and Printing nil) from Express & Star since acquisition. The revenue and adjusted operating profit of the Group would have increased by 29.9 million (Publishing 29.4 million and Printing 0.5 million) and 2.2 million (Publishing 2.2 million and Printing nil) respectively if the acquisition had been made at the beginning of the year. The like for like revenue trend for estimates the impact of owning Express & Star from the beginning of and they exclude from the comparatives the portfolio changes made in. Note 18 sets out the reconciliation between the statutory and like for like revenue. In the divisional analysis revenue trends are presented on an actual and a like for like basis.
Publishing The revenue and adjusted operating profit for the Publishing division is as follows: Variance Variance % Print 282.0 255.0 27.0 10.6% Circulation 175.7 145.7 30.0 20.6% Advertising 88.5 93.1 (4.6) (4.9%) Other 17.8 16.2 1.6 9.9% Digital 48.4 41.4 7.0 16.9% Display and transactional 41.5 32.8 8.7 26.5% Classified 6.9 8.6 (1.7) (19.8%) Revenue 330.4 296.4 34.0 11.5% Costs (259.9) (229.6) (30.3) (13.2%) Adjusted operating profit 70.5 66.8 3.7 5.5% Adjusted operating margin 21.3% 22.5% (1.2%) (5.3%) Revenue increased by 11.5% or 34.0 million to 330.4 million with print revenue increasing by 10.6% and digital revenue growing by 16.9%. On a like for like basis revenue fell by 7.4% with print revenue declining by 9.3% and digital revenue growing by 6.0%. Costs increased by 13.2% or 30.3 million to 259.9 million. This includes the impact of the acquisition of Express & Star partially offset by the impact of handing back two Metros to DMGT in December and other portfolio changes in together with the benefit of structural cost savings and ongoing cost mitigation actions. Operating profit increased by 3.7 million or 5.5% to 70.5 million with operating margin falling by 1.2 percentage points from 22.5% to 21.3%. Print revenue Print revenue increased by 10.6%. On a like for like basis print revenue fell by 9.3%. Circulation revenue increased by 20.6%. On a like for like basis circulation revenues fell by 5.6% 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, these changed from a net sales basis to a royalty basis. This reduced circulation revenue in the period by 0.7 million with a greater reduction achieved in costs. The circulation volume trends in the market have been impacted by cover price differentials and cover price discounting. Circulation volume performance in the first six months of the year excluding the impact of sampling on the Daily Mirror fell by 13.9%, the Daily Express fell by 9.3% and the Daily Star fell by 12.1% compared to a 9.3% fall for the UK national daily tabloid market; the Daily Record fell by 12.9% against an overall Scottish daily tabloid market decline of 10.1%; the Sunday Mirror fell by 14.8%, the Sunday People fell by 16.4%, the Sunday Express fell by 8.3% and the Sunday Star fell by 9.2% in a UK national Sunday tabloid market that fell by 10.4%; and the Sunday Mail declined by 14.7% against an overall Scottish Sunday tabloid market decline of 12.2%. Volume declines for our regional titles were 14.0% for paid for dailies, 15.5% for paid for weeklies and 14.4% for paid for Sundays. The market for paid for magazines was challenging in the period with volumes declines in all three magazines. Print advertising revenue fell by 4.9% with display and other up by 6.1% and classified down by 17.2%. Like for like print advertising revenue fell by 16.6% with display and other down 15.5% and classified down 18.3%. Print advertising markets for our regional titles and magazines have been very challenging while our national titles have experienced a better performance. Classified advertising categories which impact the regional titles more than the national titles continued to be under significant pressure, in particular recruitment and property, which experienced like for like declines of 55.9% and 31.4% respectively. Print advertising volume market shares in the first six months of the year on the Daily Mirror increased from 15.8% to 17.9%, while the Daily Express fell from 24.9% to 21.6% and the Daily Star fell from 16.9% to 15.9% in the UK national daily tabloid market; the Daily Record increased from 19.0% to 20.3% in the Scottish daily tabloid market; the Sunday Mirror increased from 14.7% to 16.3%, the Sunday People increased from 10.3% to 11.8%, the Sunday Express increased from 20.8% to 24.8% and the Sunday Star increased from 7.2% to 8.1% in the UK national Sunday tabloid market; and the Sunday Mail increased from 28.4% to 30.7% in the Scottish Sunday tabloid market. Our regional titles continue to experience difficult advertising markets, particularly display advertising in our metropolitan titles and classified across all titles. Other print revenue increased by 9.9%. Like for like other revenue fell by 5.4% driven by business enterprise and leaflets.
Digital revenue Digital revenue grew by 16.9% with display and transactional revenue growing by 26.5% and classified revenue declining by 19.8%. Like for like digital revenue grew by 6.0% with growth from display and transactional revenue of 11.5% partly offset by classified revenue, which is predominantly upsold from print, which declined by 19.8%. The growth in display and transactional revenue was impacted in the period by algorithm changes made by Facebook and Google which adversely impacted our audience. Digital average monthly page views in the period grew by 9.3% year on year to over 1 billion on a like for like basis. Mobile page views grew by 16% while desktop pages views fell by 5%. Printing The revenue and adjusted operating result of the Printing division is as follows: Variance Variance % Contract printing 12.1 11.2 0.9 8.0% Newsprint supply 4.0 4.2 (0.2) (4.8%) Other revenue 1.4 1.5 (0.1) (6.7%) Revenue 17.5 16.9 0.6 3.6% External costs (78.0) (68.8) (9.2) (13.4%) Publishing division recharge 60.5 51.9 8.6 16.6% Adjusted operating result - - - - Revenue increased by 0.6 million or 3.6% to 17.5 million. This includes 1.2 million from the Express & Star print plant. On a like for like basis revenue fell by 0.6% reflecting the impact of lower third party volumes and newsprint supply mostly offset by new contracts including the Guardian. External costs increased by 9.2 million or 13.4% to 78.0 million and the net cost recharged to the Publishing division was 60.5 million compared to 51.9 million in the prior year due to the inclusion of Express & Star costs. Specialist Digital The revenue and adjusted operating profit of the Specialist Digital division is as follows: Variance Variance % Advertising 2.3 2.4 (0.1) (4.2%) Other 2.4 2.4 - - Revenue 4.7 4.8 (0.1) (2.1%) Costs (3.7) (3.5) (0.2) (5.7%) Adjusted operating profit 1.0 1.3 (0.3) (23.1%) The Specialist Digital division includes Reach Work Limited (formerly Trinity Mirror Digital Recruitment Limited), our digital classified recruitment business and Communicator Corp, our digital marketing services business. A marginal fall in revenue and higher costs contributed to operating profit falling by 0.3 million. Central The revenue and adjusted operating loss of the Central division is as follows: Variance Variance % Revenue 1.2 1.9 (0.7) (36.8%) Costs (7.0) (7.9) 0.9 11.4% Associates 0.8 0.5 0.3 60.0% Adjusted operating loss (5.0) (5.5) 0.5 9.1% 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 5.0 million compared to a loss of 5.5 million in the prior year. Rental income from surplus office space and revenue from other services to tenants reduced as leases and contracts. Costs fell by 0.9 million from 7.9 million to 7.0 million reflecting the ongoing tight management of costs. Share of results from associates increased by 0.3 million from 0.5 million to 0.8 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 principal risks and uncertainties which are unchanged from the year end 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 (digital) 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. The Group s pension deficit continues to be impacted by the low gilt and bond yields and the lower value of sterling has increased newsprint costs. Considerations in relation to the uncertainty and these 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 are set out in the Group s 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 half-yearly financial report. In accordance with LR 9.8.6(3) of the Listing Rules, and in determining whether the Group s interim condensed 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 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 interim condensed 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 interim condensed consolidated financial statements. Further information concerning the review of going concern and viability are set out in the Group s Annual Report.
Data protection On 25 May, the General Data Protection Regulation (GDPR) came into force in the EU and the Data Protection Act (DPA) came into force in the UK. During the period, the Group completed an extensive readiness project in preparation for the implementation of the GDPR and the DPA. The Group has implemented policies, controls and procedures across the business to manage personal data in accordance with the provisions of the GDPR and the DPA and these are being embedded through a programme of training and ongoing communication. Due to the timing of acquisition and the regulatory review period, Express & Star implemented and operated standalone policies and procedures relating to the implementation of the GDPR and the DPA. These policies and procedures will be standardised as appropriate over time. The Group has seen minimal impact on revenues since the implementation of the GDPR and the DPA. Related party transactions There were no material non trading transactions during the period. Statement of directors responsibilities The directors are responsible for preparing the half-yearly financial report in accordance with applicable laws and regulations. The directors confirm to the best of their knowledge: a) the interim condensed 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 Chief Executive Vijay Vaghela Group Finance Director